<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1996
REGISTRATION NO. 333-07497
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CALPINE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4911 77-0212977
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
50 WEST SAN FERNANDO STREET
SAN JOSE, CA 95113
(408) 995-5115
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER CARTWRIGHT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CALPINE CORPORATION
50 WEST SAN FERNANDO STREET
SAN JOSE, CA 95113
(408) 995-5115
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JOSEPH E. RONAN, JR., ESQ. SCOTT D. LESTER, ESQ. JOSEPH A. COCO, ESQ.
GENERAL COUNSEL BROBECK, PHLEGER & HARRISON LLP SKADDEN, ARPS, SLATE,
CALPINE CORPORATION ONE MARKET MEAGHER & FLOM
50 WEST SAN FERNANDO STREET SPEAR STREET TOWER 919 THIRD AVENUE
SAN JOSE, CA 95113 SAN FRANCISCO, CA 94105 NEW YORK, NY 10022
(408) 995-5115 (415) 442-0900 (212) 735-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form is to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b)
under the Securities Act, please check the following box and list the Securities
Act registration statement number
of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value........... 20,751,750 shares $21.00 $435,786,750 $150,272
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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(1) Includes 2,706,750 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) of the Securities Act of 1933.
(3) Previously paid.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
The Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada of an aggregate of 14,436,000 shares of
Common Stock, $.001 par value, of the Company (the "U.S. Offering"), together
with a separate prospectus cover page relating to a concurrent offering outside
the United States and Canada of an aggregate of 3,609,000 shares of Common
Stock, $.001 par value, of the Company (the "International Offering"). The
complete prospectus for the U.S. Offering follows immediately. Following such
prospectus are certain pages of the prospectus for the International Offering as
follows: a front cover page (page A-1), table of contents (page A-2), a page to
replace a portion of the "Risk Factors" section (page A-3), a page to replace a
portion of the "Shares Eligible for Future Sale" section (page A-4), pages
containing the "Subscription and Sale" section to replace the "Underwriting"
section (pages A-5 through A-8), and a back cover page (page A-9). All other
pages of the prospectus for the U.S. Offering are to be used for both the U.S.
Offering and the International Offering.
Copies of the complete Prospectus for each of the U.S. Offering and the
International Offering in the exact forms in which they are to be used after
effectiveness will be filed with the Securities and Exchange Commission pursuant
to Rule 424(b) of the General Rules and Regulations under the Securities Act of
1933, as amended.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 22, 1996
LOGO
18,045,000 Shares
Calpine Corporation
Common Stock
($.001 par value)
------------------
Of the shares of Common Stock, $.001 par value ("Common Stock"), of Calpine
Corporation (the "Company" or "Calpine") offered hereby, 5,477,820 shares are
being sold by the Company and 12,567,180 shares are being sold by the
Selling Stockholder named herein under "Principal and Selling
Stockholders." Of the 18,045,000 shares of Common Stock being offered,
14,436,000 shares are initially being offered in the United States
and Canada (the "U.S. Shares") by the U.S. Underwriters (the "U.S.
Offering") and 3,609,000 shares are initially being concurrently
offered outside the United States and Canada (the "International
Shares") by the Managers (the "International Offering" and,
together with the U.S. Offering, the "Common Stock Offering").
The offering price and underwriting discounts and commissions
of the U.S. Offering and the International Offering are
identical.
Prior to the Common Stock Offering, there has been no public market for the
Common Stock. It is anticipated that the initial public offering price will
be between $17.00 and $20.00 per share. For information relating to the
factors considered in determining the initial public offering
price to the public, see "Underwriting."
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "CPN," subject to notice of issuance.
------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT
IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREIN.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Calpine(1) Stockholder
---------------- ---------------- ---------------- ----------------
Per Share.................... $ $ $ $
Total(2)..................... $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by Calpine, estimated at $809,000.
(2) The Company has granted the U.S. Underwriters and the Managers an option,
exercisable by CS First Boston Corporation for 30 days from the date of this
Prospectus, to purchase a maximum of 2,706,750 additional shares to cover
over-allotments of shares. If the option is exercised in full, the total
Price to Public will be $ , Underwriting Discounts and Commissions
will be $ , Proceeds to Calpine will be $ and Proceeds to
Selling Stockholder will be $ .
------------------
The U.S. Shares are offered by the several U.S. Underwriters when, as and if
delivered to and accepted by the U.S. Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the U.S. Shares will be
ready for delivery on or about , 1996, against payment in
immediately available funds.
CS First Boston
Morgan Stanley & Co.
Incorporated
PaineWebber Incorporated
Salomon Brothers Inc
The date of this Prospectus is , 1996.
<PAGE> 4
IN CONNECTION WITH THE COMMON STOCK OFFERING, CS FIRST BOSTON CORPORATION
ON BEHALF OF THE U.S. UNDERWRITERS AND MANAGERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THE COMMON STOCK OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS
PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN
ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO
EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT
OF 1934.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in such forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
Unless the context indicates otherwise, (i) all references in this Prospectus to
the "Company" or "Calpine" include Calpine Corporation and its consolidated
subsidiaries, (ii) all references to "Common Stock" refer to the Company's
Common Stock, $.001 par value, (iii) all information in this Prospectus relating
to the Company's Common Stock assumes no exercise of the Underwriters'
over-allotment option, and (iv) all information in this Prospectus assumes the
following transactions are completed prior to or concurrent with the
consummation of the Common Stock Offering: (1) the reincorporation of the
Company in Delaware, (2) the conversion of the Company's outstanding Class B
Common Stock into Common Stock and the elimination of the Class A Common Stock
and Class B Common Stock, (3) a 5.194-for-1 stock split of the Company's Common
Stock, and (4) the conversion of the Company's outstanding Preferred Stock into
2,179,487 shares of Common Stock.
THE COMPANY
Calpine is engaged in the acquisition, development, ownership and operation
of power generation facilities and the sale of electricity and steam in the
United States and selected international markets. The Company has interests in
14 power generation facilities and steam fields having an aggregate capacity of
937 megawatts. Upon the completion of the acquisition of the 120 megawatt
natural gas-fired Gilroy cogeneration facility (the "Gilroy Facility"), the
Company will have interests in 15 power generation facilities and steam fields
having an aggregate capacity of 1,057 megawatts. See "Business -- Description of
Facilities -- Power Generation Facilities -- Gilroy Facility." Since its
inception in 1984, Calpine has developed substantial expertise in all aspects of
electric power generation. The Company's vertical integration has resulted in
significant growth over the last five years as Calpine has applied its extensive
engineering, construction management, operations, fuel management and financing
capabilities to successfully implement its acquisition and development program.
During the last five years, Calpine has expanded substantially, from $41.2
million of total assets as of December 31, 1991 to $910.3 million of total
assets on a pro forma basis as of June 30, 1996. Calpine's revenue on a pro
forma basis for 1995 increased to $224.3 million, representing a compound annual
growth rate of 55% since 1991. The Company's EBITDA (as defined herein) on a pro
forma basis for 1995 increased to $123.8 million. See "Pro Forma Consolidated
Financial Data." Calpine's strategy is to capitalize on opportunities in the
power market through an ongoing program to acquire, develop, own and operate
electric power generation facilities, as well as marketing power and energy
services to utilities and other end users.
THE MARKET
The power generation industry represents the third largest industry in the
United States, with an estimated end user market of approximately $207.5 billion
of electricity sales and 3 million gigawatt hours of production in 1995. In
response to increasing customer demand for access to low cost electricity and
enhanced services, new regulatory initiatives are currently being adopted or
considered at both state and federal levels to increase competition in the
domestic power generation industry. To date, such initiatives are under
consideration at the federal level and in approximately thirty states. For
example, in April 1996, the Federal Energy Regulatory Commission ("FERC")
adopted Order No. 888, opening wholesale power sales to competition and
providing for open and fair electric transmission services by public utilities.
In addition, the California Public Utilities Commission ("CPUC") has issued an
electric industry restructuring decision which envisions commencement of
deregulation and implementation of customer choice of electricity supplier by
January 1, 1998. Calpine believes that industry trends and such regulatory
initiatives will lead to the transformation of the existing market, which is
largely characterized by electric utility monopolies selling to a captive
customer base, to a more competitive market where end users may purchase
electricity from a variety of suppliers, including non-utility generators, power
marketers, public utilities and others. The Company believes that these market
trends will create substantial opportunities for companies such as Calpine that
are low cost power producers and have an integrated power services capability
which enables them to produce and sell energy to customers at competitive rates.
The Company also believes that these market trends will result in the
disposition of power generation facilities by utilities, independent power
producers and industrial companies. Utilities such as Pacific Gas & Electric
Company ("PG&E") and Southern California Edison Company have announced their
intentions to sell power generation facilities totalling approximately 3,150
megawatts and 5,000 megawatts, respectively. The independent power industry,
which represents approximately 8% of the installed capacity in the United
3
<PAGE> 6
States, or approximately 59,000 megawatts, and has accounted for approximately
50% of all additional capacity in the United States since 1990, is currently
undergoing significant consolidation. Many independent producers operating a
limited number of power plants are seeking to dispose of such plants in response
to competitive pressures, and industrial companies are selling their power
plants to redeploy capital in their core businesses. Over 200 independent power
plant and portfolio sale transactions have occurred in the past two years. The
Company believes that this consolidation will continue in the highly fragmented
independent power industry.
The power generation industry outside the United States is approximately
three times larger than the domestic market, and the demand for electricity is
growing rapidly. In 1996, it has been estimated that in excess of 590 gigawatts
of new capacity will be required outside the United States over the ensuing
ten-year period. In order to satisfy this anticipated increase in demand, many
countries have adopted active government programs designed to encourage private
investment in power generation facilities. The Company believes that these
market trends will create significant opportunities to acquire and develop power
generation facilities in such countries.
STRATEGY
Calpine's objective is to become a leading power company by capitalizing on
these emerging opportunities in the domestic and international power markets.
The key elements of the Company's strategy are as follows:
Expand and diversify domestic portfolio of power projects. In pursuing its
growth strategy, the Company intends to focus on opportunities where it is able
to capitalize on its extensive management and technical expertise to implement a
fully integrated approach to the acquisition, development and operation of power
generation facilities. This approach includes design, engineering, procurement,
finance, construction management, fuel and resource acquisition, operations and
power marketing, which Calpine believes provides it with a competitive
advantage. By pursuing this strategy, the Company has significantly expanded and
diversified its project portfolio. Since 1993, the Company has completed
transactions involving four gas-fired cogeneration facilities and two steam
fields. In addition, the acquisition of the Gilroy Facility is expected to be
completed during the third quarter of 1996. As a result of these transactions,
the Company will have more than doubled its aggregate power generation capacity
and substantially diversified its fuel mix since 1993.
The Company is also pursuing the development of highly efficient, low cost
power plants that seek to take advantage of inefficiencies in the electricity
market. The Company intends to sell all or a portion of the power generated by
such merchant plants into the competitive market, rather than exclusively
through long-term power sales agreements. As part of Calpine's initial effort to
develop merchant plants, the Company entered into an agreement with Phillips
Petroleum Company to develop a gas-fired cogeneration project with a capacity of
240 megawatts. Under this agreement, approximately 90 megawatts of electricity
will be sold to the Phillips Houston Chemical Complex, with the remainder to be
sold into the competitive market through Calpine's power marketing activities.
The Company expects that this project will represent a prototype for future
merchant plant developments. The development of this project is subject to the
satisfaction of various conditions, including completion of financing and
obtaining required approvals. See "Business -- Development and Future Projects."
Enhance the performance and efficiency of existing power projects. The
Company continually seeks to maximize the power generation potential of its
operating assets and minimize its operating and maintenance expenses and fuel
costs. To date, the Company's power generation facilities have operated at an
average availability in excess of 97%. The Company believes that achieving and
maintaining a low cost of production will be increasingly important to compete
effectively in the power generation market.
Continue to develop an integrated power marketing capability. The Company
has established an integrated power marketing capability, conducted through its
wholly owned subsidiary, Calpine Power Services Company ("CPSC"). In 1995, CPSC
received approval from the FERC to conduct power marketing activities. The
Company believes that a power marketing capability complements its business
strategy of providing low cost power generation services. CPSC's power marketing
activities will focus on the development of long-term customer service
relationships, supported primarily by generating assets that are owned, operated
or controlled by Calpine. CPSC will aggregate the Company's own resources, the
resources of its customers, power pool resources, and market power supply to
provide the customized services demanded by its customers at a competitive
price.
4
<PAGE> 7
Selectively expand into international markets. Internationally, the
Company intends to utilize its geothermal and gas-fired expertise in selected
markets of Southeast Asia and Latin America, where demand for power is rapidly
growing and private investment is encouraged. In November 1995, the Company made
an investment in the Cerro Prieto steam fields, located in Baja California,
Mexico. In March 1996, the Company entered into a joint venture agreement to
pursue the development of a geothermal resource in Indonesia with an estimated
potential capacity in excess of 500 megawatts. Calpine believes that its
investments in these projects will effectively position it for future expansion
in Southeast Asia and Latin America.
BACKGROUND
Calpine was founded in 1984 by Peter Cartwright, the Company's President
and Chief Executive Officer. Through 1988, the Company provided engineering,
management, finance and operating and maintenance services to the emerging
independent power production industry. Since 1989, the Company has focused on
the acquisition, development, ownership, operation and maintenance of gas-fired
and geothermal power generation facilities. Prior to the Common Stock Offering,
the Company has been a wholly owned subsidiary of Electrowatt Ltd.
("Electrowatt"), a major utility, industrial products and engineering services
company based in Zurich, Switzerland. Electrowatt has advised the Company that
its current strategy is to focus its resources on its industrial business. As a
result of the Common Stock Offering, Electrowatt will no longer own any interest
in the Company and Calpine management will hold stock options representing
approximately 11.7% of the Company's Common Stock.
Calpine was incorporated under the laws of the State of California in 1984
and will be reincorporated in the State of Delaware prior to the completion of
the Common Stock Offering. The principal executive offices of the Company are
located at 50 West San Fernando Street, San Jose, California 95113, and its
telephone number is (408) 995-5115.
RISK FACTORS
Prospective investors should carefully consider the information presented
in this Prospectus, particularly the matters set forth under the caption "Risk
Factors."
THE COMMON STOCK OFFERING
Of the Common Stock offered hereby, 14,436,000 shares are initially being
offered in the United States and Canada by the U.S. Underwriters in the U.S.
Offering and 3,609,000 shares are initially being concurrently offered outside
the United States and Canada by the Managers in the International Offering.
<TABLE>
<S> <C>
Total Common Stock offered................... 18,045,000 shares
By the Company
U.S. Offering........................... 4,382,256 shares
International Offering.................. 1,095,564 shares
Total.............................. 5,477,820 shares
By the Selling Stockholder
U.S. Offering........................... 10,053,744 shares
International Offering.................. 2,513,436 shares
Total.............................. 12,567,180 shares
Common Stock to be outstanding after
the Common Stock Offering.................. 18,045,000 shares(1)
Use of proceeds.............................. The net proceeds of the sale of shares of
Common Stock by the Company will be used for
working capital and general corporate
purposes, including the development and
acquisition of power generation facilities.
See "Use of Proceeds."
NYSE trading symbol.......................... CPN
</TABLE>
- ---------------
(1) Excludes 2,392,026 shares of Common Stock reserved for issuance upon
exercise of options previously granted and outstanding as of June 30, 1996
under the Company's Stock Option Program. Of such amount, options to
purchase 1,366,696 shares were exercisable as of June 30, 1996. See
"Management -- Stock Option Program" and "-- 1996 Stock Incentive Plan."
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------ --------------------------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- ------------------------ --------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA(1)
ACTUAL ------------ ACTUAL PRO FORMA(2)
--------- --------- -------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF
OPERATIONS
DATA:
Total
revenue.... $39,052 $39,577 $69,915 $94,762 $132,098 $224,261 $50,352 $81,994 $93,068
Cost of
revenue.... 25,064 25,921 42,501 52,845 77,388 142,298 30,618 51,319 65,940
Gross
profit..... 13,988 13,656 27,414 41,917 54,710 81,963 19,734 30,675 27,128
Project
development
expenses... 1,067 806 1,280 1,784 3,087 3,087 1,308 1,410 1,410
General and
administrative
expenses... 3,443 3,924 5,080 7,323 8,937 8,937 3,659 5,874 5,874
Income from
operations... 9,478 6,902 21,054 31,772 42,686 69,939 14,767 23,391 19,844
Interest
expense.... 1,925 1,225 13,825 23,886 32,154 57,523 15,116 18,665 27,900
Other income,
net........ (416) (310) (1,133) (1,988) (1,895) (9,158) (855) (2,777) (5,303)
Net income
(loss)..... 5,958 3,460 3,754 6,021 7,378 12,810 298 4,423 (1,623)
Weighted
average
shares
outstanding(3)... 14,187 14,187 14,476 14,476
Net income
(loss) per
share(3)... $0.52 $0.90 $0.31 $(0.11)
OTHER
FINANCIAL
DATA:
Depreciation
and
amortization... $ 219 $ 232 $12,540 $21,580 $ 26,896 $42,734 $ 9,882 $15,757 $21,302
EBITDA(4).... $ 4,909 $ 9,898 $42,370 $53,707 $ 69,515 $123,770 $25,440 $41,345 $46,993
SELECTED
OPERATING
INFORMATION:(5)
Power plants:
Electricity
revenue:(6)
Energy... $33,426 $38,325 $37,088 $45,912 $54,886 $80,255 $22,323 $34,362 $36,839
Capacity... $ 7,562 $ 7,707 $ 7,834 $ 7,967 $30,485 $58,116 $ 9,051 $19,774 $28,364
Megawatt
hours
produced... 392,471 403,274 378,035 447,177 1,033,566 1,859,277 324,059 736,739 860,969
Average
energy
price per
kilowatt
hour(7)... 8.517c 9.503c 9.811c 10.267c 5.310c 4.317c 6.889c 4.664c 4.279c
Steam fields:
Steam
revenue:
Calpine... $36,173 $33,385 $31,066 $32,631 $39,669 $39,669 $17,639 $15,866 $15,866
Other
interest... $ 2,820 $ 2,501 $ 2,143 $ 2,051 -- -- -- -- --
Megawatt
hours
produced... 2,095,576 2,105,345 2,014,758 2,156,492 2,415,059 2,415,059 1,027,317 1,040,271 1,040,271
Average
price per
kilowatt
hour..... 1.861c 1.705c 1.648c 1.608c 1.643c 1.643c 1.717c 1.525c 1.525c
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
AS OF DECEMBER 31, -----------------------------------------
---------------------------------------------------------- PRO PRO FORMA AS
1991 1992 1993 1994 1995 ACTUAL FORMA(2) ADJUSTED(2)(8)
------- ------- -------- -------- -------- -------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........ $ 958 $ 2,160 $ 6,166 $ 22,527 $ 21,810 $ 38,403 $ 14,753 $ 109,583
Property, plant and
equipment, net..... 351 424 251,070 335,453 447,751 530,203 655,203 655,203
Total assets......... 41,245 55,370 302,256 421,372 554,531 792,812 910,280 1,005,110
Total liabilities.... 34,624 44,865 288,827 402,723 529,304 713,156 830,624 830,624
Stockholder's
equity............. 6,621 10,505 13,429 18,649 25,227 79,656 79,656 174,486
(see footnotes on next page)
</TABLE>
6
<PAGE> 9
- ------------
(1) The pro forma information presented under statement of operations data and
other financial data for the year ended December 31, 1995 gives effect to
the following transactions as if such transactions had occurred on January
1, 1995: (i) the acquisition by the Company of the Greenleaf 1 and 2
Facilities (the "Greenleaf Transaction"); (ii) the acquisition by the
Company of the lease for the Watsonville Facility (the "Watsonville
Transaction"); (iii) the entry by the Company into the agreements in
respect of the Cerro Prieto Steam Fields (the "Cerro Prieto Transaction");
(iv) the entry by the Company into a transaction involving a lease for the
King City Facility (the "King City Transaction"); (v) the acquisition by
the Company of the Gilroy Facility (the "Gilroy Transaction"); (the
Greenleaf Transaction, the Watsonville Transaction, the Cerro Prieto
Transaction, the King City Transaction and the Gilroy Transaction being
collectively referred to as the "Transactions"); (vi) the $50.0 million
Preferred Stock investment in Calpine by Electrowatt (the "Preferred Stock
Investment") and the application of the proceeds therefrom; and (vii) the
sale of the Company's 10 1/2% Senior Notes Due 2006 (the "10 1/2% Senior
Notes") and the application of the net proceeds therefrom. The pro forma
information presented under selected operating information for the year
ended December 31, 1995 gives effect to the Greenleaf Transaction, the
Watsonville Transaction, the King City Transaction and the Gilroy
Transaction as if such transactions had occurred on January 1, 1995. See
"Pro Forma Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Description of Facilities."
(2) The pro forma information presented under statement of operations data,
other financial data and selected operating information for the six months
ended June 30, 1996 gives effect to (i) the King City Transaction, (ii) the
Gilroy Transaction and (iii) the sale of the 10 1/2% Senior Notes and the
application of the net proceeds therefrom as if such transactions had
occurred on January 1, 1996. The pro forma information presented under
balance sheet data as of June 30, 1996 gives effect to the Gilroy
Transaction as if such transaction had occurred on June 30, 1996. See "Pro
Forma Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and
"Business -- Description of Facilities."
(3) The actual and pro forma weighted average shares outstanding and net income
(loss) per share for the year ended December 31, 1995 and the six months
ended June 30, 1996 give effect to the issuance of Common Stock upon the
conversion of the Company's outstanding Preferred Stock.
(4) EBITDA is defined as income from operations plus depreciation, capitalized
interest, other income, non-cash charges and cash received from investments
in power projects, reduced by the income from unconsolidated investments in
power projects. EBITDA is presented not as a measure of operating results
but rather as a measure of the Company's ability to service debt. EBITDA
should not be construed as an alternative either (i) to income from
operations (determined in accordance with generally accepted accounting
principles) or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles).
(5) For an explanation of such selected operating information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Selected Operating Information."
(6) The significant increase in capacity revenue and the accompanying decline
in average energy price per kilowatt hour since 1994 reflects the increase
in the Company's megawatt hour production as a result of acquisitions of
gas-fired cogeneration facilities by the Company.
(7) Average energy price per kilowatt hour represents energy revenue divided by
the kilowatt hours produced.
(8) Adjusted to reflect the sale of the 5,477,820 shares of Common Stock
offered by the Company hereby at an assumed initial offering price of
$18.50 per share, and the application of the net proceeds therefrom as
described in "Use of Proceeds."
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RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
factors set forth below, as well as the other information contained in this
Prospectus, in evaluating an investment in the Common Stock.
HIGH LEVERAGE
The Company is highly leveraged as a result of outstanding indebtedness of
the Company and non-recourse debt financing of certain of the Company's
subsidiaries incurred to finance the acquisition and development of power
generation facilities. As of June 30, 1996, the Company's total consolidated
indebtedness was $499.8 million, its total consolidated assets were $792.8
million and its stockholder's equity was $79.7 million. At such date, on a pro
forma basis after giving effect to the Gilroy Transaction, the Company's total
consolidated indebtedness would have been $615.8 million, its total consolidated
assets would have been $910.3 million and its stockholder's equity would have
been $79.7 million. See "Capitalization," "Pro Forma Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The ability of the Company to meet its debt service
obligations and to repay outstanding indebtedness according to its terms will be
dependent primarily upon the performance of the power generation facilities in
which the Company has an interest.
The Indenture dated May 16, 1996 (the "10 1/2% Indenture") relating to the
Company's 10 1/2% Senior Notes and the Indenture dated February 17, 1994 (the
"9 1/4% Indenture") relating to the Company's 9 1/4% Senior Notes Due 2004 (the
"9 1/4% Senior Notes") (collectively, the "Indentures") contain certain
restrictive covenants. Such restrictions will affect, and in many respects will
significantly limit or prohibit, among other things, the ability of the Company
or its subsidiaries or such other entities, as the case may be, to incur
indebtedness, make prepayments of certain indebtedness, pay dividends, make
investments, engage in transactions with affiliates, create liens, sell assets
and engage in mergers and consolidations. The Indentures also contain provisions
that require the Company, in the event of certain change of control
transactions, to make an offer to purchase the 10 1/2% Senior Notes and the
9 1/4% Senior Notes. The Common Stock Offering will not constitute a change of
control transaction under the Indentures. There can be no assurance that the
Company will have the financial resources necessary to purchase the 10 1/2%
Senior Notes and the 9 1/4% Senior Notes upon a change of control. Such change
of control provisions contained in the Indentures may not be waived by the Board
of Directors of the Company.
The Company believes that, based on current levels of operations and
anticipated growth, cash flow from operations, together with other available
sources of funds, including borrowings under the Company's existing borrowing
arrangements, will be adequate to make required payments of principal and
interest on the Company's debt, including the 10 1/2% Senior Notes and the
9 1/4% Senior Notes, and to enable the Company to comply with the terms of its
debt agreements, although there can be no assurance that this will be the case.
If the Company is unable to comply with the terms of its debt agreements and
fails to generate sufficient cash flow from operations in the future, the
Company may be required to refinance all or a portion of its existing debt or to
obtain additional financing. There can be no assurance that any such refinancing
would be possible or that any additional financing could be obtained,
particularly in view of the Company's high levels of debt and the debt
incurrence restrictions under existing debt agreements. If cash flow is
insufficient and no such refinancing or additional financing is available, the
Company may be forced to default on its debt obligations. In the event of a
default under the terms of any of the indebtedness of the Company, subject to
the terms of such indebtedness, the obligees thereunder would be permitted to
accelerate the maturity of such obligations, which could cause defaults under
other obligations of the Company. See "-- Possible Unavailability of Financing,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."
POSSIBLE UNAVAILABILITY OF FINANCING
Each power generation facility acquired or developed by the Company will
require substantial capital investment. The Company's ability to arrange
financing and the cost of such financing are dependent upon numerous factors,
including general economic and capital market conditions, conditions in energy
markets, regulatory developments, credit availability from banks or other
lenders, investor confidence in the industry
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and the Company, the continued success of the Company's current facilities, and
provisions of tax and securities laws that are conducive to raising capital.
There can be no assurance that financing for new facilities will be available to
the Company on acceptable terms in the future. In addition, there can be no
assurance that all required governmental permits and approvals for the Company's
new or acquired facilities will be obtained, that the Company will be able to
obtain favorable power sales agreements and adequate financing, or that the
Company will be successful in the development of power generation facilities in
the future. Historically, the Company has been successful in obtaining debt
financing for its facilities and has relied on Electrowatt, currently the
Company's sole stockholder, to provide funding for a substantial portion of its
facility equity commitments. The Company currently has an existing $50.0 million
credit facility with Credit Suisse (the "Credit Suisse Credit Facility"), which
was arranged for the Company by Electrowatt. In connection with the Common Stock
Offering, Electrowatt will sell all of its shares of Common Stock of the Company
and, as a result, the Company will no longer be able to rely on Electrowatt for
financing. Upon the completion of the Common Stock Offering, the Credit Suisse
Credit Facility will terminate.
On July 20, 1996, the Company entered into a Commitment Letter with The
Bank of Nova Scotia for a $50.0 million three-year revolving credit facility
(the "Bank of Nova Scotia Facility"). The Bank of Nova Scotia Facility will
become effective upon the completion of the Common Stock Offering, and will
contain certain restrictions that will significantly limit or prohibit, among
other things, the ability of the Company or its subsidiaries to incur
indebtedness, make prepayments of certain indebtedness, pay dividends, make
investments, engage in transactions with affiliates, create liens, sell assets
and engage in mergers and consolidations. See "Management's Discussion and
Analysis of Result of Operations and Financial Condition -- Liquidity and
Capital Resources."
The Company's power generation facilities have been financed using a
variety of leveraged financing structures, consisting of corporate debt,
non-recourse debt and lease obligations. As of June 30, 1996, on a pro forma
basis after giving effect to the Gilroy Transaction, the Company would have had
approximately $615.8 million of total consolidated indebtedness, of which
approximately 53% would have represented non-recourse subsidiary debt. See "Pro
Forma Consolidated Financial Data." Each non-recourse debt and lease obligation
is structured to be fully paid out of cash flow provided by the facility or
facilities, the assets of which (together with pledges of stock or partnership
interests in the entity owning the facility) collateralize such obligations,
without any claim against the Company's general corporate funds. Such leveraged
financing permits the development of larger facilities, but also increases the
risk to the Company that its interest in a particular facility could be impaired
or that fluctuations in revenues could adversely affect the Company's ability to
meet its lease or debt obligations. The significant debt collateralized by the
interests of the Company in each operating facility reduces the liquidity of
such assets since any sale or transfer of a facility would be subject both to
the lien securing the facility indebtedness and to transfer restrictions in the
financing agreements. While the Company intends to utilize non-recourse or lease
financing when appropriate, there can be no assurance that market conditions and
other factors will permit the same limited equity investment by the Company or
the same substantially non-recourse nature of financings for future facilities.
In the event of a default under a financing agreement, and assuming the Company
or the other equity investors in a facility are unable or choose not to cure
such default within applicable cure periods, if any, the lenders or lessors
would generally have rights to the facility, any related geothermal resource or
natural gas reserves, related contracts and cash flows and all licenses and
permits necessary to operate the facility. In the event of foreclosure after
such a default, the Company might not retain any interest in such facility. The
Company does not believe the existence of non-recourse or lease financing will
materially affect its ability to continue to borrow funds in the future in order
to finance new facilities. There can be no assurance, however, that the Company
will continue to be able to obtain the financing required to develop its power
facilities on terms satisfactory to the Company. See "Business -- Description of
Facilities."
The Company has from time to time guaranteed certain obligations of its
subsidiaries and other affiliates. There can be no assurance that, in respect of
any financings of facilities in the future, lenders or lessors will not require
the Company to guarantee the indebtedness of such future facilities, rendering
the Company's general corporate funds vulnerable in the event of a default by
such facility or related subsidiary. If the lenders or lessors were to require
such guarantees, and the Company were unable to incur indebtedness in respect of
such
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guarantees under the restrictions on indebtedness (including guarantees)
contained in the Indentures, the Company's ability to fund new facilities could
be adversely affected. The Indentures do not limit the ability of the Company's
subsidiaries to incur non-recourse or lease financing for investment in new
facilities.
Calpine Geysers Company, L.P. ("CGC"), a wholly owned subsidiary of
Calpine, owns the West Ford Flat Facility, the Bear Canyon Facility, the PG&E
Unit 13 and Unit 16 Steam Fields and the SMUDGEO #1 Steam Fields. Calpine
Greenleaf Corporation ("Calpine Greenleaf"), a wholly owned subsidiary of
Calpine, owns the Greenleaf 1 and 2 Facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General" and
"Business -- Description of Facilities." The non-recourse facility financing of
each of CGC and Calpine Greenleaf is collateralized by all of the assets and
properties of each of the facilities and steam fields owned by such subsidiary.
In the event of a reduction in revenue derived from one or more of these
facilities or steam fields which results in a failure to make any payments on,
or if such subsidiary otherwise defaults in its obligations under the terms of,
its non-recourse project financing, the lenders would be entitled to foreclose
on all of the assets of such subsidiary, including the assets pertaining to each
such facility and steam field.
RISKS RELATED TO THE DEVELOPMENT AND OPERATION OF GEOTHERMAL ENERGY RESOURCES
The development and operation of geothermal energy resources are subject to
substantial risks and uncertainties similar to those experienced in the
development of oil and gas resources. The successful exploitation of a
geothermal energy resource ultimately depends upon the heat content of the
extractable fluids, the geology of the reservoir, the total amount of
recoverable reserves and operational factors relating to the extraction of
fluids, including operating expenses, energy price levels and capital
expenditure requirements relating primarily to the drilling of new wells. In
connection with the development of a project, the Company estimates the
productivity of the geothermal resource and the expected decline in such
productivity. The productivity of a geothermal resource may decline more than
anticipated, resulting in insufficient recoverable reserves being available for
sustained generation of the electrical power capacity desired. An incorrect
estimate by the Company or an unexpected decline in productivity could have a
material adverse effect on the Company's results of operations.
Geothermal reservoirs are highly complex, and, as a result, there exist
numerous uncertainties in determining the extent of the reservoirs and the
quantity and productivity of the steam reserves. Reservoir engineering is an
inexact process of estimating underground accumulations of steam or fluids that
cannot be measured in any precise way, and depends significantly on the quantity
and accuracy of available data. As a result, the estimates of other reservoir
specialists may differ materially from those of the Company. Estimates of
reserves are generally revised over time on the basis of the results of
drilling, testing and production that occur after the original estimate was
prepared. While the Company has extensive experience in the operation and
development of geothermal energy resources and in preparing such estimates,
there can be no assurance that the Company will be able to successfully manage
the development and operation of its geothermal reservoirs or that the Company
will accurately estimate the quantity or productivity of its steam reserves.
IMPACT OF AVOIDED COST PRICING; ENERGY PRICE FLUCTUATIONS
Eight of the existing power plants in which the Company has an interest
sell electricity to PG&E under separate long-term power sales agreements. Each
of these agreements provides for both capacity payments and energy payments for
the term of the agreement. During the initial ten-year period of certain of the
agreements, PG&E pays a fixed price for each unit of electrical energy according
to schedules set forth in such agreements. The fixed price periods under these
power sales agreements expire at various times in 1998 through 2000. After the
fixed price periods expire, while the basis for the capacity and capacity bonus
payments under these power sales agreements remains the same, the energy
payments adjust to PG&E's then prevailing avoided cost of energy, which is
determined and published from time to time by the CPUC. The term "avoided cost"
refers to the incremental costs that an electric utility would incur to produce
or purchase an amount of power equivalent to that purchased from qualifying
facilities (as defined under the Public Utility Regulatory Policies Act of 1978,
as amended ("PURPA")). The currently prevailing avoided cost of energy is
substantially lower than the fixed energy prices under these power sales
agreements and is generally expected
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to remain so. While avoided cost does not affect capacity payments under the
power sales agreements, in the event that the avoided cost of energy does not
increase significantly, the Company's energy revenue under these power sales
agreements would be materially reduced at the expiration of the fixed price
period. Such reduction could have a material adverse effect on the Company's
results of operations. The Company cannot accurately predict the likely level of
avoided cost energy prices at the expiration of the fixed price periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Business -- Description of Facilities." Prices paid
for the steam delivered by the Company's steam fields are based on a formula
that partially reflects the price levels of nuclear and fossil fuels, and,
therefore, a reduction in the price levels of such fuels may reduce revenue
under the steam sales agreements for the steam fields. See
"Business -- Description of Facilities -- Steam Fields."
IMPACT OF CURTAILMENT
Each of the Company's power and steam sales agreements contains curtailment
provisions pursuant to which the purchasers of energy or steam are entitled to
reduce the number of hours of energy or amount of steam purchased thereunder.
Curtailment provisions are customary in power and steam sales agreements. During
1995, certain of the Company's power generation facilities experienced maximum
curtailment primarily as a result of a high degree of precipitation during the
period, which resulted in higher levels of energy generation by hydroelectric
power facilities that supply electricity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." In limited
circumstances, energy production from third party geothermal power plants may be
curtailed, which would reduce deliveries of steam by the Company under the steam
sales agreements. The Company expects maximum curtailment during 1996 under its
power sales agreements for certain of its facilities, and there can be no
assurance that the Company will not experience curtailment in the future. In the
event of such curtailment, the Company's results of operations may be materially
adversely affected. See "Business -- Description of Facilities."
POWER PROJECT DEVELOPMENT AND ACQUISITION RISKS
The development of power generation facilities is subject to substantial
risks. In connection with the development of a power generation facility, the
Company must generally obtain power and/or steam sales agreements, governmental
permits and approvals, fuel supply and transportation agreements, sufficient
equity capital and debt financing, electrical transmission agreements, site
agreements and construction contracts, and there can be no assurance that the
Company will be successful in doing so. In addition, project development is
subject to certain environmental, engineering and construction risks relating to
cost-overruns, delays and performance. Although the Company may attempt to
minimize the financial risks in the development of a project by securing a
favorable long-term power sales agreement, entering into power marketing
transactions, obtaining all required governmental permits and approvals and
arranging adequate financing prior to the commencement of construction, the
development of a power project may require the Company to expend significant
sums for preliminary engineering, permitting and legal and other expenses before
it can be determined whether a project is feasible, economically attractive or
financeable. If the Company were unable to complete the development of a
facility, it would generally not be able to recover its investment in such a
facility.
The process for obtaining initial environmental, siting and other
governmental permits and approvals is complicated and lengthy, often taking more
than one year, and is subject to significant uncertainties. As a result of
competition, it may be difficult to obtain a power sales agreement for a
proposed project, and the prices offered in new power sales agreements for both
electric capacity and energy may be less than the prices in prior agreements.
The Company has grown substantially in recent years as a result of
acquisitions of interests in power generation facilities and steam fields such
as the Transactions. The Company believes that although the domestic power
industry is undergoing consolidation and that significant acquisition
opportunities are available, the Company is likely to confront significant
competition for acquisition opportunities. In addition, there can be no
assurance that the Company will continue to identify attractive acquisition
opportunities at
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favorable prices or, to the extent that any opportunities are identified, that
the Company will be able to consummate such acquisitions.
START-UP RISKS
The commencement of operation of a newly constructed power plant or steam
field involves many risks, including start-up problems, the breakdown or failure
of equipment or processes and performance below expected levels of output or
efficiency. New plants have no operating history and may employ recently
developed and technologically complex equipment. Insurance is maintained to
protect against certain of these risks, warranties are generally obtained for
limited periods relating to the construction of each project and its equipment
in varying degrees, and contractors and equipment suppliers are obligated to
meet certain performance levels. Such insurance, warranties or performance
guarantees may not be adequate to cover lost revenues or increased expenses and,
as a result, a project may be unable to fund principal and interest payments
under its financing obligations and may operate at a loss. A default under such
a financing obligation could result in the Company losing its interest in such
power generation facility or steam field. See "-- Possible Unavailability of
Financing."
In addition, power sales agreements, which are typically entered into with
a utility early in the development phase of a project, often enable the utility
to terminate such agreement, or to retain security posted as liquidated damages,
in the event that a project fails to achieve commercial operation or certain
operating levels by specified dates or fails to make certain specified payments.
In the event such a termination right is exercised, a project may not commence
generating revenues, the default provisions in a financing agreement may be
triggered (rendering such debt immediately due and payable) and the project may
be rendered insolvent as a result.
GENERAL OPERATING RISKS
The Company currently operates all of the power generation facilities in
which it has an interest, except for two steam fields. See
"Business -- Description of Facilities." The continued operation of power
generation facilities and steam fields involves many risks, including the
breakdown or failure of power generation equipment, transmission lines,
pipelines or other equipment or processes and performance below expected levels
of output or efficiency. To date, the Company's power generation facilities have
operated at an average availability in excess of 97%, and although from time to
time the Company's power generation facilities and steam fields have experienced
certain equipment breakdowns or failures, such breakdowns or failures have not
had a material adverse effect on the operation of such facilities or on the
Company's results of operations. Although the Company's facilities contain
certain redundancies and back-up mechanisms, there can be no assurance that any
such breakdown or failure would not prevent the affected facility or steam field
from performing under applicable power or steam sales agreements. In addition,
although insurance is maintained to protect against certain of these operating
risks, the proceeds of such insurance may not be adequate to cover lost revenues
or increased expenses, and, as a result, the entity owning such power generation
facility or steam field may be unable to service principal and interest payments
under its financing obligations and may operate at a loss. A default under such
a financing obligation could result in the Company losing its interest in such
power generation facility or steam field. See "-- Possible Unavailability of
Financing."
DEPENDENCE ON THIRD PARTIES
The nature of the Company's power generation facilities is such that each
facility generally relies on one power or steam sales agreement with a single
electric utility customer for substantially all, if not all, of such facility's
revenue over the life of the project. During 1995, approximately 87% and 9% of
the Company's revenue was attributable to revenue received pursuant to power and
steam sales agreements with PG&E and Sacramento Municipal Utility District
("SMUD"), respectively. The power and steam sales agreements are generally
long-term agreements, covering the sale of electricity or steam for initial
terms of 20 or 30 years. However, the loss of any one power or steam sales
agreement with any of these utility customers could have a material adverse
effect on the Company's results of operations. In addition, any material failure
by any utility customer to fulfill its obligations under a power or steam sales
agreement could have a material adverse effect on the cash flow available to the
Company and, as a result, on the Company's results of operations. During
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1995, an additional 4% of the Company's revenue was attributable to operating
and maintenance services performed by the Company for power generation
facilities that sell electricity to PG&E.
Furthermore, each power generation facility may depend on a single or
limited number of entities to purchase thermal energy, or to supply or transport
natural gas to such facility. The failure of any one utility customer, steam
host, gas supplier or gas transporter to fulfill its contractual obligations
could have a material adverse effect on a power project and on the Company's
business and results of operations.
INTERNATIONAL INVESTMENTS
The Company has made an investment in the Cerro Prieto geothermal steam
fields located in Mexico and intends to pursue investments primarily in Latin
America and Southeast Asia. Such investments are subject to risks and
uncertainties relating to the political, social and economic structures of those
countries. Risks specifically related to investments in non-United States
projects may include risks of fluctuations in currency valuation, currency
inconvertibility, expropriation and confiscatory taxation, increased regulation
and approval requirements and governmental policies limiting returns to foreign
investors.
POWER MARKETING BUSINESS
It is part of the Company's strategy to continue to develop an integrated
nationwide power marketing business to market power generated both by the
Company's generation facilities and power generated by third parties. The
Company believes that this strategy will enhance the earning potential of its
operating assets, generate additional revenue and expand its customer base.
However, the power marketing industry is only in its early stages of
development, and there are no assurances that the industry will develop in such
a way as to permit the Company to achieve these goals. Furthermore, the Company
has only recently commenced its power marketing business, and there can be no
assurance that its power marketing strategy will be successful or that the
Company's goals will be achieved.
GOVERNMENT REGULATION
The Company's activities are subject to complex and stringent energy,
environmental and other governmental laws and regulations. The construction and
operation of power generation facilities require numerous permits, approvals and
certificates from appropriate federal, state and local governmental agencies, as
well as compliance with environmental protection legislation and other
regulations. While the Company believes that it has obtained the requisite
approvals for its existing operations and that its business is operated in
accordance with applicable laws, the Company remains subject to a varied and
complex body of laws and regulations that both public officials and private
individuals may seek to enforce. There can be no assurance that existing laws
and regulations will not be revised or that new laws and regulations will not be
adopted or become applicable to the Company that may have a material adverse
effect on the Company's business or results of operations, nor can there be any
assurance that the Company will be able to obtain all necessary licenses,
permits, approvals and certificates for proposed projects or that completed
facilities will comply with all applicable permit conditions, statutes or
regulations. In addition, regulatory compliance for the construction of new
facilities is a costly and time consuming process, and intricate and changing
environmental and other regulatory requirements may necessitate substantial
expenditures to obtain permits and may create a significant risk of expensive
delays or significant loss of value in a project if the project is unable to
function as planned due to changing requirements or local opposition. See
"Business -- Government Regulation."
The Company's operations are subject to the provisions of various energy
laws and regulations, including PURPA, the Public Utility Holding Company Act of
1935, as amended ("PUHCA"), and state and local regulations. See
"Business -- Government Regulation." PUHCA provides for the extensive regulation
of public utility holding companies and their subsidiaries. PURPA provides to
qualifying facilities ("QFs") and owners of QFs certain exemptions from certain
federal and state regulations, including rate and financial regulations.
Under present federal law, the Company is not and will not be subject to
regulation as a holding company under PUHCA as long as the power plants in which
it has an interest are QFs under PURPA or are subject to
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another exemption. In order to be a QF, a facility must be not more than 50%
owned by an electric utility or electric utility holding company. A QF that is a
cogeneration facility must produce not only electricity, but also useful thermal
energy for use in an industrial or commercial process or heating or cooling
applications in certain proportions to the facility's total energy output, and
it must meet certain energy efficiency standards. Therefore, loss of a thermal
energy customer could jeopardize a cogeneration facility's QF status. All
geothermal power plants up to 80 megawatts that meet PURPA's ownership
requirements and certain other standards are considered QFs. If one of the power
plants in which the Company has an interest were to lose its QF status and not
otherwise receive a PUHCA exemption, the project subsidiary or partnership in
which the Company has an interest owning or leasing that plant could become a
public utility company, which could subject the Company to significant federal,
state and local laws, including rate regulation and regulation as a public
utility holding company under PUHCA. This loss of QF status, which may be
prospective or retroactive, in turn, could cause all of the Company's other
power plants to lose QF status because, under FERC regulations, a QF cannot be
owned by an electric utility or electric utility holding company. In addition, a
loss of QF status could, depending on the power sales agreement, allow the power
purchaser to cease taking and paying for electricity or to seek refunds of past
amounts paid and thus could cause the loss of some or all contract revenues or
otherwise impair the value of a project and could trigger defaults under
provisions of the applicable project contracts and financing agreements
(rendering such debt immediately due and payable). If a power purchaser ceased
taking and paying for electricity or sought to obtain refunds of past amounts
paid, there can be no assurance that the costs incurred in connection with the
project could be recovered through sales to other purchasers. See
"Business -- Government Regulation -- Federal Energy Regulation."
Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at avoided costs. The Company does not know whether such legislation will be
passed or what form it may take. The Company believes that if any such
legislation is passed, it would apply to new projects. As a result, although
such legislation may adversely affect the Company's ability to develop new
projects, the Company believes it would not affect the Company's existing QFs.
There can be no assurance, however, that any legislation passed would not
adversely impact the Company's existing projects.
Many states are implementing or considering regulatory initiatives designed
to increase competition in the domestic power generation industry. In a December
20, 1995 policy decision, the CPUC outlined a new market structure that would
provide for a competitive power generation industry and direct access to
generation for all consumers within five years. As part of its policy decision,
the CPUC indicated that power sales agreements of existing QFs would be honored.
The Company cannot predict the final form or timing of the proposed
restructuring and the impact, if any, that such restructuring would have on the
Company's existing business or results of operations.
SEISMIC DISTURBANCES
Areas in which the Company operates and is developing many of its
geothermal and gas-fired projects are subject to frequent low-level seismic
disturbances, and more significant seismic disturbances are possible. While the
Company's existing power generation facilities are built to withstand relatively
significant levels of seismic disturbances, and the Company believes it
maintains adequate insurance protection, there can be no assurance that
earthquake, property damage or business interruption insurance will be adequate
to cover all potential losses sustained in the event of serious seismic
disturbances or that such insurance will continue to be available to the Company
on commercially reasonable terms.
AVAILABILITY OF NATURAL GAS
To date, the Company's fuel acquisition strategy has included various
combinations of Company-owned gas reserves, gas prepayment contracts and short-,
medium- and long-term supply contracts. In its gas supply arrangements, the
Company attempts to match the fuel cost with the fuel component included in the
facility's power sales agreements, in order to minimize a project's exposure to
fuel price risk. The Company believes that there will be adequate supplies of
natural gas available at reasonable prices for each of its facilities when
current gas supply agreements expire. There can be no assurance, however, that
gas supplies will be available
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for the full term of the facilities' power sales agreements, or that gas prices
will not increase significantly. If gas is not available, or if gas prices
increase above the fuel component of the facilities' power sales agreements,
there could be a material adverse impact on the Company's net revenues.
COMPETITION
The power generation industry is characterized by intense competition, and
the Company encounters competition from utilities, industrial companies and
other power producers. In recent years, there has been increasing competition in
an effort to obtain new power sales agreements, and this competition has
contributed to a reduction in electricity prices. In this regard, many utilities
often engage in "competitive bid" solicitations to satisfy new capacity demands.
This competition adversely affects the ability of the Company to obtain power
sales agreements and the price paid for electricity. There also is increasing
competition between electric utilities, particularly in California where the
CPUC has launched an initiative designed to give all electric consumers the
ability to choose between competing suppliers of electricity. See
"Business -- Government Regulation -- State Regulation." This competition has
put pressure on electric utilities to lower their costs, including the cost of
purchased electricity, and increasing competition in the future will increase
this pressure. See "Business -- Competition."
DEPENDENCE ON SENIOR MANAGEMENT
The Company's success is largely dependent on the skills, experience and
efforts of its senior management. The loss of the services of one or more
members of the Company's senior management could have a material adverse effect
on the Company's business and development. To date, the Company generally has
been successful in retaining the services of its senior management. See
"Management."
ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law applicable to the Company could have the
effect of delaying, deterring or preventing a change in control of the Company,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. In addition,
the Company's Certificate of Incorporation and By-laws contain certain
provisions that could discourage potential takeover attempts and make more
difficult attempts by stockholders to change management. The Company's Board of
Directors is classified into three classes of directors serving staggered,
three-year terms and has the authority without action by the Company's
stockholders to fix the rights and preferences and issue shares of Preferred
Stock, and to impose various procedural and other requirements that could make
it more difficult for stockholders to effect certain corporate actions. The
Company's Certificate of Incorporation provides that Directors may be removed
only by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the Company entitled to vote. Any vacancy on the Board of
Directors may be filled only by vote of the majority of Directors then in
office. Further, the Company's Certificate of Incorporation provides that any
"Business Combination" (as therein defined) requires the affirmative vote of the
holders of two-thirds of the shares of capital stock of the Company entitled to
vote, voting together as a single class. These provisions, and certain other
provisions of the Certificate of Incorporation which may have the effect of
delaying proposed stockholder actions until the next annual meeting of
stockholders, could have the effect of delaying or preventing a tender offer for
the Company's Common Stock or other changes of control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Description of Capital Stock."
NO PRIOR MARKET; STOCK PRICE VOLATILITY; DILUTION
Prior to the Common Stock Offering, there has been no public market for the
Company's Common Stock. Consequently, the initial public offering price will be
determined by negotiations among the Company, the Selling Stockholder and the
Representatives of the Underwriters and may not be indicative of the prices that
prevail in the public market. There can be no assurance that an active public
market for the Common Stock will develop or be sustained after the Common Stock
Offering. The trading price of the Company's
15
<PAGE> 18
Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcements of new
acquisitions or power projects by the Company or its competitors, general
conditions in the independent power production industry, and other events or
factors. In addition, stock markets have experienced extreme price and trading
volume volatility in recent years. This volatility has had a substantial effect
on the market prices of securities of many companies for reasons frequently
unrelated to the operating performance of the specific companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. Moreover, investors in the Common Stock Offering will incur
immediate, substantial book value dilution. See "Dilution" and "Underwriting."
QUARTERLY FLUCTUATIONS; SEASONALITY
The Company's quarterly operating results have fluctuated in the past and
may continue to do so in the future as a result of a number of factors,
including but not limited to the timing and size of acquisitions, the completion
of development projects, the timing and amount of curtailment, and variations in
levels of production. Furthermore, the majority of capacity payments under
certain of the Company's power sales agreements are received during the months
of May through October. The market price of the Common Stock could be subject to
significant fluctuations in response to those variations in quarterly operating
results and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results of Operations
and Seasonality."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Common Stock Offering could adversely affect the prevailing market price of the
Common Stock. Other than the 18,045,000 shares of Common Stock offered hereby,
there will be no shares of Common Stock outstanding immediately following the
completion of the Common Stock Offering. All of the shares of Common Stock sold
in the Common Stock Offering will be freely transferable without registration or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless held by an "affiliate" of the Company (as defined in
the Securities Act). As of the date of this Prospectus, options to purchase
2,392,026 shares of Common Stock are outstanding under the Company's Stock
Option Program. Of such amount, options to purchase 1,366,696 shares were
exercisable, all of which will become eligible for sale 180 days after the date
of this Prospectus, upon expiration of certain lock-up agreements with the
Underwriters and pursuant to Rule 701, subject in some cases to certain volume
and other resale restrictions. Shares issuable upon the exercise of stock
options that are currently exercisable will become eligible for sale in the
public market beginning on the effective date of a registration statement on
Form S-8, which the Company intends to file with the Securities and Exchange
Commission (the "Commission") 180 days from the date of this Prospectus. See
"Shares Eligible for Future Sale."
16
<PAGE> 19
USE OF PROCEEDS
The aggregate net proceeds to the Company from the sale of the 5,477,820
shares of Common Stock offered by the Company in the Common Stock Offering
(assuming an initial public offering price of $18.50 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses), are estimated to be approximately $94.8 million ($142.1 million if
the Underwriters' over-allotment option is exercised in full). The Company
expects to use the net proceeds from the offering for working capital and
general corporate purposes, and for the development and acquisition of power
generation facilities, including investments in the Pasadena Cogeneration
Project and the Indonesian Geothermal Project. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Development and Future Projects." Pending
such uses, the Company expects to invest the net proceeds in short-term,
interest-bearing securities.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain its earnings to
finance the expansion of its business and for general corporate purposes. In
addition, the Company's ability to pay cash dividends is restricted under the
Indentures and will be restricted under the Bank of Nova Scotia Facility. Future
cash dividends, if any, will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's future
operations and earnings, capital requirements, general financial condition,
contractual restrictions and such other factors as the Board of Directors may
deem relevant.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of June 30, 1996: (i) the actual
consolidated capitalization of the Company; (ii) the pro forma consolidated
capitalization of the Company after giving effect to the Gilroy Transaction and
the conversion of the Company's outstanding Preferred Stock into Common Stock
upon the completion of the Common Stock Offering; and (iii) the pro forma as
adjusted consolidated capitalization of the Company after giving effect to the
sale of the shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $18.50 per share and the application of the
estimated net proceeds therefrom (after deducting underwriting discounts and
commissions). This table should be read in conjunction with "Pro Forma
Consolidated Financial Data" and the consolidated financial statements and
related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of non-recourse project financing...... $ 27,178 $ 30,288 $ 30,288
======== ========= =========
Long-term debt:
Long-term line of credit............................... -- -- --
Non-recourse long-term project financing, less current
portion............................................. $180,974 $ 293,864 $ 293,864
Notes payable.......................................... 6,598 6,598 6,598
Senior notes........................................... 285,000 285,000 285,000
-------- ----------- -----------
Total long-term debt................................ 472,572 585,462 585,462
-------- ----------- -----------
Stockholder's equity:
Preferred Stock, $.001 par value: 5,000,000 shares
authorized and outstanding; pro forma and pro forma
as adjusted, 10,000,000 shares authorized, no shares
outstanding......................................... 5 -- --
Common Stock, $.001 par value: 33,760,000 shares
authorized, 10,387,693 shares outstanding; pro
forma, 33,760,000 shares authorized, 12,567,180
shares outstanding; pro forma as adjusted,
100,000,000 shares authorized, 18,045,000 shares
outstanding(1)...................................... 10 13 18
Additional paid-in capital............................. 56,209 56,211 151,036
Retained earnings...................................... 23,463 23,463 23,463
Cumulative translation adjustment...................... (31) (31) (31)
-------- ----------- -----------
Total stockholder's equity.......................... 79,656 79,656 174,486
-------- ----------- -----------
Total capitalization.............................. $552,228 $ 665,118 $ 759,948
======== ========= =========
</TABLE>
- ------------
(1) Does not include 2,392,026 shares of Common Stock reserved for issuance upon
exercise of options previously granted and outstanding as of June 30, 1996
under the Company's Stock Option Program. See "Management -- Stock Option
Program" and "-- 1996 Stock Incentive Plan."
18
<PAGE> 21
DILUTION
The net tangible book value of the Company as of June 30, 1996 was $69.7
million, or $5.55 per share of Common Stock. Net tangible book value per share
is equal to the Company's total assets (excluding deferred financing and
offering expenses) less its total liabilities, divided by the total number of
outstanding shares of Common Stock. After giving effect to the sale of 5,477,820
shares of Common Stock offered by the Company hereby (at an assumed initial
public offering price of $18.50 per share), and the receipt and application of
the net proceeds therefrom, the pro forma net tangible book value of the Company
as of June 30, 1996 would have been approximately $164.5 million or $9.12 per
share. This represents an immediate dilution of $9.38 per share to new
stockholders purchasing shares in the Common Stock Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price..................... $18.50
Net tangible book value before the Common Stock
Offering............................................. $5.55
Increase attributable to new stockholders............... 3.57
-----
Pro forma net tangible book value after the Common Stock
Offering................................................ 9.12
------
Total dilution to new stockholders........................ $ 9.38
======
</TABLE>
The calculations in the table set forth above assume no exercise of the
Underwriters' over-allotment option and do not reflect 2,392,026 shares of
Common Stock reserved for issuance pursuant to options granted and outstanding
as of June 30, 1996 under the Company's Stock Option Program. See
"Management -- Stock Option Program" and "-- 1996 Stock Incentive Plan."
19
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data set forth below for and as of the five
years ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company. The consolidated financial data for the six
months ended June 30, 1995 and June 30, 1996 and as of June 30, 1996 are
unaudited, but have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments necessary for the fair
presentation of the financial position and results of operations for these
periods. Consolidated operating results for the six months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
entire year. The following selected consolidated financial data should be read
in conjunction with the consolidated financial statements and the related notes
thereto appearing elsewhere in this Prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales............. -- -- $53,000 $90,295 $127,799 $49,014 $72,030
Service contract revenue................ $29,067 $29,817 16,896 7,221 7,153 3,129 5,434
Income (loss) from unconsolidated
investments in power projects......... 9,985 9,760 19 (2,754) (2,854) (1,791) 1,713
Interest income on loans to power
projects.............................. -- -- -- -- -- -- 2,817
-------- -------- -------- -------- -------- -------- --------
Total revenue......................... 39,052 39,577 69,915 94,762 132,098 50,352 81,994
Cost of revenue........................... 25,064 25,921 42,501 52,845 77,388 30,618 51,319
-------- -------- -------- -------- -------- -------- --------
Gross profit.............................. 13,988 13,656 27,414 41,917 54,710 19,734 30,675
Project development expenses.............. 1,067 806 1,280 1,784 3,087 1,308 1,410
General and administrative expenses....... 3,443 3,924 5,080 7,323 8,937 3,659 5,874
Compensation expense related to stock
options(1).............................. -- 1,224 -- -- -- -- --
Provision for write-off of project
development costs(2).................... -- 800 -- 1,038 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income from operations.................... 9,478 6,902 21,054 31,772 42,686 14,767 23,391
Interest expense.......................... 1,925 1,225 13,825 23,886 32,154 15,116 18,665
Other income, net......................... (416) (310) (1,133) (1,988) (1,895) (855) (2,777)
-------- -------- -------- -------- -------- -------- --------
Income before provision for income
taxes, extraordinary item and
cumulative effect of change in
accounting
principle........................... 7,969 5,987 8,362 9,874 12,427 506 7,503
Provision for income taxes................ 3,149 2,527 4,195 3,853 5,049 208 3,080
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item and
cumulative effect of change in
accounting principle................ 4,820 3,460 4,167 6,021 7,378 298 4,423
Extraordinary item:
Utilization of net operating loss
carryforward.......................... 1,138 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of
change in accounting principle...... 5,958 3,460 4,167 6,021 7,378 298 4,423
Cumulative effect of adoption of SFAS No.
109..................................... -- -- (413) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income........................ $ 5,958 $ 3,460 $ 3,754 $ 6,021 $ 7,378 $ 298 $ 4,423
======== ======== ======== ======== ======== ======== ========
Weighted average shares outstanding(3).... 14,187 14,476
======== ========
Net income per share(3)................... $ 0.52 $ 0.31
======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization........... $ 219 $ 232 $12,540 $21,580 $ 26,896 $ 9,882 $15,757
EBITDA(4)............................... $ 4,909 $ 9,898 $42,370 $53,707 $ 69,515 $25,440 $41,345
</TABLE>
(See footnotes on next page)
20
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------- AS OF JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 958 $ 2,160 $ 6,166 $ 22,527 $ 21,810 $ 38,403
Property, plant and equipment, net......... 351 424 251,070 335,453 447,751 530,203
Total assets............................... 41,245 55,370 302,256 421,372 554,531 792,812
Total liabilities.......................... 34,624 44,865 288,827 402,723 529,304 713,156
Stockholder's equity....................... 6,621 10,505 13,429 18,649 25,227 79,656
</TABLE>
- ------------
(1) Represents a non-cash charge for compensation expense associated with the
grant of certain options under the Company's Stock Option Program. See
"Management -- Stock Option Program."
(2) Represents a write-off of certain capitalized project costs.
(3) The weighted average shares outstanding and earnings per share for the year
ended December 31, 1995 and the six months ended June 30, 1996 give effect
to the issuance of Common Stock upon the conversion of the Company's
outstanding Preferred Stock.
(4) EBITDA is defined as income from operations plus depreciation, capitalized
interest, other income, non-cash charges and cash received from investments
in power projects, reduced by the income from unconsolidated investments in
power projects. EBITDA is presented not as a measure of operating results
but rather as a measure of the Company's ability to service debt. EBITDA
should not be construed as an alternative either (i) to income from
operations (determined in accordance with generally accepted accounting
principles) or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles).
21
<PAGE> 24
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1995 gives effect to: (i) the Transactions; (ii) the
Preferred Stock Investment and the application of the proceeds therefrom; and
(iii) the sale of the 10 1/2% Senior Notes and the application of the net
proceeds therefrom as if such transactions had occurred on January 1, 1995. The
following unaudited pro forma consolidated statement of operations for the six
months ended June 30, 1996 gives effect to: (i) the King City Transaction; (ii)
the Gilroy Transaction; and (iii) the sale of the 10 1/2% Senior Notes and the
application of the net proceeds therefrom, as if such transactions had occurred
on January 1, 1996. For further discussion regarding the Transactions, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Description of Facilities." The following unaudited
pro forma consolidated balance sheet as of June 30, 1996 gives effect to the
Gilroy Transaction as if such transaction had occurred on June 30, 1996. The
following unaudited pro forma consolidated financial data does not give effect
to the Common Stock Offering or the application of the net proceeds therefrom.
The pro forma consolidated financial data and accompanying notes should be
read in conjunction with the consolidated financial statements and related notes
thereto appearing elsewhere in this Prospectus. The pro forma adjustments are
based upon available information and certain assumptions that management
believes are reasonable and are described in the notes accompanying the pro
forma consolidated financial data. The pro forma consolidated financial data are
presented for informational purposes only and do not purport to represent what
the Company's results of operations or financial position would actually have
been had such transactions in fact occurred at such dates, or to project the
Company's results of operations or financial position at any future date or for
any future period. In the opinion of management, all adjustments necessary to
present fairly such pro forma consolidated financial data have been made.
22
<PAGE> 25
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------
PRO FORMA FOR THE
TRANSACTIONS, THE
PREFERRED STOCK
ADJUSTMENTS FOR THE ADJUSTMENTS INVESTMENT AND THE
TRANSACTIONS AND THE FOR THE SALE SALE OF THE
PREFERRED STOCK OF THE 10 1/2% 10 1/2% SENIOR
ACTUAL INVESTMENT(1) SENIOR NOTES NOTES
-------- -------------------- --------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales............. $127,799 $ 89,349 -- $217,148
Service contract revenue................ 7,153 250 -- 7,403
Income (loss) from unconsolidated
investments in power projects......... (2,854) -- -- (2,854)
Interest income on loans to power
projects.............................. -- 2,564 -- 2,564
-------- -------- --------------- ----------
Total revenue......................... 132,098 92,163 -- 224,261
-------- -------- --------------- ----------
Cost of revenue:
Plant operating expenses................ 33,162 37,369 -- 70,531
Depreciation and amortization........... 26,264 15,838 -- 42,102
Operating lease expense................. 1,542 11,703 -- 13,245
Service contract expense................ 5,846 -- -- 5,846
Production royalties.................... 10,574 -- -- 10,574
-------- -------- --------------- ----------
Total cost of revenue................. 77,388 64,910 -- 142,298
-------- -------- --------------- ----------
Gross profit.............................. 54,710 27,253 -- 81,963
Project development expenses.............. 3,087 -- -- 3,087
General and administrative expenses....... 8,937 -- -- 8,937
-------- -------- --------------- ----------
Income from operations................ 42,686 27,253 -- 69,939
Interest expense.......................... 32,154 16,193 $ 9,176(2) 57,523
Other income, net......................... (1,895) (7,263) -- (9,158)
-------- -------- --------------- ----------
Income before provision for income
taxes................................. 12,427 18,323 (9,176) 21,574
Provision for income taxes................ 5,049 7,443 (3,728) 8,764
-------- -------- --------------- ----------
Net income.......................... $ 7,378 $ 10,880 $(5,448) $ 12,810
========= ================== ============== ==================
Net income per share................ $ 0.52 $ 0.90
========= ==================
OTHER FINANCIAL DATA:
Depreciation and amortization............. $ 26,896 $ 42,734
EBITDA.................................... $ 69,515 $123,770
</TABLE>
See Notes to Pro Forma Consolidated Statements of Operations
23
<PAGE> 26
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------------------------------------
PRO FORMA FOR THE
KING CITY
ADJUSTMENTS TRANSACTION,
ADJUSTMENTS ADJUSTMENTS FOR THE THE GILROY
FOR THE FOR THE SALE OF THE TRANSACTION AND
KING CITY GILROY 10 1/2% THE SALE OF THE
ACTUAL TRANSACTION(3)(5) TRANSACTION(4)(5) SENIOR NOTES 10 1/2% SENIOR NOTES
------- ------------------- ----------------- ------------- ---------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam
sales..................... $72,030 $ 1,583 $ 9,491 -- $83,104
Service contract revenue.... 5,434 -- -- -- 5,434
Income (loss) from
unconsolidated investments
in power projects......... 1,713 -- -- -- 1,713
Interest income on loans to
power
projects.................. 2,817 -- -- -- 2,817
------- ------- ------- -------- ------
Total revenue............. 81,994 1,583 9,491 -- 93,068
------- ------- ------- -------- ------
Cost of revenue:
Plant operating expenses.... 22,901 1,669 4,035 -- 28,605
Depreciation and
amortization.............. 15,413 2,800 2,745 -- 20,958
Operating lease expense..... 3,239 3,372 -- -- 6,611
Service contract expense.... 4,484 -- -- -- 4,484
Production royalties........ 5,282 -- -- -- 5,282
------- ------- ------- -------- ------
Total cost of revenue..... 51,319 7,841 6,780 -- 65,940
------- ------- ------- -------- ------
Gross profit.................. 30,675 (6,258) 2,711 -- 27,128
Project development
expenses.................... 1,410 -- -- -- 1,410
General and administrative
expenses.................... 5,874 -- -- -- 5,874
------- ------- ------- -------- ------
Income from operations.... 23,391 (6,258) 2,711 -- 19,844
Interest expense.............. 18,665 1,391 4,585 $ 3,259(6) 27,900
Other income, net............. (2,777) (2,526) -- -- (5,303)
------- ------- ------- -------- ------
Income (loss) before
provision for income
taxes................... 7,503 (5,123) (1,874) (3,259) (2,753)
Provision for (benefit from)
income taxes................ 3,080 (2,103) (769) (1,338) (1,130)
------- ------- ------- -------- ------
Net income (loss).... $ 4,423 $(3,020) $(1,105) $(1,921) $(1,623)
======= ======= ======= ======== ======
Net income (loss) per
share.............. $ 0.31 $ (0.11)
======= ======
OTHER FINANCIAL DATA:
Depreciation and
amortization................ $15,757 $21,302
EBITDA........................ $41,345 $46,993
</TABLE>
See Notes to Pro Forma Consolidated Statements of Operations
24
<PAGE> 27
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Represents the pro forma results of operations for the facilities involved
in the Transactions for the periods during 1995 prior to the completion of
the Transactions, as if the Transactions had been completed on January 1,
1995, including: (i) the Greenleaf 1 and 2 Facilities for the period
through April 21, 1995; (ii) the Watsonville Facility for the period
through June 28, 1995; (iii) the Cerro Prieto Steam Fields for the period
through December 14, 1995; (iv) the King City Facility for the period
through December 31, 1995; and (v) the Gilroy Facility for the period
through December 31, 1995. The information provided for the Cerro Prieto
Steam Fields does not include the portion of service contract revenue which
is contingent on future results. The pro forma adjustments reflect the
historical results of operations of the facilities, as adjusted to give
effect to the changes resulting from purchase price allocations and other
transaction effects, as applicable. Such adjustments include depreciation
and amortization applicable to new asset bases, interest expense amounts
applicable to debt instruments outstanding, income tax amounts at the
estimated effective rate of approximately 41%, and other adjustments. The
following table sets forth adjustments to results of operations for such
periods:
<TABLE>
<CAPTION>
GREENLEAF
1 AND 2 WATSONVILLE CERRO PRIETO KING CITY GILROY
FACILITIES FACILITY STEAM FIELDS FACILITY FACILITY TOTAL
--------- ----------- ------------ --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales.................. $ 5,314 $ 3,978 -- $43,836 $ 36,221 $89,349
Service contract revenue..................... -- -- $ 250 -- -- 250
Income (loss) from unconsolidated investments
in power projects.......................... -- -- -- -- -- --
Interest income on loans to power projects... -- -- 2,564 -- -- 2,564
------- ------ ------ ------- -------
Total revenue.............................. 5,314 3,978 2,814 43,836 36,221 92,163
------- ------ ------ ------- -------
Cost of revenue:
Plant operating expenses..................... 5,954 2,857 -- 14,743 13,815 37,369
Depreciation and amortization................ 1,802 147 -- 8,399 5,490 15,838
Operating lease expense...................... -- 1,586 -- 10,117 -- 11,703
Service contract expense..................... -- -- -- -- -- --
Production royalties......................... -- -- -- -- -- --
------- ------ ------ ------- -------
Total cost of revenue...................... 7,756 4,590 -- 33,259 19,305 64,910
------- ------ ------ ------- -------
Gross profit................................... (2,442) (612) 2,814 10,577 16,916 27,253
Project development expenses................... -- -- -- -- -- --
General and administrative expenses............ -- -- -- -- -- --
------- ------ ------ ------- -------
Income from operations..................... (2,442) (612) 2,814 10,577 16,916 27,253
Interest expense............................... 1,921 -- 932 4,172 9,168 16,193
Other income, net.............................. (105) -- -- (7,158) -- (7,263)
------- ------ ------ ------- -------
Income before provision for income taxes... (4,258) (612) 1,882 13,563 7,748 18,323
Provision (benefit) for income taxes........... (1,730) (249) 765 5,509 3,148 7,443
------- ------ ------ ------- -------
Net income............................. $(2,528) $ (363) $1,117 $ 8,054 $ 4,600 $10,880
======= ====== ====== ======= =======
</TABLE>
The adjustments reflected in the table set forth above for the Greenleaf 1
and 2 Facilities and the Watsonville Facility are not necessarily
indicative of a full year's results. See "Risk Factors -- Quarterly
Fluctuations; Seasonality." Other income, net for the King City Facility
reflects interest income from amounts contractually invested pursuant to
collateral fund requirements. See "Business -- Description of
Facilities -- Power Generation Facilities -- King City Facility."
(2) Reflects $18.9 million of interest expense related to the 10 1/2% Senior
Notes and $540,000 of amortization expense for the costs associated with the
sale of the 10 1/2% Senior Notes, reduced by $4.4 million of actual
25
<PAGE> 28
interest expense in 1995 as a result of the repayment of the $57 million
loan from The Bank of Nova Scotia to Calpine Thermal Company, a wholly-owned
subsidiary of the Company (the "$57 Million Bank of Nova Scotia Loan"), $3.4
million of interest expense as a result of the repayment of the $45 million
loan from The Bank of Nova Scotia to the Company (the "$45 Million Bank of
Nova Scotia Loan") (assuming an interest rate of 7.5%) and $2.4 million of
interest expense as a result of the repayment of all amounts outstanding
under the Credit Suisse Credit Facility. The $2.4 million represents
$704,000 of actual interest expense in 1995 and $1.7 million of assumed
interest expense to fund the King City and Cerro Prieto Transactions
(assuming an interest rate of 6.0%).
(3) Represents the pro forma results of operations for the King City Facility
for the period of January 1 through April 30, 1996. Other income, net for
the King City Facility reflects interest income from amounts contractually
invested pursuant to collateral fund requirements. See
"Business -- Description of Facilities -- Power Generation
Facilities -- King City Facility."
(4) Represents the pro forma results of operations for the Gilroy Facility for
the period of January 1 through June 30, 1996.
(5) Results for the six months ended June 30, 1996 reflected in the Pro Forma
Consolidated Statement of Operations are not necessarily indicative of a
full year's results. See "Risk Factors -- Quarterly Fluctuations;
Seasonality."
(6) Reflects $7.0 million of interest expense related to the 10 1/2% Senior
Notes and $201,000 of amortization expense for the costs associated with the
sale of the 10 1/2% Senior Notes, reduced by $1.9 million of actual interest
expense as a result of the repayment of the $57 Million Bank of Nova Scotia
Loan, $1.1 million of interest expense as a result of the repayment of the
$45 Million Bank of Nova Scotia Loan (assuming an interest rate of 7.5%) and
$973,000 of interest expense as a result of the repayment of all amounts
outstanding under the Credit Suisse Credit Facility. The $973,000 represents
$707,000 of actual interest expense and $266,000 of assumed interest expense
to fund a portion of the King City Transaction (assuming an interest rate of
6.0%).
26
<PAGE> 29
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------------------
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
GILROY GILROY
ACTUAL TRANSACTION TRANSACTION
-------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 38,403 $(23,650)(1) $ 14,753
Accounts receivable........................................ 43,227 9,668(2) 52,895
Collateral securities, current portion..................... 9,745 -- 9,745
Other current assets....................................... 13,369 -- 13,369
-------- ------------ -----------------
Total current assets..................................... 104,744 (13,982) 90,762
Property, plant and equipment, net........................... 530,203 125,000(3) 655,203
Investments in power projects................................ 12,693 -- 12,693
Notes receivable............................................. 37,386 -- 37,386
Collateral securities, net of current portion................ 88,669 -- 88,669
Other assets................................................. 19,117 6,450(4) 25,567
-------- ------------ -----------------
Total assets............................................. $792,812 $117,468 $ 910,280
========= ============= ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of non-recourse project financing.......... $ 27,178 $ 3,110(5) $ 30,288
Other current liabilities.................................. 25,680 1,468(6) 27,148
-------- ------------ -----------------
Total current liabilities................................ 52,858 4,578 57,436
Long-term credit facility.................................... -- -- --
Non-recourse long-term project financing, less current
portion.................................................... 180,974 112,890(7) 293,864
Notes payable................................................ 6,598 -- 6,598
Senior Notes Due 2004........................................ 105,000 -- 105,000
Senior Notes Due 2006........................................ 180,000 -- 180,000
Deferred lease incentive..................................... 81,495 -- 81,495
Deferred income taxes, net................................... 100,068 -- 100,068
Other liabilities............................................ 6,163 -- 6,163
-------- ------------ -----------------
Total liabilities........................................ 713,156 117,468 830,624
-------- ------------ -----------------
Stockholder's equity:
Preferred stock............................................ 50,000 -- 50,000
Common stock............................................... 6,224 -- 6,224
Retained earnings.......................................... 23,463 -- 23,463
Cumulative translation adjustment.......................... (31) -- (31)
-------- ------------ -----------------
Total stockholder's equity............................... 79,656 -- 79,656
-------- ------------ -----------------
Total liabilities and stockholder's equity............... $792,812 $117,468 $ 910,280
========= ============= ==================
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet
27
<PAGE> 30
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the cash required to finance, in part, the Gilroy Transaction.
(2) Represents the accounts receivable in the Gilroy Transaction.
(3) Represents the property, plant and equipment acquired in the Gilroy
Transaction.
(4) Includes $3.9 million to fund reserve accounts, $1.9 million of financing
costs that are capitalized and written off over the 18 year life of the
project financing using the interest method and $700,000 of transaction
costs that are capitalized and written off over the life of the Gilroy
Facility.
(5) Represents the current portion of the non-recourse project financing
required to finance, in part, the Gilroy Transaction.
(6) Represents the accounts payable in the Gilroy Transaction.
(7) Reflects the long-term portion of the non-recourse project financing
required to finance, in part, the Gilroy Transaction.
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
of the Company, including the notes thereto, appearing elsewhere in this
Prospectus.
GENERAL
Calpine is engaged in the acquisition, development, ownership and operation
of power generation facilities and the sale of electricity and steam in the
United States and selected international markets. The Company has interests in
14 power generation facilities and steam fields having an aggregate capacity of
937 megawatts. Upon the completion of the acquisition of the 120 megawatt Gilroy
Facility, the Company will have interests in 15 power generation facilities and
steam fields having an aggregate capacity of 1,057 megawatts. See
"Business -- Description of Facilities -- Power Generation Facilities -- Gilroy
Facility." Since its inception in 1984, Calpine has developed substantial
expertise in all aspects of electric power generation. The Company's vertical
integration has resulted in significant growth over the last five years as
Calpine has applied its extensive engineering, construction management,
operations, fuel management and financing capabilities to successfully implement
its acquisition and development program. During the last five years, Calpine has
expanded substantially, from $41.2 million of total assets as of December 31,
1991 to $910.3 million of total assets on a pro forma basis as of June 30, 1996.
Calpine's revenue on a pro forma basis for 1995 increased to $224.3 million,
representing a compound annual growth rate of 55% since 1991. The Company's
EBITDA on a pro forma basis for 1995 increased to $123.8 million. See "Pro Forma
Consolidated Financial Data."
On September 9, 1994, the Company acquired Thermal Power Company, which
owns a 25% undivided interest in certain steam fields at The Geysers steam
fields in northern California (the "Geysers") with a total capacity of 604
megawatts for a purchase price of $66.5 million. In January 1995, the Company
purchased the working interest in certain of the geothermal properties at the
PG&E Unit 13 and Unit 16 Steam Fields from a third party for a purchase price of
$6.75 million. On April 21, 1995, the Company acquired the stock of certain
companies that own 100% of the Greenleaf 1 and 2 Facilities, consisting of two
49.5 megawatt natural gas-fired cogeneration facilities, for an adjusted
purchase price of $81.5 million. On June 29, 1995, the Company acquired the
operating lease for the Watsonville Facility, a 28.5 megawatt natural gas-fired
cogeneration facility, for a purchase price of $900,000. On November 17, 1995,
the Company entered into a series of agreements to invest up to $20.0 million in
the Cerro Prieto Steam Fields. In April 1996, the Company entered into a
transaction involving a lease for the 120 megawatt King City Facility, which
required an investment of $108.3 million, primarily related to the collateral
fund requirements. The Company currently expects to complete the acquisition of
the 120 megawatt Gilroy Facility during the third quarter of 1996 for a purchase
price of $125.0 million plus certain contingent consideration. See
"Business -- Description of Facilities."
Each of the power generation facilities produces electricity for sale to a
utility. Thermal energy produced by the gas-fired cogeneration facilities is
sold to governmental and industrial users, and steam produced by the geothermal
steam fields is sold to utility-owned power plants. The electricity, thermal
energy and steam generated by these facilities are typically sold pursuant to
long-term take-and-pay power or steam sales agreements generally having original
terms of 20 or 30 years.
Each of the Company's power and steam sales agreements contains curtailment
provisions under which the purchasers of energy or steam are entitled to reduce
the number of hours of energy or amount of steam purchased thereunder. During
1995, certain of the Company's power generation facilities experienced maximum
curtailment primarily as a result of low gas prices and a high degree of
precipitation during the period, which resulted in high levels of energy
generation by hydroelectric power facilities that supply electricity. The
Company expects maximum curtailment during 1996 under its power sales agreements
for certain of its facilities. See "Business -- Description of Facilities."
Many states are implementing or considering regulatory initiatives designed
to increase competition in the domestic power generation industry. In December
1995, the CPUC issued an electric industry restructuring decision which
envisions commencement of deregulation and implementation of customer choice of
electricity supplier by January 1, 1998. As part of its policy decision, the
CPUC indicated that power sales
29
<PAGE> 32
agreements of existing QFs would be honored. The Company cannot predict the
final form or timing of the proposed restructuring and the impact, if any, that
such restructuring would have on the Company's existing business or results of
operations. The Company believes that any such restructuring would not have a
material effect on its power sales agreements and, accordingly, believes that
its existing business and results of operations would not be materially
affected, although there can be no assurance in this regard.
Electricity and steam sales represents the sale of electricity and
geothermal steam from the Company's majority-owned facilities to utilities under
the terms and conditions of long-term power and steam sales agreements. Revenue
attributable to the West Ford Flat Facility, the Bear Canyon Facility, the
Greenleaf 1 and 2 Facilities, the Watsonville Facility, the King City Facility,
the Gilroy Facility upon completion of the acquisition, the PG&E Unit 13 and
Unit 16 Steam Fields, the Thermal Power Company Steam Fields and the SMUDGEO #1
Steam Fields is included in electricity and steam sales. See
"Business -- Description of Facilities."
Service contract revenue consists of revenue earned on services performed
under operating and maintenance agreements for projects that are not
consolidated in the Company's consolidated financial statements. The Company
recognizes revenue on these agreements at the time services are performed.
Income from unconsolidated investments in power projects represents the
Company's share of income from projects that are not consolidated in the
Company's consolidated financial statements and, accordingly, are accounted for
under the equity method of accounting. The Company's share of income from such
projects is calculated according to the Company's equity ownership or in
accordance with the terms of the appropriate partnership agreement. The
Company's current investments which are accounted for under the equity method
consist of the Aidlin Facility, the Agnews Facility and the Sumas Facility.
Depreciation and amortization expense for natural gas-fired cogeneration
facilities is computed using a straight-line method over the estimated remaining
useful life. Depreciation and amortization expense also reflects the
amortization of the Company's geothermal power generation facilities and steam
fields using the units of production method of depreciation. The Company
capitalizes all capital costs related to the operating power plants and steam
fields, as well as the cost of drilling wells and estimated future development
and de-commissioning costs. These capital costs are then amortized using the
units of production method based on current production over the estimated useful
life of the geothermal resource. It is reasonably possible that the estimate of
useful lives, total units of production or total capital costs to be amortized
using the units of production method could differ materially in the near term
from the amounts assumed in arriving at current depreciation and amortization
expense.
Capitalized project costs are costs related to the development or
acquisition of new projects which are capitalized upon the execution of a
memorandum of understanding or a power sales agreement. Upon the start-up of
plant operations or the completion of an acquisition, such costs are generally
transferred to property, plant and equipment and amortized over the estimated
useful life of the project. As of June 30, 1996, the Company had deferred $2.8
million of development costs associated with projects currently in the
development stage.
General and administrative expenses include administrative, accounting,
finance, legal, human resources, insurance and other expenses incurred in
connection with the Company's operations. In addition, general and
administrative expenses also include the expenses associated with management of
the Company's operating and maintenance agreements and the expenses incurred in
the management of the Company's project investments.
Provision for income taxes includes income taxes calculated at the
effective rate for each applicable period reflecting statutory rates and as
adjusted for percentage depletion in excess of basis and other items.
SELECTED OPERATING INFORMATION
Set forth below is certain selected operating information for the power
generation facilities and steam fields, for which results are consolidated in
the Company's statements of operations. The information set forth under power
plants consists of the results for the West Ford Flat Facility, the Bear Canyon
Facility, the
30
<PAGE> 33
Greenleaf 1 and 2 Facilities and the Watsonville Facility since their
acquisitions on April 21, 1995 and June 29, 1995, respectively, and the King
City Facility subsequent to May 2, 1996. The information set forth under steam
fields consists of the results for the PG&E Unit 13 and Unit 16 Steam Fields,
the SMUDGEO #1 Steam Fields and, for 1994 and 1995, the Thermal Power Company
Steam Fields since the acquisition of Thermal Power Company on September 9,
1994. The information provided for the other interest included under steam
revenue prior to 1995 represents revenue attributable to a working interest that
was held by a third party in the PG&E Unit 13 and Unit 16 Steam Fields. In
January 1995, the Company purchased this working interest. Prior to the
Company's acquisition of the remaining interest in the West Ford Flat Facility,
Bear Canyon Facility, the PG&E Unit 13 and Unit 16 Steam Fields and the SMUDGEO
#1 Steam Fields in April 1993, the Company's revenue from these facilities was
accounted for under the equity method and, therefore, does not represent the
actual revenue of the Company from these facilities for the periods set forth
below. See "-- General."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------- ----------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
1995 1996
----------------------- -----------------------
PRO FORMA(1) PRO FORMA(2)
ACTUAL ------------ ACTUAL ------------
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
POWER PLANTS:
Electricity
revenue:
Energy........... $33,426 $38,325 $37,088 $45,912 $54,886 $ 80,255 $22,323 $34,362 $36,839
Capacity(3)...... $ 7,562 $ 7,707 $ 7,834 $ 7,967 $30,485 $ 58,116 $ 9,051 $19,774 $28,364
Megawatt hours
produced......... 392,471 403,274 378,035 447,177 1,033,566 1,859,277 324,059 736,759 860,969
Average energy
price per
kilowatt
hour(3).......... 8.517c 9.503c 9.811c 10.267c 5.310c 4.317c 6.889c 4.664c 4.279c
STEAM FIELDS:
Steam revenue:
Calpine.......... $36,173 $33,385 $31,066 $32,631 $39,669 $ 39,669 $17,639 $15,866 $15,866
Other interest... $ 2,820 $ 2,501 $ 2,143 $ 2,051 -- -- -- -- --
Megawatt hours
produced......... 2,095,576 2,105,345 2,014,758 2,156,492 2,415,059 2,415,059 1,027,317 1,040,271 1,040,271
Average price per
kilowatt hour.... 1.861c 1.705c 1.648c 1.608c 1.643c 1.643c 1.717c 1.525c 1.525c
</TABLE>
- ------------
(1) Pro forma results for the year ended December 31, 1995 give effect to the
Greenleaf Transaction, the Watsonville Transaction, the King City
Transaction and the Gilroy Transaction as if such transactions had occurred
on January 1, 1995.
(2) Pro forma results for the six months ended June 30, 1996 give effect to the
King City Transaction and the Gilroy Transaction as if such transactions had
occurred on January 1, 1996.
(3) Represents energy revenue divided by the kilowatt hours produced. The
significant increase in capacity revenue and the accompanying decline in
average energy price per kilowatt hours since 1994 reflects the increase in
the Company's megawatt hour production as a result of acquisitions of
gas-fired cogeneration facilities by the Company.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenue. Revenue increased 63% to $82.0 million for the six months ended
June 30, 1996 compared to $50.4 million for the comparable period in 1995.
Electricity and steam sales revenue increased 47% to $72.0 million for the six
months ended June 30, 1996, compared to $49.0 million for the comparable period
in 1995. The increase in electricity and steam sales revenue was primarily
attributable to $11.0 million of revenue from the King City Facility, an
increase in revenue of $6.0 million from the Greenleaf 1 and 2 Facilities, and
$3.9 million of revenue from the Watsonville Facility. The remaining increase in
electricity and steam sales revenue of $2.1 million is primarily a result of
higher generation and higher prices at other Company power generation facilities
and steam fields. Service contract revenue from related parties increased 48% to
$4.6 million for the six months ended June 30, 1996 compared to $3.1 million for
the same period in 1995, primarily as a result of service revenue earned in
connection with overhauls at the Aidlin Facility and the Agnews Facility. Income
from unconsolidated investments in power projects increased to $1.7 million for
the six months ended June 30, 1996 compared to a loss of $1.8 million for the
comparable period in 1995, primarily as a result of $1.9 million of equity
income from the Company's investment in the Sumas Facility. This increase is
primarily
31
<PAGE> 34
attributable to a contractual increase in the energy price under the power sales
agreement. Interest income on loans to power projects increased to $2.8 million
for the six months ended June 30, 1996 as a result of $1.9 million attributable
to the recognition of interest income on loans to the sole shareholder of the
general partner in the Sumas Facility, and interest income of $962,000 on loans
to Coperlasa related to the Cerro Prieto Steam Fields.
Cost of revenue. Cost of revenue increased 68% to $51.3 million for the
six months ended June 30, 1996 compared to $30.6 million for the comparable
period in 1995. The increase was primarily due to plant operating, depreciation
and operating lease expenses attributable to (i) a full six months of operations
during 1996 at the Greenleaf 1 and 2 Facilities, which were purchased on April
21, 1995, (ii) a full six months of operations during 1996 at the Watsonville
Facility which was acquired on June 29, 1995, and (iii) operations at the King
City Facility subsequent to May 2, 1996. The increase in cost of revenue was
also due to the increase in service contract expenses as a result of expenses
related to the Cerro Prieto Steam Fields, partially offset by lower operating
and depreciation expenses at the Company's other existing power generation
facilities and steam fields.
General and administrative expenses. General and administrative expenses
increased 60% to $5.9 million for the six months ended June 30, 1996 compared to
$3.7 million for the comparable period in 1995. The increase was primarily due
to additional personnel and related expenses necessary to support the Company's
expanding operations.
Interest expense. Interest expense increased 24% to $18.7 million for the
six months ended June 30, 1996 compared to $15.1 million for the comparable
period in 1995. The increase was primarily attributable to $2.4 million of
interest on the Company's 10 1/2% Senior Notes issued in May 1996 and $1.7
million of interest expense related to the Greenleaf 1 and 2 Facilities acquired
in April 1995, offset in part by a $1.5 million decrease in interest expense as
a result of repayments of principal on certain indebtedness.
Other income, net. Other income, net increased to $2.8 million for the six
months ended June 30, 1996 compared to $855,000 for the comparable period in
1995. The increase was primarily due to $1.5 million of interest income on
collateral securities purchased in connection with the King City Transaction and
to an increase in interest income from the investment of the proceeds of the
Preferred Stock Investment and a portion of the proceeds from the sale of the
10 1/2% Senior Notes.
Provision for income taxes. The effective rate for the income tax
provision was approximately 41% for the six months ended June 30, 1996. The
effective rate was based on statutory tax rates.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue increased 39% to $132.1 million in 1995 compared to $94.8
million in 1994, primarily due to a 42% increase in electricity and steam sales
to $127.8 million in 1995 compared to $90.3 million in 1994. Such an increase
was primarily attributable to the $28.3 million of revenue from the Greenleaf 1
and 2 Facilities, $5.9 million of revenue from the Watsonville Facility, the
$5.2 million of additional revenue from the Thermal Power Company Steam Fields
as a result of a full year of operation in 1995, and an increase of $3.0 million
of revenue from the SMUDGEO #1 Steam Fields attributable to increased production
as a result of an extended outage during 1994. Such an increase also reflects a
substantial increase in capacity payments for electricity sales from $8.0
million in 1994 to $30.5 million in 1995 as a result of the transactions stated
above. This revenue increase was partially offset by a $2.7 million decrease in
revenue from the West Ford Flat and Bear Canyon Facilities as a result of
curtailments by PG&E due to low gas prices and high levels of precipitation
during 1995 as compared to 1994, offset in part by contractual price increases
for 1995. Without such curtailment, the West Ford Flat and Bear Canyon
Facilities would have generated an additional $5.2 million of revenue in 1995.
Revenue for 1995 also reflects curtailment of steam production at the Thermal
Power Company Steam Fields as a result of higher precipitation and lower gas
prices in 1995, and at the PG&E Unit 13 and Unit 16 Steam Fields as a result of
hydro-spill conditions. Without curtailment, the Thermal Power Company Steam
Fields and the PG&E Unit 13 and Unit 16 Steam Fields would have generated an
additional $5.7 million and $800,000 of revenue during 1995, respectively.
Revenue for 1995 and 1994 reflects reversals of $2.7 million and $3.2
million, respectively, of previously deferred revenue. Company revenue from
sales of steam were previously calculated considering a future period
32
<PAGE> 35
when steam would be delivered without receiving corresponding revenue. See Note
2 of the notes to consolidated financial statements appearing elsewhere in this
Prospectus. In May 1994, the Company ceased deferring revenue and recognized
$4.0 million of its previously deferred revenue. Based on estimates and analyses
performed by the Company, the Company no longer expects that it will be required
to make these deliveries to SMUD. Concurrently, $800,000 of the revenue increase
was reserved for future construction of gathering systems required for future
production of the steam fields, with the offset recorded in property, plant and
equipment. In October 1995, PG&E agreed to the termination of the free steam
provision with respect to the PG&E Unit 13 Steam Fields. During 1995, the
Company took additional measures regarding future capital commitments and other
actions which will increase steam production and, based on additional analyses
and estimates performed, the Company recognized the remaining $2.7 million of
previously deferred revenue.
Cost of revenue. Cost of revenue increased 47% to $77.4 million in 1995
compared to $52.8 million in 1994. The increase was due to plant operating,
production royalty and depreciation and amortization expenses attributable to
(i) a full year of operations at Thermal Power Company, which was purchased on
September 9, 1994, (ii) operations at the Greenleaf 1 and 2 Facilities
subsequent to April 21, 1995, and (iii) operations at the Watsonville Facility
subsequent to June 29, 1995. The increases were partially offset by lower
depreciation and production royalty expenses at the West Ford Flat and Bear
Canyon Facilities and the PG&E Unit 13 and Unit 16 Steam Fields due to
curtailment by PG&E during 1995.
Project development expenses. Project development expenses increased to
$3.1 million in 1995, compared to $1.8 million in 1994, due to new project
development activities.
General and administrative expenses. General and administrative expenses
were $8.9 million in 1995 compared to $7.3 million in 1994. The increase in 1995
was primarily due to additional personnel and related expenses necessary to
support the Company's expanded operations.
Interest expense. Interest expense increased to $32.2 million in 1995 from
$23.9 million in 1994. Approximately $3.6 million of the increase was
attributable to a full year of interest expense incurred on the debt related to
the Thermal Power Company acquisition in September 1994 and $4.1 million of
interest expense incurred on the debt related to the Greenleaf Transaction in
April 1995. In addition, 1995 included a full year of interest expense on the
9 1/4% Senior Notes issued on February 17, 1994.
Provision for income taxes. The effective rate for the income tax
provision was approximately 41% for 1995 and 39% for 1994. The effective rates
were based on statutory tax rates, with minor reductions for depletion in excess
of tax basis benefits. Due to curtailment of production during 1995, the
allowance for statutory depletion decreased in 1995 from 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenue. Revenue increased 36% to $94.8 million in 1994 from $69.9 million
in 1993, primarily due to a 70% increase in electricity and steam sales to $90.3
million in 1994 compared to $53.0 million in 1993. Such increases were primarily
attributable to the $5.8 million of revenue from the Thermal Power Company Steam
Fields, the $5.1 million and $3.0 million of additional revenue from the West
Ford Flat and the Bear Canyon Facilities, respectively, as a result of the
acquisition of the additional interests in such facilities in 1994, the effects
of curtailment at such facilities in 1993 as a result of higher precipitation in
1993 and the sale of $804,000 of electricity to the Northern California Power
Agency. These revenue increases were partially offset by a decrease of $3.5
million in electricity and steam sales from the SMUDGEO #1 Steam Fields as a
result of a four-month shut-down for major maintenance.
In May 1994, the Company recognized approximately $5.9 million of its
previously deferred revenue. The revenue was previously deferred when it was
expected that steam would have been delivered without receiving corresponding
revenue. Based on current estimates and analyses performed by the Company, the
Company no longer expects that it will be required to make these deliveries to
SMUD. This resulted in a $4.0 million increase in revenue during 1994, while the
remaining $1.9 million was treated as a purchase price reduction to property,
plant and equipment. Concurrently, $800,000 of the revenue increase was reserved
for future
33
<PAGE> 36
construction of gathering systems required for future production of the steam
fields, with the offset recorded in property, plant and equipment.
Service contract revenue decreased 57% to $7.2 million in 1994 compared to
$16.9 million in 1993, primarily reflecting the elimination of intercompany
revenue for services provided to the power generation facilities and steam
fields owned by CGC after the acquisition of the remaining interest in CGC in
April 1993. In addition, the decline reflected the higher revenue recognized in
1993 on services associated with the Aidlin Facility overhaul, maintenance at
the Agnews Facility, the start-up of the Sumas Facility and the completion of
the Sumas construction management project.
Unconsolidated investments in power projects contributed a loss of $2.8
million in 1994 compared to income of $19,000 in 1993. The decrease is partially
attributable to a full year of operating loss at the Sumas Facility of $2.9
million in 1994, as compared to approximately eight months of operating loss of
$1.9 million in 1993. The 1994 Sumas Facility operating loss is attributable to
higher interest, depreciation and general and administrative expenses. The
decrease from 1993 income from unconsolidated investments in power projects is
also attributable to $2.0 million of equity income from CGC recognized prior to
the April 1993 acquisition under the equity method of accounting.
Cost of revenue. Cost of revenue increased 24% to $52.8 million in 1994
from $42.5 million in 1993. The increase was attributable to higher plant
operating, production royalty and depreciation expenses due to a full year of
operations at CGC during 1994, and to additional expenses of Thermal Power
Company as a result of its acquisition by the Company on September 9, 1994.
Service contract expenses decreased by $8.8 million primarily due to the
elimination of $6.2 million of operation expenses incurred at CGC after the
acquisition of the remaining interest in April 1993, as well as higher 1993
costs incurred in connection with the Aidlin Facility overhaul and higher
maintenance expenses at the Agnews Facility.
Project development expenses. Project development expenses increased to
$1.8 million in 1994 from $1.3 million in 1993 due to increased expenses
attributable to new project development activities.
General and administrative expenses. General and administrative expenses
increased 43% to $7.3 million in 1994 from $5.1 million in 1993 due to
additional personnel and related expenses necessary to support the Company's
expanded operations.
Provision for write-off of project development expenses. The Company
established in 1994 a $1.0 million reserve for capitalized project costs
associated with the development of projects which the Company has determined may
not be consummated.
Interest expense. Interest expense increased to $23.9 million in 1994 from
$13.8 million in 1993. The Company incurred $8.5 million of interest expense
related to the 9 1/4% Senior Notes issued in February 1994. A portion of the
proceeds of the 9 1/4% Senior Notes was used to repay all of the $52.6 million
then outstanding under the Credit Suisse Credit Facility, and to repay the
non-recourse notes payable to Freeport-McMoran Resource Partners, L.P. ("FMRP")
plus accrued interest. Interest expense also increased approximately $1.0
million due to a full year of interest expense at higher interest rates related
to CGC debt. Additionally, interest expense of $1.3 million was incurred on the
new debt related to the Company's acquisition of Thermal Power Company in
September 1994.
Provision for income taxes. The effective rate for the income tax
provision was 39% in 1994 compared to 50% for 1993. The 1994 effective rate
reflects a reduction for a depletion in excess of tax basis benefit at Thermal
Power Company and CGC. The effective rate for 1993 reflects a provision of
$700,000 due to a change in the California state income tax regulations to
disallow 50% of net operating loss carryforwards.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The Company's quarterly operating results have fluctuated in the past and
may continue to do so in the future as a result of a number of factors,
including, but not limited to, the timing and size of acquisitions, the
completion of development projects, the timing and amount of curtailment and
variations in levels of production. Furthermore, the majority of capacity
payments under certain of the Company's power sales agreements are received
during the months of May through October. The market price of the Common Stock
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<PAGE> 37
could be subject to significant fluctuations in response to those variations in
quarterly operating results and other factors.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has obtained cash from its operations, borrowings
under the Credit Suisse Credit Facility and other working capital lines, equity
contributions from Electrowatt and proceeds from non-recourse project financings
and other long-term debt. The Company utilized this cash to fund its operations,
service debt obligations, fund the acquisition, development and construction of
power generation facilities, finance capital expenditures and meet its other
cash and liquidity needs.
The following table summarizes the Company's cash flow activities for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operating activities........... $ 24,310 $ 34,196 $ 26,653 $ 5,126 $ 5,035
Investing activities........... (27,082) (84,444) (38,497) (23,874) (126,051)
Financing activities........... 6,778 66,609 11,127 3,742 137,609
-------- -------- -------- -------- ---------
Total....................... $ 4,006 $ 16,361 $ (717) $(15,006) $ 16,593
======== ======== ======== ======== =========
</TABLE>
Operating activities for 1995 consisted of approximately $7.4 million of
net income from operations, $25.9 million of depreciation and amortization and a
$2.9 million loss from unconsolidated investments in power projects, offset by
an $8.5 million net increase in operating assets and liabilities. Operating
activities for the six months ended June 30, 1996 consisted of approximately
$4.4 million of net income from operations, $15.0 million of depreciation and
amortization and $1.7 million in deferred income taxes, offset by $1.7 million
of income from unconsolidated investments in power projects and a $14.4 million
net increase in operating assets and liabilities.
Investing activities used $38.5 million during 1995, primarily due to $17.4
million of capital expenditures, $14.8 million for the acquisition of the
Greenleaf 1 and 2 Facilities and a $6.3 million investment in notes receivable.
Investing activities used $126.1 million during the six months ended June 30,
1996, primarily due to $11.0 million of capital expenditures and capitalized
project costs, $98.4 million for the purchase of collateral securities, a $12.1
million investment in Coperlasa and $4.9 million for deferred transaction costs
in connection with the King City Transaction, offset by a $1.1 million decrease
in restricted cash requirements.
Financing activities provided $11.1 million of cash during 1995. Borrowings
in 1995 included $76.0 million of non-recourse project financing and $37.5
million from the Company's lines of credit. Proceeds were primarily used to
repay $60.4 million of project debt assumed in the acquisition of the Greenleaf
1 and 2 Facilities, and $15.0 million borrowed from the lines of credit for the
acquisition of the Greenleaf 1 and 2 Facilities. In addition, $19.0 million was
used to reduce the balance outstanding under non-recourse project financing, and
$6.0 million was used to repay short-term borrowings. Financing activities
provided $137.6 million of cash during the six months ended June 30, 1996. The
Company issued $50.0 million of Preferred Stock to Electrowatt, incurred the $45
Million Bank of Nova Scotia Loan and borrowed an additional $33.8 million under
the Credit Suisse Credit Facility and received net proceeds of $175.2 million
from the 10 1/2% Senior Notes during the six months ended June 30, 1996. In
addition, the Company repaid $46.2 million of bank debt and all of the $53.7
million of borrowings outstanding under the Credit Suisse Credit Facility and
$66.6 million of non-recourse project financing.
In 1995, working capital decreased $50.5 million and cash and cash
equivalents decreased $717,000. The decrease in working capital is primarily due
to the reclassification of the $57 Million Bank of Nova Scotia Loan from
long-term to current. On May 16, 1996, the Company issued the 10 1/2% Senior
Notes, a portion of the net proceeds of which was used to refinance current
indebtedness and to repay the $57 Million Bank of
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<PAGE> 38
Nova Scotia Loan. As of June 30, 1996, cash and cash equivalents were $38.4
million and working capital was $51.9 million. For the six months ended June 30,
1996, working capital increased $100.9 million and cash and cash equivalents
increased $16.6 million as compared to the twelve months ended December 31,
1995. Working capital at December 31, 1995 included the $57 Million Bank of Nova
Scotia Loan. A portion of the net proceeds from the issuance of the 10 1/2%
Senior Notes was used to refinance current bank debt and borrowings under the
Credit Suisse Credit Facility and to repay the $57 Million Bank of Nova Scotia
Loan. Working capital also increased as a result of the investment of the
balance of the proceeds from the issuance of the 10 1/2% Senior Notes in
short-term marketable securities. The increase in working capital was also due
to the proceeds from the issuance of $50.0 million of preferred stock which were
invested until May 1, 1996 for the King City Transaction.
As a developer, owner and operator of power generation projects, the
Company may be required to make long-term commitments and investments of
substantial capital for its projects. The Company historically has financed
these capital requirements with borrowings under its credit facilities, other
lines of credit, non-recourse project financing or long-term debt.
At June 30, 1996, the Company had $208.2 million of non-recourse project
financing associated with power generating facilities and steam fields at the
West Ford Flat Facility, the Bear Canyon Facility, the PG&E Unit 13 and Unit 16
Steam Fields, the SMUDGEO #1 Steam Fields and the Greenleaf 1 and 2 Facilities.
As of June 30, 1996, the annual maturities for all non-recourse project debt
were $18.1 million for the remainder of 1996, $24.8 million for 1997, $26.0
million for 1998, $18.7 million for 1999, $18.0 million for 2000 and $100.2
million thereafter.
The Company currently has the Credit Suisse Credit Facility, which was
arranged by Electrowatt and provides for total borrowings of up to $50.0
million, with borrowings bearing interest at either LIBOR or at the Credit
Suisse base rate plus a mutually-agreed margin. As of June 30, 1996, the Company
had no borrowings outstanding under the Credit Suisse Credit Facility. Upon the
completion of the Common Stock Offering, the Credit Suisse Credit Facility will
terminate and is expected to be replaced by a comparable facility. On July 20,
1996, the Company entered into a Commitment Letter with The Bank of Nova Scotia
for a $50.0 million three-year revolving credit facility. The Bank of Nova
Scotia Facility will become effective upon the completion of the Common Stock
Offering.
The Company currently has outstanding $105.0 million of its 9 1/4% Senior
Notes which mature on February 1, 2004 and bear interest at 9 1/4% payable
semi-annually on February 1 and August 1 of each year and $180.0 million of its
10 1/2% Senior Notes which mature on May 15, 2006 and bear interest at 10 1/2%
payable semi-annually on May 15 and November 15 of each year. Under the
provisions of the Indentures, the Company may, under certain circumstances, be
limited in its ability to make restricted payments, as defined, which include
dividends and certain purchases and investments, incur additional indebtedness
and engage in certain transactions. In addition, the Bank of Nova Scotia
Facility will contain certain restrictions that will significantly limit or
prohibit, among other things, the ability of the Company or its subsidiaries to
incur indebtedness, make prepayments of certain indebtedness, pay dividends,
make investments, engage in transactions with affiliates, create liens, sell
assets and engage in mergers and consolidations.
The Company has a $1.2 million working capital line with a commercial
lender that may be used to fund short-term working capital commitments and
letters of credit. At June 30, 1996, the Company had no borrowings under this
working capital line and $900,000 of letters of credit outstanding. Borrowings
are at prime plus 1%.
The Company also had outstanding a non-interest bearing promissory note to
Natomas Energy Company in the amount of $6.5 million representing a portion of
the September 1994 purchase price of Thermal Power Company. This note, which has
been discounted to yield 8% per annum, is due September 9, 1997.
The Company intends to continue to seek the use of non-recourse project
financing for new projects, where appropriate. The debt agreements of the
Company's subsidiaries and other affiliates governing the non-recourse project
financing generally restrict their ability to pay dividends, make distributions
or otherwise transfer funds to the Company. The dividend restrictions in such
agreements generally require that, prior to
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<PAGE> 39
the payment of dividends, distributions or other transfers, the subsidiary or
other affiliate must provide for the payment of other obligations, including
operating expenses, debt service and reserves. However, the Company does not
believe that such restrictions will adversely affect its ability to meet its
debt obligations.
At June 30, 1996, the Company had commitments for capital expenditures in
1996 totaling $6.5 million related to various projects at its geothermal
facilities. The Company intends to fund capital expenditures for the ongoing
operation and development of the Company's power generation facilities primarily
through the operating cash flow of such facilities. Capital expenditures for
1995 were $17.4 million compared to $7.0 million for 1994, primarily due to the
purchase of new equipment and the additional working interest. For the six
months ended June 30, 1996, capital expenditures included $4.0 million for the
purchase of geothermal leases for the Glass Mountain Project and $2.7 million
for the new rotor at the PG&E Unit 13 facility.
The Company continues to pursue the acquisition and development of
geothermal resources and new power generation projects. The Company expects to
commit significant capital during the remainder of 1996 and in future years for
the acquisition and development of these projects. The Company's actual capital
expenditures may vary significantly during any year.
In April 1996, the Company entered into a transaction involving a lease of
the King City Facility. The Company financed this transaction with the $45
Million Bank of Nova Scotia Loan, $13.3 million of borrowings under the Credit
Suisse Credit Facility (both of which were repaid with a portion of the net
proceeds from the sale of the 10 1/2% Senior Notes) and $50.0 million of
proceeds from the Preferred Stock Investment by Electrowatt. See
"Business -- Description of Facilities -- King City Facility."
The Company believes that it will have sufficient liquidity from cash flow
from operations, borrowings available from lines of credit and working capital
lines to satisfy all obligations under outstanding indebtedness, to finance
anticipated capital expenditures and to fund working capital requirements.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This
pronouncement requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is to be recognized when the sum of undiscounted
cash flows is less than the carrying amount of the asset. Measurement of the
loss for assets that the entity expects to hold and use are to be based on the
fair market value of the asset. SFAS No. 121 must be adopted for fiscal years
beginning in 1996. The Company has adopted SFAS No. 121 effective January 1,
1996, and determined that adoption of this pronouncement had no material impact
on the results of operations or financial condition of the Company as of January
1, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. The disclosure requirements of SFAS No. 123 are effective for the
Company's 1996 fiscal year. The Company does not expect the new pronouncement to
have an impact on its results of operations since the intrinsic value-based
method prescribed by APB Opinion No. 25 and also allowed by SFAS No. 123 will
continue to be used by the Company to account for its stock-based compensation
plans.
37
<PAGE> 40
BUSINESS
OVERVIEW
Calpine is engaged in the acquisition, development, ownership and operation
of power generation facilities and the sale of electricity and steam in the
United States and selected international markets. The Company has interests in
14 power generation facilities and steam fields having an aggregate capacity of
937 megawatts. Upon the completion of the acquisition of the 120 megawatt Gilroy
Facility, the Company will have interests in 15 power generation facilities and
steam fields having an aggregate capacity of 1,057 megawatts. See
"-- Description of Facilities -- Power Generation Facilities -- Gilroy
Facility." Since its inception in 1984, Calpine has developed substantial
expertise in all aspects of electric power generation. The Company's vertical
integration has resulted in significant growth over the last five years as
Calpine has applied its extensive engineering, construction management,
operations, fuel management and financing capabilities to successfully implement
its acquisition and development program. During the last five years, Calpine has
expanded substantially, from $41.2 million of total assets as of December 31,
1991 to $910.3 million of total assets on a pro forma basis as of June 30, 1996.
Calpine's revenue on a pro forma basis for 1995 increased to $224.3 million,
representing a compound annual growth rate of 55% since 1991. The Company's
EBITDA on a pro forma basis for 1995 increased to $123.8 million. See "Pro Forma
Consolidated Financial Data." Calpine's strategy is to capitalize on
opportunities in the power market through an ongoing program to acquire,
develop, own and operate electric power generation facilities, as well as
marketing power and energy services to utilities and other end users.
THE MARKET
The power generation industry represents the third largest industry in the
United States, with an estimated end user market of approximately $207.5 billion
of electricity sales and 3.0 million gigawatt hours of production in 1995. In
response to increasing customer demand for access to low cost electricity and
enhanced services, new regulatory initiatives are currently being adopted or
considered at both state and federal levels to increase competition in the
domestic power generation industry. To date, such initiatives are under
consideration at the federal level and in approximately thirty states. For
example, in April 1996, FERC adopted Order No. 888, opening wholesale power
sales to competition and providing for open and fair electric transmission
services by public utilities. In addition, the CPUC has issued an electric
industry restructuring decision which envisions commencement of deregulation and
implementation of customer choice of electricity supplier by January 1, 1998.
Calpine believes that industry trends and such regulatory initiatives will lead
to the transformation of the existing market, which is largely characterized by
electric utility monopolies selling to a captive customer base, to a more
competitive market where end users may purchase electricity from a variety of
suppliers, including non-utility generators, power marketers, public utilities
and others. The Company believes that those market trends will create
substantial opportunities for companies such as Calpine that are low cost power
producers and have an integrated power services capability which enables them to
produce and sell energy to customers at competitive rates.
The Company also believes that these market trends will result in the
disposition of power generation facilities by utilities, independent power
producers and industrial companies. Utilities such as PG&E and Southern
California Edison Company have announced their intentions to sell power
generation facilities totalling approximately 3,150 megawatts and 5,000
megawatts, respectively. The independent power industry, which represents
approximately 8% of the installed capacity in the United States, or
approximately 59,000 megawatts, and has accounted for approximately 50% of all
additional capacity in the United States since 1990, is currently undergoing
significant consolidation. Many independent producers operating a limited number
of power plants are seeking to dispose of such plants in response to competitive
pressures, and industrial companies are selling their power plants to redeploy
capital in their core businesses. Over 200 independent power plant and portfolio
sale transactions have occurred in the past two years. The Company believes that
this consolidation will continue in the highly fragmented independent power
industry.
The power generation industry outside the United States is approximately
three times larger than the domestic market, and the demand for electricity is
growing rapidly. In 1996, it has been estimated that in
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<PAGE> 41
excess of 590 gigawatts of new capacity will be required outside the United
States over the ensuing ten-year period. In order to satisfy this anticipated
increase in demand, many countries have adopted active government programs
designed to encourage private investment in power generation facilities. The
Company believes that these programs will create significant opportunities to
acquire and develop power generation facilities in such countries.
STRATEGY
Calpine's objective is to become a leading power company by capitalizing on
these emerging market opportunities in the domestic and international power
markets. The key elements of the Company's strategy are as follows:
Expand and diversify its domestic portfolio of power projects. In pursuing
its growth strategy, the Company intends to focus on opportunities where it is
able to capitalize on its extensive management and technical expertise to
implement a fully integrated approach to the acquisition, development and
operation of power generation facilities. This approach includes design,
engineering, procurement, finance, construction, management, fuel and resource
acquisition, operations and power marketing, which Calpine believes provides it
with a competitive advantage. By pursuing this strategy, the Company has
significantly expanded and diversified its project portfolio. Since 1993, the
Company has completed transactions involving four gas-fired cogeneration
facilities and two steam fields. In addition, the acquisition of the Gilroy
Facility is expected to be completed during the third quarter of 1996. As a
result of these transactions, the Company will have more than doubled its
aggregate power generation capacity and substantially diversified its fuel mix
since 1993.
The Company is also pursuing the development of highly efficient, low cost
power plants that seek to take advantage of inefficiencies in the electricity
market. The Company intends to sell all or a portion of the power generated by
such merchant plants into the competitive market, rather than exclusively
through long-term power sales agreements. As part of Calpine's initial effort to
develop merchant plants, the Company entered into an agreement with Phillips
Petroleum Company to develop a gas-fired cogeneration project with a capacity of
240 megawatts. Under this agreement, approximately 90 megawatts of electricity
will be sold to the Phillips Houston Chemical Complex, with the remainder to be
sold into the competitive market through Calpine's power marketing activities.
The Company expects that this project will represent a prototype for future
merchant plant developments. The development of this project is subject to the
satisfaction of various conditions, including completion of financing and
obtaining required approvals. See "-- Development and Future Projects."
Enhance the performance and efficiency of existing power projects. The
Company continually seeks to maximize the power generation potential of its
operating assets and minimize its operating and maintenance expenses and fuel
costs. To date, the Company's power generation facilities have operated at an
average availability in excess of 97%. The Company believes that achieving and
maintaining a low cost of production will be increasingly important to compete
effectively in the power generation market.
Continue to develop an integrated power marketing capability. The Company
has established an integrated power marketing capability, conducted through its
wholly owned subsidiary, CPSC. In 1995, CPSC received approval from the FERC to
conduct power marketing activities. The Company believes that a power marketing
capability complements its business strategy of providing low cost power
generation services. CPSC's power marketing activities will focus on the
development of long-term customer service relationships, supported primarily by
generating assets that are owned, operated or controlled by Calpine. CPSC will
aggregate the Company's own resources, the resources of its customers, power
pool resources, and market power supply to provide the customized services
demanded by its customers at a competitive price.
Selectively expand into international markets. Internationally, the
Company intends to utilize its geothermal and gas-fired expertise in selected
markets of Southeast Asia and Latin America, where demand for power is rapidly
growing and private investment is encouraged. In November 1995, the Company made
an investment in the Cerro Prieto Steam Fields, located in Baja California,
Mexico. In March 1996, the Company entered into a joint venture agreement to
pursue the development of a geothermal resource in Indonesia with an estimated
potential capacity in excess of 500 megawatts. Calpine believes that its
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investments in these projects will effectively position it for future expansion
in Southeast Asia and Latin America.
POWER GENERATION TECHNOLOGIES
NATURAL GAS-FIRED
Natural gas-fired power plants offer significant advantages over power
plants utilizing other fuel sources, such as coal, oil and nuclear energy,
including readily available supplies of natural gas, currently favorable prices,
highly efficient technology, higher availabilities, shorter construction periods
and lower capital and operating costs. In addition, natural gas-fired power
plants have fewer environmental impacts, including significantly lower emission
levels of certain pollutants than power plants utilizing other fossil fuels such
as coal and oil. During recent years, natural gas-fired power plants have
accounted for a substantial portion of the annual increase in independent power
capacity in the United States, and natural gas-fired power generation has become
the predominant power generation technology utilized for the production of
electricity by new power plants in the United States. Industry analysts have
predicted that natural gas will continue to be the dominant fuel for new power
generation facilities in the United States for the foreseeable future.
LOGO
GEOTHERMAL
Geothermal energy is a clean, alternative source of power that is produced
by utilizing hot water or steam that has been naturally heated by the earth.
Geothermal energy is found in areas of the world where heat within the earth's
crust is close to the surface. These areas generally coincide with the
boundaries of the earth's tectonic plates. Exploitable geothermal reservoirs
have three primary defining characteristics: (i) a high heat flow near the
surface, (ii) a porous geologic medium where water can circulate to become
heated
40
<PAGE> 43
and (iii) an impermeable cap rock to prevent dispersion of the heated fluids.
Factors that affect the ability to exploit geothermal energy include the ability
to drill wells and produce fluids from the porous medium, the temperature and
quantity of the fluids and the chemical characteristics of the fluids. In
addition, the productive capacity of geothermal wells decreases over time,
requiring the drilling of new wells in an effort to maintain production.
LOGO
Geothermal energy facilities, such as those currently owned and operated by
the Company, provide significant advantages over other alternative power
generation technologies, such as wind, solar or solid waste/biomass, including
lower operating and maintenance costs per kilowatt hour, shorter construction
periods and higher plant availability. Geothermal energy also provides a
reliable and environmentally preferred source of electricity, emitting
significantly lower levels of pollutants than are released from power plants
utilizing fossil fuels. As a result of these and other advantages, as well as
federal and state tax incentives that have been adopted to encourage the
development of geothermal power generation projects, the Company believes that
there will continue to be demand for the production of electricity using
geothermal energy.
The geothermal energy capacity of the United States is located
predominantly in the western states in tectonically active regions. Total
installed geothermal capacity in the United States was approximately 2,925
megawatts as of the end of 1995, with approximately 2,650 megawatts located in
California and 275 megawatts located in Nevada, Utah and Hawaii. The Geysers
constitute the world's largest developed geothermal reservoir. The Geysers steam
fields have been in commercial production since 1960, and currently are capable
of producing an amount of steam sufficient to generate 1,200 megawatts of
electricity.
DESCRIPTION OF FACILITIES
The Company has interests in 14 power generation facilities and steam
fields with a current aggregate capacity of approximately 937 megawatts,
consisting of six natural gas-fired cogeneration facilities with a total
capacity of 402 megawatts, three geothermal power generation facilities (which
include a steam field and a power plant) with a total capacity of 67 megawatts
and five geothermal steam fields that supply utility power plants with a total
current capacity of approximately 468 megawatts. Upon the completion of the
acquisition of the Gilroy Facility, the Company will have 15 power generation
facilities and steam fields with a current aggregate capacity of approximately
1,057 megawatts, including seven natural gas-fired cogeneration facilities with
a total capacity of 522 megawatts. Each of the power generation facilities
produces electricity for sale to a
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<PAGE> 44
utility. Thermal energy produced by the gas-fired cogeneration facilities is
sold to governmental and industrial users, and steam produced by the geothermal
steam fields is sold to utility-owned power plants.
The natural gas-fired and geothermal power generation projects in which the
Company has an interest produce electricity, thermal energy and steam that are
typically sold pursuant to long-term, take-and-pay power or steam sales
agreements generally having original terms of 20 or 30 years. Revenue from a
power sales agreement usually consists of two components: energy payments and
capacity payments. Energy payments are based on a power plant's net electrical
output, where payment rates may be determined by a schedule of prices covering a
fixed number of years under the power sales agreement, after which payment rates
are usually indexed to the fuel costs of the contracting utility or to general
inflation indices. Capacity payments are based on a power plant's net electrical
output and/or its available capacity. Energy payments are made for each kilowatt
hour of energy delivered, while capacity payments, under certain circumstances,
are made whether or not any electricity is delivered. The Company is paid for
steam supplied by its steam fields on the basis of the amount of electrical
energy produced by, or steam delivered to, the contracting utility's power
plants.
The Company currently provides operating and maintenance services for all
power generation facilities in which the Company has an interest, except for the
Thermal Power Company Steam Fields and the Cerro Prieto Steam Fields. Such
services include the operation of power plants, geothermal steam fields, wells
and well pumps, gathering systems and gas pipelines. The Company also supervises
maintenance, materials purchasing and inventory control; manages cash flow;
trains staff; and prepares operating and maintenance manuals for each power
generation facility. As a facility develops an operating history, the Company
analyzes its operation and may modify or upgrade equipment or adjust operating
procedures or maintenance measures to enhance the facility's reliability or
profitability. These services are performed under the terms of an operating and
maintenance agreement pursuant to which the Company is generally reimbursed for
certain costs, is paid an annual operating fee and may also be paid an incentive
fee based on the performance of the facility. The fees payable to the Company
are generally subordinated to any lease payments or debt service obligations of
non-recourse debt for the project.
In order to provide fuel for the gas-fired power generation projects in
which the Company has an interest, natural gas reserves are acquired or natural
gas is purchased from third parties under supply agreements. The Company
structures a gas-fired power facility's fuel supply agreement so that gas costs
have a direct relationship to the fuel component of revenue energy payments.
Certain power generation facilities in which the Company has an interest
have been financed primarily with non-recourse project financing that is
structured to be serviced out of the cash flows derived from the sale of
electricity, thermal energy and/or steam produced by such facilities and
provides that the obligations to pay interest and principal on the loans are
secured almost solely by the capital stock or partnership interests, physical
assets, contracts and/or cash flow attributable to the entities that own the
projects. The lenders under non-recourse project financing generally have no
recourse for repayment against the Company or any assets of the Company or any
other entity other than foreclosure on pledges of stock or partnership interests
and the assets attributable to the entities that own the facilities.
Substantially all of the power generation facilities in which the Company
has an interest are located on sites which are leased on a long-term basis. The
Company currently holds interests in geothermal leaseholds in the Thermal Power
Company Steam Fields that produce steam for sale under steam sales agreements
and for use in producing electricity from its wholly owned geothermal power
generation facilities. See "-- Properties."
The continued operation of power generation facilities and steam fields
involves many risks, including the breakdown or failure of power generation
equipment, transmission lines, pipelines or other equipment or processes and
performance below expected levels of output or efficiency. To date, the
Company's power generation facilities have operated at an average availability
in excess of 97%, and although from time to time the Company's power generation
facilities and steam fields have experienced certain equipment breakdowns or
failures, such breakdowns or failures have not had a material adverse effect on
the operation of such facilities or on the Company's results of operations.
Although the Company's facilities contain certain redundancies and back-up
mechanisms, there can be no assurance that any such breakdown or failure would
not prevent the affected facility or steam field from performing under
applicable power and/or steam sales agreements. In
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<PAGE> 45
addition, although insurance is maintained to protect against certain of these
operating risks, the proceeds of such insurance may not be adequate to cover
lost revenue or increased expenses, and, as a result, the entity owning such
power generation facility or steam field may be unable to service principal and
interest payments under its financing obligations and may operate at a loss. A
default under such a financing obligation could result in the Company losing its
interest in such power generation facility or steam field.
LOGO
Insurance coverage for each power generation facility includes commercial
general liability, workers' compensation, employer's liability and property
damage coverage which generally contains business interruption insurance
covering debt service and continuing expenses for a period ranging from 12 to 18
months.
The Company believes that each of the currently operating power generation
facilities in which the Company has an interest is exempt from financial and
rate regulation as a public utility under federal and state laws. See
"-- Government Regulation."
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The table below sets forth certain information regarding the Company's
power generation facilities and steam fields currently in operation.
POWER GENERATION FACILITIES
<TABLE>
<CAPTION>
COMMENCEMENT TERM OF
POWER NAMEPLATE CALPINE CALPINE NET OF POWER
GENERATION CAPACITY INTEREST INTEREST COMMERCIAL UTILITY SALES
FACILITY TECHNOLOGY (MEGAWATTS)(1) (PERCENTAGE) (MEGAWATTS) OPERATION PURCHASER AGREEMENT
- --------------------- ------------ -------------- ---------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sumas................ Gas-Fired 125 75%(2) 93.8 1993 Puget Sound 2013
Cogeneration Power &
Light
King City............ Gas-Fired 120 100% 120 1989 Pacific Gas & 2019
Cogeneration Electric
Gilroy(3)............ Gas-Fired 120 100% 120 1988 Pacific Gas & 2018
Cogeneration Electric
Greenleaf 1.......... Gas-Fired 49.5 100% 49.5 1989 Pacific Gas & 2019
Cogeneration Electric
Greenleaf 2.......... Gas-Fired 49.5 100% 49.5 1989 Pacific Gas & 2019
Cogeneration Electric
Agnews............... Gas-Fired 29 20% 5.8 1990 Pacific Gas & 2021
Cogeneration Electric
Watsonville.......... Gas-Fired 28.5 100% 28.5 1990 Pacific Gas & 2009
Cogeneration Electric
West Ford Flat....... Geothermal 27 100% 27 1988 Pacific Gas & 2008
Electric
Bear Canyon.......... Geothermal 20 100% 20 1988 Pacific Gas & 2008
Electric
Aidlin............... Geothermal 20 5% 1 1989 Pacific Gas & 2009
Electric
</TABLE>
STEAM FIELDS
<TABLE>
<CAPTION>
APPROXIMATE CALPINE CALPINE NET COMMENCEMENT
CAPACITY INTEREST INTEREST OF COMMERCIAL UTILITY ESTIMATED
STEAM FIELD (MEGAWATTS)(4) (PERCENTAGE) (MEGAWATTS) OPERATION PURCHASER LIFE(5)
- ------------------------------ ------------- ---------- ---------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thermal Power Company......... 151 100% 151 1960 Pacific Gas 2018
& Electric
PG&E Unit 13.................. 100 100% 100 1980 Pacific Gas 2018
& Electric
PG&E Unit 16.................. 78 100% 78 1985 Pacific Gas 2018
& Electric
SMUDGEO #1.................... 59 100% 59 1983 Sacramento 2018
Municipal
Utility District
Cerro Prieto.................. 80 100%(6) 80 1973 Comision 2000(7)
Federal de
Electricidad
</TABLE>
- ------------
(1) Nameplate capacity may not represent the actual output for a facility at any
particular time.
(2) See "-- Power Generation Facilities -- Sumas Facility" for a description of
the Company's interest in the Sumas partnership and current sales of power
by the Sumas Facility.
(3) The Company expects to complete the acquisition of the Gilroy Facility
during the third quarter of 1996.
(4) Capacity is expected to gradually diminish as the production of the related
steam fields declines. See "-- Steam Fields."
(5) Other than for the Cerro Prieto Steam Fields, the steam sales agreements
remain in effect so long as steam is produced in commercial quantities.
There can be no assurance that the estimated life shown accurately predicts
actual productive capacity of the steam fields. See "-- Steam Fields."
(6) See "-- Steam Fields -- Cerro Prieto Steam Fields" for a description of the
Company's interest in and current sales of steam by the Cerro Prieto Steam
Fields.
(7) Represents the actual termination of the steam sales agreement. See
"-- Steam Fields -- Cerro Prieto Steam Fields."
44
<PAGE> 47
POWER GENERATION FACILITIES
Sumas Facility
The Sumas cogeneration facility (the "Sumas Facility") is a 125 megawatt
natural gas-fired, combined cycle cogeneration facility located in Sumas,
Washington, near the Canadian border. In 1991, the Company and Sumas Energy,
Inc. ("SEI") formed Sumas Cogeneration Company, L.P. ("Sumas") for the purpose
of developing, constructing, owning and operating the Sumas Facility. The
Company is the sole limited partner in Sumas and SEI is the general partner. The
Company currently holds a 50% interest in Sumas and SEI holds the other 50%
interest. At the time the Company receives a 24.5% pre-tax rate of return on its
partnership investment in Sumas, the Company's interest will be reduced to
11.33% and SEI's interest will increase to 88.67%. Further, the Company receives
an additional 25% of the cash flow of the Sumas Facility to repay principal and
interest on $11.5 million of loans to the sole shareholder of SEI. A $1.5
million loan bears interest at 20% and matures in 2003 and a $10.0 million loan
bearing interest at 16.25% and matures in 2004. The Sumas Facility commenced
commercial operation in April 1993.
The Company managed the engineering, procurement and construction of the
power plant and related facilities of the Sumas Facility, including the gas
pipeline. The Sumas Facility was constructed by a Washington joint venture
formed by Industrial Power Corporation and Haskell Corporation. The Sumas
Facility is comprised of an MS 7001EA combined cycle gas turbine manufactured by
General Electric Company ("General Electric"), a Vogt heat recovery steam
generator, a General Electric steam turbine and a 3.5 mile gas pipeline. Since
start-up in April 1993, the Sumas Facility has operated at an average
availability of approximately 96.5%.
The Sumas Facility's $135.0 million construction and gas reserves
acquisition cost was financed through $120.0 million of construction and term
loan financing provided to Sumas and ENCO Gas, Ltd. ("ENCO"), a wholly owned
Canadian subsidiary of Sumas, by The Prudential Insurance Company of America
("Prudential") and Credit Suisse. The credit facilities originally included term
loans of $70.0 million at a combined fixed interest rate of 10.28% per annum and
variable rate loans of $50.0 million currently based on LIBOR, which are
amortized over a 15-year period.
Electrical energy generated by the Sumas Facility is sold to Puget Sound
Power & Light Company ("Puget") under the terms of a 20-year power sales
agreement terminating in 2013. Under the power sales agreement, Puget has agreed
to purchase an annual average of 123 megawatts of electrical energy.
The power sales agreement provides for the sale of electrical energy at a
total price equal to the sum of (i) a fixed price component and (ii) a variable
price component multiplied by an escalation factor for the year in which the
energy is delivered. The schedule of annual fixed average energy prices
(expressed in cents per kilowatt hour) in effect through 2013 under the Sumas
power sales agreement is as follows:
<TABLE>
<CAPTION>
FIXED FIXED FIXED
ENERGY ENERGY ENERGY
YEAR PRICE YEAR PRICE YEAR PRICE
- -------------------- ------ -------------------- ------ -------------------- ------
<S> <C> <C> <C> <C> <C>
1996................ 3.19c
1997................ 3.38c
1998................ 3.64c
1999................ 3.98c
2000................ 4.23c
2001................ 6.23c
2002................ 6.11c
2003................ 6.22c
2004................ 6.33c
2005................ 6.45c
2006................ 6.57c
2007................ 5.23c
2008................ 5.31c
2009................ 5.40c
2010................ 5.49c
2011................ 5.58c
2012................ 5.58c
2013................ 5.58c
</TABLE>
The variable price component is set according to a scheduled rate set forth in
the agreement, which in 1995 was .97c per kilowatt hour, and escalates annually
by a factor equal to the U.S. Gross National Product Implicit Price Deflator.
For 1995, the average price paid by Puget under the power sales agreement was
2.954c per kilowatt hour. Pursuant to the power sales agreement, Puget may
displace the production of the Sumas Facility when the cost of Puget's
replacement power is less than the Sumas Facility's incremental power generation
costs. Thirty-five percent of the savings to Puget under this displacement
provision are shared with
45
<PAGE> 48
the Sumas Facility. In 1995, the Sumas Facility's net profit was increased by
$278,000 as a result of the displacement provision. The Company currently
estimates a similar level of displacement in 1996 as that experienced in 1995.
In addition to the sale of electricity to Puget, pursuant to a long-term
steam supply and dry kiln lease agreement, the Sumas Facility produces and sells
approximately 23,000 pounds per hour of low pressure steam to an adjacent
lumber-drying facility owned by Sumas, which has been leased to and is operated
by Socco, Inc. ("Socco"), an SEI affiliate. It is necessary to continue to
operate the dry kiln facility in order to maintain the Sumas Facility's QF
status. See "-- Government Regulation."
In connection with the development of the Sumas Facility, Canadian natural
gas reserves located primarily in northeastern British Columbia, Canada were
acquired by Sumas through its wholly owned subsidiary, ENCO. The gas reserves
owned by ENCO totalled 138 billion cubic feet as of January 1, 1996. Firm
transportation is contracted for on the Westcoast Energy Inc. pipeline. Gas is
delivered to Huntington, British Columbia where it is transferred into Sumas'
own pipeline for transportation to the plant. ENCO is currently supplying
approximately 12,000 million British thermal units per day ("mmbtu/day") to the
Sumas Facility. The remaining 13,000 mmbtu/day requirement is being supplied
under a one-year contract with West Coast Gas Services, Inc. The Company
believes that the gas reserves owned by ENCO and the availability of
supplemental gas supplies are sufficient to fuel the Sumas Facility through the
year 2013.
The Company operates and maintains the Sumas Facility under an operating
and maintenance agreement pursuant to which the Company is reimbursed for
certain costs and is entitled to a fixed annual fee and an incentive payment
based on project performance. This agreement has an initial term of ten years
expiring in April 2003 and provides for extensions.
The Sumas Facility is located on 13.5 acres located in Sumas, Washington,
which are leased from the Port of Bellingham under the terms of a 23.5-year
lease expiring in 2014, subject to renewal. The lease provides for rental
payments according to a fixed schedule.
During 1995, the Sumas Facility generated approximately 1,026,000,000
kilowatt hours of electrical energy and approximately $31.5 million of total
revenue. In 1995, the Company recognized a loss of approximately $3.0 million in
accordance with the terms of the Sumas partnership agreement, and recorded
revenue of $2.0 million for services performed under the operating and
maintenance agreement.
King City Facility
The King City cogeneration facility (the "King City Facility") is a 120
megawatt natural gas-fired combined cycle facility located in King City,
California. In April 1996, the Company entered into a long-term operating lease
for this facility with BAF Energy, A California Limited Partnership ("BAF").
Under the terms of the operating lease, Calpine makes semi-annual lease payments
to BAF, a portion of which is supported by a $100.7 million collateral fund,
owned by the Company. The collateral consists of a portfolio of investment grade
and U.S. Treasury Securities that will mature serially in amounts equal to a
portion of the lease payments.
The Company financed the collateral fund and other transaction costs with
the $45 Million Bank of Nova Scotia Loan and $13.3 million of borrowings under
the Credit Suisse Credit Facility (both of which were repaid with a portion of
the net proceeds from the sale of the 10 1/2% Senior Notes), as well as $50.0
million of proceeds from the Preferred Stock Investment by Electrowatt.
The power plant consists of a General Electric Frame 7 Model EA combustion
turbine generator, a Nooter/Eriksen heat recovery steam generator, an ASEA Brown
Boveri ("ABB") steam turbine generator and two Nebraska Boiler auxiliary
boilers. The King City Facility commenced commercial operation in 1989 and has
operated at an average availability of approximately 97%.
46
<PAGE> 49
Electricity generated by the King City Facility is sold to PG&E under a
30-year power sales agreement terminating in 2019. The power sales agreement
contains payment provisions for capacity and energy. The power sales agreement
provides for a firm capacity payment of $184 per kilowatt year for 111 megawatts
for the term of the agreement so long as the King City Facility delivers 80% of
the firm capacity during designated periods of the year. Additional capacity
payments are received for as-delivered capacity in excess of 111 megawatts
delivered during peak and partial peak hours. The following schedule sets forth
the as-delivered capacity prices per kilowatt year:
<TABLE>
<CAPTION>
AS-DELIVERED
YEAR CAPACITY PRICE
---------------------------------------------------- --------------
<S> <C>
1996................................................ $176
1997................................................ $188
1998................................................ $188
</TABLE>
Thereafter, the payment for as-delivered capacity will be the greater of $188
per kilowatt year or PG&E's then current as-delivered capacity rate. Through
1998, payments for electrical energy produced are based on 100% of PG&E's
avoided cost of energy for the period of January 1 through April 30, and 80% at
avoided cost and 20% at fixed prices for the period of May 1 through December
31. The schedule of fixed average energy prices (expressed in cents per kilowatt
hour) in effect through 1998 under the King City Facility power sales agreement
is as follows:
<TABLE>
<CAPTION>
ENERGY
YEAR PRICE
-------------------------------------------------------- ------
<S> <C>
1996.................................................... 12.24c
1997.................................................... 13.14c
1998.................................................... 13.14c
</TABLE>
Thereafter, PG&E is required to pay for electrical energy actually delivered at
prices equal to PG&E's then avoided cost of energy (as determined by the CPUC).
PG&E's avoided cost of energy varies from month to month and has ranged from an
annual average of 1.84c to 2.96c per kilowatt hour since 1992. During 1995,
PG&E's avoided cost of energy averaged approximately 1.84c per kilowatt hour.
Through April 28, 1999, the power sales agreement allows for dispatchable
operation which gives PG&E the right to curtail the number of hours per year
that the King City Facility operates. PG&E has an option to extend its
curtailment rights for two additional one-year terms. If PG&E exercises the
curtailment extension option, it will be required to pay an additional .7c per
kilowatt hour for all energy delivered from the King City Facility.
In addition to the sale of electricity to PG&E, the King City Facility
produces and sells thermal energy to a thermal host, Basic Vegetable Products,
Inc. ("BVP"), an affiliate of BAF, under a long-term contract coterminous with
the power sales agreement. It is necessary to continue to operate the host
facility in order to maintain the King City Facility's QF status. See
"-- Government Regulation." The BVP facility was built in 1957 and processes
between 30% and 40% of the dehydrated onion and garlic production in the United
States.
Natural gas for the King City Facility is supplied pursuant to a contract
with Chevron U.S.A. Inc. ("Chevron") expiring June 30, 1997. Natural gas is
transported under a firm transportation agreement, expiring June 30, 1997, via a
dedicated 38-mile pipeline owned and operated by PG&E. The Company believes that
upon expiration of these agreements that it will be able to obtain sufficient
quantities and firm transportation of natural gas to operate the King City
Facility for the remaining term of the power sales agreement.
Fee title to the premises is owned by Basic American, Inc., who has leased
the premises to an affiliate of BAF for a term equivalent to the term of the
power sales agreement for the King City Facility. The Company is subleasing the
premises, together with certain easements, from such affiliate of BAF pursuant
to a ground sublease for approximately 15 acres.
47
<PAGE> 50
Gilroy Facility
In May 1996, the Company signed a letter of intent with McCormick &
Company, Inc. and Gilroy Energy Company to acquire the Gilroy cogeneration
facility (the "Gilroy Facility"), a 120 megawatt gas-fired, cogeneration power
plant owned by Gilroy Energy Company located in Gilroy, California. The Company
has negotiated the terms of the definitive asset purchase agreement and is
currently in the process of completing such agreement, and expects to complete
the acquisition during the third quarter of 1996. Pursuant to such agreement,
the Company will purchase the Gilroy Facility for a purchase price of $125.0
million plus certain contingent consideration. Completion of such acquisition is
subject to certain conditions. There can be no assurance that such conditions
will be met, or that the Company will be successful in completing the
acquisition or the financing thereof.
The Company has arranged to finance the acquisition of the Gilroy Facility
utilizing, in part, an 18-year non-recourse project loan of $116.0 million
provided by Banque Nationale de Paris (the "BNP Loan"). The BNP Loan will
include floating and fixed interest rate tranches.
The power plant consists of a General Electric Frame 7 Model EA combustion
turbine generator, an AEG-KANIS (ABB) steam turbine, a Henry Vogt heat recovery
steam generator, two auxiliary boilers and an inlet chiller using a Henry Vogt
ice machine. The Gilroy Facility commenced commercial operation in March 1988
and has operated at an average availability of approximately 98.5%.
Electricity generated by the Gilroy Facility is sold to PG&E under an
original 30-year power sales agreement terminating in 2018. The power sales
agreement contains payment provisions for capacity and energy. The power sales
agreement provides for a firm capacity payment of $172 per kilowatt year for 120
megawatts for the term of the agreement so long as the Gilroy Facility delivers
80% of the firm capacity during designated periods of the year. Additional
capacity payments are received for as-delivered capacity in excess of 120
megawatts delivered. The following schedule sets forth the as-delivered capacity
prices per kilowatt year:
<TABLE>
<CAPTION>
AS-DELIVERED
YEAR CAPACITY PRICE
-------------------------------------------------------- --------------
<S> <C>
1996.................................................... $176
1997.................................................... $188
</TABLE>
Thereafter, the payment for as-delivered capacity will be the greater of
$188 per kilowatt year or PG&E's then current as-delivered capacity rate. In
addition, the power sales agreement provides for payments for electrical energy
actually delivered during the period of dispatchable operation at a price equal
to PG&E's avoided cost of energy excluding adders (as determined by the CPUC).
Thereafter, during the period of baseload operation, PG&E is required to pay for
electrical energy actually delivered at prices equal to PG&E's then avoided cost
of energy. PG&E's avoided cost of energy varies from month to month and has
ranged from an annual average of 1.84c to 2.96c per kilowatt hour since 1992.
During 1995, PG&E's avoided cost of energy averaged approximately 1.84c per
kilowatt hour.
In addition to the sale of electricity to PG&E, the Gilroy Facility
produces and sells thermal energy to a thermal host, Gilroy Foods, Inc. ("Gilroy
Foods"), under a long-term contract that is coterminous with the power sales
agreement. Gilroy Foods is a recognized leader in the production of dehydrated
onions and garlic. It is anticipated that, simultaneously with the acquisition
by the Company of the Gilroy Facility, Gilroy Foods will be acquired by ConAgra,
Inc., an international food company with 1995 revenues of approximately $24.1
billion. It is necessary to continue to operate the host facility in order to
maintain the Gilroy Facility's QF status. See "-- Government Regulation."
Natural gas for the Gilroy Facility is supplied pursuant to a contract with
Amoco Energy Trading Corporation ("Amoco") expiring July 31, 1997. The Company
believes that upon expiration of this fuel supply agreement, it will be able to
obtain a sufficient quantity of natural gas to operate the Gilroy Facility for
the remaining term of the power sales agreement. Natural gas is transported
under a firm transportation agreement, expiring July 1, 1997, via a dedicated
300-yard pipeline owned and maintained by PG&E.
48
<PAGE> 51
The Gilroy Facility is located on approximately five acres of land which
will be leased to the Company by Gilroy Foods. The lease term runs concurrent
with the term of the power sales agreement.
Greenleaf 1 and 2 Facilities
On April 21, 1995, Calpine completed the acquisition of the Greenleaf 1 and
2 cogeneration facilities (the "Greenleaf 1 and 2 Facilities") from Radnor Power
Corporation, an affiliate of LFC Financial Corporation ("LFC"), for an adjusted
purchase price of $81.5 million.
On June 30, 1995, Calpine refinanced the existing debt on the Greenleaf 1
and 2 Facilities by borrowing $76.0 million from Sumitomo Bank. The non-recourse
project financing with Sumitomo Bank is divided into two tranches, a $60.0
million fixed rate loan facility which bears interest on the unpaid principal at
a fixed rate of 7.415% per annum with amortization of principal based on a fixed
schedule through June 30, 2005, and a $16.0 million floating rate loan facility
which bears interest based on LIBOR plus an applicable margin (6.5% as of
December 31, 1995) with the amortization of principal based on a fixed schedule
through December 31, 2010.
The Greenleaf 1 and 2 Facilities have a combined natural gas requirement of
approximately 22,000 mmbtu/day. The Company, through its wholly owned subsidiary
Calpine Fuels Corporation ("Calpine Fuels"), entered into a gas supply agreement
with Montis Niger, Inc. ("MNI"), an affiliate of LFC, which owns and operates a
local gas field that is connected to the facilities. Calpine Fuels is committed
to purchasing all gas produced by MNI under this agreement which terminates in
December 2019. The quantity of gas produced by MNI varies and is currently less
than the facilities' full requirements. As a result, Calpine Fuels has
supplemented the MNI gas supply with a short-term contract with Coastal Gas
Marketing Company, which expires on September 30, 1996. This gas is delivered
over PG&E's intrastate pipeline which is directly connected to each facility.
The Greenleaf 1 and 2 Facilities have interruptible transportation agreements
with PG&E, expiring in June 1997. The Company believes that it will be able to
obtain a sufficient quantity of natural gas to operate the Greenleaf 1 and 2
Facilities for the remaining term of the power sales agreement.
Greenleaf 1 Facility. The Greenleaf 1 cogeneration facility (the
"Greenleaf 1 Facility") is a 49.5 megawatt natural gas-fired cogeneration
facility located near Yuba City, California. The Greenleaf 1 Facility includes
an LM5000 gas turbine manufactured by General Electric, a Vogt heat recovery
steam generator and a condensing General Electric steam turbine. The Greenleaf 1
Facility commenced commercial operation in March 1989. Since its acquisition by
the Company in April 1995, the power plant has operated at an average
availability of approximately 94.4%.
Electricity generated by the Greenleaf 1 Facility is sold to PG&E under a
30-year power sales agreement terminating in 2019 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
firm capacity payment of $184 per kilowatt year for 49.2 megawatts for the term
of the agreement, so long as the Greenleaf 1 Facility delivers 80% of its firm
capacity during certain designated periods of the year, and an as-delivered
capacity payment for an additional .3 megawatts of capacity. The following
schedule sets forth the as-delivered capacity prices per kilowatt year through
1997 under the Greenleaf 1 Facility power sales agreement:
<TABLE>
<CAPTION>
AS-DELIVERED
YEAR CAPACITY PRICE
---------------------------------------------------- --------------
<S> <C>
1996................................................ $176
1997................................................ $188
</TABLE>
Thereafter, the payment for as-delivered capacity will be the greater of $188
per kilowatt year or PG&E's then current as-delivered capacity rate. In
addition, the power sales agreement provides for payments for up to 49.5
megawatts of electrical energy actually delivered at a price equal to PG&E's
avoided cost of energy (as determined by the CPUC). PG&E's avoided cost of
energy varies from month to month and has ranged from an annual average of 1.84c
to 2.96c per kilowatt hour since 1992. During 1995, PG&E's avoided cost of
energy averaged approximately 1.84c per kilowatt hour.
49
<PAGE> 52
In accordance with the power sales agreement, PG&E is entitled to curtail
the Greenleaf 1 Facility during hydro-spill periods, or during periods of
negative avoided costs. During 1995, the Greenleaf 1 Facility did not experience
curtailment, and the Company does not expect to experience curtailment at such
facility during 1996. PG&E may also interrupt or reduce deliveries if necessary
to repair its system or because of system emergencies, forced outages, force
majeure and compliance with prudent electrical practices.
In addition to the sale of electricity to PG&E, the Greenleaf 1 Facility
sells thermal energy, in the form of hot exhaust to dry wood waste, to a thermal
host which is owned and operated by the Company. It is necessary to continue to
operate the host facility in order to maintain the Greenleaf 1 Facility's QF
status. See "-- Government Regulation."
The Greenleaf 1 Facility is located on 77 acres owned by the Company near
the rural area of Yuba City, California.
From April 21, 1995 through December 31, 1995, the Greenleaf 1 Facility
generated approximately 258,921,000 kilowatt hours of electric energy for sale
to PG&E and approximately $13.9 million in revenue.
Greenleaf 2 Facility. The Greenleaf 2 cogeneration facility (the
"Greenleaf 2 Facility") is a 49.5 megawatt natural gas-fired cogeneration
facility located near Yuba City, California. The Greenleaf 2 Facility includes a
STIG LM5000 gas turbine manufactured by General Electric and a Deltak heat
recovery steam generator. The Greenleaf 2 Facility commenced commercial
operation in December 1989. Since its acquisition by the Company in April 1995,
the power plant has operated at an average availability of approximately 95%.
Electricity generated by the Greenleaf 2 Facility is sold to PG&E under a
30-year power sales agreement terminating in 2019 which includes payment
provisions for capacity and energy. The power sales agreement provides for a
firm capacity payment of $184 per kilowatt year for 49.2 megawatts for the term
of the agreement, so long as the Greenleaf 2 Facility delivers 80% of its firm
capacity during certain designated periods of the year, and an as-delivered
capacity payment for an additional .3 megawatts of capacity. The following
schedule sets forth the as-delivered capacity prices per kilowatt year through
1997 under the Greenleaf 2 Facility power sales agreement:
<TABLE>
<CAPTION>
AS-DELIVERED
YEAR CAPACITY PRICE
---------------------------------------------------- --------------
<S> <C>
1996................................................ $176
1997................................................ $188
</TABLE>
Thereafter, the payment for as-delivered capacity will be the greater of $188
per kilowatt year or PG&E's then current as-delivered capacity rate. In
addition, the power sales agreement provides for payments for up to 49.5
megawatts of electrical energy actually delivered at a price equal to PG&E's
avoided cost of energy (as determined by the CPUC). PG&E's avoided cost of
energy varies from month to month and has ranged from an annual average of 1.84c
to 2.96c per kilowatt hour since 1992. During 1995, PG&E's avoided cost of
energy averaged approximately 1.84c per kilowatt hour.
In accordance with the power sales agreement, PG&E is entitled to curtail
the Greenleaf 2 Facility during hydro-spill periods or during any period of
negative avoided costs. During 1995, the Greenleaf 2 Facility did not experience
curtailment, and the Company does not expect to experience curtailment at such
facility during 1996. PG&E may also interrupt or reduce deliveries if necessary
to repair its system or because of system emergencies, forced outages, force
majeure and compliance with prudent electrical practices.
In addition to the sale of electricity to PG&E, the Greenleaf 2 Facility
sells thermal energy to Sunsweet Growers, Inc. ("Sunsweet") pursuant to a
30-year contract. Sunsweet is the largest producer of dried fruit in the United
States. It is necessary to continue to operate the host facility in order to
maintain the status of the Greenleaf 2 Facility as a QF. See "-- Government
Regulation."
The Greenleaf 2 Facility is located on 2.5 acres of land under a lease from
Sunsweet, which runs concurrent with the power sales agreement.
50
<PAGE> 53
From April 21, 1995 through December 31, 1995, the Greenleaf 2 Facility
generated approximately 276,038,000 kilowatt hours of electric energy for sale
to PG&E and approximately $14.5 million of revenue.
Agnews Facility
The Agnews cogeneration facility (the "Agnews Facility") is a 29 megawatt
natural gas-fired combined cycle cogeneration facility located on the East
Campus of the state-owned Agnews Developmental Center in San Jose, California.
Calpine holds a 20% ownership interest in GATX Calpine-Agnews, Inc., which is
the sole stockholder of O.L.S. Energy-Agnews, Inc. ("O.L.S. Energy-Agnews").
O.L.S. Energy-Agnews leases the Agnews Facility under a sale leaseback
arrangement. The other stockholder of GATX Calpine-Agnews, Inc. is GATX Capital
Corporation ("GATX"), which has an 80% ownership interest. In connection with
the sale leaseback arrangement, Calpine has agreed to reimburse GATX for its
proportionate share of certain payments that may be made by GATX with respect to
the Agnews Facility. The Company and GATX managed the development and financing
of the Agnews Facility, which commenced commercial operations in December 1990.
The Company managed the engineering, construction and start-up of the
Agnews Facility. The construction work was performed by Power Systems
Engineering, Inc. under a turnkey contract. The power plant consists of an
LM2500 aeroderivative gas turbine manufactured by General Electric, a Deltak
unfired heat recovery steam generator and a Shin Nippon steam turbine-generator.
Since start-up, the Agnews Facility has operated at an average availability of
approximately 96.5%.
The total cost of the Agnews Facility was approximately $39 million. The
construction financing was provided by Credit Suisse in the amount of $28.0
million. After the commencement of commercial operation, the facility was sold
to Nynex Credit Corporation under a sale leaseback arrangement with O.L.S.
Energy-Agnews. Under the sale leaseback, O.L.S. Energy-Agnews has entered into a
22-year lease, commencing March 1991, providing for the payment of a fixed base
rental, renewal options and a purchase option at fair market value at the
termination of the lease.
Electricity generated by the Agnews Facility is sold to PG&E under a
30-year power sales agreement terminating in 2021 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
payment of $196 per kilowatt year for 24 megawatts of firm capacity for the term
of the agreement, so long as the Agnews Facility delivers at least 80% of its
firm capacity of 24 megawatts during certain designated periods of the year, and
an as-delivered capacity payment for an additional 4 megawatts of capacity. The
following schedule sets forth the as-delivered capacity prices per kilowatt year
through 1998 under the Agnews Facility power sales agreement:
<TABLE>
<CAPTION>
AS-DELIVERED
YEAR CAPACITY PRICE
---------------------------------------------------- --------------
<S> <C>
1996................................................ $176
1997................................................ $188
1998................................................ $188
</TABLE>
Thereafter, the payment for as-delivered capacity will be at the greater of $188
per kilowatt year or PG&E's then current as-delivered capacity rate. In
addition, the power sales agreement provides for payments for up to 32 megawatts
of electrical energy actually delivered at a price equal to (i) through 1998,
the product of PG&E's fixed incremental energy rate and PG&E's utility electric
generation gas cost, and (ii) thereafter, PG&E's avoided cost of energy (as
determined by the CPUC). PG&E's avoided cost of energy varies from month to
month and has ranged from an annual average of 1.84c to 2.96c per kilowatt hour
since 1992. During 1995, PG&E's avoided cost of energy averaged approximately
1.84c per kilowatt hour.
Under certain circumstances, PG&E may curtail energy deliveries for up to
1,000 off-peak hours per year. During 1995, PG&E curtailed the energy purchased
under the power sales agreement by 1,000 hours. The Company currently expects
the maximum amount of curtailment allowed under the agreement during 1996.
51
<PAGE> 54
In addition to the sale of electricity to PG&E, the Agnews Facility
produces and sells electricity and approximately 7,000 pounds per hour of steam
to the Agnews Developmental Center pursuant to a 30-year energy service
agreement. The energy service agreement provides that the State of California
will purchase from the Agnews Facility all of its requirements for steam (up to
a specified maximum) and for electricity (which has historically been less than
one megawatt per year) for the East Campus of the Agnews Developmental Center
for the term of the agreement. Steam sales are priced at the cost of production
for the Agnews Developmental Center. Electricity sales are priced at the rates
that would otherwise be paid to PG&E by the Agnews Developmental Center. The
State of California is required to utilize the minimum amount of steam required
to maintain the Agnews Facility's QF status. See "-- Government Regulation."
The supply of natural gas for the Agnews Facility is currently provided
under a full requirements fuel supply agreement between O.L.S. Energy-Agnews and
Amoco Energy Trading Corporation ("Amoco") which expires June 30, 1997. The
Company believes that, upon expiration of this fuel supply agreement, it will be
able to obtain a sufficient quantity of natural gas to operate the Agnews
Facility for the remaining term of the power sales agreement. Intrastate
transportation is provided under a firm gas transportation agreement with PG&E
expiring in June 1997.
The Agnews Facility is operated by the Company under an operating and
maintenance agreement pursuant to which the Company is reimbursed for certain
costs and is entitled to a fixed annual fee and an incentive payment based on
performance. This agreement has an initial term of six years expiring on
December 31, 1996 and may be automatically renewed for an additional six-year
term, provided certain performance standards are met, and thereafter upon
mutually agreeable terms. The Company expects the contract will be renewed on
December 31, 1996.
The Agnews Facility is located on 1.4 acres of land leased from the Agnews
Development Center under the terms of a 30-year lease that expires in 2021. This
lease provides for rental payments to the State of California on a fixed payment
basis until January 1, 1999, and thereafter based on the gross revenues derived
from sales of electricity by the Agnews Facility, as well as a purchase option
at fair market value.
During 1995, the Agnews Facility generated approximately 225,683,000
kilowatt hours of electrical energy and total revenue of $10.8 million. In 1995,
the Company recognized a loss of approximately $82,000 as a result of the
Company's 20% ownership interest and recorded revenue of $1.5 million for
services performed under the operating and maintenance agreement.
Watsonville Facility
The Watsonville cogeneration facility (the "Watsonville Facility") is a
28.5 megawatt natural gas-fired combined cycle cogeneration facility located in
Watsonville, California. On June 29, 1995, the Company acquired the operating
lease for this facility for $900,000 from Ford Motor Credit Company. Under the
terms of the lease, rent is payable each month from July through December. The
lease terminates on December 29, 2009. The Watsonville Facility commenced
commercial operation in May 1990. The power plant consists of a General Electric
LM2500 gas turbine, a Deltak heat recovery steam generator and a Shin Nippon
steam turbine. Since its acquisition by the Company in June 1995, the power
plant has operated at an average availability of approximately 96.5%.
Electricity generated by the Watsonville Facility is sold to PG&E under a
20-year power sales agreement terminating in 2009 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
payment of $178 per kilowatt year for 20.9 megawatts of firm capacity for the
term of the agreement, so long as the Watsonville Facility delivers at least 80%
of its firm capacity of 20.9 megawatts during certain designated periods of the
year, and an as-delivered capacity payment for an additional 7.6 megawatts of
capacity. In addition, the power sales agreement provides for payments for up to
28.5 megawatts of electrical energy actually delivered. Through April of 2000,
1% of energy will be sold under the fixed energy price schedule set forth below,
and 99% of the energy will be sold at PG&E's avoided cost of energy. The
following schedule sets forth the fixed average energy prices (expressed in
cents per kilowatt
52
<PAGE> 55
hour) and the as-delivered capacity prices per kilowatt year through 2000 for
energy deliveries under the Watsonville Facility power sales agreement:
<TABLE>
<CAPTION>
ENERGY AS-DELIVERED
YEAR PRICE CAPACITY PRICE
-------------------------------------------- ------- --------------
<S> <C> <C>
1996........................................ 12.24c $176
1997........................................ 13.14c $188
1998........................................ 13.90c $188
1999........................................ 13.90c $188
2000........................................ 13.90c $188
</TABLE>
Thereafter, PG&E will pay for energy delivered at prices equal to PG&E's avoided
cost of energy (as determined by the CPUC), and will pay for as-delivered
capacity at the greater of $188 per kilowatt year or PG&E's then current
as-delivered capacity rate. PG&E's avoided cost of energy varies from month to
month and has ranged from an annual average of 1.84c to 2.96c per kilowatt hour
since 1992. During 1995, PG&E's avoided cost of energy averaged approximately
1.84c per kilowatt hour.
Under certain circumstances, PG&E may curtail energy deliveries for a block
of up to 400 hours between January 1 and April 15 and an additional 900 off-peak
hours from October 1 though April 30. From June 29, 1995 through December 31,
1995, PG&E curtailed energy purchases of 212 hours under the power sales
agreement.
In addition to the sale of electricity to PG&E, during 1995 the Watsonville
Facility produced and sold steam to two thermal hosts, Norcal Frozen Foods, Inc.
("Norcal") and Farmers Processing, both food processors. In August 1995, Norcal
sold its facility to a subsidiary of Dean Foods ("Dean Foods"), which closed the
facility on February 9, 1996. The lessor of the Watsonville Facility has
constructed a water distillation facility on the site of the Watsonville
Facility to replace the Dean Foods food processing facility. This facility
commenced operations in August 1996 and is operated by the Company. It is
necessary to continue to operate the host facilities in order to maintain the
Watsonville Facility's QF status. See "-- Government Regulation."
Amoco is the supplier of natural gas to the Watsonville Facility. The
Company has negotiated a contract with Amoco, which it expects to execute by
September 1, 1996 and which will be effective through June 30, 1997. In the
interim, the Company has executed a series of monthly contracts with Amoco. PG&E
provides firm gas transportation to the Watsonville Facility under a contract
expiring June 30, 1997. The Company believes that upon expiration of this fuel
supply agreement, it will be able to obtain a sufficient quantity of natural gas
to operate the Watsonville Facility for the remaining term of the power sales
agreement.
The Watsonville Facility is located on 1.8 acres of land leased from Dean
Foods under the terms of a 30-year lease expiring in 2010.
For the period from June 29, 1995 to December 31, 1995, the Watsonville
Facility generated approximately 117,147,000 kilowatt hours of electrical energy
for sale to PG&E and approximately $5.9 million in revenue.
West Ford Flat Facility
The West Ford Flat geothermal facility (the "West Ford Flat Facility")
consists of a 27 megawatt geothermal power plant and associated steam fields
located in the eastern portion of The Geysers area of northern California. The
West Ford Flat Facility includes a power plant consisting of two turbines
manufactured by Mitsubishi Heavy Industries, Inc. with rotors remanufactured by
ABB Industries, Inc., two generators manufactured by Electric Machinery, Inc.,
and seven production wells and steam leases. The West Ford Flat Facility
commenced commercial operation in December 1988. Since start-up, the West Ford
Flat Facility has operated at an average availability of approximately 98%.
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<PAGE> 56
Electricity generated by the West Ford Flat Facility is sold to PG&E under
a 20-year power sales agreement terminating in 2008 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
firm capacity payment of $167 per kilowatt year for 27 megawatts of firm
capacity for the term of the agreement, so long as the West Ford Flat Facility
delivers 80% of its firm capacity during certain designated periods of the year.
In addition, the power sales agreement provides for energy payments for
electricity actually delivered based on a fixed price derived from a scheduled
forecast of energy prices over the initial ten-year term of the agreement ending
December 1998. The schedule of fixed average energy prices (expressed in cents
per kilowatt hour) in effect through 1998 under the West Ford Flat Facility
power sales agreement is as follows:
<TABLE>
<CAPTION>
ENERGY
YEAR PRICE
-------------------------------------------------------- ------
<S> <C>
1996.................................................... 12.89c
1997.................................................... 13.83c
1998.................................................... 13.83c
</TABLE>
Thereafter, PG&E is required to pay for electrical energy actually delivered at
prices equal to PG&E's avoided cost of energy (as determined by the CPUC).
PG&E's avoided cost of energy varies from month to month and has ranged from an
annual average of 1.84c to 2.96c per kilowatt hour since 1992. During 1995,
PG&E's avoided cost of energy averaged approximately 1.84c per kilowatt hour.
The Company cannot accurately predict the avoided cost of energy prices that
will be in effect at the expiration of the fixed price period under this
agreement.
Under certain circumstances, PG&E may curtail energy deliveries for up to
1,000 off-peak hours per year. During 1995, PG&E curtailed the energy purchased
under this agreement by 1,000 hours. In the event of any such curtailment, the
Company's results of operations may be materially adversely affected. The
Company currently expects the maximum amount of curtailment allowed under the
agreement during 1996.
The Company believes that the geothermal reserves that supply energy for
use by the West Ford Flat Facility will be sufficient to operate at full
capacity for the entire term of the power sales agreement due principally to
high reservoir pressures, low projected decline rates, limited development in
adjacent areas and the substantial productive acreage dedicated to the West Ford
Flat Facility.
The West Ford Flat Facility is located on 267 acres of leased land located
in The Geysers. For a description of the leases covering the properties located
in The Geysers, see "-- Properties."
During 1995, the West Ford Flat Facility generated approximately
216,614,000 kilowatt hours of electrical energy for sale to PG&E and
approximately $29.4 million of revenue.
Bear Canyon Facility
The Bear Canyon facility (the "Bear Canyon Facility") consists of a 20
megawatt geothermal power plant and associated steam fields located in the
eastern portion of The Geysers area of northern California, two miles south of
the West Ford Flat Facility. The Bear Canyon Facility includes a power plant
consisting of two turbine generators manufactured by Mitsubishi Heavy
Industries, Inc. with rotors remanufactured by ABB Industries, Inc., as well as
eight production wells, an injection well and steam reserves. The Bear Canyon
Facility commenced commercial operation in October 1988. Since start-up, the
Bear Canyon Facility has operated at an average availability of approximately
98.4%.
Electricity generated by the Bear Canyon Facility is sold to PG&E under two
10 megawatt, 20-year power sales agreements terminating in 2008 which contain
payment provisions for capacity and energy. One of the power sales agreements
provides for a firm capacity payment of $156 per kilowatt year on four megawatts
for the term of the agreement, so long as the Bear Canyon Facility delivers 80%
of its firm capacity during certain designated periods of the year, and an
as-delivered capacity payment for the additional six megawatts of capacity. The
other agreement provides for an as-delivered capacity payment for the entire 10
megawatts. Both agreements provide for energy payments for electricity actually
delivered based on a fixed price basis
54
<PAGE> 57
through the initial ten-year term of the agreement ending September 1998. The
following schedule sets forth the fixed average energy prices (expressed in
cents per kilowatt hour) and the as-delivered capacity prices per kilowatt year
through 1998 for energy deliveries under the Bear Canyon Facility power sales
agreements:
<TABLE>
<CAPTION>
ENERGY AS-DELIVERED
YEAR PRICE CAPACITY PRICE
-------------------------------------------- ------- --------------
<S> <C> <C>
1996........................................ 12.89c $176
1997........................................ 13.83c $188
1998........................................ 13.83c $188
</TABLE>
Thereafter, PG&E will pay for energy delivered at prices equal to PG&E's avoided
cost of energy (as determined by the CPUC), and will pay for as-delivered
capacity at the greater of $188 per kilowatt year or PG&E's then current
as-delivered capacity rate. PG&E's avoided cost of energy varies from month to
month and has ranged from an annual average of 1.84c to 2.96c per kilowatt hour
since 1992. During 1995, PG&E's avoided cost of energy averaged approximately
1.84c per kilowatt hour. The Company cannot accurately predict the avoided cost
of energy prices that will be in effect at the expiration of the fixed price
period under this agreement.
Under certain circumstances, PG&E may curtail energy deliveries for up to
1,000 off-peak hours per year. During 1995, PG&E curtailed the energy purchased
under this agreement by 1,000 hours. In the event of any such curtailment, the
Company's results of operations may be materially adversely affected. The
Company currently expects the maximum amount of curtailment allowed under the
agreement during 1996.
The Company believes that the geothermal reserves for the Bear Canyon
Facility will be sufficient to operate at full capacity for substantially all of
the remaining term of the power sales agreements due principally to high
reservoir pressures, low projected decline rates, limited development in
adjacent areas and the substantial productive acreage dedicated to the Bear
Canyon Facility.
The Bear Canyon Facility is located on 284 acres of land located in The
Geysers covered by two leases, one with the State of California and the other
with a private landowner. For a description of the leases covering the
properties located at The Geysers, see "-- Properties."
During 1995, the Bear Canyon Facility generated approximately 164,847,000
kilowatt hours of electrical energy and approximately $21.8 million of revenue.
Aidlin Facility
The Aidlin geothermal facility (the "Aidlin Facility") consists of a 20
megawatt geothermal power plant and associated steam fields located in the
western portion of The Geysers area of northern California. The Company holds an
indirect 5% ownership interest in the Aidlin Facility. The Company's ownership
interest is held in the form of a 10% general partnership interest in a limited
partnership (the "Aidlin Partnership"), which in turn owns a 50% ownership
interest, as both a limited and general partner, in Geothermal Energy Partners
Ltd. ("GEP"), a limited partnership which is the owner of the Aidlin Facility.
MetLife Capital Corporation owns the remaining 90% interest in the Aidlin
Partnership as a limited partner. The remaining 50% of GEP is owned by
subsidiaries of Mission Energy Company and Sumitomo Corporation. The Aidlin
Facility commenced commercial operation in May 1989.
The Aidlin Facility includes a power plant consisting of two turbine
generators manufactured by Fuji Electric and ABB Industries, Inc., as well as
seven production wells and two injection wells. Since start-up, the Aidlin
Facility has operated at an average availability of approximately 99%.
The construction of the Aidlin Facility was financed with a $59.4 million
term loan provided by Prudential, which bears interest at a fixed rate of 10.48%
per annum and matures on June 30, 2008 according to a specified amortization
schedule.
Electricity generated by the Aidlin Facility is sold to PG&E under two 10
megawatt, 20-year power sales agreements terminating in 2009 which contain
payment provisions for capacity and energy. The power sales
55
<PAGE> 58
agreements provide for an aggregate firm capacity payment for 17 megawatts of
$167 per kilowatt year for the term of the agreements, so long as the Aidlin
Facility delivers 80% of its capacity during certain designated periods of the
year. In addition, the Aidlin Facility power sales agreements provide for energy
payments for 20 megawatts based on a schedule of fixed energy prices (expressed
in cents per kilowatt hour) in effect through 1999 as follows:
<TABLE>
<CAPTION>
ENERGY
YEAR PRICE
-------------------------------------------------------- ------
<S> <C>
1996.................................................... 12.89c
1997.................................................... 13.83c
1998.................................................... 13.83c
1999.................................................... 13.83c
</TABLE>
Thereafter, PG&E is required to pay for electrical energy actually delivered at
prices equal to PG&E's avoided cost of energy (as determined by the CPUC).
PG&E's avoided cost of energy varies from month to month and has ranged from an
annual average of 1.84c to 2.96c per kilowatt hour since 1992. During 1995,
PG&E's avoided cost of energy averaged approximately 1.84c per kilowatt hour.
The Company cannot accurately predict the avoided cost of energy that will be in
effect at the expiration of the fixed price period under this agreement.
Under certain circumstances, PG&E may curtail energy deliveries for up to
1,000 off-peak hours per year. During 1995, PG&E curtailed the energy purchased
under this agreement by 1,000 hours. The Company currently expects the maximum
amount of curtailment under the agreement in 1996.
The output of the Aidlin Facility is expected to decline over the remaining
life of the facility unless additional reserves are developed on existing or
adjacent leases and enhanced water injection projects are successful in reducing
field declines. See "Risk Factors -- Risks Related to the Development and
Operation of Geothermal Energy Resources."
The Aidlin Facility is operated and maintained by the Company under an
operating and maintenance agreement pursuant to which the Company is reimbursed
for certain costs and is entitled to an incentive payment based on project
performance. This agreement expires on December 31, 1999.
The Aidlin Facility is located on 713.8 acres of land located in The
Geysers, which is leased by GEP from a private landowner. The lease will remain
in force so long as geothermal steam is produced in commercial quantities.
During 1995, the Aidlin Facility generated approximately 174,087,000
kilowatt hours of electrical energy and revenue of $21.7 million. In 1995, the
Company recognized revenue of approximately $277,000 as a result of the
Company's 5% ownership interest and $3.5 million for services performed under
the operating and maintenance agreement.
STEAM FIELDS
Thermal Power Company Steam Fields
The Company acquired Thermal Power Company on September 9, 1994 for a
purchase price of $66.5 million. Thermal Power Company owns a 25% undivided
interest in certain geothermal steam fields located at The Geysers in northern
California (the "Thermal Power Company Steam Fields"). Union Oil Company of
California ("Union Oil") owns the remaining 75% interest in the steam fields and
operates and maintains the steam fields. The Thermal Power Company Steam Fields
include the leasehold rights to 13,908 acres of steam fields which supply steam
to 12 PG&E power plants located in The Geysers and include 247 production wells,
19 injection wells and 52 miles of steam-transporting pipeline. See
"-- Properties." The 12 plants have a nameplate capacity of 978 megawatts and
currently have the capability to operate at 604 megawatts providing the Company
with an effective interest in 151 megawatts. The steam fields commenced
commercial operation in 1960.
56
<PAGE> 59
The Thermal Power Company Steam Fields produce steam for sale to PG&E under
a long-term steam sales agreement. Under this steam sales agreement, the Company
is paid on the basis of the amount of electricity produced by the power plants
to which steam is supplied. PG&E is obligated to use its best efforts to operate
its power plants to maintain monthly and annual steam field capacity. The price
paid for steam under the steam sales agreement is determined according to a
formula that consists of the average of three indices multiplied by a fixed
price of 1.65c per kilowatt hour. The indices used are the Producer Price Index
for Crude Petroleum, the Producer Price Index for Natural Gas and the Consumer
Price Index ("CPI"). The price of steam under the steam sales agreement in 1995
was 1.647c per kilowatt hour. In addition, the Company receives a monthly fee
for effluent disposal and maintenance. During 1995, such monthly fee was
$144,000 per month.
In March 1996, the Company and Union Oil Company of California ("Union
Oil") entered into an alternative pricing agreement with PG&E for any steam
produced in excess of 40% of average field capacity as defined in the steam
sales contract. The alternative pricing strategy is effective through December
31, 2000. Under the alternative pricing agreement, PG&E has the option to
purchase a portion of the steam that PG&E would likely curtail under the
existing steam sales agreement. The price for this portion of steam will be set
by the Company and Union Oil with the intent that it be at competitive market
prices. The Company and Union Oil will solely determine the price and duration
of these alternative prices.
The steam sales agreement with PG&E also provides for offset payments,
which constitute a remedy for insufficient steam. Under the steam sales
agreement, the Company is required to pay PG&E for the unamortized costs,
including site clean-up, removal and abandonment costs, of power plants that are
installed but are unused as a result of steam supply deficiency. The offset
payments are calculated based upon a fixed amortization schedule for all power
plants, which may be adjusted for future capital expenditures, and upon the
steam fields' capacity in megawatts. In accordance with the steam sales
agreement, the Company makes offset payments at a reduced rate until total
offsets calculated since July 1, 1991 equal $15 million. Accordingly, the
Company's share of offsets in 1995 was $757,000. In approximately 1999, when
total offsets may exceed $15 million in accordance with the agreement, the
Company's share of offset payments to PG&E would be approximately 2 1/2 times
their current rate (as calculated at the current steam field capacity).
In accordance with the steam sales agreement, PG&E may curtail the power
plants which receive steam in order to produce energy from lower cost sources.
PG&E is contractually obligated to operate all of the power plants at a minimum
of 40% of the field capacity during any given year, and at 25% of the field
capacity in any given month. During 1995, the Thermal Power Company Steam Fields
experienced extensive curtailment of steam production due to low gas prices and
abundant hydro power. The Company receives a monthly fee for PG&E's right to
curtail its power plants. Such fee was $12,800 per month during 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The steam sales agreement with PG&E terminates two years after the closing
of the last operating power plant. In addition, PG&E may terminate the contract
earlier with a one-year written notice. If PG&E terminates in accordance with
the steam sales agreement, the Company will provide capacity maintenance
services for five years after the termination date, and will retain a right of
first refusal to purchase the PG&E facilities at PG&E's unamortized cost.
Alternatively, the Company may terminate the agreement with a two-year written
notice to PG&E. If the Company terminates, PG&E has the right to take assignment
of the Thermal Power Company Steam Fields' facilities on the date of
termination. In that case, the Company would continue to pay offset payments for
three years following the date of termination. Under the steam sales agreement,
PG&E may retire older power plants upon a minimum of six-months' notice. The
Company is unable to predict PG&E's schedule for the retirement of such power
plants, which may change from time to time. If steam is abandoned (i.e., cannot
be transported to the remaining plants), the abandoned steam may be delivered
for use to other PG&E power plants, subject to existing contract conditions, or
to other customers upon closure of a PG&E power plant.
The Thermal Power Company Steam Fields currently supply steam sufficient to
operate the PG&E power plants at approximately 60% of their combined nameplate
capacity. This percentage reflects a decline in productivity since the
commencement of operations. While it is not possible to accurately predict
long-term
57
<PAGE> 60
steam field productivity, the Company has estimated that the current annual rate
of decline in steam field productivity of the Thermal Power Company Steam Fields
was approximately 9% until 1995, during which year extensive curtailment
interrupted the decline trend. The Company expects steam field productivity to
continue to decline in the future. The Company plans to work with Union Oil and
PG&E to partially offset the expected rate of decline by the development of
water injection projects and power plant improvements.
During 1995, the PG&E power plants produced 2,688,176,000 kilowatt hours of
electrical energy of which the Company's 25% share is 672,044,000 kilowatt hours
for approximately $11.0 million of revenue.
PG&E Unit 13 and Unit 16 Steam Fields
The Company holds the leasehold rights to 1,631 acres of steam fields (the
"PG&E Unit 13 and Unit 16 Steam Fields") that supply steam to PG&E's Unit 13
power plant (the "Unit 13") and PG&E's Unit 16 power plant (the "Unit 16"), all
of which are located in The Geysers. See "-- Properties." Unit 13 and Unit 16
have nameplate capacities of 134 and 113 megawatts, respectively, and currently
operate at outputs of approximately 100 and 78 megawatts, respectively. The PG&E
Unit 13 Steam Field includes 956 acres, 30 production wells, two injection wells
and five miles of pipeline, and commenced commercial operations in May 1980. The
PG&E Unit 16 Steam Field includes 675 acres, 19 producing wells, two injection
wells, and three miles of pipeline, and commenced commercial operation in
October 1985.
The PG&E Unit 13 and Unit 16 Steam Fields produce steam for sale to PG&E
under long-term steam sales agreements. Under the steam sales agreements with
PG&E, the Company is paid for steam on the basis of the amount of electricity
produced by Unit 13 and Unit 16. The price paid for steam under the PG&E Unit 13
and Unit 16 Steam Fields agreements is determined according to a formula that is
essentially a weighted average of PG&E's fossil (oil and gas) fuel price and
PG&E's nuclear fuel price. The price of steam for 1995 was 1.207c per kilowatt
hour. The price for 1996 is expected to be approximately .995c. The Company
receives an additional .05c per kilowatt hour from PG&E for the disposal of
liquid effluents produced at Unit 13 and Unit 16.
During conditions of hydro-spill, PG&E may curtail energy deliveries from
Unit 13 and Unit 16 which would reduce deliveries of steam under this agreement.
Curtailments are primarily the result of a higher degree of precipitation during
the period, which results in higher levels of energy generation by hydroelectric
power facilities that supply electricity for sale by PG&E. In the event of any
such curtailment, the Company's results of operations may be materially
adversely affected. PG&E curtailed approximately 64,000,000 kilowatt hours under
the steam sales agreement during 1995. The Company currently expects
approximately the same amount of curtailment under the agreement during 1996
that was experienced in 1995.
The steam sales agreement with PG&E continues in effect for as long as
either Unit 13 or Unit 16 remains in commercial operation, which depends on
maintaining the productive capacity of the respective steam fields. However,
PG&E may terminate the agreement if the quantity, quality or purity of the steam
is such that the operation of Unit 13 or Unit 16 becomes economically
impractical. The Company currently estimates that the productive capacity of the
PG&E Unit 13 and Unit 16 Steam Fields is approximately 22 years. However, no
assurance can be given that the operation of either Unit 13 or Unit 16 will not
become economically impractical at any time during these periods.
The Company is required to supply a sufficient quantity of steam of
specified quality to Unit 16. If an insufficient quantity of steam is delivered,
the Company may be subject to penalty provisions, including suspension of PG&E's
obligation to pay for steam delivered. Specifically, if the Company fails to
deliver to Unit 16 in any calendar month a sufficient quantity of steam adequate
to operate the power plant at or above a capacity factor of 50%, no payment
shall be made for steam delivered to such Unit during such month until the cost
of that Unit has been completely amortized by PG&E.
In order to increase the efficiency of Unit 13 by approximately 20%, the
Company agreed to purchase new rotors for approximately $10 million. In
exchange, PG&E agreed to amend the steam sales agreement to remove the penalty
provision for a failure to deliver a sufficient quantity of steam to Unit 13 and
to require
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<PAGE> 61
PG&E to operate at variable pressure operations which will optimize production
at the PG&E Unit 13 and Unit 16 Steam Fields.
The PG&E Unit 13 and Unit 16 Steam Fields currently supply steam sufficient
to operate Unit 13 and Unit 16 at approximately 72% of their combined nameplate
capacities. This percentage reflects a decline in the productivity of the PG&E
Unit 13 and Unit 16 Steam Fields since the commencement of operations of Unit 13
and Unit 16. While it is not possible to accurately predict long-term steam
field productivity, the Company has estimated that the annual rate of decline in
steam field productivity of the PG&E Unit 13 and Unit 16 Steam Fields was
approximately 10% until curtailment of neighboring plants and Unit 13 and Unit
16 in 1995 reduced the decline to zero. The Company expects steam field
productivity to continue to decline in the future, but at decreasing annual
rates of decline. The Company considered these declines in steam field
productivity in developing its original projections for the PG&E Unit 13 and
Unit 16 Steam Fields at the time the Company acquired its initial interest in
1990. The Company plans to partially offset the expected rate of decline by
implementing enhanced water injection and power plant improvements.
During 1995, the PG&E Unit 13 and Unit 16 Steam Fields produced sufficient
steam to permit Unit 13 and Unit 16 to produce approximately 1,296,900,000
kilowatt hours of electrical energy and approximately $16.3 million of revenue.
SMUDGEO #1 Steam Fields
The Company holds the leasehold rights to 394 acres of steam fields that
supply steam to the power plant for SMUD SMUDGEO #1 steam fields (the "SMUDGEO
#1 Steam Fields"). See "-- Properties." The SMUD power plant has a nameplate
capacity of 72 megawatts and currently operates at an output of 59 megawatts.
The SMUDGEO #1 Steam Fields include 19 producing wells, one injection well and
two miles of pipeline. Commercial operation of the SMUD power plant commenced in
October 1983.
The steam sales agreement with SMUD provides that SMUD will pay for steam
based upon the quantity of steam delivered to the SMUD power plant. The current
price paid for steam delivered under the steam sales agreement is $1.746 per
thousand pounds of steam, which is adjusted semi-annually based on changes in
the Gross National Product Implicit Price Deflator Index and Producers Price
Index for Fuels, Related Products and Power. SMUD may suspend payments for steam
in any month if the Company is unable to deliver 50% of the steam requirement
until the cost of the plant and related facilities have been completely
amortized by the value of such steam delivered to the plant. Based on current
estimates and analyses performed by the Company, the Company does not expect
SMUD to suspend payments for steam under this provision. The Company receives an
additional .15c per kilowatt hour from SMUD for the disposal of liquid effluents
produced at the SMUDGEO #1 Steam Fields.
The steam sales agreement with SMUD continues until the expiration or
termination of the geothermal lease covering the SMUDGEO #1 Steam Fields, which
continues for so long as steam is produced in commercial quantities. The Company
and SMUD each have the right to terminate the agreement if their respective
operations become economically impractical. In the event that SMUD exercises its
right to terminate, the Company will have no further obligation to deliver steam
to the power plants.
The SMUDGEO #1 Steam Fields currently supply steam sufficient to operate
the SMUD power plant at approximately 82% of its nameplate capacity. This
percentage reflects a decline in the productivity of the SMUDGEO #1 Steam Fields
since commencement of operations. Although the SMUDGEO #1 Steam Fields increased
in productivity in 1995 due to curtailment of neighboring plants, the Company
expects the SMUDGEO #1 Steam Fields' productivity to decline in the future.
During 1995, the SMUDGEO #1 Steam Fields produced approximately 6,600,835
thousand pounds of steam and approximately $12.3 million of revenue.
Cerro Prieto Steam Fields
On November 17, 1995, the Company entered into a series of agreements with
Constructora y Perforadora Latina, S.A. de C.V. ("Coperlasa") and certain of
Coperlasa's creditors pursuant to which the
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Company has agreed to invest up to $20 million in the Cerro Prieto steam fields
(the "Cerro Prieto Steam Fields") located in Baja California, Mexico. The Cerro
Prieto Steam Fields provide geothermal steam to three geothermal power plants
owned and operated by Comision Federal de Electricidad, the Mexican national
utility ("CFE").
The Company's investment consists of a loan of up to $18.5 million and a
$1.5 million payment for an option to purchase a 29% equity interest in
Coperlasa for $1.5 million, which payment was made in December 14, 1995. This
option expires in May 1997.
The $18.5 million loan was made in installments throughout 1996, which
provided capital to Coperlasa to fund the drilling of new wells and the repair
of existing wells to meet its performance under its agreement with CFE. The loan
matures in November 1999 and bears interest at an effective rate of 18.8% per
annum. Repayment of this loan will be interest only for the first 18 months.
Thereafter, 100% of the cash flow generated from the sale of steam less
operating expenses and capital expenditures will be used to pay principal and
interest on the loan. The Company's loan is senior to the existing debt at
Coperlasa.
Pursuant to a technical services agreement, the Company receives fees for
its technical services provided to Coperlasa. In addition, if the Company is
successful in assisting Coperlasa in producing steam at a lower cost, the
Company will receive 30% of the savings.
The Cerro Prieto Steam Fields are located near the city of Mexicali, Baja
California, at the border of Baja California and the State of California. The
Cerro Prieto geothermal resource, which has been commercially produced by CFE
since 1973, provides approximately 70% of Baja California's electricity
requirements since this region is not connected to the Mexican national power
grid.
The steam sales agreement between Coperlasa and CFE was entered into in May
1991. Under this agreement, CFE pays for steam delivered up to 1,600 tons per
hour plus 10%. Payments for the steam delivered are made in Mexican pesos and
are adjusted by a formula that accounts for the increases in inflation in Mexico
and the United States as well as for the devaluation of the peso against the
U.S. dollar. This agreement has a termination date of October 2000. While the
Company believes that Coperlasa is in an advantageous position to renegotiate or
bid for the right to supply steam over a longer term, there can be no assurance
that the steam sales agreement will be extended beyond its current termination
date.
DEVELOPMENT AND FUTURE PROJECTS
The Company is continually engaged in the evaluation of various
opportunities for the development and acquisition of additional power generation
facilities. However, there is no assurance the Company will be successful in the
acquisition or development of power generation projects in the future. See "Risk
Factors -- Project Development Risks."
PASADENA COGENERATION PROJECT
Calpine was selected by Phillips Petroleum Company ("Phillips") to
negotiate for the development of a 240 megawatt gas-fired cogeneration project
at the Phillips Houston Chemical Complex ("HCC") located in Pasadena, Texas (the
"Pasadena Cogeneration Project"). In July 1995 and March 1996, the Company
entered into Energy Project Development Agreements with Phillips pursuant to
which the Company and Phillips propose to enter into 20-year agreements for the
purchase and sale of all of the HCC's steam and electricity requirements of
approximately 90 megawatts. It is anticipated that the remainder of available
electricity output will be sold into the competitive market through Calpine's
power marketing activities. Pursuant to the Energy Project Development
Agreements, the Company has agreed to make $3.5 million of capital expenditures
on the Pasadena Cogeneration Project during 1996. In addition, the Company has
provided a $3.0 million letter of credit to Phillips to secure the performance
under the Energy Project Development Agreement. On August 2, 1996, the Company
entered into a commitment letter with ING Capital Corporation to provide $100.0
million of non-recourse project financing for the Pasadena Cogeneration Project.
The Company expects to complete financing and commence construction in September
1996, with commercial operation scheduled to begin in August 1998. However,
there can be no assurances that the Company will be successful in completing
either the agreements with Phillips or any additional power sales agreements or
that the anticipated schedule for financing and construction will be met.
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GLASS MOUNTAIN GEOTHERMAL PROJECT
Calpine is pursuing the development of a geothermal power project at Glass
Mountain, which is located in northern California about 25 miles south of the
Oregon border (the "Glass Mountain Project"). Glass Mountain is believed to be
the largest undeveloped geothermal resource in the United States. In area, the
resource is larger than The Geysers, where approximately 1,200 megawatts of
capacity is operating. The Company believes that Glass Mountain has an estimated
potential in excess of 1,000 megawatts.
In August 1994, the Company entered into a partnership with Trans-Pacific
Geothermal Glass Mountain, Ltd. ("TGC") to construct and operate a 30 megawatt
project at Glass Mountain. TGC had previously signed a memorandum of
understanding ("MOU") with Bonneville Power Administration ("BPA") and the
Springfield, Oregon Utility Board ("SUB") to develop the project at Vale,
Oregon. BPA and SUB consented on August 25, 1994 to the assignment of the MOU to
the Calpine partnership and the relocation of the project to Glass Mountain. The
memorandum of understanding contemplates execution of a 45-year power purchase
agreement subject to satisfaction of certain conditions precedent and includes
an option for an additional 100 megawatts.
Subject to the execution of the power purchase agreement with BPA, the
Company plans to begin construction of an initial 45 megawatt phase of the Glass
Mountain Project in 1998. The Company is in the process of preparing an
Environmental Impact Statement and commercial operation is planned for 2000.
There can be no assurances, however, that the Company and BPA will enter into a
definitive agreement, that this project will be completed on this schedule, if
at all, or that commercial operation of this project will be successful.
In March 1996, the Company completed the acquisition of certain Glass
Mountain geothermal leases previously held by FMRP. As a result, the Company
currently holds an interest in approximately 29,000 acres of federal geothermal
leases at Glass Mountain. See "-- Properties."
COSO GEOTHERMAL PROJECT
In January 1992, the Company was selected by the Los Angeles Department of
Water and Power (the "Department") to negotiate for the development of up to 150
megawatts of electric generating capacity utilizing geothermal energy from the
Department's Coso geothermal leaseholds. Data from four deep exploration wells
and a number of shallow, temperature gradient wells indicate that a productive
area could exist with a capacity to support 200 megawatts or more. The resource
is on land leased by the Department from the United States Bureau of Land
Management ("BLM"), which is subleased to the Company.
The Company entered into definitive agreements with the Department in 1995
which granted the Company the right to develop the Department's Coso geothermal
leaseholds located in Inyo County, California and to produce steam or
electricity for sale to third parties. In addition, the agreements include an
amended power sales agreement with the Department which grants the Department an
option to purchase up to 150 megawatts of electricity from the geothermal
resource. The ordinance approving the agreements has been passed by the Los
Angeles City Council and approved by the Mayor.
In January 1996, certain litigation was filed against the Department
seeking to compel the Department to submit the agreements entered into with the
Company to a public bidding procedure in accordance with the Charter of the City
of Los Angeles. In August 1996, the court ruled that certain of the rights
granted by the Department in the agreements, including the right to produce
steam or electricity for sale to third parties, were void and were required to
be submitted to such a public bidding procedure. The Company is unable to
predict the impact of such ruling on the agreements and the development of the
Department's Coso geothermal leaseholds.
NAVAJO SOUTH COAL PROJECT
Calpine, BHP Minerals International Inc. and BHP Power Inc. have entered
into a memorandum of understanding to assess the development of the Navajo South
Project, a 1,700 megawatt coal-fired power generation facility in the Four
Corners area of New Mexico. It is anticipated that this new power plant will
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provide electricity to the west and southwest United States markets. BHP
Minerals International Inc. is the owner and operator of three coal mines in the
Four Corners area of New Mexico. One of these, the Navajo Mine, is located on
the Navajo Reservation.
BLACK HILLS COAL PROJECT
Calpine and Black Hills Corporation have entered into a joint venture
agreement to assess the development of the WYGEN Project, an 80 megawatt
coal-fired power generation facility located in northeastern Wyoming. It is
anticipated that this new power plant will provide electricity to the western
United States markets, with a commercial operation date expected in 1999. Black
Hills Corporation, the parent of Black Hills Power & Light Company, is a public
utility located in South Dakota.
INDONESIAN GEOTHERMAL PROJECT
Calpine plans to develop geothermal facilities in the Lampung Province of
Indonesia, located in southern Sumatra. The geothermal resource at Ulubelu is
estimated to have potential capacity in excess of 500 megawatts. The Company
anticipates that the facility would sell electricity to Perusahaan Umum Listrik
Negara ("PLN"), the state-owned electric company. The first phase of the project
is expected to be 110 megawatts.
The Company's joint venture partner will be PT. Dharmasatrya Arthasentosa
("DATRA"), a company with interests in coal mining and other ventures. The
Company expects that it will be the project's managing partner, with
responsibility for the design, construction and operation of the power plant.
The ownership structure, as planned, will be a joint venture with DATRA in which
the Company would be the managing partner and hold at least a 50% equity
interest, and as much as 85% of the project. DATRA would hold up to 50% of the
project.
In March 1996, the Company and DATRA entered into a joint venture agreement
to develop Ulubelu. The Company and DATRA are negotiating with the National
Resource Agency Pertamina ("Pertamina"), regarding resource development. Deep
test well drilling and flow tests by Pertamina are planned during 1996 and 1997
at Ulubelu. Commercial operation is anticipated in 2001 for the initial phase of
the project. There can be no assurances, however, that this transaction will be
consummated on these terms, if at all, that the proposed timetable will be met
or that commercial operation of these resources will be feasible.
GOVERNMENT REGULATION
The Company is subject to complex and stringent energy, environmental and
other governmental laws and regulations at the federal, state and local levels
in connection with the development, ownership and operation of its energy
generation facilities. Federal laws and regulations govern transactions by
electrical and gas utility companies, the types of fuel which may be utilized by
an electric generating plant, the type of energy which may be produced by such a
plant and the ownership of a plant. State utility regulatory commissions must
approve the rates and, in some instances, other terms and conditions under which
public utilities purchase electric power from independent producers and sell
retail electric power. Under certain circumstances where specific exemptions are
otherwise unavailable, state utility regulatory commissions may have broad
jurisdiction over non-utility electric power plants. Energy producing projects
also are subject to federal, state and local laws and administrative regulations
which govern the emissions and other substances produced, discharged or disposed
of by a plant and the geographical location, zoning, land use and operation of a
plant. Applicable federal environmental laws typically have both state and local
enforcement and implementation provisions. These environmental laws and
regulations generally require that a wide variety of permits and other approvals
be obtained before the commencement of construction or operation of an energy-
producing facility and that the facility then operate in compliance with such
permits and approvals.
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FEDERAL ENERGY REGULATION
PURPA
The enactment in 1978 of PURPA and the adoption of regulations thereunder
by FERC provided incentives for the development of cogeneration facilities and
small power production facilities (those utilizing renewable fuels and having a
capacity of less than 80 megawatts).
A domestic electricity generating project must be a QF under FERC
regulations in order to take advantage of certain rate and regulatory incentives
provided by PURPA. PURPA exempts owners of QFs from PUHCA, and exempts QFs from
most provisions of the Federal Power Act (the "FPA") and, except under certain
limited circumstances, state laws concerning rate or financial regulation. These
exemptions are important to the Company and its competitors. The Company
believes that each of the electricity generating projects in which the Company
owns an interest currently meets the requirements under PURPA necessary for QF
status. Most of the projects which the Company is currently planning or
developing are also expected to be QFs.
PURPA provides two primary benefits to QFs. First, QFs generally are
relieved of compliance with extensive federal, state and local regulations that
control the financial structure of an electric generating plant and the prices
and terms on which electricity may be sold by the plant. Second, FERC's
regulations promulgated under PURPA require that electric utilities purchase
electricity generated by QFs at a price based on the purchasing utility's
"avoided cost," and that the utility sell back-up power to the QF on a non-
discriminatory basis. The term "avoided cost" is defined as the incremental cost
to an electric utility of electric energy or capacity, or both, which, but for
the purchase from QFs, such utility would generate for itself or purchase from
another source. FERC regulations also permit QFs and utilities to negotiate
agreements for utility purchases of power at rates lower than the utility's
avoided costs. Due to increasing competition for utility contracts, the current
practice is for most power sales agreements to be awarded at a rate below
avoided cost. While public utilities are not explicitly required by PURPA to
enter into long-term power sales agreements, PURPA helped to create a regulatory
environment in which it has been common for long-term agreements to be
negotiated.
In order to be a QF, a cogeneration facility must produce not only
electricity, but also useful thermal energy for use in an industrial or
commercial process for heating or cooling applications in certain proportions to
the facility's total energy output and must meet certain energy efficiency
standards. Finally, a QF (including a geothermal or hydroelectric QF or other
qualifying small power producer) must not be controlled or more than 50% owned
by an electric utility or by most electric utility holding companies, or a
subsidiary of such a utility or holding company or any combination thereof.
The Company endeavors to develop its projects, monitor compliance by the
projects with applicable regulations and choose its customers in a manner which
minimizes the risks of any project losing its QF status. Certain factors
necessary to maintain QF status are, however, subject to the risk of events
outside the Company's control. For example, loss of a thermal energy customer or
failure of a thermal energy customer to take required amounts of thermal energy
from a cogeneration facility that is a QF could cause the facility to fail
requirements regarding the level of useful thermal energy output. Upon the
occurrence of such an event, the Company would seek to replace the thermal
energy customer or find another use for the thermal energy which meets PURPA's
requirements, but no assurance can be given that this would be possible.
If one of the projects in which the Company has an interest should lose its
status as a QF, the project would no longer be entitled to the exemptions from
PUHCA and the FPA. This could trigger certain rights of termination under the
power sales agreement, could subject the project to rate regulation as a public
utility under the FPA and state law and could result in the Company
inadvertently becoming a public utility holding company by owning more than 10%
of the voting securities of, or controlling, a facility that would no longer be
exempt from PUHCA. This could cause all of the Company's remaining projects to
lose their qualifying status, because QFs may not be controlled or more than 50%
owned by such public utility holding companies. Loss of QF status may also
trigger defaults under covenants to maintain QF status in the projects' power
sales agreements, steam sales agreements and financing agreements and result in
termination, penalties or
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acceleration of indebtedness under such agreements such that loss of status may
be on a retroactive or a prospective basis.
If a project were to lose its QF status, the Company could attempt to avoid
holding company status (and thereby protect the QF status of its other projects)
on a prospective basis by restructuring the project, by changing its voting
interest in the entity owning the non-qualifying project to nonvoting or limited
partnership interests and selling the voting interest to an individual or
company which could tolerate the lack of exemption from PUHCA, or by otherwise
restructuring ownership of the project so as not to become a holding company.
These actions, however, would require approval of the Securities and Exchange
Commission ("SEC") or a no-action letter from the SEC, and would result in a
loss of control over the non-qualifying project, could result in a reduced
financial interest therein and might result in a modification of the Company's
operation and maintenance agreement relating to such project. A reduced
financial interest could result in a gain or loss on the sale of the interest in
such project, the removal of the affiliate through which the ownership interest
is held from the consolidated income tax group or the consolidated financial
statements of the Company, or a change in the results of operations of the
Company. Loss of QF status on a retroactive basis could lead to, among other
things, fines and penalties being levied against the Company and its
subsidiaries and claims by utilities for refund of payments previously made.
Under the Energy Policy Act of 1992, if a project can be qualified as an
exempt wholesale generator ("EWG"), it will be exempt from PUHCA even if it does
not qualify as a QF. Therefore, another response to the loss or potential loss
of QF status would be to apply to have the project qualified as an EWG. However,
assuming this changed status would be permissible under the terms of the
applicable power sales agreement, rate approval from FERC and approval of the
utility would be required. In addition, the project would be required to cease
selling electricity to any retail customers (such as the thermal energy
customer) and could become subject to state regulation of sales of thermal
energy. See "-- Public Utility Holding Company Regulation."
Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at avoided costs. The Company does not know whether such legislation will be
passed or what form it may take. The Company believes that if any such
legislation is passed, it would apply to new projects. As a result, although
such legislation may adversely affect the Company's ability to develop new
projects, the Company believes it would not affect the Company's existing QFs.
There can be no assurance, however, that any legislation passed would not
adversely impact the Company's existing projects.
Public Utility Holding Company Regulation
Under PUHCA, any corporation, partnership or other legal entity which owns
or controls 10% or more of the outstanding voting securities of a "public
utility company" or a company which is a "holding company" for a public utility
company is subject to registration with the SEC and regulation under PUHCA,
unless eligible for an exemption. A holding company of a public utility company
that is subject to registration is required by PUHCA to limit its utility
operations to a single integrated utility system and to divest any other
operations not functionally related to the operation of that utility system.
Approval by the SEC is required for nearly all important financial and business
dealings of the holding company. Under PURPA, most QFs are not public utility
companies under PUHCA.
The Energy Policy Act of 1992, among other things, amends PUHCA to allow
EWGs, under certain circumstances, to own and operate non-QFs without subjecting
those producers to registration or regulation under PUHCA. The expected effect
of such amendments would be to enhance the development of non-QFs which do not
have to meet the fuel, production and ownership requirements of PURPA. The
Company believes that the amendments could benefit the Company by expanding its
ability to own and operate facilities that do not qualify for QF status, but may
also result in increased competition by allowing utilities to develop such
facilities which are not subject to the constraints of PUHCA.
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Federal Natural Gas Transportation Regulation
The Company has an ownership interest in and operates six natural gas-fired
cogeneration projects. The cost of natural gas is ordinarily the largest expense
(other than debt costs) of a project and is critical to the project's economics.
The risks associated with using natural gas can include the need to arrange
transportation of the gas from great distances, including obtaining removal,
export and import authority if the gas is transported from Canada; the
possibility of interruption of the gas supply or transportation (depending on
the quality of the gas reserves purchased or dedicated to the project, the
financial and operating strength of the gas supplier, and whether firm or
non-firm transportation is purchased); and obligations to take a minimum
quantity of gas and pay for it (i.e., take-and-pay obligations).
Pursuant to the Natural Gas Act, FERC has jurisdiction over the
transportation and storage of natural gas in interstate commerce. With respect
to most transactions that do not involve the construction of pipeline
facilities, regulatory authorization can be obtained on a self-implementing
basis. However, pipeline rates for such services are subject to continuing FERC
oversight. Order No. 636, issued by FERC in April 1992, mandates the
restructuring of interstate natural gas pipeline sales and transportation
services and will result in changes in the terms and conditions under which
interstate pipelines will provide transportation services, as well as the rates
pipelines may charge for such services. The restructuring required by the rule
includes: (i) the separation (unbundling) of a pipeline's sales and
transportation services, (ii) the implementation of a straight fixed-variable
rate design methodology under which all of a pipeline's fixed costs are
recovered through its reservation charge, (iii) the implementation of a capacity
releasing mechanism under which holders of firm transportation capacity on
pipelines can release that capacity for resale by the pipeline, and (iv) the
opportunity for pipelines to recover 100% of their prudently incurred costs
(transition costs) associated with implementing the restructuring mandated by
the rule. Pipelines were required to file tariff sheets implementing Order No.
636 by December 31, 1992. FERC affirmed the major components of Order No. 636 in
Order Nos. 636A and B issued in August and November 1992. The restructuring
required by the rule became effective in late 1993.
STATE REGULATION
State public utility commissions ("PUCs") have broad authority to regulate
both the rates charged by and financial activities of electric utilities, and to
promulgate regulations implementing PURPA. Since a power sales contract will
become a part of a utility's cost structure (and therefore is generally
reflected in its retail rates), power sales contracts with independents are
potentially under the regulatory purview of PUCs, particularly the process by
which the utility has entered into the power sales contracts. If a PUC has
approved of the process by which a utility secures its power supply, a PUC
generally will be inclined to allow a utility to "pass through" the expenses
associated with an independent power contract to the utility's retail customers.
However, a regulatory commission may disallow the full reimbursement to a
utility for the purchase of electricity from QFs. In addition, retail sales of
electricity or thermal energy by an independent power producer may be subject to
PUC regulation, depending on state law.
Independent power producers which are not QFs under PURPA are considered to
be public utilities in many states and are subject to broad regulation by PUCs
ranging from the requirement of certificates of public convenience and necessity
to regulation of organizational, accounting, financial and other corporate
matters. In addition, states may assert jurisdiction over the siting and
construction of facilities not qualifying as QFs (as well as QFs), and over the
issuance of securities and the sale or other transfer of assets by these
facilities (but not QFs).
CPUC and the California Assembly Joint Legislative Committee on Lowering
the Cost of Electric Services commenced proceedings and hearings related to the
restructure of the California electric services industry in 1994. The
proceedings and hearings were initiated as a result of the CPUC Order
Instituting Rulemaking and Order Instituting Investigation on the Commission
Proposed Policies Governing Restructuring California's Electric Services
Industry and Reforming Regulation, issued by the CPUC on April 20, 1994. The
FERC, as authorized under the Energy Policy Act of 1992, is also holding
hearings on policy issues related to a more competitive electric services
industry.
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On December 20, 1995, the CPUC issued an electric industry restructuring
decision which envisions commencement of deregulation and implementation of
customer choice beginning January 1, 1998, with all consumers participating by
2003. Because restructuring the California electric industry requires
participation and oversight by the FERC, the CPUC seeks to build a consensus
involving the California Legislature, the Governor, public and municipal
utilities, and customers. This consensus would be reflected in filings for
approval by the FERC and provides a cooperative spirit whereby both agencies
would move forward to implement the new market structure no later than January
1, 1998.
The decision provides for phased-in customer choice, development of a
non-discriminatory market structure, recovery of utilities stranded costs,
sanctity of existing contracts and continuation of existing public policy
programs including the promotion of fuel diversity through a renewable energy
purchase requirement.
On February 5, 1996, the CPUC issued a proposed procedural plan that
facilitates the transition of the electric generation market to competition by
January 1, 1998. This electric restructuring "roadmap" focuses on the multiple
and interrelated tasks that must be accomplished and sets forth the process to
achieve the necessary procedural milestones that must be completed in order to
meet the implementation goal.
In addition to the significant opportunity provided for power producers
such as Calpine resulting from the implementation of direct access, the decision
recognizes the sanctity of existing QF contracts. The decision recognizes that
horizontal market power concerns will likely require investor owned utilities to
divest themselves of a substantial portion of their generating assets and
requires the utilities to file with the Commission a plan for voluntary
divestiture of up to 50% of their fossil generating assets. The decision to
commit to the establishment of a restructuring policy maintains California's
resource diversity provided by existing renewal resources (including geothermal)
and encourages development of new renewable resources. The continued resource
diversity would be provided by a renewable portfolio standard which establishes
that a renewable purchase requirement be placed on providers of electricity and
creates a system of tradeable credits for meeting the purchase requirement.
State PUCs also have jurisdiction over the transportation of natural gas by
local distribution companies ("LDCs"). Each state's regulatory laws are somewhat
different; however, all generally require the LDC to obtain approval from the
PUC for the construction of facilities and transportation services if the LDC's
generally applicable tariffs do not cover the proposed transaction. LDC rates
are usually subject to continuing PUC oversight.
REGULATION OF CANADIAN GAS
The Canadian natural gas industry is subject to extensive regulation by
governmental authorities. At the federal level, a party exporting gas from
Canada must obtain an export license from the Canadian National Energy Board
("NEB"). The NEB also regulates Canadian pipeline transportation rates and the
construction of pipeline facilities. Gas producers also must obtain a removal
permit or license from provincial authorities before natural gas may be removed
from the province, and provincial authorities may regulate intraprovincial
pipeline and gathering systems. In addition, a party importing natural gas into
the United States first must obtain an import authorization from the U.S.
Department of Energy.
ENVIRONMENTAL REGULATIONS
The exploration for and development of geothermal resources and the
construction and operation of power projects are subject to extensive federal,
state and local laws and regulations adopted for the protection of the
environment and to regulate land use. The laws and regulations applicable to the
Company primarily involve the discharge of emissions into the water and air and
the use of water, but can also include wetlands preservation, endangered
species, waste disposal and noise regulations. These laws and regulations in
many cases require a lengthy and complex process of obtaining licenses, permits
and approvals from federal, state and local agencies.
Noncompliance with environmental laws and regulations can result in the
imposition of civil or criminal fines or penalties. In some instances,
environmental laws also may impose clean-up or other remedial
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obligations in the event of a release of pollutants or contaminants into the
environment. The following federal laws are among the more significant
environmental laws as they apply to the Company. In most cases, analogous state
laws also exist that may impose similar, and in some cases more stringent,
requirements on the Company as those discussed below.
Clean Air Act
The Federal Clean Air Act of 1970 (the "Clean Air Act") provides for the
regulation, largely through state implementation of federal requirements, of
emissions of air pollutants from certain facilities and operations. As
originally enacted, the Clean Air Act sets guidelines for emissions standards
for major pollutants (i.e., sulfur dioxide and nitrogen oxide) from newly built
sources. In late 1990, Congress passed the Clean Air Act Amendments (the "1990
Amendments"). The 1990 Amendments attempt to reduce emissions from existing
sources, particularly previously exempted older power plants. The Company
believes that all of the Company's operating plants are in compliance with
federal performance standards mandated for such plants under the Clean Air Act
and the 1990 Amendments. With respect to its Aidlin geothermal plant and one of
its steam field pipelines, the Company's operations have, in certain instances,
necessitated variances under applicable California air pollution control laws.
However, the Company believes that it is in material compliance with such laws
with respect to such facilities.
Clean Water Act
The Federal Clean Water Act (the "Clean Water Act") establishes rules
regulating the discharge of pollutants into waters of the United States. The
Company is required to obtain a wastewater and stormwater discharge permit for
wastewater and runoff, respectively, from certain of the Company's facilities.
The Company believes that, with respect to its geothermal operations, it is
exempt from newly-promulgated federal stormwater requirements. The Company
believes that it is in material compliance with applicable discharge
requirements under the Clean Water Act.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act ("RCRA") regulates the
generation, treatment, storage, handling, transportation and disposal of solid
and hazardous waste. The Company believes that it is exempt from solid waste
requirements under RCRA. However, particularly with respect to its solid waste
disposal practices at the power generation facilities and steam fields located
at The Geysers, the Company is subject to certain solid waste requirements under
applicable California laws. The Company believes that its operations are in
material compliance with such laws.
Comprehensive Environmental Response, Compensation, and Liability Act
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), requires cleanup of sites from which
there has been a release or threatened release of hazardous substances and
authorizes the United States Environmental Protection Agency ("EPA") to take any
necessary response action at Superfund sites, including ordering potentially
responsible parties ("PRPs") liable for the release to take or pay for such
actions. PRPs are broadly defined under CERCLA to include past and present
owners and operators of, as well as generators of wastes sent to, a site. As of
the present time, the Company is not subject to liability for any Superfund
matters. However, the Company generates certain wastes, including hazardous
wastes, and sends certain of its wastes to third-party waste disposal sites. As
a result, there can be no assurance that the Company will not incur liability
under CERCLA in the future.
COMPETITION
The Company competes with independent power producers, including affiliates
of utilities, in obtaining long-term agreements to sell electric power to
utilities. In addition, utilities may elect to expand or create generating
capacity through their own direct investments in new plants. Over the past
decade, obtaining a power sales agreement with a utility has become an
increasingly more difficult, expensive and competitive process. In the past few
years, more contracts have been awarded through some form of competitive
bidding. Increased competition also has lowered profit margins of successful
projects. The Company believes that the
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power marketing business represents an opportunity to take advantage of growing
competition in the electric power industry. The Company also believes that the
power marketing business will be highly competitive.
The demand for power in the United States traditionally has been met by
utilities constructing large-scale electric generating plants under rate-based
regulation. The enactment of PURPA in 1978 spawned the growth of the independent
power industry, which expanded rapidly in the 1980s. The initial independent
power producers were an entrepreneurial group of cogenerators and small power
producers who recognized the potential business opportunities offered by PURPA.
This initial group of independents was later joined by larger, better
capitalized companies, such as subsidiaries of fuel supply companies,
engineering companies, equipment manufacturers and affiliates of other
industrial companies. In addition, a number of regulated utilities have created
subsidiaries (known as utility affiliates) that compete with independent power
producers. Some independent power producers specialize in market "niches," such
as a specific technology or fuel (e.g., gas-fired cogeneration, geothermal,
hydroelectric, refuse-to-energy, wind, solar, coal and wood), or a specific
region of the country where they believe they have a market advantage. The
Company presently conducts its operations primarily in the United States and
concentrates on gas-fired and geothermal cogeneration plants.
The Company is the second largest producer of geothermal energy in the
United States. Although the Company is an established leader in the geothermal
power industry and has been rapidly growing, most of the Company's competitors
have significantly greater capital, financial and operational resources than the
Company.
Recent amendments to PUHCA made by the Energy Policy Act of 1992 are likely
to increase the number of competitors in the independent power industry by
reducing certain restrictions currently applicable to certain projects that are
not QFs under PURPA. However, the recent amendments also should make it simpler
for the Company to develop new projects itself, for example, by enabling the
Company to develop large, gas-fired generation projects without the necessity of
locating its projects in the vicinity of a steam host or otherwise finding a
steam host to accept the useful thermal output required of a cogeneration
facility under PURPA.
EMPLOYEES
As of July 31, 1996, the Company employed 235 people. None of the Company's
employees are covered by collective bargaining agreements, and the Company has
never experienced a work stoppage, strike or labor dispute. The Company
considers relations with its employees to be good.
PROPERTIES
The Company's principal executive office is located in San Jose, California
under a lease that expires in June 2001. The Company also maintains a regional
office in Santa Rosa, California under a lease that expires in 1999.
The Company, through its ownership of CGC and Thermal Power Company, has
leasehold interests in 111 leases comprising 27,287 acres of federal, state and
private geothermal resource lands in The Geysers area in northern California.
These leases comprise its West Ford Flat Facility, Bear Canyon Facility, PG&E
Unit 13 and Unit 16 Steam Fields, SMUDGEO #1 Steam Fields and Thermal Power
Company's 25% undivided interest in the Thermal Power Company Steam Fields which
are operated by Union Oil. The Company has subleasehold interests in three
leases comprising 6,825 acres of federal geothermal resource lands in the Coso
area in central California. In the Glass Mountain and Medicine Lake areas in
northern California, the Company holds leasehold interests in 23 leases
comprising approximately 29,000 acres of federal geothermal resource lands.
In general, under the leases, the Company has the exclusive right to drill
for, produce and sell geothermal resources from these properties and the right
to use the surface for all related purposes. Each lease requires the payment of
annual rent until commercial quantities of geothermal resources are established.
After such time, the leases require the payment of minimum advance royalties or
other payments until production commences, at which time production royalties
are payable. Such royalties and other payments are payable to landowners, state
and federal agencies and others, and vary widely as to the particular lease. The
leases are generally for
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<PAGE> 71
initial terms varying from 10 to 20 years or for so long as geothermal resources
are produced and sold. Certain of the leases contain drilling or other
exploratory work requirements. In certain cases, if a requirement is not
fulfilled, the lease may be terminated and in other cases additional payments
may be required. The Company believes that its leases are valid and that it has
complied with all the requirements and conditions material to their continued
effectiveness. A number of the Company's leases for undeveloped properties may
expire in any given year. Before leases expire, the Company performs geological
evaluations in an effort to determine the resource potential of the underlying
properties. No assurance can be given that the Company will decide to renew any
expiring leases.
The Company, through its ownership of the Greenleaf 1 Facility, owns 77
acres in Sutter County, California.
See "-- Description of Facilities" for a description of the other material
properties leased or owned by the projects in which the Company has ownership
interests. The Company believes that its properties are adequate for its current
operations.
LEGAL PROCEEDINGS
The Company, together with over 100 other parties, was named as a defendant
in the second amended complaint in an action brought in August 1993 by the
bankruptcy trustee for Bonneville Pacific Corporation ("Bonneville"), captioned
Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific Corporation v.
Portland General Corporation, et al., in the United States District Court for
the District of Utah (the "Court"). This complaint alleges that, in conjunction
with top executives of Bonneville and with the alleged assistance of the other
100 defendants, the Company engaged in a broad conspiracy and fraud. The
complaint has been amended a number of times. The Company has answered each
version of the complaint by denying all claims. In August 1994, the Company
successfully moved for an order severing the trustee's claims against the
Company from the claims against the other defendants. Although the case involves
over 25 separate financial transactions entered into by Bonneville, the severed
case concerns the Company in respect of only one of these transactions. In 1988,
the Company invested $2.0 million in a partnership formed with Bonneville to
develop four hydroelectric projects in the State of Hawaii. The projects were
not successfully developed by the partnership and, subsequent to Bonneville's
Chapter 11 filing, the Company filed a claim as a creditor against Bonneville's
bankruptcy estate. The trustee alleges that the investment was actually a loan
and was designed to inflate Bonneville's earnings. The trustee initially alleged
that Calpine is one of many defendants in this case responsible for Bonneville's
"deepening insolvency" and the amount of damages attributable to the Company
based on the $2.0 million partnership investment was alleged to be $577.2
million. Based upon statements made by the Court and the trustee in July 1996,
the Company believes that the maximum compensatory damages which the trustee may
seek will not exceed $5 million. There can be no assurance, however, of the
actual amount of damages to be sought by the trustee. The Company believes the
claims against it are without merit and will continue to defend the action
vigorously. The Company further believes that the resolution of this matter will
not have a material adverse effect on its financial position or results of
operations.
In connection with the Company's unsuccessful attempt to acquire O'Brien
Environmental Energy, Inc. ("O'Brien") in 1995 through the U.S. Bankruptcy Court
proceedings, the Company incurred approximately $3.6 million of third-party
expenses, all of which have been capitalized by the Company. Pursuant to the
terms of a contract with O'Brien, the Company is seeking the reimbursement of
such expenses and a $2.0 million break-up fee, each of which is subject to the
approval of the Bankruptcy Court. On June 6, 1996, the Bankruptcy Court ruled
that the Company had the right to seek reimbursement of its fees and expenses
and scheduled an evidentiary hearing to begin on August 28, 1996 to determine
the amount to be awarded. Although the Company believes it will be awarded all
or a substantial part of the fees and expenses which it is seeking, there can be
no assurance as to the ultimate resolution of this claim.
The Company is involved in various other claims and legal actions arising
out of the normal course of business. Management does not expect that the
outcome of these cases will have a material adverse effect on the Company's
financial position or results of operations.
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MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
person who is a Director, a nominee for Director or an executive officer of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------ ---- ---------------------------------------------
<S> <C> <C>
Peter Cartwright.......................... 66 President, Chief Executive Officer, Director
and Chairman of the Board Nominee
Pierre Krafft............................. 66 Chairman of the Board
Hans-Peter Aebi........................... 48 Director
Rudolf Boesch............................. 59 Director
Ann B. Curtis............................. 45 Senior Vice President and Director Nominee
George J. Stathakis....................... 66 Director Nominee
Rodney M. Boucher......................... 53 Senior Vice President
Lynn A. Kerby............................. 58 Senior Vice President
Kenneth J. Kerr........................... 52 Senior Vice President
Peter W. Camp............................. 57 Vice President
Robert D. Kelly........................... 38 Vice President
Larry R. Krumland......................... 56 Vice President
Alicia N. Noyola.......................... 46 Vice President
John P. Rocchio........................... 58 Vice President
Ron A. Walter............................. 47 Vice President
</TABLE>
Set forth below is certain information with respect to each current
Director, nominee for Director and executive officer of the Company. Upon
completion of the Common Stock Offering, Mr. Krafft, Mr. Aebi and Mr. Boesch
will resign from the Board of Directors of the Company and Ms. Curtis and Mr.
Stathakis will be appointed to fill two of the vacancies. Accordingly, following
the Common Stock Offering, the Board of Directors will be comprised of Mr.
Cartwright, Ms. Curtis and Mr. Stathakis and Mr. Cartwright will serve as
Chairman of the Board. The Company is actively seeking to add up to four
additional independent Directors who are not directors, officers or employees of
the Company, Electrowatt or an affiliate of Electrowatt. The Company anticipates
that at least one additional independent Director will be appointed within six
months of the completion of the Common Stock Offering.
Peter Cartwright founded the Company in 1984 and has since served as a
Director and as the Company's President and Chief Executive Officer. Mr.
Cartwright will become Chairman of the Board of Directors of the Company
effective upon completion of the Common Stock Offering. From 1979 to 1984, Mr.
Cartwright was Vice President and General Manager of Gibbs & Hill, Inc.'s
Western Regional Office, an office which he established. Gibbs & Hill, Inc. is
an architect-engineering firm which specializes in power engineering projects.
From 1960 to 1979, Mr. Cartwright worked for General Electric's Nuclear Energy
Division. His responsibilities included plant construction, project management
and new business development. He served on the Board of Directors of nuclear
fuel manufacturing companies in Germany, Italy and Japan. Mr. Cartwright was
responsible for General Electric's technology development and licensing programs
in Europe and Japan. Mr. Cartwright obtained a Master of Science Degree in Civil
Engineering from Columbia University in 1953 and a Bachelor of Science Degree in
Geological Engineering from Princeton University in 1952. Mr. Cartwright is a
Professional Engineer licensed in the states of New York and California.
Pierre Krafft has been the Company's Chairman of the Board since March
1991. Mr. Krafft served as Executive Vice President of Electrowatt from 1971
until his retirement in April 1995. He also serves as a director of several
electric utility companies in Switzerland, Germany and France and as Chairman of
the Swiss National Committee of the World Energy Council. Mr. Krafft obtained a
Master of Science Degree in Electrical Engineering from the Georgia Institute of
Technology in 1956 and an undergraduate degree in Electrical Engineering from
the Federal Institute of Technology in 1953.
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<PAGE> 73
Hans-Peter Aebi has been a Director of the Company since June 1994. Mr.
Aebi has served as the President of Elektrizitats-Gesellschaft Laufenburg AG,
Executive Vice President of the Electric Power Operations Division and a member
of Electrowatt's executive management since October 1994. He was also named
Executive Vice President for Landis & Gyr AG in March 1996. He served as the
Senior Vice President of the Energy Division of Electrowatt from 1993 to 1994.
Mr. Aebi's prior experience includes 14 years with an Electrowatt affiliate,
CKW, in various capacities including Executive Vice President from 1991 to 1992,
and as the First Vice President from 1988 to 1990. Mr. Aebi obtained a Master of
Science Degree in Engineering from the Federal Institute of Technology in 1972.
Rudolf Boesch has been a Director of the Company since its inception in
1984. Dr. Boesch serves as a member of the Executive Committee of Electrowatt,
and as Executive Vice President of Electrowatt's Services Division. His prior
experience with Electrowatt includes over ten years in the areas of marketing
and sales and technical development. Dr. Boesch obtained a Ph.D. in Physics from
the Federal Institute of Technology in 1965.
Ann B. Curtis has served as the Company's Senior Vice President since
September 1992 and has been employed by the Company since its inception in 1984.
Ms. Curtis will become a Director of the Company effective upon the completion
of the Common Stock Offering. She is responsible for the Company's financial and
administrative functions, including the functions of general counsel, corporate
and project finance, accounting, human resources, public relations and investor
relations. Ms. Curtis also serves as Corporate Secretary for the Company, and
serves as an officer of each of the Company's subsidiaries. Ms. Curtis also
represents the Company on partnership management committees. From the Company's
inception in 1984 through 1992, she served as the Company's Vice President for
Management and Financial Services. Prior to joining Calpine, Ms. Curtis was
Manager of Administration for Gibbs & Hill, Inc.
George J. Stathakis has been a Senior Advisor to the Company since 1994 and
will be a Director of the Company effective upon completion of the Common Stock
Offering. Mr. Stathakis has been providing financial, business and management
advisory services to numerous international investment banks since 1985. He also
served as Chairman of the Board and Chief Executive Officer of Ramtron
International Corporation, an advanced technology semiconductor company, from
1990 to 1994. From 1986 to 1989, he served as Chairman of the Board and Chief
Executive Officer of International Capital Corporation, a subsidiary of American
Express. Prior to 1986, Mr. Stathakis served thirty-two years with General
Electric Corporation in various management and executive positions. During his
service with General Electric Corporation, Mr. Stathakis founded the General
Electric Trading Company and was appointed its first President and Chief
Executive Officer. Mr. Stathakis obtained a Bachelor of Science Degree in
Engineering from the University of California at Berkeley in 1952 and a Master
of Science Degree in Engineering from the University of California at Berkeley
in 1953.
Rodney M. Boucher joined the Company in June 1995 as Senior Vice President,
and as President and Chief Executive Officer of the Company's subsidiary,
Calpine Power Services Company. He is responsible for the purchase, sale and
marketing of electric power, as well as the restructuring of contract,
transmission and generation rights. Prior to joining the Company, Mr. Boucher
served as Chief Operating Officer of Citizens Power & Light Company from 1992 to
1995 and as Senior Vice President of Citizens Lehman Power L.P., in Boston,
Massachusetts from 1994 to 1995. Prior to joining Citizens he served as
President for Electrical Interconnections-International from 1991 to 1992. Mr.
Boucher also served as Vice President and Chief Information Officer with
PacifiCorp from 1984 to 1991, and held various other positions with PacifiCorp
since 1975. Mr. Boucher holds a Master of Science Degree in Power Systems from
Rensselaer Polytechnic Institute and a Bachelor of Science Degree in Electrical
Engineering from Oregon State University.
Lynn A. Kerby joined the Company in January 1991 and served as Vice
President of Operations through January 1993, at which time he became a Senior
Vice President for the Company. Prior to joining the Company, Mr. Kerby served
as Senior Vice President-Operations of Guy F. Atkinson Company, an engineering
and construction company, from 1989 to 1990, and served in various other
positions within Guy F. Atkinson since 1961. Mr. Kerby served on Calpine's Board
of Directors from 1984 to 1988 as a Guy F. Atkinson representative. He obtained
a Bachelor of Science Degree in Civil Engineering and Business from the
University of Idaho in 1961. Mr. Kerby holds a Class A Contractors License in
the states of California, Arizona and Hawaii.
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<PAGE> 74
Kenneth J. Kerr joined the Company in March 1996 as Senior Vice
President-International. Prior to joining the Company, he served as Senior Vice
President-Commercial Development for Magma Power Company from 1993 to 1995. From
1989 to 1993 he served as Business Vice President-Plastics, Pacific Area with
The Dow Chemical Company. From 1966 to 1989, he served in various marketing and
management positions also with The Dow Chemical Company. Mr. Kerr obtained a
Bachelor of Science Degree in Chemical Engineering from the University of
Delaware in 1966.
Peter W. Camp joined the Company in November 1993 and served as Director of
Project Development through January 1995, at which time he became a Vice
President of Project Development. From 1992 to 1993 he served as a full-time
consultant with the Company. From 1988 to 1992, he served as President for
Altran Corporation, a nuclear waste technology company. From 1975 to 1987, Mr.
Camp worked for General Electric Company as General Manager, Nuclear Fuel
Marketing and Projects Department, and as Manager, Nuclear Energy Strategic
Planning. He obtained a Master of Business Administration Degree from Stanford
University in 1970 and a Bachelor of Science Degree in Mechanical Engineering
from Yale University in 1962.
Robert D. Kelly has served as the Company's Vice President, Finance since
1994. Mr. Kelly's responsibilities include all project and corporate finance
activities. From 1991 to 1992, Mr. Kelly served as Project Finance Manager, and
from 1992 to 1994, he served as Director-Project Finance for the Company. Prior
to joining the Company, he was the Marketing Manager of Westinghouse Credit
Corporation from 1990 to 1991. From 1989 to 1990, Mr. Kelly was Vice President
of Lloyds Bank PLC. From 1982 to 1989, Mr. Kelly was employed in various
positions with The Bank of Nova Scotia. He obtained a Master of Business
Administration Degree from Dalhousie University, Canada in 1980 and a Bachelor
of Commerce Degree from Memorial University, Canada, in 1979.
Larry R. Krumland has served as the Company's Vice President of Asset
Management since January 1993. From 1990 to 1993, Mr. Krumland served as
Director-Asset Management. From 1984 to 1990, Mr. Krumland served as
Manager-Geothermal Development. Prior to joining the Company, he served as
Director of Sales and Manager of Geothermal Projects for Gibbs & Hill, Inc. Mr.
Krumland obtained a Master of Business Administration Degree in Business
Economics and Finance from the University of California, Los Angeles in 1972; a
Master of Science Degree in Engineering, Energy Systems, from the University of
California, Los Angeles in 1967; and a Bachelor of Science Degree in Mechanical
Engineering from the University of California at Berkeley in 1964.
Alicia N. Noyola joined the Company in March 1991 and served as a full-time
consultant through March 1992, at which time she became employed by the Company
as Special Counsel. Ms. Noyola became a Vice President of Project Development in
January 1993. From 1987 to 1991, Ms. Noyola was a partner in the San Francisco,
California-based law firm Thelen, Marrin, Johnson and Bridges, where she
concentrated on commercial and corporate finance. Ms. Noyola obtained a Juris
Doctor Degree in 1973 from Hastings College of the Law, University of California
and obtained a Bachelor of Arts Degree in Architecture in 1970 from the
University of California, Berkeley.
John P. Rocchio joined the Company at inception in 1984 as Vice President
of Project Development. Prior to joining the Company, he served as Manager of
Business Development for Gibbs & Hill, Inc. from 1979 to 1984. Prior to 1979,
Mr. Rocchio served for 17 years with General Electric in various positions,
including Manager International Sales for the Nuclear Energy Group from 1970 to
1979 and various engineering and marketing positions from 1962 to 1979. He
obtained a Bachelor of Science Degree in Marine Engineering from the U.S.
Merchant Marine Academy in 1959.
Ron A. Walter has served as the Company's Vice President of Project
Development since July 1990. From 1984 to 1990, Mr. Walter served as the
Company's Manager-Geothermal Projects. Prior to joining the Company, he served
as Director of Sales-Geothermal for the San Jose-based architect-engineering
firm, Gibbs & Hill, Inc. from 1983 to 1984 and Senior Engineer from 1982 to
1983. From 1981 to 1982 he served as Project Manager Geothermal Projects with
Rogers Engineering Co. and from 1972 to 1981 he served in engineering and
management positions with Batelle Northwest Laboratories. Mr. Walter obtained a
Master of Science Degree in Mechanical Engineering from Oregon State University
in 1976 and a Bachelor of Science Degree in Mechanical Engineering from the
University of Nebraska in 1971.
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CLASSIFIED BOARD OF DIRECTORS
The Company's Amended and Restated By-laws, which will become effective
upon the completion of the Common Stock Offering, will provide that the number
of directors shall be between three and nine, with the actual number of
directors to be established from time to time by resolution of the Board of
Directors. Following the Common Stock Offering, the Company's Board of Directors
will be divided into three classes, designated Class I, Class II and Class III,
with each class having a three-year term. Initially, Mr. Stathakis will serve in
Class I, Ms. Curtis will serve in Class II and Mr. Cartwright will serve in
Class III. The initial Directors in each class will hold office for terms of one
year, two years and three years, respectively. Thereafter each class will serve
a three-year term. The Company's Directors are elected by the stockholders at
the annual meeting of stockholders and will serve until their successors are
elected and qualified, or until their earlier resignation or removal. Additional
Directors will be designated to serve as Class I, Class II or Class III
Directors upon their appointment to the Board of Directors following the Common
Stock Offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors will establish an Audit Committee and a Compensation
Committee upon completion of the Common Stock Offering. The Audit Committee will
review internal auditing procedures, the adequacy of internal controls and the
results and scope of the audit and other services provided by the Company's
independent auditors. The Compensation Committee will administer salaries,
incentives and other forms of compensation for officers and other employees of
the Company, as well as the incentive compensation and benefit plans of the
Company. Initially, Mr. Stathakis will serve as the sole Director on the Audit
Committee and the Compensation Committee. Thereafter, the Board of Directors
will designate one or more additional non-employee Directors to serve on the
Audit Committee and the Compensation Committee upon appointment to the Board of
Directors.
DIRECTOR COMPENSATION
Directors currently do not receive any compensation or other services as
members of the Board of Directors. The Company has determined that, following
the completion of the Common Stock Offering, non-employee Directors will receive
an annual fee of $25,000 and will be reimbursed for expenses incurred in
attending meetings of the Board of Directors or any committee thereof. The
chairman of the Compensation Committee and the chairman of the Audit Committee
will receive an additional annual fee of $5,000. In addition, Directors will be
eligible to participate in the Company's 1996 Stock Incentive Plan. See "-- 1996
Stock Incentive Plan."
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<PAGE> 76
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned, paid or awarded for services rendered to the Company in all
capacities during each of the three years ended December 31, 1995 to the
Company's Chief Executive Officer and each of the five other most highly
compensated executive officers of the Company serving in that capacity as of
December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
---------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- ------------------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Peter 1995 $341,000 $255,750 178,668 $21,420
Cartwright........................... 1994 300,000 292,500 155,815 11,934
President and Chief Executive 1993 220,055 176,000 -- 7,722
Officer
Lynn A. 1995 195,000 72,000 53,600 4,815
Kerby................................ 1994 180,000 72,000 38,954 4,275
Senior Vice President 1993 173,250 90,000 41,551 4,228
Ann B. 1995 160,000 60,000 53,600 877
Curtis............................... 1994 130,000 75,000 38,954 694
Senior Vice President 1993 122,500 70,000 -- 648
Alicia N. 1995 140,000 45,000 13,400 1,288
Noyola............................... 1994 133,875 40,162 -- 1,134
Vice President 1993 124,417 40,000 31,163 660
Ron A. 1995 135,000 45,000 13,400 1,235
Walter............................... 1994 120,000 40,000 -- 1,027
Vice President 1993 112,500 30,000 -- 587
Robert D. 1995 126,684 42,000 22,334 436
Kelly................................ 1994 115,208 60,000 31,163 389
Vice President 1993 103,347 50,000 23,372 343
</TABLE>
- ------------
(1) Represents the taxable value of an employer-sponsored life insurance policy.
The amount is calculated based on the age of the employee and the life
insurance coverage in excess of $50,000.
EMPLOYMENT AGREEMENTS, CONSULTING AGREEMENT AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into employment agreements with Mr. Peter
Cartwright, Mr. Lynn Kerby, Ms. Ann Curtis, Mr. Ron Walter and Mr. Robert Kelly.
Each of the employment agreements expires during 1999 unless earlier terminated
or subsequently extended. The employment agreements provide for the payment of a
base salary, subject to periodic adjustment by the Board of Directors, and
provide for annual bonuses and participation in all benefit and equity plans.
The employment agreements also provide for other employee benefits such as life
insurance and health care, in addition to certain disability and death benefits.
Severance benefits, including the acceleration of outstanding options, are also
payable upon an involuntary termination or a termination following a change of
control in the Company. Severance benefits would not be payable in the event
that termination was for cause.
On December 1, 1994, the Company entered into a Consulting Agreement with
Mr. George J. Stathakis, a Director nominee. The Consulting Agreement was
amended and restated effective June 3, 1996. Pursuant to the Consulting
Agreement, Mr. Stathakis has been retained to provide, among other things,
advice to the Company with regard to domestic and international business, to
identify project investment opportunities, and to provide advisory support to
the Company's management in identifying potential buyers for, and negotiating
the sale of, Electrowatt's equity interest in the Company. The Consulting
Agreement provides for a monthly retainer of $5,000. In addition, for services
rendered in connection with the Common Stock Offering, the Company will pay Mr.
Stathakis $250,000 plus 0.25% of all payments received by Electrowatt in excess
of $200 million. The Consulting Agreement terminates on January 1, 1997 unless
otherwise earlier terminated or extended by mutual agreement of the parties.
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<PAGE> 77
Should the Company be acquired by merger or asset sale, then all
outstanding options held by the Chief Executive Officer and the other executive
officers under the Company's Stock Option Program or the 1996 Stock Incentive
Plan will automatically accelerate and vest in full, except to the extent those
options are to be assumed by the successor corporation. In addition, the
Compensation Committee as Plan Administrator of the 1996 Stock Incentive Plan
will have the authority to provide for the accelerated vesting of the shares of
Common Stock subject to outstanding options held by the Chief Executive Officer
or any other executive officer or any unvested shares of Common Stock subject to
direct issuances held by such individual, in connection with the termination of
that individual's employment following: (i) a merger or asset sale in which
these options are assumed or are assigned or (ii) certain hostile changes in
control of the Company. However, certain executive officers have existing
employment agreements that provide for the acceleration of their options upon a
termination of their employment following certain changes in control or
ownership of the Company.
STOCK OPTION PROGRAM
The following table sets forth certain information concerning grants of
stock options during the fiscal year ended December 31, 1995 to each of the
executive officers named in the Summary Compensation Table above. The table also
sets forth hypothetical gains or "option spreads" for the options at the end of
their respective ten-year terms. These gains are based on the assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the option
was granted over the full option term.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------------------------------- VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
TOTAL OPTIONS STOCK
GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(4)
GRANTED IN FISCAL PRICE PER EXPIRATION --------------------
NAME (NO. OF SHARES)(2) YEAR(3) SHARE DATE 5% 10%
- ------------------------ ------------------ ------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter Cartwright........ 178,668 40% $4.91 1/1/05 $551,704 $1,398,126
Lynn A. Kerby........... 53,600 12 4.91 1/1/05 165,510 419,435
Ann B. Curtis........... 53,600 12 4.91 1/1/05 165,510 419,435
Alicia N. Noyola........ 13,400 3 4.91 1/1/05 41,377 104,859
Ron A. Walter........... 13,400 3 4.91 1/1/05 41,377 104,859
Robert D. Kelly......... 22,334 5 4.91 1/1/05 68,965 174,770
</TABLE>
- ------------
(1) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise. The Compensation Committee of the
Board of Directors, as the Plan Administrator of the Company's 1996 Stock
Incentive Plan, will have the discretionary authority to reprice the options
through the cancellation of those options and the grant of replacement
options with an exercise price based on the fair market value of the option
shares on the grant date.
(2) Each option set forth in the table above was granted on January 1, 1995 and
has a maximum term of ten years measured from the grant date, subject to
earlier termination upon the executive officer's termination of service with
the Company. Each option is immediately exercisable, but the underlying
shares are subject to repurchase by the Company at the original exercise
price paid per share should the executive officer's service with the Company
cease prior to vesting in such shares. The Company's repurchase right will
lapse with respect to, and the executive officer will vest in, four equal
annual installments over the four-year period of service measured from the
grant date. The Company's right to repurchase with respect to the option
shares will terminate immediately upon an acquisition of the Company by
merger or asset sale if the options are not assumed by the successor
corporation.
(3) The Company granted options to purchase 446,930 shares of Common Stock
during the year ended December 31, 1995.
(4) The 5% and 10% assumed annual rates of compound stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or a projection by the Company of future
stock prices.
In addition to the options described above, in March 1996 the Board of
Directors granted options to purchase shares of Common Stock under the Company's
Stock Option Program to the following individuals in the designated amounts; Mr.
Cartwright, an option for 181,785 shares; Mr. Kerby, an option for 41,551
shares; Ms. Curtis, an option for 51,938 shares; Ms. Noyola, an option for
20,775 shares; Mr. Walter, an option for 20,775 shares; and Mr. Kelly, an option
for 36,357 shares. The exercise price for each option is $8.57 per
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<PAGE> 78
share. Each option has a maximum term of ten (10) years measured from the date
of grant, subject to earlier termination in the event of the optionee's
cessation of service with the Company. The Company's right of repurchase will
lapse with respect to, and the optionee will vest in, the option shares in a
series of four equal annual installments over the four-year period of service
measured from January 1, 1996. The Company's right to repurchase with respect to
the option shares will terminate immediately upon an acquisition of the Company
by merger or asset sale if the options are not assumed by the successor
corporation.
No executive officer named in the Summary Compensation Table above
exercised stock options during the year ended December 31, 1995. The following
table sets forth certain information concerning the number of shares subject to
exercisable and unexercisable stock options held by the executive officers named
in the Summary Compensation Table above as of December 31, 1995. Also reported
are values for "in-the-money" options that represent the positive spread between
the respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-
AT DECEMBER 31, 1995 (NO. OF MONEY OPTIONS AT
OPTIONS) DECEMBER 31, 1995(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter Cartwright....................... 597,292 256,576 $11,049,902 $ 4,746,656
Lynn A. Kerby.......................... 50,640 83,465 936,840 1,544,103
Ann B. Curtis.......................... 144,129 73,077 2,666,387 1,351,925
Alicia N. Noyola....................... 23,372 21,191 432,382 392,034
Ron A. Walter.......................... 114,265 13,400 2,113,903 247,900
Robert D. Kelly........................ 33,111 43,758 612,554 809,523
</TABLE>
- ---------------
(1) For purposes of the computation of the value of unexercised in-the-money
options at December 31, 1995, the table above assumes that the value of the
underlying shares is the initial public offering price of the shares offered
hereby, which is assumed to be $18.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1995, the members of the Board of Directors, other than Mr. Cartwright,
acted as the Compensation Committee for the purposes of establishing the
compensation for Mr. Cartwright, the Company's President and Chief Executive
Officer. All decisions regarding the compensation of the Company's other
executive officers were made by Mr. Cartwright. Upon the consummation of the
Common Stock Offering, there will be established a Compensation Committee of the
Board of Directors. Following the Common Stock Offering, no member of the
Compensation Committee of the Board of Directors of the Company will serve as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
1996 STOCK INCENTIVE PLAN
The Company's 1996 Stock Incentive Plan (the "1996 Plan") is intended to
serve as the successor equity incentive program to the Company's Stock Option
Program (the "Predecessor Plan"). See "-- Stock Option Program." The 1996 Plan
became effective on July 17, 1996 upon adoption by the Board of Directors and
was subsequently approved by the Company's stockholder on July 17, 1996. The
Company has initially authorized 4,041,858 shares of Common Stock for issuance
under the 1996 Plan. This initial share reserve is comprised of (i) the
2,596,923 shares which remained available for issuance under the Predecessor
Plan, including the 2,392,026 shares subject to outstanding options thereunder,
plus (ii) an additional increase of 1,444,935 shares. In addition, the share
reserve will automatically be increased on the first trading day of January each
calendar year, beginning in January 1997, by a number of shares equal to one
percent (1%) of the number of shares of Common Stock outstanding on the last
trading day of the immediately preceding calendar year.
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<PAGE> 79
However, in no event may any one participant in the 1996 Plan receive option
grants or direct stock issuances for more than 500,000 shares in the aggregate
per calendar year.
Outstanding options under the Predecessor Plan will be incorporated into
the 1996 Plan upon the consummation of the Common Stock Offering, and no further
option grants will be made under the Predecessor Plan. The incorporated options
will continue to be governed by their existing terms, unless the Plan
Administrator elects to extend one or more features of the 1996 Plan to those
options. However, except as otherwise noted below, the outstanding options under
the Predecessor Plan contain substantially the same terms and conditions
summarized below for the Discretionary Option Grant Program in effect under the
1996 Plan.
The 1996 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers and other employees,
non-employee Board members and independent consultants) may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
at an exercise price not less than 85% of their fair market value on the grant
date, (ii) the Stock Issuance Program under which such individuals may, in the
Plan Administrator's discretion, be issued shares of Common Stock directly,
through the purchase of such shares at a price not less than 100% of their fair
market value at the time of issuance or as a bonus tied to the performance of
services, (iii) the Salary Investment Option Grant Program under which executive
officers and other highly compensated employees may elect to apply a portion of
their base salary to the acquisition of special stock option grants, (iv) the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to eligible non-employee Directors to purchase shares
of Common Stock at an exercise price equal to 100% of their fair market value on
the grant date and (v) the Director Fee Option Grant Program pursuant to which
the non-employee Directors may apply a portion of the annual retainer fee, if
any, otherwise payable to them in cash each year to the acquisition of special
stock option grants.
The Discretionary Option Grant, Stock Issuance and Salary Investment Option
Grant Programs will be administered by the Compensation Committee. The
Compensation Committee as Plan Administrator will have complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when such option grants or stock issuance are to be
made, the number of shares subject to each such grant or issuance, the vesting
schedule to be in effect for the option grant or stock issuance, the maximum
term for which any granted option is to remain outstanding and the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, except that all options granted under the
Salary Investment Option Grant Program will be non-statutory stock options. The
administration of the Automatic Option Grant and Director Fee Option Grant
Programs will be self-executing in accordance with the express provisions of
each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1996 Plan may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionee. In
addition, the Plan Administrator may provide financing to one or more optionees
in the exercise of their outstanding options by allowing such individuals to
deliver a full-recourse, interest-bearing promissory note in payment of the
exercise price and any associated withholding taxes incurred in connection with
such exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Stock Issuance Program will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation. The Plan Administrator
will have the authority under the Discretionary Option Grant and Stock Issuance
Programs to grant options and to structure repurchase rights so that the shares
subject to those options or repurchase rights will automatically vest in the
event the individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a specified period (not to exceed 18 months)
following (i) a merger or asset sale in which those options are assumed or (ii)
a hostile change in control of the Company effected by a successful tender offer
for more than 50% of the outstanding
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<PAGE> 80
voting stock or by proxy contest for the election of Directors. Options
currently outstanding under the Predecessor Plan will accelerate upon an
acquisition of the Company by merger or asset sale, unless those options are
assumed by the acquiring entity. However, such options under the Predecessor
Plan are not subject to acceleration upon the termination of the optionee's
service following an acquisition in which those options are assumed or following
a hostile change in control, except to the extent provided in any employment
contract or severance agreement in effect between the optionee and the Company.
Stock appreciation rights may be issued in tandem with option grants made
under the Discretionary Option Grant Program. The holders of such rights will
have the opportunity to elect between the exercise of their outstanding stock
options for shares of Common Stock or the surrender of those options for an
appreciation distribution from the Company equal to the excess of (i) the fair
market value of the vested shares of Common Stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares. Such
appreciation distribution may be made in cash or in shares of Common Stock.
There are currently no outstanding stock appreciation rights under the
Predecessor Plan.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $10,000 nor more than $50,000. If such election is approved by the Plan
Administrator, the officer will be granted, on or before the last trading day in
January in the calendar year for which the salary reduction is to be in effect,
a non-statutory option to purchase that number of shares of Common Stock
determined by dividing the salary reduction amount by two-thirds of the fair
market value per share of Common Stock on the grant date. The option will be
exercisable at a price per share equal to one-third of the fair market value of
the option shares on the grant date. As a result, the total spread on the option
shares at the time of grant will be equal to the amount of salary invested in
that option. The option will vest in a series of 12 equal monthly installments
over the calendar year for which the salary reduction is in effect and will be
subject to full and immediate vesting upon certain changes in the ownership or
control of the Company.
Under the Automatic Option Grant Program, each individual who is serving as
a non-employee Director on the date the Underwriting Agreement for the Common
Stock Offering is executed will receive at that time a stock option for 10,000
shares of Common Stock, provided that individual has not previously received an
option grant from the Company in connection with his or her service on the Board
of Directors. Each individual who becomes a non-employee Director after such
date will receive an option grant for 10,000 shares of Common Stock at the time
of his or her commencement of service on the Board of Directors, provided such
individual has not otherwise been in the prior employment of the Company. In
addition, at each Annual Stockholders Meeting, beginning with the 1997 Annual
Stockholders Meeting, each individual who is to continue to serve as a
non-employee Director will receive an option grant to purchase 1,500 shares of
Common Stock, whether or not such individual has been in the prior employment of
the Company or has previously received a stock option grant from the Company.
Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of service on the Board of Directors. Each automatic option will be immediately
exercisable; however, any shares purchased upon exercise of the option will be
subject to repurchase, at the option exercise price paid per share, should the
optionee's service as a non-employee Director cease prior to vesting in the
shares. The 10,000-share grant will vest in four successive equal annual
installments over the optionee's period of service on the Board of Directors
measured from the grant date. Each annual 1,500-share grant will vest upon the
optionee's completion of one year of service on the Board of Directors measured
from
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<PAGE> 81
the grant date. However, each outstanding option will immediately vest upon (i)
certain changes in the ownership or control of the Company or (ii) the death or
disability of the optionee while serving as a Director.
Should the Director Fee Option Grant Program be activated in the future,
each non-employee Director would have the opportunity to apply all or a portion
of his or her annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant would automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the shares of Common Stock on the
grant date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of Common Stock on the grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
be equal to the portion of the retainer fee invested in that option. The option
will become exercisable for the option shares in a series of installments over
the optionee's period of service on the Board of Directors as follows: one half
of the option shares will become exercisable upon the optionee's completion of
six months of service on the Board of Directors during the calendar year of the
option grant and the balance will become exercisable in six successive equal
monthly installments upon his or her completion of each additional month of
service on the Board of Directors in such calendar year. However, the option
will become immediately exercisable for all the option shares upon (i) certain
changes in the ownership or control of the Company or (ii) the death or
disability of the optionee while serving as a Director.
The Board of Directors may amend or modify the 1996 Plan at any time. The
1996 Plan will terminate on July 16, 2006, unless sooner terminated by the Board
of Directors.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on July 17, 1996. The Purchase Plan is
designed to allow eligible employees of the Company and participating
subsidiaries to purchase shares of Common Stock, at semi-annual intervals,
through their periodic payroll deductions under the Purchase Plan, and a reserve
of 275,000 shares of Common Stock has been established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the Underwriting Agreement is executed in
connection with the Common Stock Offering and will end on the last business day
in August 1998.
Individuals who are eligible employees on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
semi-annual entry date (March 1 or September 1 each year). Individuals who
become eligible employees after the start date of the offering period may join
the Purchase Plan on any subsequent semi-annual entry date within that period.
Payroll deductions may not exceed 15% of the participant's cash
compensation for each semi-annual period of participation, and the accumulated
payroll deductions will be applied to the purchase of shares on the
participant's behalf on each semi-annual purchase date (February 28 and August
31 each year, with the first such purchase date to occur on February 28, 1997)
at a purchase price per share not less than eighty-five percent (85%) of the
lower of (i) the fair market value of the Common Stock on the participant's
entry date into the offering period or (ii) the fair market value on the
semi-annual purchase date. In no event, however, may any participant purchase
more than 300 shares on any one semi-annual purchase date. Should the fair
market value of the Common Stock on any semi-annual purchase date be less than
the fair market value of the Common Stock on the first day of the offering
period, then the current offering period will automatically end and a new
24-month offering period will begin, based on the lower fair market value.
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<PAGE> 82
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a director of a corporation will not be personally liable for monetary
damages for breach of such individual's fiduciary duties as a director except
for liability (i) for any breach of such director's duty of loyalty to the
corporation, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which a director derives an improper personal benefit.
The Company's Bylaws provide that the Company will indemnify its directors
and may indemnify its officers, employees and other agents to the full extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of an indemnified
party and permits the Company to advance expenses incurred by an indemnified
party in connection with the defense of any action or proceeding arising out of
such party's status or service as a director, officer, employee or other agent
of the Company upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification.
The Company has entered into separate indemnification agreements with each
of its directors and officers. These agreements require the Company, among other
things, to indemnify such director or officer against expenses (including
attorneys' fees), judgments, fines and settlements (collectively, "Liabilities")
paid by such individual in connection with any action, suit or proceeding
arising out of such individual's status or service as a director or officer of
the Company (other than Liabilities arising from willful misconduct or conduct
that is knowingly fraudulent or deliberately dishonest) and to advance expenses
incurred by such individual in connection with any proceeding against such
individual with respect to which such individual may be entitled to
indemnification by the Company. The Company believes that its Certificate of
Incorporation and Bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers.
At present the Company is not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of the Company where
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
CERTAIN TRANSACTIONS
CS Holding, a Swiss corporation, holds approximately 44.9% of the
outstanding shares of Electrowatt, which indirectly holds all of the outstanding
capital stock of the Company. CS Holding also holds (i) approximately 100% of
the outstanding shares of Credit Suisse and (ii) approximately 69.3% of the
outstanding common stock of CS First Boston, Inc., which holds all of the
outstanding common stock of CS First Boston Corporation. CS First Boston
Corporation was one of the underwriters of the Company's 9 1/4% Senior Notes
issued in February 1994 and was one of the placement agents in the sale of the
10 1/2% Senior Notes in May 1996. CS First Boston Corporation is acting as an
Underwriter in the Common Stock Offering.
In January 1990, O.L.S. Energy-Agnews entered into a credit agreement with
Credit Suisse providing for a $28 million loan to finance the construction of
the Agnews Facility. The Company holds a 20% interest in O.L.S. Energy-Agnews.
The loan is collateralized by all of the assets of the Agnews Facility and bears
interest on the unpaid principal balance based on LIBOR plus a margin rate
varying between .50% and 1.50%. After commencement of commercial operation of
the Agnews Facility, the Facility was sold to Nynex Credit Corporation under a
sale leaseback arrangement with O.L.S. Energy-Agnews and Credit Suisse. Under
the sale leaseback, O.L.S. Energy-Agnews entered into a 22-year lease,
commencing February 1991, providing for the payment of a fixed base rental, as
well as renewal options and a purchase option at the termination of the lease.
As of December 31, 1995, O.L.S. Energy-Agnews's outstanding obligation of its
sale leaseback arrangement was $37.6 million.
In September 1990, the Company obtained a $25.3 million Credit Facility
from Credit Suisse. In April 1993, the Credit Suisse Credit Facility was amended
to increase the amount of credit available to the
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<PAGE> 83
Company to $54.0 million. The Credit Suisse Credit Facility is unsecured and
bears interest on the amounts outstanding from time to time, if any, at LIBOR
plus .50% per annum. During 1994, the Company completed a $105.0 million public
debt offering of the 9 1/4% Senior Notes. A portion of the net proceeds were
used to repay $52.6 million indebtedness outstanding under the Credit Suisse
Credit Facility. On April 21, 1995, the Company entered into the Credit Suisse
Credit Facility providing for advances of $50.0 million. On April 29, 1996, the
amount of advances available under the Credit Suisse Credit Facility was
increased to $58.0 million. A portion of the proceeds of the sale of the 10 1/2%
Senior Notes was used to repay outstanding borrowings under the Credit Suisse
Credit Facility of approximately $53.7 million on May 16, 1996. The amount of
advances available under the Credit Suisse Credit Facility was subsequently
reduced to $50.0 million. Upon the completion of the Common Stock Offering, the
Credit Suisse Credit Facility will terminate.
In January 1992, Sumas and its wholly owned subsidiary, ENCO, entered into
loan agreements with Prudential and Credit Suisse providing for a $120.0 million
loan to finance the construction of the Sumas Facility and acquisition of
associated gas reserves. See "Business -- Description of Facilities -- Power
Generation Facilities -- Sumas Facility." As of December 31, 1995, the
outstanding indebtedness of Sumas and ENCO under the term loan was $119.0
million.
In January 1995, the Company and Electrowatt entered into a management
services agreement, which replaced a prior similar agreement, under which
Electrowatt agreed to provide the Company with advisory services in connection
with the construction, financing, acquisition and development of power projects,
as well as any other advisory services as may be required by the company in
connection with the operation of the Company. The Company has agreed to pay
Electrowatt $200,000 per year for all services rendered under the management
services agreement. Pursuant to this agreement, $200,000 was paid in 1995. Upon
the completion of the Common Stock Offering, the management services agreement
will terminate.
In 1995, the Company paid $106,000 to Electrowatt pursuant to a guarantee
fee agreement whereby Electrowatt agreed to guarantee the payment when due of
any and all indebtedness of the Company to Credit Suisse in accordance with the
terms and conditions of the Credit Suisse Credit Facility. Under the guarantee
fee agreement, the Company has agreed to pay to Electrowatt an annual fee equal
to 1% of the average outstanding balance of the Company's indebtedness to Credit
Suisse during each quarter as compensation for all services rendered under the
guarantee fee agreement. Upon the completion of the Common Stock Offering, the
guarantee fee agreement will terminate.
In June 1995, Calpine repaid $57.5 million of non-recourse financing to
Credit Suisse which was outstanding indebtedness related to the Greenleaf 1 and
2 Facilities at the time of the acquisition of such facilities.
In December 1994, the Company entered into a Consulting Agreement with Mr.
Stathakis, a Director nominee, which was amended and restated effective June 3,
1996. See "Management--Employment Agreements, Consulting Agreement and Change of
Control Agreements."
In March 1996, Electrowatt invested $50.0 million in the Company in the
form of shares of Preferred Stock, all of which will be converted into shares of
Common Stock upon the completion of the Common Stock Offering.
The Company believes that all transactions between the Company and its
officers, Directors, principal shareholders and affiliates have been and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated parties.
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<PAGE> 84
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1996 and as adjusted to
reflect the Common Stock Offering by: (i) each person known by the Company to be
the beneficial owner of more than five percent of the outstanding shares of the
Company's Common Stock, (ii) each Director and nominee for Director of the
Company, (iii) each executive officer of the Company listed in the Summary
Compensation Table, (iv) Electrowatt (the "Selling Stockholder"), and (v) all
executive officers and Directors and nominees for Director of the Company as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE AFTER THE
COMMON STOCK COMMON STOCK
OFFERING(1) OFFERING(1)
NAME AND ADDRESS ----------------------- NUMBER OF SHARES ----------------------
OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED(2) NUMBER PERCENT
- -------------------------------- ---------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
Electrowatt Ltd.(2)............. 12,567,180 100%(2) 12,567,180 -- --
Pierre Krafft................... -- -- -- -- --
Hans-Peter Aebi................. -- -- -- -- --
Rudolf Boesch................... -- -- -- -- --
Peter Cartwright(3)............. 641,959 4.9% -- 641,959 3.4%
Ann B. Curtis(3)................ 157,529 1.2% -- 157,529 *
George J. Stathakis............. -- -- -- -- --
Lynn A. Kerby(3)................ 74,428 * -- 74,428 *
Ron A. Walter(3)................ 117,615 * -- 117,615 *
Alicia N. Noyola(3)............. 34,513 * -- 34,513 *
Robert D. Kelly(3).............. 44,537 * -- 44,537 *
All executive officers and
Directors and nominees for
Director as a group (15
persons)(3)................... 1,366,696 9.8% -- 1,366,696 7.0%
</TABLE>
- ------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options, warrants and
convertible notes currently exercisable or convertible, or exercisable or
convertible within 60 days, are deemed outstanding for computing the
percentage of the person holding such options but are not deemed outstanding
for computing the percentage of any other person. Subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them.
(2) Electrowatt's address is: Bellerivestrasse 36, P.O. Box CH-8022, Zurich,
Switzerland.
(3) Represents shares of the Company's Common Stock issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after June 30, 1996.
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<PAGE> 85
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Common Stock Offering, the authorized capital stock
of the Company will consist of 100,000,000 shares of Common Stock, $.001 par
value, and 10,000,000 shares of Preferred Stock, $.001 par value. The following
summary is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws of the Company that will be in effect upon the
completion of the Common Stock Offering, forms of which have been filed as
exhibits to the Registration Statement of which this Prospectus constitutes a
part.
COMMON STOCK
There will be 18,045,000 shares of Common Stock outstanding upon the
completion of the Common Stock Offering. The holders of Common Stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of the liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior liquidation rights of Preferred Stock,
if any, then outstanding. The Common Stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock to be outstanding upon the completion of the Common Stock Offering will be
fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of
undesignated preferred stock and to fix the number of shares constituting any
series and the designations of such series, without any further vote or action
by the stockholders. The Board of Directors, without stockholder approval, can
issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power of the holders of Common Stock. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company, or could delay or prevent a transaction that
might otherwise give stockholders of the Company an opportunity to realize a
premium over the then prevailing market price of the Common Stock. There will be
no shares of Preferred Stock outstanding upon the completion of the Common Stock
Offering.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certificate of Incorporation and Bylaws
The Company's Certificate of Incorporation and Bylaws provide that the
Company's Board of Directors is classified into three classes of Directors
serving staggered, three-year terms. The Certificate of Incorporation also
provides that Directors may be removed only by the affirmative vote of the
holders of two-thirds of the shares of capital stock of the Company entitled to
vote. Any vacancy on the Board of Directors may be filled only by vote of the
majority of Directors then in office. Further, the Certificate of Incorporation
provides that any "Business Combination" (as therein defined) requires the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the Company entitled to vote, voting together as a single class. The Certificate
of Incorporation also provides that all stockholder actions must be effected at
a duly called meeting and not by a consent in writing. The Bylaws provide that
the Company's stockholders may call a special meeting of stockholders only upon
a request of stockholders owning at least 50% of the Company's capital stock.
These provisions of the Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the
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vulnerability of the Company to an unsolicited acquisition proposal. The
provisions also are intended to discourage certain tactics that may be used in
proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for the Company's shares and, as a consequence,
they also may inhibit fluctuations in the market price of the Company's shares
that could result from actual or rumored takeover attempts. Such provisions also
may have the effect of preventing changes in the management of the Company. See
"Risk Factors -- Anti-Takeover Provisions" and "Management -- Classified Board
of Directors."
Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is First
Chicago Trust Company of New York. Its address is 525 Washington Boulevard,
Jersey City, New Jersey 07310 and its telephone number is (201) 222-4114.
LISTING
The Common Stock has been approved for listing on the New York Stock
Exchange, subject to notice of issuance, under the trading symbol "CPN".
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Common Stock Offering, the Company will have
18,045,000 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and assuming no exercise of outstanding
options). All of the shares sold in the Common Stock Offering will be freely
tradeable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of the Company, as that term is
defined under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
Shares of Common Stock not freely tradeable without restriction or further
registration under the Securities Act are deemed "restricted" under Rule 144 of
the Securities Act. The number of shares of Common Stock available for sale in
the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed with the
Underwriters not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this Prospectus without the prior written
consent of CS First Boston. The Company intends to register with the Commission
on a registration statement on Form S-8, 180 days following the date of this
Prospectus, a total of 4,041,858 shares of Common Stock issuable pursuant to the
Company's 1996 Plan, including the 2,392,026 shares of Common Stock subject to
outstanding options previously granted under the Predecessor Plan. Upon the
effectiveness of such registration statement, the shares issuable upon the
exercise of outstanding options or otherwise under the 1996 Plan will become
freely tradeable upon issuance thereof, subject to the restrictions on
Affiliates under the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the Common Stock Offering, a person (or persons whose
shares are aggregated) who has beneficially owned "restricted" shares for at
least two years, including a person who may be deemed an Affiliate of the
Company, is entitled to sell within any three-month period a number of shares of
Common Stock that does not exceed the greater of 1% of the then-outstanding
shares of Common Stock of the Company (approximately 180,450 shares after giving
effect to the Common Stock Offering) or the average weekly trading volume of the
Common Stock on the New York Stock Exchange during the four calendar weeks
preceding such sale. Sales under Rule 144 are subject to certain restrictions
relating to manner of sale, notice and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not an Affiliate of the Company at any time during the ninety days
preceding a sale, and who has beneficially owned shares for at least three
years, would be entitled to sell such shares immediately following the Common
Stock Offering without regard to the volume limitations, manner of sale
provisions or notice or other requirements of Rule 144 of the Securities Act
pursuant to Rule 144(k). However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144(k)
prior to effecting a transfer of such shares.
Prior to the Common Stock Offering, there has been no public market for the
Common Stock of the Company and no predictions can be made of the effect, if
any, that the sale or availability for sale of shares of additional Common Stock
will have on the market price of the Common Stock. Nevertheless, sales of
substantial amounts of such shares in the public market, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through an
offering of its equity securities.
OPTIONS
As of the date of this Prospectus, options to purchase a total of 2,392,026
shares of Common Stock are outstanding under the Company's 1996 Plan. Of such
amount, options to purchase 1,366,696 shares are exercisable, all of which will
become eligible for sale 180 days after the date of this Prospectus upon
expiration of certain lock-up agreements with the Underwriters and pursuant to
Rule 701, subject in some cases to certain volume and other resale restrictions.
Rule 701 under the Securities Act provides that shares of Common Stock acquired
on the exercise of outstanding options may be resold (i) by persons other than
Affiliates, beginning 90 days after the date of this Prospectus, subject only to
the manner of sale provisions of
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Rule 144 and (ii) by Affiliates, beginning 90 days after the date of this
Prospectus, subject to all provisions of Rule 144 except its two-year minimum
holding period.
LOCK-UP AGREEMENTS
All holders of options to purchase shares of Common Stock have agreed with
the Underwriters that they will not, without the prior written consent of CS
First Boston, offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock beneficially owned by them or any shares issuable upon exercise
of stock options for a period of 180 days from the date of this Prospectus. See
"Underwriting."
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of an investment in Common Stock by a holder
that, for United States federal income tax purposes, is not a "United States
person" (a "Non-U.S. Holder"). For purposes of this discussion, a "United States
person" means a citizen or resident (as defined for United States federal income
and estate tax purposes, as the case may be) of the United States, a corporation
or partnership created or organized in the United States or under the laws of
the United States or of any State thereof or an estate or trust whose income is
includible in gross income for United States federal income tax purposes
regardless of its source. The discussion is based on the United States Internal
Revenue Code of 1986, as amended (the "Code"). Treasury regulations promulgated
thereunder, and judicial and administrative interpretations thereof, all as in
effect on the date hereof and all of which are subject to change, possibly
retroactively, and is for general information only. The discussion does not
address aspects of United States federal taxation other than income and estate
taxation and does not address all aspects of United States federal income and
estate taxation. The discussion does not consider any specific facts or
circumstances that may apply to a particular Non-U.S. Holder. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE UNITED
STATES FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES TO
THEM OF AN INVESTMENT IN COMMON STOCK.
DIVIDENDS
Dividends paid to a Non-U.S. Holder will generally be subject to
withholding of United States federal income tax at a rate equal to 30% of the
gross amount of the distribution (or at a lower rate prescribed by an applicable
tax treaty) unless the dividends are effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder, in which case
the dividends generally will not be subject to withholding (if the Non-U.S.
Holder files certain forms with the payor of the dividend) and generally will be
subject to the United States federal income tax on net income that applies to
United States persons generally (and, in the case of corporate holders,
effectively connected dividends may also, under certain circumstances, be
subject to the branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty). An applicable income tax treaty
may, however, change these rules. To determine the applicability of a tax treaty
providing for a lower rate of withholding, dividends paid to an address in a
foreign country are presumed under current interpretation of existing Treasury
regulations to be paid to a resident of that country. Treasury regulations
proposed to be effective for payments made after December 31, 1997, which have
not been finally adopted, however, would require Non-U.S. Holders to file
certain new forms to obtain the benefit of any applicable tax treaty providing
for a lower rate of withholding tax on dividends. Such forms would contain the
holder's name and address and certain other information.
The gross amount of a distribution with respect to Common stock will be
treated as a dividend to the extent of the Company's current and accumulated
earnings and profits as determined for U.S. federal income tax purposes. In the
event that such a distribution exceeds the amount of the Company's earnings and
profits, it will be treated first as a non-taxable return of capital to the
extent of the Non-U.S. Holder's basis in Common Stock (but not below zero), and
thereafter as capital gain. A Non-U.S. Holder will have to file a refund claim
to obtain a refund of tax withheld on distributions in excess of the dividend
portion of any distribution.
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GAIN ON DISPOSITION
A Non-U.S. Holder generally will not be subject to United States federal
income tax on gain recognized upon a sale or other disposition of shares of
Common Stock unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder, (ii) the
Non-U.S. Holder is an individual who has a tax home (as specifically defined
under the United States federal income tax laws) in the United States (or
maintains an office or other fixed place of business in the United States to
which the gain from the sale of the stock is attributable), holds the shares of
Common Stock as a capital asset, and is present in the United States for 183
days or more in the taxable year of the disposition or (iii) except as discussed
below, the Company is or has been a "United States real property holding
corporation" ("USRPHC") within the meaning of section 897(c)(2) of the Code at
any time within the shorter of the five year period preceding such disposition
or such holder's holding period.
Gain that is (or is treated as being) effectively connected with the
conduct of a trade or business within the United States by the Non-U.S. Holder
will be subject to the United States federal income tax on net income that
applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax) but will not be
subject to withholding. If the Company is a USRPHC, a Non-U.S. Holder may be
subject to taxation under certain provisions of the Codes enacted pursuant to
the Foreign Investors Real Property Tax Act ("FIRPTA"). The determination of
whether the Company is a USRPHC depends in part upon unresolved issues of what
constitutes real property for purposes of the FIRPTA provisions and upon
difficult and uncertain questions of valuation. If the Company were or were to
become a USRPHC, gains realized upon a disposition of Common Stock by a Non-U.S.
Holder that is not deemed to own more than 5% of the Common Stock would not be
subject to tax under the FIRPTA provisions provided that the Common Stock is
"regularly traded" on an established securities market. Since the Common Stock
will trade on the New York Stock Exchange, the Company believes the Common Stock
will be "regularly traded" on an established securities market.
Non-U.S. Holders should consult applicable treaties, which may provide for
different rules (including possibly the exemption of certain capital gains from
tax).
FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States federal estate tax
purposes) of the United States at the time of death will be includible in the
individual's gross estate for United States federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise. Such individual's estate may
be subject to the United States federal estate tax on the property includible in
the estate for United States federal estate tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Company or its designated paying agent (the "payor") must report
annually to the Internal Revenue Service (the "Service") and to each Non-U.S.
Holder the amount of dividends paid to, and the tax, if any, withheld with
respect to, such holder. That information may also be made available to the tax
authorities of the country in which the Non-U.S. Holder resides.
United States federal backup withholding (imposed at a 31% rate on certain
payments to nonexempt persons) and information reporting with respect to such
withholding will generally not apply to dividends paid to a Non-U.S. Holder that
are otherwise subject to withholding or taxed as effectively connected income as
described above under "Dividends."
The backup withholding and information reporting requirements also apply to
the payment of gross proceeds to a Non-U.S. Holder upon the disposition of
Common Stock by or through a United States office of a United States or foreign
broker, unless the holder certifies to the broker under penalties of perjury as
to its name, address, and status as a Non-U.S. Holder or the holder otherwise
establishes an exemption. Information reporting requirements (but not backup
withholding if the payor does not have actual knowledge that the payee is a
United States person) will apply to a payment of the proceeds of a disposition
of Common
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Stock by or through a foreign office of (i) a United States broker, (ii) a
foreign broker 50% or more of whose gross income for certain periods is
effectively connected with the conduct of a trade or business in the United
States or (iii) a foreign broker that is a "controlled foreign corporation" for
United States federal income tax purposes, unless the broker has documentary
evidence in its records that the holder is a Non-U.S. Holder and certain other
conditions are met, or the holder otherwise establishes an exemption. Neither
backup withholding nor information reporting will generally apply to a payment
of the proceeds of a disposition of Common Stock by or through a foreign office
of a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded (or credited against the Non-U.S.
Holder's United States federal income tax liability, if any), provided that the
required information is furnished to the Service.
These information reporting and backup withholding rules are under review
by the United States Treasury and their application to the Common Stock could be
changed by future regulations. The Service recently issued proposed Treasury
regulations concerning the withholding of tax and reporting for certain amounts
paid to non-resident individuals and foreign corporations. The proposed Treasury
regulations, if adopted in their present form, would be effective for payments
made after December 31, 1997. Prospective investors should consult their tax
advisors concerning the potential adoption of such proposed Treasury regulations
and the potential effect on their ownership of the Common Stock.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "U.S. Underwriting
Agreement"), the underwriters named below (the "U.S. Underwriters"), for whom CS
First Boston Corporation, Morgan Stanley & Co. Incorporated, PaineWebber
Incorporated and Salomon Brothers Inc are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from
Calpine and the Selling Stockholder the following respective number of U.S.
Shares:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
----------------------------------------------------------------- -----------
<S> <C>
CS First Boston Corporation......................................
Morgan Stanley & Co. Incorporated................................
PaineWebber Incorporated.........................................
Salomon Brothers Inc ............................................
-----------
Total.................................................. 14,436,000
=========
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all of the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
Calpine has entered into a Subscription Agreement (the "Subscription
Agreement") with the Managers of the International Offering (the "Managers" and,
together with the U.S. Underwriters, the "Underwriters") providing for the
concurrent offer and sale of the International Shares outside the United States
and Canada. The closing of the U.S. Offering is a condition to the closing of
the International Offering and vice versa.
Calpine has granted to the U.S. Underwriters and the Managers an option,
exercisable by CS First Boston Corporation, expiring at the close of business on
the 30th day after the date of this Prospectus, to purchase up to 2,706,750
additional shares at the initial public offering price, less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments in the
sale of the shares of Common Stock offered hereby. To the extent that this
option to purchase is exercised, each U.S. Underwriter and each Manager will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of additional shares being sold to the U.S. Underwriters and the
Managers as the number of U.S. Shares set forth next to such U.S. Underwriter's
name in the preceding table and as the number set forth next to such Manager's
name in the corresponding table in the Prospectus relating to the International
Offering bears to the sum of the total number of shares of Common Stock in such
tables.
Calpine has been advised by the Representatives that the U.S. Underwriters
propose to offer the U.S. Shares in the United States and Canada to the public
initially at the public offering price set forth on the cover page of this
Prospectus and, through the Representatives, to certain dealers at such price
less a concession of $ per share, and the U.S. Underwriters and such dealers
may allow a discount of $ per share on sales to certain other dealers.
After the initial public offering, the public offering price and concession and
discount to dealers may be changed by the Representatives.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Common Stock Offering, changes in
the public offering price, concession and discount to dealers will be made only
upon the mutual agreement of CS First Boston Corporation, as
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representative of the U.S. Underwriters, and CS First Boston Limited ("CSFBL"),
on behalf of the Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person outside the United States or Canada
or to any other dealer who does not so agree. Each of the Managers has agreed or
will agree that, as part of the distribution of the International Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any shares of Common Stock or distribute any
prospectus relating to the Common Stock in the United States or Canada or to any
other dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement. As used herein, "United
States" means the United States of America (including the States and District of
Columbia), its territories, possessions and other areas subject to its
jurisdiction, "Canada" means Canada, its provinces, territories, possessions and
other areas subject to its jurisdiction, and an offer or sale shall be in the
United States or Canada if it is made to (i) any individual resident in the
United States or Canada or (ii) any corporation, partnership, pension,
profit-sharing or other trust or other entity (including any such entity acting
as an investment adviser with discretionary authority) whose office most
directly involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount as may be mutually agreed upon by CS First
Boston Corporation, as representative of the U.S. Underwriters, and CSFBL, on
behalf of the Managers, but not exceeding the selling concession applicable to
such shares. To the extent there are sales between the U.S. Underwriters and the
Managers pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the U.S. Underwriters or by the
Managers may be more or less than the amount appearing on the cover page of the
Prospectus. Neither the U.S. Underwriters nor the Managers are obligated to
purchase from the other any unsold shares of Common Stock.
Calpine has agreed that it will not offer, sell, contract to sell, announce
its intention to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Securities and Exchange Commission a registration statement
under the Securities Act relating to, any additional shares of its Common Stock
or securities convertible into or exchangeable or exercisable for any shares of
its Common Stock without the prior written consent of CS First Boston
Corporation for a period of 180 days after the date of this Prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof. In addition, all holders of options to purchase shares of Common
Stock have agreed that they will not, without the prior written consent of CS
First Boston Corporation, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock beneficially owned by them or any shares issuable
upon exercise of stock options for a period of 180 days after the date of this
Prospectus.
Calpine has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the U.S. Underwriters and the Managers
may be required to make in respect thereof.
CS First Boston Corporation, one of the Underwriters, is an affiliate of
the Company. The Common Stock Offering therefore is being conducted in
accordance with the applicable provisions of Rule 2720 to the Conduct Rules of
the National Association of Securities Dealers, Inc. Rule 2720 requires that the
initial public offering price of the Common Stock not be higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
Accordingly, PaineWebber Incorporated is assuming the responsibilities of acting
as the qualified independent underwriter in pricing the Common Stock Offering
and conducting due diligence. The initial public offering price of the Common
Stock set forth on the cover page of this Prospectus is no higher than the price
recommended by PaineWebber Incorporated.
In connection with the Common Stock Offering, PaineWebber Incorporated in
its role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the
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preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. In addition, the Underwriters may not confirm sales to
any discretionary account without the prior specific written approval of the
customer.
The decision made by CS First Boston Corporation and CSFBL to underwrite
the Common Stock Offering was made independently of the Company, CS Holding and
Electrowatt. The net proceeds from the Common Stock Offering will not be applied
for the benefit of CS First Boston Corporation or CSFBL. CS First Boston
Corporation and CSFBL will not receive any benefit from the Common Stock
Offering other than their respective portion of the underwriting discounts and
commissions.
The Common Stock has been approved for listing on the New York Stock
Exchange, subject to notice of issuance, under the symbol "CPN." In connection
with the listing of the Common Stock on the New York Stock Exchange, the
Underwriters have undertaken to sell round lots of 100 shares or more to a
minimum of 2,000 beneficial holders.
Prior to the Common Stock Offering, there has been no public market for the
shares of Common Stock offered hereby. The initial public offering price for the
shares was determined by negotiations among the Company, the Selling Stockholder
and CS First Boston Corporation, as one of the Representatives of the U.S.
Underwriters, and by CSFBL, on behalf of the Managers, and does not necessarily
reflect the secondary market prices for the Common Stock following the initial
offering hereby. Among the principal factors considered in determining the
initial public offering price were prevailing economic prospects, the sales,
earnings and financial and operating performance of the Company in recent
periods, the future prospects of the Company, market valuations of companies in
related businesses and the history and prospects for the industries in which the
Company competes. Additionally, consideration has been given to the general
condition of the securities markets, the market for new issues of securities and
the demand for securities of comparable companies.
In the ordinary course of their business, CS First Boston Corporation and
certain of the other Underwriters and their affiliates have engaged and may in
the future engage in investment banking transactions with Calpine, including the
provision of certain advisory services to Calpine. CS Holding, a Swiss
corporation, holds approximately 44.9% of the outstanding shares of Electrowatt,
which indirectly holds all of the outstanding capital stock of the Company. CS
Holding also holds (i) approximately 100% of the outstanding shares of Credit
Suisse and (ii) approximately 69.3% of the outstanding common stock of CS First
Boston, Inc., which holds all of the outstanding common stock of CS First Boston
Corporation and of CSFBL. CS First Boston Corporation was one of the
Underwriters in connection with the public offering of the Company's 9 1/4%
Senior Notes in February 1994, one of the placement agents in connection with
the sale of the 10 1/2% Senior Notes in May 1996 and is one of the
Representatives of the U.S. Underwriters in the U.S. Offering, and CSFBL is one
of the Managers in the International Offering. See "Certain Transactions."
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Common Stock are effected. Accordingly, any resale of the Common
Stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Common Stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Brobeck, Phleger & Harrison LLP, San Francisco, California and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
92
<PAGE> 95
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1995 and 1994 and for the three years ended December 31, 1995, 1994
and 1993, the financial statements of Calpine Geysers Company, L.P. for the
period ended April 18, 1993 and the financial statements of BAF Energy, A
California Limited Partnership as of October 31, 1995 and 1994 and for the three
years ended October 31, 1995, 1994 and 1993 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon authority of said firm as
experts in giving said reports. In the reports for the Company, that firm states
that with respect to Sumas Cogeneration Company, L.P., its opinion is based on
the reports of other independent public accountants, namely Moss Adams LLP.
The consolidated financial statements of Sumas Cogeneration Company, L.P.
and Subsidiary as of December 31, 1995 and 1994 and for the three years ended
December 31, 1995, 1994 and 1993 appearing in this Prospectus have been audited
by Moss Adams LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon authority of said
firm as experts in giving said reports.
The combined financial statements of LFC No. 38 Corp. and Portsmouth
Leasing Corporation and Subsidiaries and the consolidated financial statements
of LFC No. 60 Corp. and Subsidiary as of December 31, 1994 and 1993 and for the
years then ended appearing in this Prospectus have been audited by Coopers &
Lybrand L.L.P., independent accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon authority of said firm
as experts in giving said reports.
The financial statements of Gilroy Energy Company, a wholly owned
subsidiary of Gilroy Foods, Inc. which in turn is a wholly owned subsidiary of
McCormick & Company, Inc., at November 30, 1995 and 1994, and for each of the
two years in the period ended November 30, 1995, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto and the financial statements, notes and schedules filed as
a part thereof, as well as the periodic reports and other information filed by
the Company with the Commission, which may be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois, at the prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission and the address of such site is
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
93
<PAGE> 96
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CALPINE CORPORATION
Report of Independent Public Accountants.............................................. F-3
Consolidated Balance Sheets, December 31, 1995 and 1994............................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-5
Consolidated Statements of Stockholder's Equity for the Years Ended December 31, 1995,
1994 and 1993....................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-7
Notes to Consolidated Financial Statements for the Years Ended December 31, 1995, 1994
and 1993............................................................................ F-8
Condensed Consolidated Balance Sheets, June 30, 1996 (unaudited) and December 31,
1995................................................................................ F-30
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 1996
and 1995 (unaudited)................................................................ F-31
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996
and 1995 (unaudited)................................................................ F-32
Notes to Condensed Consolidated Financial Statements for the Six Months Ended June 30,
1996 and 1995 (unaudited)........................................................... F-33
SUMAS COGENERATION COMPANY, L.P. AND SUBSIDIARY
Report of Independent Public Accountants.............................................. F-38
Consolidated Balance Sheets, December 31, 1995 and 1994............................... F-39
Consolidated Statement of Operations for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-40
Consolidated Statement of Changes in Partners' Deficit for the Years Ended December
31, 1995, 1994 and 1993............................................................. F-41
Consolidated Statement of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-42
Notes to Consolidated Financial Statements for the Years Ended December 31, 1995, 1994
and 1993............................................................................ F-43
CALPINE GEYSERS COMPANY, L.P.
Report of Independent Public Accountants.............................................. F-52
Statement of Operations for the Period from January 1, 1993 to April 18, 1993......... F-53
</TABLE>
<TABLE>
<S> <C>
Statement of Cash Flows for the Period from January 1, 1993 to April 18, 1993......... F-54
Notes to Financial Statements for the Period from January 1, 1993 to April 18, 1993... F-55
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
Report of Independent Accountants..................................................... F-60
Combined Balance Sheets, December 31, 1994 and 1993................................... F-61
Combined Statement of Operations for the Years Ended December 31, 1994 and 1993....... F-62
Combined Statements of Changes in Shareholder's Deficiency for the Years Ended
December 31, 1994 and 1993.......................................................... F-63
Combined Statements of Cash Flows for the Years Ended December 31, 1994 and 1993...... F-64
Notes to Combined Financial Statements for the Years Ended December 31, 1994 and
1993................................................................................ F-65
LFC NO. 60 CORP. AND SUBSIDIARY
Report of Independent Accountants..................................................... F-69
Consolidated Balance Sheets, December 31, 1994 and 1993............................... F-70
Consolidated Statements of Operations for the Years Ended December 31, 1994 and
1993................................................................................ F-71
Consolidated Statements of Changes in Shareholder's Deficiency for the Years Ended
December 31, 1994 and 1993.......................................................... F-72
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and
1993................................................................................ F-73
Notes to Consolidated Financial Statements for the Years Ended December 31, 1994 and
1993................................................................................ F-74
</TABLE>
F-1
<PAGE> 97
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BAF ENERGY, A CALIFORNIA LIMITED PARTNERSHIP
Report of Independent Public Accountants.............................................. F-77
Balance Sheets, October 31, 1995 and 1994............................................. F-78
Statements of Income for the Years Ended October 31, 1995, 1994 and 1993.............. F-79
Statements of Partners' Equity for the Years Ended October 31, 1995, 1994 and 1993.... F-80
Statements of Cash Flows for the Years Ended October 31, 1995, 1994 and 1993.......... F-81
Notes to Financial Statements for the Years Ended October 31, 1995, 1994 and 1993..... F-82
Condensed Balance Sheets as of January 31, 1996 (unaudited) and October 31, 1995...... F-86
Condensed Statements of Income for the Three Months Ended January 31, 1996 and 1995
(unaudited)......................................................................... F-87
Condensed Statements of Cash Flows for the Three Months Ended January 31, 1996 and
1995 (unaudited).................................................................... F-88
Notes to Condensed Financial Statements as of January 31, 1996........................ F-89
GILROY ENERGY COMPANY
Report of Independent Auditors........................................................ F-91
Balance Sheets, November 30, 1995 and 1994 and May 31, 1996 (unaudited)............... F-92
Statements of Income for the Years Ended November 30, 1995 and 1994 and for the Six
Months Ended May 31, 1996 and 1995 (unaudited)...................................... F-93
Statement of Shareholder's Equity for the Years Ended November 30, 1995 and 1994 and
for the Six Months Ended May 31, 1996 (unaudited)................................... F-94
Statements of Cash Flows for the Years Ended November 30, 1995 and 1994 and for the
Six Months Ended May 31, 1996 and 1995 (unaudited).................................. F-95
Notes to Financial Statements for the Years Ended November 30, 1995 and 1994 and for
the Six Months Ended May 31, 1996 and 1995 (unaudited).............................. F-96
</TABLE>
F-2
<PAGE> 98
After the reincorporation and the effectiveness of the stock split
discussed in Note 26 of the Calpine Corporation consolidated financial
statements, we expect to be in a position to render the following report.
ARTHUR ANDERSEN LLP
San Jose, California
March 15, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors
of Calpine Corporation:
We have audited the accompanying consolidated balance sheets of Calpine
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Sumas Cogeneration Company, L.P. (Sumas), the investment in which is reflected
in the accompanying financial statements using the equity method of accounting.
The investment in Sumas represents approximately 1% and 2% of the Company's
total assets at December 31, 1995 and 1994, respectively. The Company has
recorded a loss of $3.0 million, $2.9 million and $1.9 million representing its
share of the net loss of Sumas for the years ended December 31, 1995, 1994 and
1993, respectively. The financial statements of Sumas were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to the amounts included for Sumas, is based solely on the report of
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Calpine Corporation and subsidiaries as of December
31, 1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
March 15, 1996 (except with respect to
the matter discussed in Note 26, as to
which the date is , 1996)
F-3
<PAGE> 99
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................................... $ 21,810 $ 22,527
Accounts receivable
from related parties....................................................... 2,177 1,864
from others................................................................ 17,947 12,723
Acquisition project receivables............................................... 8,805 --
Prepaid expenses and other current assets..................................... 5,491 4,256
-------- --------
Total current assets.................................................. 56,230 41,370
Property, plant and equipment, net.............................................. 447,751 335,453
Investments in power projects................................................... 8,218 11,114
Capitalized project costs....................................................... 1,123 645
Notes receivable from related parties........................................... 19,391 16,882
Notes receivable from Coperlasa................................................. 6,394 --
Restricted cash................................................................. 9,627 10,813
Deferred charges and other assets............................................... 5,797 5,095
-------- --------
Total assets.......................................................... $554,531 $421,372
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current non-recourse project financing........................................ $ 84,708 $ 22,800
Notes payable to bank and short-term borrowings............................... 1,177 4,500
Accounts payable.............................................................. 6,876 1,869
Accrued payroll and related expenses.......................................... 2,789 2,624
Accrued interest payable...................................................... 7,050 5,622
Other accrued expenses........................................................ 2,657 2,517
-------- --------
Total current liabilities............................................. 105,257 39,932
Long-term line of credit........................................................ 19,851 --
Non-recourse long-term project financing, less current portion.................. 190,642 196,806
Notes payable................................................................... 6,348 5,296
Senior Notes Due 2004........................................................... 105,000 105,000
Deferred income taxes, net...................................................... 97,621 50,928
Deferred revenue................................................................ 4,585 4,761
-------- --------
Total liabilities..................................................... 529,304 402,723
-------- --------
Commitments and contingencies (Note 25)
Stockholder's equity
Common stock, authorized 33,760 shares, issued and
outstanding -- 10,388 shares in 1995 and 1994.............................. 10 10
Additional paid-in capital.................................................... 6,214 6,214
Retained earnings............................................................. 19,034 12,456
Cumulative translation adjustment............................................. (31) (31)
-------- --------
Total stockholder's equity............................................ 25,227 18,649
-------- --------
Total liabilities and stockholder's equity............................ $554,531 $421,372
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 100
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue
Electricity and steam sales.............................. $127,799 $ 90,295 $ 53,000
Service contract revenue from related parties............ 7,153 7,221 16,896
Income (loss) from unconsolidated investments in power
projects.............................................. (2,854) (2,754) 19
-------- ------- -------
Total revenue.................................... 132,098 94,762 69,915
-------- ------- -------
Cost of revenue
Plant operating expenses................................. 33,162 14,944 9,078
Depreciation............................................. 26,264 21,202 12,272
Production royalties..................................... 10,574 11,153 6,814
Operating lease expense.................................. 1,542 -- --
Service contract expenses................................ 5,846 5,546 14,337
-------- ------- -------
Total cost of revenue............................ 77,388 52,845 42,501
-------- ------- -------
Gross profit............................................... 54,710 41,917 27,414
Project development expenses............................. 3,087 1,784 1,280
General and administrative expenses...................... 8,937 7,323 5,080
Provision for write-off of project development costs..... -- 1,038 --
-------- ------- -------
Income from operations........................... 42,686 31,772 21,054
Other (income) expense
Interest expense
Related party......................................... 1,663 375 2,613
Other................................................. 30,491 23,511 11,212
Other income, net........................................ (1,895) (1,988) (1,133)
-------- ------- -------
Income before provision for income taxes and
cumulative effect of change in accounting
principle........................................... 12,427 9,874 8,362
Provision for income taxes............................... 5,049 3,853 4,195
-------- ------- -------
Income before cumulative effect of change in
accounting principle................................ 7,378 6,021 4,167
Cumulative effect of adoption of SFAS No. 109............ -- -- (413)
-------- ------- -------
Net income....................................... $ 7,378 $ 6,021 $ 3,754
======== ======= =======
As adjusted earnings per share assuming conversion of
preferred stock:
14,187
As adjusted weighted average shares outstanding.......... ========
$ 0.52
Net income per share..................................... ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 101
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
--------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992....................... 10,388 $ 10 $6,214 $ 4,281 $ -- $10,505
Dividend ($0.08 per share)..................... -- -- -- (800 ) -- (800)
Net income..................................... -- -- -- 3,754 -- 3,754
Cumulative translation adjustment.............. -- -- -- -- (31) (31)
----- --- ------- ---- -------
Balance, December 31, 1993....................... 10,388 10 6,214 7,235 (31) 13,428
Dividend ($0.08 per share)..................... -- -- -- (800 ) -- (800)
Net income..................................... -- -- -- 6,021 -- 6,021
----- --- ------- ---- -------
Balance, December 31, 1994....................... 10,388 10 6,214 12,456 (31) 18,649
Dividend ($0.08 per share)..................... -- -- -- (800 ) -- (800)
Net income..................................... -- -- -- 7,378 -- 7,378
----- --- ------- ---- -------
Balance, December 31, 1995....................... 10,388 $ 10 $6,214 $19,034 $(31) $25,227
===== === ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 102
CALPLNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................. $ 7,378 $ 6,021 $ 3,754
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, net...................... 25,931 20,342 11,318
Deferred income taxes, net.............................. (1,027) 3,180 4,619
(Income) loss from unconsolidated investments in power
projects.............................................. 2,854 2,754 (19)
Distributions from investments in power projects........ -- -- 7,352
Provision for write-off of project development costs.... -- 1,038 --
Change in operating assets and liabilities:
Accounts receivable................................... (3,354) (2,578) (615)
Acquisition project receivables....................... (8,805) -- --
Other current assets.................................. (737) 79 (956)
Accounts payable and accrued expenses................. 6,847 6,218 (3,040)
Deferred revenue...................................... (2,434) (2,858) 1,897
-------- -------- --------
Net cash provided by operating activities.......... 26,653 34,196 24,310
-------- -------- --------
Cash flows from investing activities
Acquisition of property, plant and equipment............... (17,434) (7,023) (8,445)
Acquisition of Greenleaf, net of cash on hand.............. (14,830) -- --
Investment in Watsonville, net of cash on hand............. 494 -- --
Acquisition of TPC, net of cash on hand.................... -- (62,770) --
Acquisition of CGC, net of CGC cash on hand................ -- -- (20,296)
Increase in notes receivable............................... (6,348) (13,556) --
Investments in power projects.............................. -- (118) (627)
Capitalized project costs.................................. (1,258) (175) (952)
Decrease (increase) in restricted cash..................... 1,186 (900) 2,968
Other, net................................................. (307) 98 270
-------- -------- --------
Net cash used in investing activities.............. (38,497) (84,444) (27,082)
-------- -------- --------
Cash flows from financing activities
Payment of dividends....................................... (800) (800) (800)
Borrowings from line of credit............................. 34,851 -- 23,000
Repayments of line of credit............................... (15,000) (52,595) (5,873)
Borrowings from non-recourse project financing............. 76,026 60,000 --
Repayments of non-recourse project financing............... (79,388) (12,735) (8,800)
Short-term borrowings...................................... 2,683 4,500 --
Repayments of short-term borrowings........................ (6,006) -- --
Senior Notes Due 2004...................................... -- 105,000 --
Financing costs............................................ (1,239) (3,921) (749)
Repayment of note payable to shareholder................... -- (1,200) --
Proceeds from note payable................................. -- 5,167 --
Repayment of notes payable -- FMRP......................... -- (36,807) --
-------- -------- --------
Net cash provided by financing activities.......... 11,127 66,609 6,778
-------- -------- --------
Net increase (decrease) in cash and cash equivalents......... (717) 16,361 4,006
Cash and cash equivalents, beginning of period............... 22,527 6,166 2,160
-------- -------- --------
Cash and cash equivalents, end of period..................... $ 21,810 $22,527 $ 6,166
======== ======== ========
Supplementary information -- cash paid during the year for:
Interest................................................... $ 32,162 $19,890 $15,084
Income taxes............................................... 4,294 683 13
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 103
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND OPERATIONS OF THE COMPANY
Calpine Corporation (Calpine) and subsidiaries (collectively, the Company)
are engaged in the development, acquisition, ownership and operation of power
generation facilities in the United States. The Company has ownership interests
in and operates geothermal steam fields, geothermal power generation facilities,
and natural gas-fired cogeneration facilities in Northern California and
Washington. Each of the generation facilities produces electricity for sale to
utilities. Thermal energy produced by the gas-fired cogeneration facilities is
sold to governmental and industrial users, and steam produced by the geothermal
steam fields is sold to utility-owned power plants. For the year ended December
31, 1995, primarily all electricity and steam sales revenue from consolidated
subsidiaries was derived from sales to two customers in Northern California (see
Note 24), of which 73% related to geothermal activities.
Founded in 1984, the Company is wholly owned by Electrowatt Services, Inc.,
which is wholly owned by Electrowatt Ltd. (Electrowatt), a Swiss company. The
Company has expertise in the areas of engineering, finance, construction and
plant operations and maintenance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of Calpine Corporation and its wholly owned and majority
owned subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. During 1993, the Company acquired the remaining
interests in Calpine Geysers Company, L.P. (CGC) (see Note 3). Prior to the
acquisition, the Company recognized its share of the net income of CGC under the
equity method of accounting. During 1994, the Company formed Calpine Thermal
Power, Inc. (Calpine Thermal) and Calpine Siskiyou Geothermal Partners, L.P.
(see Notes 4 and 7, respectively). Calpine Thermal acquired Thermal Power
Company (TPC) during 1994. During 1995, the Company formed Calpine Greenleaf
Corporation (Calpine Greenleaf), Calpine Monterey Cogeneration, Inc. (CMCI) and
Calpine Vapor, Inc. (Calpine Vapor). Calpine Greenleaf indirectly acquired two
operating gas-fired cogeneration plants (see Note 5) and CMCI acquired an
operating lease for a gas-fired cogeneration facility (see Note 6). Calpine
Vapor made loans to fund construction of new geothermal wells in Mexico (see
Note 8).
Accounting for Jointly Owned Geothermal Properties -- The Company uses the
proportionate consolidation method to account for TPC's 25% interest in jointly
owned geothermal properties. TPC has a steam sales agreement with Pacific Gas
and Electric Company (PG&E) pursuant to which the steam derived from its
interest in the properties is sold. See Note 4 for further information regarding
TPC.
Use of Estimates in Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The most significant estimates with regard to these
financial statements relate to future development costs and total productive
resources of the geothermal facilities (see Property, Plant and Equipment and
Note 4), the estimated "free steam" liability (see Revenue Recognition and
Deferred Revenue), receivables which the Company believes to be collectible (see
Note 10), and the realization of deferred income taxes (see Note 19).
Revenue Recognition and Deferred Revenue -- Revenue from electricity and
steam sales is recognized upon transmission to the customer. Revenues from
contracts entered into or acquired since May 21, 1992 are recognized at the
lesser of amounts billable under the contract or amounts recognizable at an
average rate over the term of the contract. The Company's power sales agreements
related to CGC were entered into prior to
F-8
<PAGE> 104
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
May 1992. Had the Company applied this principle, the revenues of the Company
recorded for the years ended December 31, 1995 and 1994, and for the period from
April 19, 1993 to December 31, 1993, would have been approximately $12.6
million, $11.9 million and $6.5 million less, respectively.
CGC revenues from sales of steam were calculated considering a future
period when steam would be delivered without receiving corresponding revenue.
The estimated "free steam" obligation was recorded at an average rate over
future steam production as deferred revenue in 1993. As of December 31, 1993,
the Company had deferred revenue of $8.6 million. During 1994, based on
estimates and analyses performed, the Company determined that these deliveries
would no longer be required for a customer. In May 1994, the Company reversed
approximately $5.9 million of its deferred revenue liability. This reversal was
recorded as a $1.9 million purchase price reduction to property, plant and
equipment, with the remaining $4.0 million as an increase in revenue.
Concurrently, $800,000 of the revenue increase was reserved for future
construction of gathering systems required for future production of the steam
fields, with the offset recorded in property, plant and equipment.
In October 1994, PG&E agreed to the termination of the free steam provision
for one of the geothermal steam fields. During 1995, CGC took additional
measures regarding future capital commitments and other actions which will
increase steam production and, based on additional analyses and estimates
performed, the Company recognized the remaining $2.7 million of previously
deferred revenue.
The Company performs operations and maintenance services for projects in
which it has an interest. Revenue from investees is recognized on these
contracts when the services are performed. Revenue from consolidated
subsidiaries are eliminated in consolidation.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The carrying amount of these instruments approximates fair value
because of their short maturity.
Restricted Cash -- The Company is required to maintain cash balances that
are restricted by provisions of its debt agreements and by regulatory agencies.
The Company's debt agreements specify restrictions based on debt service
payments and drilling costs for the following year. Regulatory agencies require
cash to be restricted to ensure that funds will be available to restore property
to its original condition. Restricted cash is invested in accounts earning
market rates; therefore, their carrying value approximates fair value. Such cash
is excluded from cash and cash equivalents for the purposes of the statements of
cash flows.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash
and accounts/notes receivable. The Company's cash accounts are held by five
major financial institutions. The Company's accounts/notes receivable are
concentrated within entities engaged in the energy industry, mainly within the
United States, some of which are related parties. Certain of the Company's notes
receivable are with a company in Mexico (see Note 8).
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost less accumulated depreciation and amortization.
The Company capitalizes costs incurred in connection with the development
of geothermal properties, including costs of drilling wells and overhead
directly related to development activities, together with the costs of
production equipment, the related facilities and the operating power plants.
Geothermal properties include the value attributable to the geothermal resources
of CGC and all of the property, plant and equipment of Calpine Thermal. Proceeds
from the sale of geothermal properties are applied against capitalized costs,
with no gain or loss recognized.
Geothermal costs, including an estimate of future development costs to be
incurred and the estimated costs to dismantle, are amortized by the units of
production method based on the estimated total productive output over the
estimated useful lives of the related steam fields. Depreciation of the
buildings and roads is
F-9
<PAGE> 105
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
computed using the straight-line method over their estimated useful lives. It is
reasonably possible that the estimate of useful lives, total units of production
or total capital costs to be amortized using the units of production method
could differ materially in the near term from the amounts assumed in arriving at
current depreciation expense. These estimates are affected by such factors as
the ability of the Company to continue selling steam and electricity to
customers at estimated prices, changes in prices of alternative sources of
energy such as hydro-generation and gas, and changes in the regulatory
environment.
Gas-fired power production facilities include the cogeneration plants and
related equipment and are stated at cost. Depreciation is recorded utilizing the
straight-line method over the estimated original useful life of up to thirty
years. Depreciation of office equipment is provided on the straight-line method
over useful lives of three to five years. Amortization of leasehold improvements
is provided based on the straight-line method over the lesser of the useful life
of the asset or the life of the lease. When assets are disposed of, the cost and
related accumulated depreciation are removed from the accounts, and the
resulting gains or losses are included in the results of operations.
As of December 31, 1995 and 1994, the components of property, plant and
equipment are (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Geothermal properties.......................................... $216,042 $209,243
Buildings...................................................... 147,532 29,149
Machinery and equipment........................................ 50,826 47,125
Wells and well pads............................................ 44,706 43,982
Steam gathering and control systems............................ 28,363 28,296
Roads.......................................................... 7,384 7,384
Miscellaneous assets........................................... 2,425 1,694
-------- --------
497,278 366,873
Less accumulated depreciation and amortization................. 60,511 34,020
-------- --------
436,767 332,853
Land........................................................... 754 413
Construction in progress....................................... 10,230 2,187
-------- --------
Property, plant and equipment, net........................... $447,751 $335,453
======== ========
</TABLE>
Investments in Power Projects -- The Company accounts for its
unconsolidated investments in power projects under the equity method. The
Company's share of income from these investments is calculated according to the
Company's equity ownership or in accordance with the terms of the appropriate
partnership agreement (see Note 11).
Capitalized Project Costs -- The Company capitalizes project development
costs upon the execution of a memorandum of understanding or a letter of intent
for a power or steam sales agreement. These costs include professional services,
salaries, permits and other costs directly related to the development of a new
project. Outside services and other third-party costs are capitalized for
acquisition projects. Upon the start-up of plant operations or the completion of
an acquisition, these costs are generally transferred to property, plant and
equipment and amortized over the estimated useful life of the project.
Capitalized project costs are charged to expense when the Company determines
that the project will not be consummated or is impaired.
As Adjusted Earnings Per Share -- Net income per share is computed using
weighted average shares outstanding, which includes the net additional number of
shares which would be issuable upon the exercise of outstanding stock options,
assuming that the Company used the proceeds received to purchase additional
shares at an assumed public offering price. Net income per share also gives
effect, even if antidilutive, to common equivalent shares from preferred stock
that will automatically convert upon the closing of the
F-10
<PAGE> 106
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's initial public offering (using the as-if-converted method). If the
offering contemplated by the Company is consummated, all of the convertible
preferred stock outstanding as of the closing date will automatically be
converted into shares of common stock based on the shares of convertible
preferred stock outstanding at June 30, 1996.
Reclassifications -- Prior years' amounts in the consolidated financial
statements have been reclassified where necessary to conform to the 1995
presentation.
3. CALPINE GEYSERS COMPANY, L.P.
CGC, an indirect wholly owned subsidiary of the Company, is the owner of
two operating geothermal power plants and their respective steam fields, Bear
Canyon and West Ford Flat, and three geothermal steam fields, which provide
steam to PG&E's Unit 13 and Unit 16 power plants and to Sacramento Municipal
Utility District's (SMUD) geothermal power plant. The power plants and steam
fields are located in The Geysers area of Northern California. Electricity from
CGC's two operating geothermal power plants is sold to PG&E under 20-year
agreements. Under the terms of the agreements which began in 1989, CGC is paid
for energy delivered based upon a fixed price which escalates annually through
December 1998, and upon PG&E's full short-run avoided operating costs for the
subsequent ten years. CGC also receives capacity payments from PG&E. Under
certain circumstances, if CGC is unable to deliver firm capacity, then CGC may
owe PG&E certain minimum damages as specified in the agreements.
Under the steam sales agreements with PG&E and SMUD, the price paid for the
steam is determined annually and semiannually, respectively, based on contract
price formulas and steam delivery terms.
Under the PG&E Unit 16 and the SMUD agreements, if the quantity of steam
delivered is less than 50% of the units' capacities, then neither PG&E nor SMUD
is required to make payment for steam delivered during such month until the cost
of the affected power plant has been completely amortized (see Note 2). Further,
both PG&E and SMUD can terminate their agreements with written notice under
conditions specified in the agreement if further operation of the plants becomes
uneconomical. In the event that CGC terminates the agreements, PG&E or SMUD may
require CGC to assign them all rights, title and interest to the wells, lands
and related facilities. In consideration for such an assignment to SMUD, SMUD
shall reimburse CGC for its original costs net of depreciation for any
associated materials or facilities.
Prior to April 19, 1993 the Company owned a minority interest in CGC and
recognized its share of CGC's net income under the equity method. On April 19,
1993, the Company acquired Freeport-McMoRan Resource Partners, L.P.'s (FMRP)
interest in CGC for $23.0 million in cash and non-recourse notes payable to FMRP
totaling $40.5 million. On February 17, 1994, the Company exercised its option
to prepay the notes utilizing a discount rate of 10% by paying $36.9 million
including interest in full satisfaction of its obligations under the FMRP notes.
The difference between the original carrying amount of the notes and the
prepayment was recorded as an adjustment to the purchase price.
4. CALPINE THERMAL POWER, INC.
On September 9, 1994, Calpine Thermal acquired the outstanding capital
stock of TPC from Natomas Energy Company (Natomas), a wholly owned subsidiary of
Maxus Energy Company, pursuant to a Stock Purchase Agreement dated June 27,
1994. Under the terms of the Stock Purchase Agreement, Calpine Thermal acquired
the stock of TPC for a total purchase price of $66.5 million, consisting of a
$60.0 million cash payment and the issuance by Calpine of a non-interest bearing
promissory note to Natomas in the amount of $6.5 million (discounted to $5.2
million), which is due September 9, 1997. At or subsequent to the closing of the
acquisition, Calpine received payments of $3.0 million from Natomas, which
represented cash from TPC's operations for the period from July 1, 1994 to
September 8, 1994. These payments were treated as purchase price adjustments.
The Company funded the cash portion of the purchase price in the acquisition
F-11
<PAGE> 107
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through a two-year non-recourse secured financing provided by The Bank of Nova
Scotia pursuant to a Credit Agreement dated September 9, 1994 (see Note 16).
Calpine Thermal owns a 25% undivided interest in certain producing
geothermal steam fields located at The Geysers area of Northern California.
Union Oil Company of California, a wholly owned subsidiary of Unocal
Corporation, owns the remaining 75% interest in the steam fields, which deliver
geothermal steam to twelve operating plants owned by PG&E. The steam fields
currently provide the twelve operating plants with sufficient steam to generate
approximately 604 megawatts of electricity.
Steam from Calpine Thermal's steam field is sold to PG&E under a steam
sales agreement. In addition, Calpine Thermal receives a monthly capacity
maintenance fee, which provides for effluent disposal costs and facilities
support costs, and a monthly fee for PG&E's right to curtail its power plants.
The steam price, capacity maintenance and curtailment fees are adjusted
annually. Calpine Thermal is required to compensate PG&E for the unused capacity
of its geothermal power plants due to insufficient field capacities of its steam
supply (offset payment).
In accordance with the steam sales agreement, PG&E may curtail the power
plants which receive steam from the Union Oil/Calpine Thermal Steam Fields in
order to produce energy from lower cost sources. However, PG&E is constrained by
its contractual obligation to operate all the power plants at a minimum of 40%
of the field capacity during any given year. During 1995, Calpine Thermal
experienced extensive curtailments of steam production due to low gas prices and
abundant hydro power.
In March 1995, PG&E notified Union Oil and TPC of its plan to accelerate
the retirement of the geothermal power plants to which steam is supplied.
Calpine Thermal had considered plant retirements in its analysis leading to the
acquisition of TPC in September 1994. Calpine Thermal had no assurance that PG&E
would follow the accelerated schedule which was not in accordance with the terms
and conditions of the steam sales agreement, and, with Union Oil, entered into
intensive discussions with PG&E regarding alternatives. As a result of those
discussions, the March 1995 accelerated closure schedule has been reevaluated in
accordance with expected steam supply projections, curtailment levels, and
actual contract terms and conditions to result in estimates of future project
output and revised closure schedules. Closure schedules will continue to be
modified throughout the life of the power sales agreement to be consistent with
actual production levels based on competitive energy prices and weather.
On August 9, 1995, the Company, Union Oil and PG&E executed a letter
agreement on alternative steam pricing for the calendar year 1995. Under this
agreement, all steam delivered up to 40% of field capacity remained at the
original contract rate, and all other steam was sold at a 33% reduction to the
contract rate, thus lowering the cost to PG&E and enhancing production and
revenue from The Geysers to Union Oil and Calpine Thermal. On February 1, 1996,
the Company and Union Oil entered into an alternative steam pricing agreement
with PG&E for the month of February 1996, which was subsequently extended
through at least March 15, 1996. The parties to this agreement are currently in
the process of negotiating a longer term alternative pricing agreement. The
Company is unable to predict the sales and prices that may result from such an
alternative pricing program.
The steam sales agreement between Calpine Thermal and PG&E terminates two
years after the closing of the last PG&E operating unit. PG&E may terminate the
agreement upon a one-year written notice to Calpine Thermal. In the event the
agreement is terminated by PG&E, Calpine Thermal has the right to purchase
PG&E's facilities at PG&E's unamortized cost. Calpine Thermal will provide
capacity maintenance services for five years after termination by PG&E or
closure of the last PG&E operating unit. Alternatively, Calpine Thermal may
terminate the agreement upon two years written notice to PG&E. PG&E has the
right to take assignment of Calpine Thermal's facilities on the date of
termination. In such a case, Calpine Thermal would generally continue to pay
offset payments for 36 months following the date of termination.
F-12
<PAGE> 108
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. CALPINE GREENLEAF CORPORATION
On April 21, 1995, Calpine Greenleaf acquired the outstanding capital stock
of Portsmouth Leasing Corporation, LFC No. 38 Corp. and LFC No. 60 Corp.
(collectively, the Acquired Companies) from Radnor Power Corporation (Radnor)
for $80.5 million pursuant to a Share Purchase Agreement dated March 30, 1995.
The Acquired Companies own 100% of the assets of two 49.5 megawatt natural
gas-fired cogeneration facilities (collectively, the Greenleaf facilities),
Greenleaf Unit One and Greenleaf Unit Two, located in Yuba City in Northern
California. The Greenleaf facilities burn natural gas in the cogeneration of
electrical and thermal energy. The Greenleaf facilities produce electrical power
for sale to PG&E pursuant to two long-term power sales agreements that provide
for electricity payments over an original thirty-year period (expiring in 2019)
at prices equal to PG&E's full short-run avoided operating costs, adjusted
annually. In addition, the Company receives firm capacity payments through 2019
for up to 49.2 megawatts on each unit and as-delivered capacity on excess
deliveries. PG&E, at its discretion, may curtail purchases of electricity from
the Greenleaf facilities due to hydro-spill or uneconomic cost conditions. The
thermal energy generated is used by thermal hosts adjacent to the Greenleaf
facilities. The Greenleaf facilities are qualifying facilities, as defined by
the Public Utility Regulatory Policies Act of 1978, as amended (PURPA).
Natural gas for the Greenleaf facilities is supplied by Montis Niger, Inc.
(MNI) pursuant to a long-term gas purchase agreement, and by Chevron USA
Production Company (Chevron). MNI is a wholly owned subsidiary of LFC Financial
Corporation, the parent company of Radnor. See Note 25 for further information
regarding these agreements.
The acquisition was accounted for as a purchase and the purchase price has
been allocated to the acquired assets and liabilities based on the estimated
fair values of the acquired assets and liabilities as shown below. The
allocation may be adjusted as additional information becomes available (in
thousands):
<TABLE>
<S> <C>
Current assets.................................................... $ 6,572
Property, plant and equipment..................................... 120,752
--------
Total assets.................................................... 127,324
--------
Current liabilities............................................... (944)
Deferred income taxes, net........................................ (45,844)
--------
Total liabilities............................................... (46,788)
--------
Net purchase price................................................ $ 80,536
========
</TABLE>
The purchase price included a cash payment of $20.3 million and the
assumption of project debt totalling $60.2 million. The final purchase price,
which is to be adjusted after the determination of the final net working capital
amount, was determined upon an arms-length transaction between Calpine and
Radnor. The parties are currently in dispute regarding certain provisions of the
Share Purchase Agreement, and the outcome of the dispute may affect the purchase
price.
The $20.3 million cash payment was funded by borrowings from the Credit
Suisse lines of credit described in Note 13 below. The $60.2 million debt
assumed by the Company in the acquisition of the Greenleaf facilities consisted
of $57.6 million of non-recourse long-term project financing payable to Credit
Suisse and $2.6 million of installment payments to individuals. On June 30,
1995, the Company refinanced the Greenleaf project by borrowing $76.0 million
from banks (described in Note 16 below). Net proceeds of $74.9 million were used
to repay $57.5 million of Credit Suisse debt including interest, and $2.9
million of installment and premium payments to individuals. The remaining $14.5
million of net proceeds and $500,000 of internal funds were used to repay the
Credit Suisse line of credit borrowings related to the Greenleaf project.
F-13
<PAGE> 109
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma consolidated results for the Company as if the Greenleaf
acquisition had been consummated on January 1, 1995 and as if the Greenleaf and
TPC acquisitions had been consummated on January 1, 1994, respectively, are (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue.................................................... $137,412 $143,137
Net income................................................. $ 4,868 $ 11,708
Earnings per share (assuming stock split and conversion of
preferred stock; see Note 2)............................. $ 0.34
</TABLE>
The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisition been made on the dates
indicated or of results which may occur in the future.
Also in connection with the Greenleaf acquisition, the Company borrowed
$1.9 million on April 21, 1995 against an uncommitted demand loan facility with
The Bank of Nova Scotia to finance the prepayment for natural gas to be
delivered to the Greenleaf facilities from MNI (see Note 13 for further
information).
6. CALPINE MONTEREY COGENERATION, INC.
On June 29, 1995, CMCI acquired a 14.5 year operating lease (through
December 2009) for a 28.5 megawatt natural gas-fired cogeneration power plant
located in Watsonville in Northern California. The Company acquired the
operating lease from Ford Motor Credit Company, acting through its agent, USL
Capital Corporation, for $900,000. The Watsonville plant sells electricity to
PG&E under the terms of a 20-year power sales agreement, generally at prices
equal to PG&E's full short-run avoided operating costs. Basic and contingent
lease rental payments are described in Note 25. As a cogenerator, the plant
provides steam to two local food processing plants, and is a qualifying facility
as defined by PURPA. The Company also provides project and fuels management
services.
In connection with this acquisition, the Company obtained a $5.0 million
uncommitted line of credit with The Bank of Nova Scotia for letters of credit.
On December 31, 1995, the Company had $2.9 million of letters of credit
outstanding (see Note 13 for further information).
7. CALPINE SISKIYOU GEOTHERMAL PARTNERS, L.P.
On August 24, 1994, the Company formed a partnership with Trans-Pacific
Geothermal Glass Mountain, Ltd. (TGGM), an affiliate of Trans-Pacific Geothermal
Corporation of Oakland, California, and is planning to build a geothermal power
generation facility. The power generation facility will be located at Glass
Mountain in Northern California near the Oregon border. The partnership is
consolidated as the Company owns a controlling interest.
8. CALPINE VAPOR, INC.
In November 1995, Calpine Vapor entered into agreements with Constructora y
Perforadora Latina, S.A. de C.V. (Coperlasa) and certain Mexican bank lenders to
Coperlasa in connection with a geothermal steam production contract at the Cerro
Prieto geothermal resource in Baja California, Mexico. The resource currently
produces electricity from geothermal power plants owned and operated by Comision
Federal de Electricidad (CFE), Mexico's national utility. The steam field
contract is between Coperlasa and CFE. Calpine will loan up to $18.5 million to
Coperlasa, and will receive fees for technical services provided to the project.
At December 31, 1995, notes receivable (see Note 12) totaled $4.9 million. In
February 1996, the Company loaned an additional $3.4 million to Coperlasa.
F-14
<PAGE> 110
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1995, Calpine Vapor also paid $1.5 million for an option to
purchase an equity interest in Coperlasa. The option expires in May 1997 and is
being amortized over the estimated repayment period of the Coperlasa loan
(through the year 1999) using the interest method, as the Company views the
option as a loan acquisition fee. The unamortized balance of the option is also
included in notes receivable from Coperlasa.
9. ACCOUNTS RECEIVABLE
The Company has both billed and unbilled receivables. The components of
accounts receivable as of December 31, 1995 and 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Billed........................................................... $18,341 $13,809
Unbilled......................................................... 525 768
Other............................................................ 1,258 10
------- -------
$20,124 $14,587
======= =======
</TABLE>
Other accounts receivable consist primarily of disputed amounts related to
the Greenleaf facilities purchase price (see Note 5).
Accounts receivable from related parties at December 31, 1995 and 1994
include the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
O.L.S. Energy-Agnews, Inc.......................................... $ 806 $ 538
Geothermal Energy Partners, Ltd.................................... 462 793
Sumas Cogeneration Company, L.P.................................... 908 528
Electrowatt and subsidiaries....................................... 1 5
------ ------
$2,177 $1,864
====== ======
</TABLE>
10. ACQUISITION PROJECT RECEIVABLES
On October 17, 1995, in connection with the Company's unsuccessful bid to
acquire O'Brien Environmental Energy, Inc. (OEE) through the U.S. Bankruptcy
Court -- District of New Jersey proceedings, the Company purchased accounts
receivable of $1.9 million, and two notes receivable totaling $3.7 million. The
remaining balance of $3.2 million represents capitalized project acquisition
costs. The recovery of these costs is subject to approval by the U.S. Bankruptcy
Court in 1996.
The Company purchased $1.9 million of accounts receivable from two
cogeneration facilities owned by subsidiaries of OEE. Payments are made to the
Company based on cash availability for each project. In February 1996, the
Company received approximately $1.1 million against these receivables. The
Company currently expects repayment of the balance of these accounts receivable
during 1996.
The Company purchased for $900,000 from Stewart & Stevenson, Inc. (S&S) a
90% participation interest in a $1.0 million note issued by OEE (the O'Brien
Note). Calpine and S&S entered into an agreement in February 1996 whereby S&S
assigned 100% of its interest in the O'Brien Note to Calpine, without any
additional consideration. Interest accrues at approximately 5% after January 20,
1996. The Company currently expects repayment of the note receivable during
1996.
The Company entered into a purchase agreement for all of S&S's rights and
obligations in a Subordinated Loan Agreement dated March 11, 1994 between S&S
and O'Brien (Newark) Cogeneration, Inc. (O'Brien Newark), the Subordinated Note
relating thereto and any related documents and agreements. The purchase price
was $2.8 million and the notes bear interest at prime plus 2.0%. The Company
receives
F-15
<PAGE> 111
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$80,000 per month until the note is fully amortized. As of December 31, 1995,
$2.7 million of principal was receivable bearing interest at 10.5%. Through
February 1996, the Company received $160,000 in payment of this note. The
Company currently expects repayment of the note receivable upon restructuring of
O'Brien Newark debt during 1996.
11. INVESTMENTS IN POWER PROJECTS
As of December 31, 1995, 1994 and 1993, the Company had unconsolidated
investments in power projects which are accounted for under the equity method.
Financial information related to these investments is as follows (in thousands):
<TABLE>
<CAPTION>
SUMAS O.L.S. GEOTHERMAL
COGENERATION ENERGY- ENERGY
COMPANY, AGNEWS, PARTNERS,
1995 L.P.(A) INC. LTD.
---------------------------------------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Operating revenue....................... $ 31,526 $10,779 $ 21,676
Net income (loss)....................... (6,098) (483) 5,538
Assets.................................. 122,802 40,330 76,017
Liabilities............................. 123,377 39,034 51,439
Company's percentage ownership.......... (b) 20% 5%
Equity investments in power projects.... 5,763 314 1,229
Project development costs............... 912 -- --
-------- ------- -------
Total investments in power projects..... $ 6,675 $ 314 $ 1,229
Company's share of net income (loss).... (3,049) (82) 277
-------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
SUMAS O.L.S. GEOTHERMAL
COGENERATION ENERGY- ENERGY
COMPANY, AGNEWS, PARTNERS,
1994 L.P.(A) INC. LTD.
---------------------------------------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Operating revenue....................... $ 32,060 $11,985 $ 21,721
Net income (loss)....................... (5,777) (415) 5,548
Assets.................................. 130,148 42,596 77,081
Liabilities............................. 124,625 40,864 58,041
Company's percentage ownership.......... (b) 20% 5%
Equity investments in power projects.... 8,812 396 952
Project development costs............... 946 8 --
-------- ------- -------
Total investments in power projects..... $ 9,758 $ 404 $ 952
Company's share of net income (loss).... (2,888) (143) 277
-------- ------- -------
</TABLE>
F-16
<PAGE> 112
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SUMAS O.L.S. GEOTHERMAL CALPINE
COGENERATION ENERGY- ENERGY GEYSERS
COMPANY, AGNEWS, PARTNERS, COMPANY,
1993 L.P.(A) INC. LTD. L.P.(C)
---------------------------------------- ------------ ------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenue....................... $ 23,671 $12,485 $ 18,451 $20,759
Net income (loss)....................... (3,739) (931) 1,090 2,689
Assets.................................. 134,579 44,249 74,994 --
Liabilities............................. 123,279 42,249 61,503 --
Company's percentage ownership.......... (b) 20% 5% --
Equity investments in power projects.... 11,700 515 674 --
Project development costs............... 981 17 7 --
-------- ------- ------- -------
Total investments in power projects..... $ 12,681 $ 532 $ 681 $ --
Company's share of net income (loss).... (1,870) (127) 55 1,961
-------- ------- ------- -------
</TABLE>
- ---------------
(a) Commercial operations commenced April 1993 and dry kiln operations commenced
in May 1993.
(b) Distributions will be made out of operating income after certain required
deposits are made and certain minimum balances are met. After receiving
certain preferential distributions, the Company will have a 50% interest in
the profits and losses of Sumas until earning a 24.5% pre-tax cumulative
return on its investment, at which time the Company's interest in Sumas will
be reduced to 11.33%.
(c) 1993 CGC information is for the period from January 1, 1993 to April 19,
1993, the date of the acquisition. Subsequent to April 19, 1993, the
operating results of CGC are included in the accounts of the Company.
Sumas Cogeneration Company, L.P. -- Sumas Cogeneration Company, L P.
(Sumas) is a Delaware limited partnership formed between Sumas Energy, Inc.
(SEI), a Washington State Subchapter S corporation, and Whatcom Cogeneration
Partners, L.P. (Whatcom), a wholly owned partnership of the Company. SEI is the
general partner and Whatcom is the limited partner. Sumas has a wholly owned
Canadian subsidiary, ENCO Gas, Ltd. (ENCO), which is incorporated in New
Brunswick, Canada.
Sumas is the owner and operator of a power generation facility (the
Generation Facility) in Sumas, Washington. The Generation Facility is a natural
gas-fired combined cycle electrical generation plant with a production capacity
of approximately 125 megawatts. In connection with the Generation Facility,
there is a lumber dry kiln facility and a 3.5 mile private natural gas pipeline.
ENCO acquired, developed and is operating a portfolio of proven natural gas
reserves in British Columbia and Alberta, Canada to provide a dedicated fuel
supply for the Generation Facility.
Sumas produces and sells electrical energy to Puget Sound Power & Light
Company (Puget) under a 20-year agreement for approximately 110 megawatts of
power, which was subsequently increased to an average 123 megawatts in 1994.
Sumas leases the dry kiln facility and sells steam to Socco, Inc. (Socco), a
custom lumber drying operation owned by an affiliated individual. Under the kiln
lease and steam sale agreements with Socco, both of which are for 20 years, the
Generating Facility is a qualifying facility as defined by PURPA.
Construction financing was provided through a $95.2 million construction
and term loan agreement with The Prudential Insurance Company of America
(Prudential) and Credit Suisse, an affiliate of the Company. In addition, ENCO
has a $24.8 million loan agreement with Prudential and Credit Suisse. On May 25,
1993, the entire $120.0 million was converted to a term loan. Sumas established
and funded all reserve accounts as required under the terms of the loan
agreements with Prudential and Credit Suisse.
In addition to its interest stated above, the Company has been contracted
by Sumas to provide operations and maintenance services. For these services, the
Company receives a fixed fee of $1.1 million per year
F-17
<PAGE> 113
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjusted annually based on the Consumer Price Index, an annual base fee of
$150,000 per year also adjusted based on the Consumer Price Index and certain
other reimbursable expenses. In addition, the Company is entitled to an annual
performance bonus of up to $400,000 based upon the achievement of certain
performance levels. This arrangement will expire upon the date Whatcom receives
its 24.5% pre-tax return or 10 years, subject to renewal terms, whichever is
later. The Company recorded revenue of approximately $2.0 million, $1.9 million
and $1.4 million associated with this arrangement during the years ended
December 31, 1995, 1994 and 1993, respectively.
The Company has also provided construction management services to the Sumas
project. The Company recorded revenue of approximately $72,300 and $934,000
related to construction management services during the years ended December 31,
1994 and 1993, respectively. The Company defers the profit on these contracts,
to the extent of their ultimate ownership percentage, and amortizes it over the
life of the project.
Calpine Geysers Company, L.P. -- In addition to its interest as stated
above, the Company had been contracted by CGC to provide operations and
maintenance services at cost plus overhead and fees. The Company recorded
revenue of approximately $6.8 million associated with this service agreement and
for other services provided to CGC for the period from January 1, 1993 to April
19, 1993.
O.L.S. Energy-Agnews, Inc. -- The Company has a 20% interest in O.L.S.
Energy-Agnews, Inc., a joint venture with GATX Capital Corporation, which owns
and operates a 29 megawatt gas-fired combined-cycle cogeneration facility at the
State-owned Agnews Developmental Center (Center) in San Jose, California. The
cogeneration plant, which commenced operations in December 1990, provides the
Center with all of its thermal and electric requirements. Excess electricity is
sold to PG&E under a Standard Offer No. 4 contract. The Company's original
investment was $1.8 million.
In addition to its interest as stated above, the Company has been
contracted by the joint venture to provide operations and maintenance services
at cost plus overhead and fees, as specified. The Company recorded revenue of
$1.5 million, $1.4 million and $2.3 million associated with this service
agreement and for other services provided to the joint venture for the years
ended December 31, 1995, 1994 and 1993, respectively.
In January 1990, O.L.S Energy-Agnews, Inc. entered into a credit agreement
with Credit Suisse providing for a $28.0 million loan. The loan is secured by
all of the assets of the Agnews Facility and bears interest on the unpaid
principal balance based on the London Interbank Offered Rate (LIBOR) plus a
margin rate varying between 0.05% and 1.5%
Geothermal Energy Partners, Ltd. -- During 1989, the Company acquired a 5%
interest in Geothermal Energy Partners Ltd. (GEP). GEP was established in 1988
to develop, finance and construct a 20 megawatt geothermal power production
facility located in The Geysers area of Northern California. The facility began
operations on June 6, 1989.
In addition to its interest as stated above, the Company has been
contracted by GEP to provide operations and maintenance services at cost plus
overhead and fees, as specified. The Company recorded revenue of $3.5 million,
$3.7 million and $4.5 million associated with this service agreement to GEP for
the years ended December 31, 1995, 1994 and 1993, respectively.
The Company accounts for its investment in GEP under the equity methods
because control of the project is deemed to be shared under the terms of the
partnership agreement and the Company has significant influence over the
operation of the venture.
12. NOTES RECEIVABLE
On May 25, 1993, in accordance with certain provisions of the Sumas
partnership agreement, the Company was entitled to receive a distribution of
$1.5 million. In addition, in accordance with provisions of
F-18
<PAGE> 114
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Sumas partnership agreement, SEI was required to make a capital contribution
of $1.5 million. In order to meet SEI's $1.5 million capital contribution
requirement, the Company loaned $1.5 million to the sole shareholder of SEI, who
in turn loaned the funds to SEI, who in turn contributed the capital to Sumas.
The loan bears interest at 20% and is secured by a security interest in the loan
between SEI and its sole shareholder. The Company will receive payments of 50%
of SEI's cash distributions from Sumas. The payments will first reduce any
accrued and unpaid interest and then reduce the principal balance. On May 25,
2003, all unpaid principal and interest is due. The Company is deferring the
recognition of interest income from this note until Sumas generates net income.
On March 15, 1994, the Company completed a $10.0 million loan to the sole
shareholder of SEI, the Company's partner in Sumas. The loan matures in 10 years
and bears interest at 16.25%. The loan is secured by a pledge to Calpine of the
partner's interest in Sumas. In order to provide for the payment of principal
and interest on the loan, an additional 25% of the cash flow generated by Sumas,
estimated to begin in 1996, has been assigned to Calpine. The Company is
deferring the recognition of interest income from this note until Sumas
generates net income.
On August 25, 1994, the Company entered into a loan agreement providing for
loans up to $4.8 million to TGGM (see Note 7). The loan bears interest at 10%
and has a maturity date which is based on certain future events. Based on
current forecasts, the maturity date will be in the year 2022. The loan is
secured by a pledge to Calpine of the partner's interest in the project. The
Company is deferring the recognition of income from this note until the Glass
Mountain project generates sufficient income to support collectibility of
interest earned. As of December 31, 1995, $3.8 million was outstanding.
As of December 31, 1995, Calpine Vapor had notes receivable of $4.9 million
and unamortized loan acquisition fees of $1.5 million from Coperlasa (see Note
8). Interest accrues on the $4.9 million of outstanding notes receivable at
approximately 18.8% and is due semi-annually. Principal payments in six equal
installments are due beginning in May 1997 through November 1999. In January
1996, the Company loaned an additional $3.4 million to Coperlasa. The fair value
of the notes receivable approximates its carrying value since the loan was
entered into near the end of 1995.
13. REVOLVING CREDIT FACILITY AND LINES OF CREDIT
At December 31, 1995, the line of credit with Credit Suisse (whose parent
company owns approximately 44.9% of Electrowatt) provided for advances of $50.0
million. Interest may be paid at either LIBOR or the Credit Suisse base rate,
plus applicable margins in both cases. At December 31, 1995, the Company had
$19.9 million of borrowings outstanding, bearing interest at LIBOR plus 0.5%
(6.4% at December 31, 1995). At the Company's discretion, the debt outstanding
can be held for various maturity periods of up to six months. Interest is paid
on the last day of each interest period for such loans, but not less often than
quarterly, based on the principal amount outstanding during the period. No
stated amortization exists for this indebtedness. From January 1 to March 13,
1996, the Company borrowed an additional $8.8 million and issued a letter of
credit for $3.0 million to fund an additional loan to Coperlasa (see Note 8) and
other developmental project and working capital requirements. No borrowings were
outstanding at December 31, 1994. The credit agreement specifies that the
Company maintain certain covenants with which the Company was in compliance.
At December 31, 1995, the Company had three loan facilities with available
borrowings totaling $10.2 million. Borrowings and letters of credit outstanding
were $1.2 million and $3.8 million as of December 31, 1995, respectively, with
interest payable at variable interest rates based on bank base rates, LIBOR or
prime plus applicable margins in all cases (approximately 7.6% at December 31,
1995 on borrowings). At December 31, 1994, no borrowings and $900,000 of letters
of credit were outstanding on these facilities. The credit agreements specify
that the Company maintain certain covenants with which the Company was in
compliance.
F-19
<PAGE> 115
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. WORKING CAPITAL LOAN
The Company has a $5.0 million working capital loan agreement with a bank
providing for advances and letters of credit. The aggregate unpaid principal of
the working capital loan is payable in full at least once a year, with the final
payment of principal, interest and fees due June 30, 1998. Interest on
borrowings accrues at the option of the Company at either a base rate, LIBOR, or
a certificate of deposit rate (plus applicable margins in all cases) over the
term of the loan. No borrowings were outstanding at December 31, 1995. At
December 31, 1994, $4.5 million was outstanding under the working capital
agreement, with interest at 7.625%. The Company had letters of credit
outstanding of $459,000 at December 31, 1995 and 1994. Outstanding letters of
credit bear interest at 0.625% payable quarterly.
15. NOTE PAYABLE TO STOCKHOLDER
On December 31, 1991, the Company declared a dividend of $1.2 million to
its parent company, Electrowatt Services, Inc. On the same date, the Company
issued a note payable to Electrowatt Services, Inc. for $1.2 million. Interest
was paid quarterly at a rate of 4.25%, which approximated market. The note was
paid on June 30, 1994, the maturity date.
16. NON-RECOURSE PROJECT FINANCING
The components of non-recourse project financing as of December 31, 1995
and 1994 are (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Senior-term loans
Fixed rate portion............................................. $ 99,400 $116,800
Variable rate portion.......................................... 20,000 20,000
Premium on debt................................................ 2,959 4,341
-------- --------
Total senior-term loans................................ 122,359 141,141
Junior-term loans................................................ 19,965 19,965
Notes payable to banks........................................... 133,026 58,500
-------- --------
Total long-term debt................................... 275,350 219,606
Less current portion................................... 84,708 22,800
-------- --------
Long-term debt, less current portion................... $190,642 $196,806
======== ========
</TABLE>
Senior-Term Loans -- Principal and interest are payable in quarterly
installments at variable amounts with the final payment of principal, interest
and fees due June 30, 2002. A portion of the senior-term loans bears interest
fixed at 9.93% (see discussion on swap agreement below) with the remainder
accruing interest at LIBOR plus 0.75% to 1.25% (6.69% and 7.25% at December 31,
1995 and 1994, respectively) over the term of the loan, collateralized by all of
CGC's assets and the Company's interest in CGC. In connection with the
acquisition of CGC's assets in 1993, the Company recorded a premium on the fixed
rate portion of the senior-term loans reflecting the fixed rate in excess of
market. The premium is amortized over the life of the fixed rate portion of the
loan using the interest method, and the unamortized balance is included in
long-term debt outstanding.
On January 2, 1996, $5.4 million of principal was repaid, and $2.5 million
of interest calculated through January 1, 1996 was paid.
Junior-Term Loans -- Principal and interest are payable in quarterly
installments at variable amounts beginning September 30, 2002 with the final
payment of principal, interest and fees due June 30, 2005; interest accrues at
LIBOR plus 1.5% to 2.75% (7.69% and 8.5% at December 31, 1995 and 1994,
respectively) over the term of the loan, collateralized by all of CGC's assets
and the Company's interest in CGC.
F-20
<PAGE> 116
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company entered into two interest rate swap agreements to minimize the
impact of changes in interest rates on a portion of its senior-term loans. These
agreements, with a commercial bank and a financing company, effectively fix the
interest on this portion at 9.93%. The Company records the fixed rate interest
as interest expense. At December 31, 1995, the swap agreements were applicable
to debt with a principal balance total of $99.4 million. The interest rate swap
agreements mature through December 31, 2000. The premium on debt was recorded in
conjunction with the acquisition as discussed above. The premium effectively
adjusts the recognized interest rate on the fixed-rate debt to 7.05% per annum.
The floating interest rate associated with this portion of the senior-term loans
was LIBOR plus 1.0% (6.99%) at December 31, 1995 and LIBOR plus 0.75% (7.25%) at
December 31, 1994. The Company is exposed to credit risk in the event of non-
performance by the other parties to the agreements.
Notes Payable to Banks -- On September 9, 1994, the Company entered into a
two-year agreement with The Bank of Nova Scotia to finance the acquisition of
TPC. As of December 31, 1995, the Company had $57.0 million of non-recourse
project financing outstanding under this agreement. This indebtedness is secured
by TPC's interest in The Geysers steam field assets. Among other restrictions,
TPC is required to maintain an interest coverage ratio of at least 2.5 to 1.0,
and to maintain a loan to value ratio (as defined) of no more than 0.7 to 1.0.
At the Company's discretion, the debt outstanding can be held for various
maturity periods of at least 30 days up to the final maturity date, September 9,
1996. The entire outstanding balance bears interest at variable rates currently
based on LIBOR plus 1% (averaging 6.9% as of December 31, 1995). Interest is
paid on each maturity date, but not less often than quarterly, based on the
principal amount outstanding during the period. No stated principal amortization
exists for this indebtedness. The Company may elect to repay principal at any
time. All unpaid principal is due and payable on September 9, 1996. The Company
currently intends to refinance the $57.0 million of debt before September 9,
1996.
On June 26, 1995, the Company entered into an agreement with Sumitomo Bank
to finance the acquisition of the Greenleaf facilities. Of the $76.0 million
debt outstanding at December 31, 1995, $60.0 million bears interest fixed at
7.4%, with the remaining floating rate portion accruing interest at LIBOR plus
an applicable margin (6.5% as of December 31, 1995). This debt is secured by all
of the assets of Greenleaf Unit One and Greenleaf Unit Two. Interest on the
floating rate portion may be at Sumitomo's base rate plus an applicable margin
or at LIBOR plus an applicable margin. Interest on base rate loans is paid at
the end of each calendar quarter, and interest on LIBOR based loans is paid on
each maturity date, but not less often than quarterly, based on the principal
amount outstanding during the period. At the Company's discretion, the LIBOR
based loans may be held for various maturity periods of at least 1 month up to
12 months. The $76.0 million debt will be repaid quarterly, with a final
maturity date of December 31, 2010.
The annual principal maturities of the non-recourse long-term debt
outstanding at December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 84,708
1997.............................................................. 24,772
1998.............................................................. 25,993
1999.............................................................. 18,733
2000.............................................................. 17,991
Thereafter........................................................ 100,194
--------
272,391
Unamortized premium on fixed portion of senior loan............... 2,959
--------
Total................................................... $275,350
========
</TABLE>
The carrying value of $99.4 million and $116.8 million of the senior-term
loan as of December 31, 1995 and 1994, respectively, has an effective rate of
9.93% under the Company's interest rate swap agreements
F-21
<PAGE> 117
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7.05% after consideration of the debt premium). Based on the borrowing rates
currently available to the Company for bank loans with similar terms and
maturities, the fair value of the debt as of December 31, 1995 and 1994 is
approximately $107.3 million and $120.0 million, respectively. The carrying
value of the remaining $20.0 million of the senior and the $20.0 million
junior-term loans and the long-term notes payable to banks approximates the
debt's fair market value as the rates are variable and based on the current
LIBOR rate.
The non-recourse long-term debt is held by subsidiaries of Calpine. The
debt agreements of the Company's subsidiaries and other affiliates governing the
non-recourse project financing generally restrict their ability to pay
dividends, make distributions or otherwise transfer funds to the Company. The
dividend restrictions in such agreements generally require that, prior to the
payment of dividends, distributions or other transfers, the subsidiary or other
affiliate must provide for the payment of other obligations, including operating
expenses, debt service and reserves.
17. LONG-TERM NOTES PAYABLE
At December 31, 1995, the Company had a non-interest bearing promissory
note for $6.5 million payable to Natomas Energy Company, a wholly owned
subsidiary of Maxus Energy Company. This note has been discounted to yield 8.0%
per annum, due September 9, 1997. The carrying amount of $5.7 million at
December 31, 1995 approximates fair market value.
In January 1995, the Company purchased the working interest covering
certain properties in its geothermal properties at CGC from Santa Fe Geothermal,
Inc. The purchase price included $6.0 million cash, and a $750,000 non-interest
bearing note discounted to yield 9% per annum and due on December 26, 1997. The
Company may repay all or any part of the note at any time without penalty. The
carrying value of $627,000 of the discounted non-interest bearing note at
December 31, 1995 approximates fair market value.
18. SENIOR NOTES DUE 2004
On February 17, 1994, the Company completed a $105.0 million public debt
offering of 9 1/4% Senior Notes Due 2004 (Senior Notes). The net proceeds of
$100.9 million were used to repay all of the indebtedness outstanding under the
Company's existing line of credit, and to repay the non-recourse notes payable
to FMRP plus accrued interest (see Note 3). The remaining proceeds were used for
general corporate purposes, including the loan to the sole shareholder of SEI
discussed in Note 12. The transaction costs of $4.1 million incurred in
connection with the public debt offering were recorded as a deferred charge and
are amortized over the ten-year life of the Senior Notes using the interest
method.
The Senior Notes will mature on February 1, 2004 and bear interest at
9 1/4% payable semiannually on February 1 and August 1 of each year, commencing
August 1, 1994, to holders of record. Based on the traded yield to maturity, the
approximate fair market value of the Senior Notes was $97.0 million as of
December 31, 1995. The agreement specifies that the Company maintain certain
covenants with which the Company was in compliance.
Under provisions of the indenture applicable to the Senior Notes, the
Company may, under certain circumstances, be limited in its ability to make
restricted payments, as defined, which include dividends and certain purchases
and investments, incur additional indebtedness and engage in certain
transactions.
19. PROVISION FOR INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 Accounting for Income Taxes (SFAS No. 109) and
recorded $413,000 as the cumulative effect of adoption in the accompanying
financial statements. SFAS No. 109 requires that the Company follow the
liability method of accounting for income taxes whereby deferred income taxes
are recognized for the tax consequences of
F-22
<PAGE> 118
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"temporary differences" to the extent they are not reduced by net operating loss
and tax credit carryforwards by applying enacted statutory rates.
The components of the deferred tax liability as of December 31, 1995 and
1994 are (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Deferred state income taxes................................... $ 256 $ 1,389
Expenses deductible in a future period........................ 1,865 1,536
Net operating loss and credit carryforwards................... 19,797 15,566
Other differences............................................. 2,034 1,129
--------- --------
Deferred tax asset, before valuation allowance.............. 23,952 19,620
Valuation allowance........................................... (749) (749)
--------- --------
Deferred tax asset.......................................... 23,203 18,871
--------- --------
Property differences.......................................... (116,763) (66,552)
Difference in taxable income and income from investments
recorded on the equity method............................... (2,311) (2,119)
Other differences............................................. (1,750) (1,128)
--------- --------
Deferred tax liabilities.................................... (120,824) (69,799)
--------- --------
Net deferred tax liability............................... $ (97,621) $(50,928)
========= ========
</TABLE>
The net operating loss and credit carryforwards consist of Federal and
State net operating loss carryforwards which expire 2005 through 2010 and 1999,
respectively, and Federal and State alternative minimum tax credit carryforwards
which can be carried forward indefinitely. During 1991, the State of California
suspended the usage of net operating loss carryforwards available to reduce
taxable income for 1992 and 1991. In September 1993, the State of California
removed the suspension on utilization of net operating loss carryforwards,
although they can only be carried forward five years. Fifty percent of the State
net operating loss carryforwards are available to reduce future taxable income.
During 1993, the Company increased the tax provision by approximately $700,000
as a result of the change in the California State Tax regulations. At December
31, 1995, Federal and State net operating loss carryforwards were approximately
$41.8 million and $7.2 million, respectively. At December 31, 1995 the State net
operating losses have been fully reserved for in the valuation allowance due to
the limited carryforward period allowed by the State of California. At December
31, 1995, Federal and State alternative minimum tax carryforwards were
approximately $3.2 million and $1.6 million, respectively.
Realization of the deferred tax assets and federal net operating loss
carryforwards is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized based on estimates of future taxable income. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
F-23
<PAGE> 119
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993 consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current
Federal................................................ $3,085 $ 96 $ --
State.................................................. 1,163 365 11
Deferred
Federal, excluding items listed below.................. 816 2,546 2,581
Adjustment in federal tax rate...................... -- -- 88
State, excluding items listed below.................... (15) 547 1,250
Utilization of net operating loss carryforwards..... -- -- (192)
Increase in valuation allowance..................... -- 299 457
------ ------ ------
Total provision................................ $5,049 $3,853 $4,195
====== ====== ======
</TABLE>
The Company's effective rate for income taxes for the years ended December
31, 1995, 1994 and 1993 differs from the U.S. statutory rate for the same
periods due to state income taxes, depletion allowances and the limitation on
use of state net operating loss carryforwards discussed above, as reflected in
the following reconciliation.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. statutory tax rate........................................ 35.0% 35.0% 35.0%
State income tax, net of Federal benefit....................... 6.0 6.0 8.1
Depletion allowance............................................ (0.3) (8.6) --
Adjustment to deferred for change in tax rates................. -- -- 1.0
Utilization of state net operating loss carryforward........... -- -- (2.3)
Other, net..................................................... (0.1) (1.2) 2.9
Increase in valuation allowance................................ -- 7.8 5.5
---- ---- ----
Effective income tax rate................................. 40.6% 39.0% 50.2%
==== ==== ====
</TABLE>
20. RETIREMENT SAVINGS PLAN
The Company has a defined contribution savings plan under Section 401(a)
and 501(a) of the Internal Revenue Code. The plan provides for tax deferred
salary deductions and after-tax employee contributions. Employees automatically
become participants on the first quarterly entry date after completion of three
months of service. Contributions include employee salary deferral contributions
and a 3% employer profit-sharing contribution. Employer profit-sharing
contributions in 1995, 1994 and 1993 totaled $350,000, $311,000 and $293,000,
respectively.
21. COMMON STOCK
Prior to the merger and the stock split discussed in Note 26, the Company
had Class A and Class B common stock. Each class of common stock fully
participated in any dividends declared. Although Class A shareholders were
precluded from receiving stock dividends of Class B common stock, Class B shares
were convertible into Class A shares on a share-for-share basis at the option of
the holder. Each share of Class A common stock was entitled to one vote per
share, and each share of Class B common stock was entitled to ten votes per
share -- see Note 26.
F-24
<PAGE> 120
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. STOCK OPTION PROGRAM
The Company adopted a Stock Option Program effective December 31, 1992.
Under the plan, the Board of Directors may grant non-qualified stock options to
officers and other senior employees of the Company, not to exceed 35
participants, to purchase Class A common stock of the Company. The plan is
administered by a committee of the Board of Directors. The committee determines
the timing of awards, individuals to be granted awards, the number of options to
be awarded, and the price, term, vesting schedule and other conditions of the
options. The Company has reserved a total of 2,596,923 Class A common shares for
issuance under the plan.
Options outstanding to officers and other senior employees are:
<TABLE>
<CAPTION>
GRANT OPTIONS PER EXPIRATION
DATE OUTSTANDING SHARE DATE
-------------------------------------------- ----------- ----- -----------------
<S> <C> <C> <C>
December 31, 1992........................... 934,893 $ .50 December 31, 2002
April 1, 1993............................... 179,188 $1.85 April 1, 2003
October 1, 1994............................. 296,049 $4.57 October 1, 2004
January 1, 1995............................. 418,364 $4.91 January 1, 2005
June 16, 1995............................... 25,969 $4.91 June 16, 2005
-------
1,854,463
=======
</TABLE>
The options were granted at fair value as determined by the Board of
Directors based, in part or in whole, on the most recent applicable independent
appraisal. The options granted on December 31, 1992 were fully exercisable on
the date of grant. The options granted in 1993 and 1994 were vested 25% at the
date of issuance with the balance vesting equally over a three-year period. The
options granted on January 1, 1995 vest equally over a four-year period
beginning on January 1, 1996. The options granted on June 16, 1995 vest 50% on
June 16, 1997 and 50% on June 16, 1999. The number of options exercisable at
December 31, 1995 totaled 1,217,308. No options have been exercised to date.
23. RELATED PARTY TRANSACTIONS
In January 1995, the Company and Electrowatt entered into a management
services agreement whereby Electrowatt agreed to provide the Company with
advisory services in connection with the construction, financing, acquisition
and development of power projects, as well as any other advisory services as may
be required by the Company in connection with the operation of the Company. The
Company currently pays Electrowatt $200,000 per year for all services rendered
under the management services agreement. The management services agreement
terminates in January 1998.
During 1995, 1994 and 1993, the Company paid $106,000, $69,000 and
$474,000, respectively, to Electrowatt pursuant to a guarantee fee agreement
whereby Electrowatt agreed to guarantee the payment, when due, of any and all
indebtedness of the Company to Credit Suisse in accordance with the terms and
conditions of the line of credit. Under the guarantee fee agreement, the Company
has agreed to pay to Electrowatt an annual fee equal to 1% of the average
outstanding balance of the Company's indebtedness to Credit Suisse during each
quarter as compensation for all services rendered under the guarantee fee
agreement. The guarantee fee agreement terminates in January 1998.
24. SIGNIFICANT CUSTOMERS
The Company's electricity and steam sales revenue is primarily from two
sources -- PG&E and SMUD. During 1994, the Company entered into a three-year
agreement to sell 5 megawatts of electricity to Northern California Power Agency
(NCPA). The Company terminated this agreement on December 31, 1994.
F-25
<PAGE> 121
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues earned from these sources for the years ended December 31, 1995 and
1994 and for the period from April 19, 1993 to December 31, 1993 were (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
PG&E................................................. $112,522 $77,010 $45,819
SMUD................................................. 12,345 9,296 9,014
NCPA................................................. -- 804 --
Other................................................ 173 -- --
-------- ------- -------
125,040 87,110 54,833
Revenues recognized (deferred) (see Note 2).......... 2,759 3,185 (1,833)
-------- ------- -------
Total electricity and steam sales.................... $127,799 $90,295 $53,000
======== ======= =======
</TABLE>
See Note 25 regarding CPUC Restructuring.
25. COMMITMENTS AND CONTINGENCIES
Capital Projects -- The Company has 1996 commitments for capital
expenditures totaling $6.8 million related to various projects at its geothermal
facilities. In March 1996, the Company entered into an energy development
agreement with Phillips Petroleum Company to develop, construct, own and operate
a 240 megawatt gas-fired cogeneration facility at Phillips Houston Chemical
Complex in Pasadena, Texas. The initial permitting process is underway, with
construction of the facility planned to begin in late 1996 and to be completed
in 1998. The Company is currently evaluating options to finance the construction
of this facility. The Company issued a $3.0 million letter of credit and has a
1996 capital commitment of $3.0 million in connection with this facility. In a
separate transaction, as of March 15, 1996, the Company was negotiating the
potential acquisition of an operating lease for a 120 megawatt gas-fired
cogeneration facility located in Northern California.
Royalties and Leases -- The Company is committed under several geothermal
leases and right-of-way, easement and surface agreements. The geothermal leases
generally provide for royalties based on production revenue, with reductions for
property taxes paid, and the right-of-way, easement and surface agreements are
based on flat rates and are not material. Under the terms of certain geothermal
leases, royalties accrue at rates ranging from 7% to 12.5% of steam and effluent
revenue. Certain properties also have net profits and overriding royalty
interests ranging from approximately 1.45% to 28%, which are in addition to the
land royalties. Most lease agreements contain clauses providing for minimum
lease payments to lessors if production temporarily ceases or if production
falls below a specified level.
The Company also has working interest agreements with third parties
providing for the sharing of approximately 25% to 30% of drilling and other well
costs, various percentages of other operating costs and 25% to 30% of revenues
on specified wells.
F-26
<PAGE> 122
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expenses under these agreements for the years ended December 31, 1995 and
1994 and for the period from April 19,1993 to December 31, 1993, are (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Production royalties................................... $10,574 $11,153 $6,814
Lease payments......................................... $ 225 $ 252 $ 172
</TABLE>
Natural Gas Purchases -- Natural gas for the Greenleaf facilities is
supplied by MNI pursuant to a long-term gas purchase agreement. Under the terms
of the gas purchase agreement, MNI may nominate on a monthly basis to provide
firm gas deliveries from certain specified wells. If MNI is unable to deliver
the nominated quantity of gas from its reserves, MNI must purchase and deliver
sufficient gas at no additional cost to the Company. The Company is committed to
purchase gas at the forecasted weighted average incremental cost per decatherm
of gas procured by PG&E at the California border, adjusted annually to actual
cost. The fuel purchase agreement may be terminated by the Company under
specified contract conditions, or upon disbursement of contract suspension
payments.
The Company is committed to purchase and receive natural gas from Chevron
in an amount sufficient to satisfy the requirements of the Greenleaf facilities,
in excess of the nominated quantity supplied by MNI. If MNI supplies less than
the nominated quantity, Chevron shall supply the volumes of natural gas
constituting the difference between the volumes of gas delivered by MNI and the
nominated volumes (make-up gas). Chevron will have the option to be the
exclusive provider of make-up gas if Chevron agrees to sell at a price less than
or equal to 100% of the average gas rate at the burner tip for utility electric
generation as posted by PG&E for the month of delivery. If MNI supplies volumes
of gas greater than its nomination, Chevron will reduce its deliveries in a
corresponding amount. The gas supply agreement is effective through June 30,
1996, continuing month to month thereafter unless either party terminates the
agreement upon sixty days written notice.
Watsonville Operating Lease -- The Company is committed under an operating
lease (through December 2009) for a 28.5 megawatt natural gas-fired cogeneration
power plant located in Watsonville, California (see Note 6). Under the terms of
the lease, basic and contingent rents are payable each month during the period
from July through December. As of December 31, 1995, future basic rent payments
are $2.9 million for each year from 1996 to 2000, and $27.3 million thereafter
through December 2009. Contingent rent payments are based on the net of revenues
less all operating expenses, fees, reserve requirements, basic rent and
supplemental rent payments. Of the remaining balance, 60% is payable to the
lessor and 40% is payable to the Company.
Office and Equipment Leases -- The Company leases its corporate office,
Santa Rosa office facilities and certain office equipment under noncancellable
operating leases expiring through 2000. Future minimum lease payments under
these leases are (in thousands):
<TABLE>
<S> <C>
1996................................................................ $ 899
1997................................................................ 905
1998................................................................ 907
1999................................................................ 776
2000................................................................ 745
thereafter.......................................................... 286
-----
Total future minimum lease commitments.............................. $4,518
=====
</TABLE>
Lease payments are subject to adjustment for the Company's pro rata portion
of annual increases or decreases in building operating costs. In 1995, 1994 and
1993, rent expense for noncancellable operating leases amounted to $733,000,
$663,000 and $636,000, respectively.
F-27
<PAGE> 123
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CPUC Restructuring -- Electricity and steam sales agreements with PG&E are
regulated by the California Public Utilities Commission (CPUC). In December
1995, the CPUC proposed the transition of the electric generation market to a
competitive market beginning January 1, 1998, with all consumers participating
by 2003. The proposed restructuring provides for phased-in customer choice,
development of non-discriminatory market structure, recovery of utilities'
stranded costs, sanctity of existing contracts, and continuation of existing
public policy programs including the promotion of fuel diversity through a
renewable energy purchase requirement.
As the proposed restructuring has widespread impact and the market
structure requires the participation and oversight of the Federal Energy
Regulatory Commission (FERC), the CPUC will seek to build a California consensus
involving the legislature, the Governor, public and municipal utilities, and
customers. The consensus would then be placed before the FERC so that both the
CPUC and FERC would implement the new market structure no later than January 1,
1998. There can be no assurance that the proposed restructuring will be enacted
in substantially the same form as discussed above. The Company is unable to
predict the ultimate outcome of the restructuring.
Litigation -- The Company, together with over 100 other parties, was named
as a defendant in the second amended complaint in an action brought in August
1993 by the bankruptcy trustee for Bonneville Pacific Corporation (Bonneville),
captioned Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific
Corporation v. Portland General Corporation, et al., in the United States
District Court for the District of Utah. This complaint alleges that, in
conjunction with top executives of Bonneville and with the alleged assistance of
the other 100 defendants, the Company engaged in a broad conspiracy and fraud.
The complaint has been amended a number of times. The Company has answered each
version of the complaint by denying all claims and is in the process of
conducting discovery. In August 1994, the Company successfully moved for an
order severing the trustee's claim against the Company from the claims against
the other defendants. Although the case involves over 25 separate financial
transactions entered into by Bonneville, the severed case concerns the Company
in respect of only one of these transactions. In 1988, the Company invested $2.0
million in a partnership formed with Bonneville to develop four hydroelectric
projects in the State of Hawaii. The projects were not successfully developed by
the partnership, and, subsequent to Bonneville's Chapter 11 filing, the Company
filed a claim as a creditor against Bonneville's bankruptcy estate. The trustee
alleges that the equity investment was actually a "sham" loan designed to
inflate Bonneville's earnings. The trustee further alleges that Calpine is one
of many defendants in this case responsible for Bonneville's insolvency and the
amount of damages attributable to the Company based on the $2.0 million
partnership investment is alleged to be $577.2 million. The trustee is seeking
to hold each of the other defendants liable for a portion, all or, in certain
cases, more than this amount. The Company expects the matter will be set for
trial in 1996. The Company believes the claims against it are without merit and
will continue to defend the action vigorously. The Company further believes that
the resolution of this matter will not have a material adverse effect on its
financial position or results of operations.
ENCO terminated protracted contract negotiations with two Canadian natural
gas suppliers in January 1995. One of the suppliers notified ENCO it considered
a draft contract to be effective although it had not been executed by ENCO. The
supplier indicated it may pursue legal action if ENCO would not execute the
contract. As of March 15, 1996, no legal action has been served on ENCO.
Management believes if legal action is commenced, ENCO has significant defenses
and believes such action will not result in any material adverse impact to the
Company's financial condition or results of operations.
The Company is involved in various other claims and legal actions arising
out of the normal course of business. Management does not expect that the
outcome of these cases will have a material adverse effect on the Company's
financial position or results of operations.
F-28
<PAGE> 124
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
26. SUBSEQUENT EVENT
In July 1996, the Company's Board of Directors authorized the
reincorporation of the Company into Delaware in connection with the Company's
initial public equity offering. Also, the Board of Directors approved a stock
split at a ratio of approximately 5.194 to 1. The accompanying financial
statements reflect the reincorporation and the stock split as if such
transactions had been effective for all periods.
F-29
<PAGE> 125
CALPINE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS ADJUSTED
JUNE 30,
1996
STOCKHOLDER'S
EQUITY
ASSUMING
CONVERSION
OF PREFERRED
STOCK (NOTE DECEMBER 31,
12) 1995
JUNE 30, ------------- ------------
1996 (UNAUDITED)
--------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 38,403 $ 21,810
Accounts receivable.................................. 38,691 20,124
Acquisition project receivables...................... 4,536 8,805
Collateral securities, current portion............... 9,745 --
Prepaid expenses..................................... 6,978 3,447
Inventory............................................ 3,444 1,377
Other current assets................................. 2,947 677
--------
Total current assets......................... 104,744 56,230
Property, plant and equipment, net..................... 530,203 447,751
Investments in power projects.......................... 12,693 8,218
Collateral securities, net of current portion.......... 88,669 --
Notes receivable from related parties.................. 20,894 19,391
Notes receivable from Coperlasa........................ 16,492 6,094
Restricted cash........................................ 8,477 9,627
Deferred charges and other assets...................... 10,640 7,220
--------
Total assets................................. $792,812 $554,531
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current non-recourse long-term project financing..... $ 27,178 $ 84,708
Notes payable to bank and short-term borrowings...... -- 1,177
Accounts payable..................................... 9,530 6,876
Accrued payroll and related expenses................. 2,336 2,789
Accrued interest payable............................. 8,693 7,050
Other accrued expenses............................... 5,121 2,657
--------
Total current liabilities.................... 52,858 105,257
Long-term line of credit............................... -- 19,851
Non-recourse long-term project financing, less current
portion.............................................. 180,974 190,642
Notes payable.......................................... 6,598 6,348
Senior Notes........................................... 285,000 105,000
Deferred income taxes, net............................. 100,068 97,621
Deferred lease incentive............................... 81,495 --
Other liabilities...................................... 6,163 4,585
--------
Total liabilities............................ 713,156 529,304
--------
Stockholder's equity
Preferred stock...................................... 5 -- --
Common stock......................................... 10 18 10
Additional paid-in capital........................... 56,209 56,206 6,214
Retained earnings.................................... 23,432 23,432 19,003
-------- --------
Total stockholder's equity................... 79,656 79,656 25,227
-------- --------
Total liabilities and stockholder's equity... $792,812 $ 792,812 $554,531
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-30
<PAGE> 126
CALPINE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue:
Electricity and steam sales........................................ $ 72,030 $ 49,014
Service contract revenue from related parties...................... 4,616 3,129
Service revenue from others........................................ 818 --
Income (loss) from unconsolidated investments in power projects.... 1,713 (1,791)
Interest income on loans to power projects......................... 2,817 --
-------- --------
Total revenue.............................................. 81,994 50,352
-------- --------
Cost of revenue:
Plant operating expenses, depreciation, operating lease expense and
production royalties............................................ 46,835 28,344
Service contract expenses and other................................ 4,484 2,274
-------- --------
Total cost of revenue...................................... 51,319 30,618
-------- --------
Gross profit......................................................... 30,675 19,734
Project development expenses......................................... 1,410 1,308
General and administrative expenses.................................. 5,874 3,659
-------- --------
Income from operations..................................... 23,391 14,767
Other (income) expense:
Interest expense................................................... 18,665 15,116
Other income, net.................................................. (2,777) (855)
-------- --------
Income before provision for income taxes................... 7,503 506
Provision for income taxes........................................... 3,080 208
-------- --------
Net income................................................. $ 4,423 $ 298
======== ========
As adjusted earnings per share assuming conversion of preferred
stock:
14,476
As adjusted weighted average shares outstanding.................... ========
$ 0.31
Net income per share............................................... ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-31
<PAGE> 127
CALPINE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1996 1995
--------- --------
<S> <C> <C>
Net cash provided by operating activities............................. $ 5,035 $ 5,126
--------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment........................ (8,061) (9,324)
Investment in Greenleaf, net of cash on hand........................ -- (16,958)
Investment in Watsonville, net of cash on hand...................... -- 494
Investment in King City, net of cash on hand........................ (4,877) --
Investment in King City collateral securities....................... (98,414) --
Investments in power projects and capitalized costs................. (2,983) (579)
Loans to Coperlasa.................................................. (12,104) --
Increase in notes receivable from related party..................... (250) (250)
Decrease in restricted cash......................................... 1,150 2,766
Other, net.......................................................... (512) (23)
--------- --------
Net cash used in investing activities............................ (126,051) (23,874)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of Senior Notes Due 2006..................... 180,000 --
Proceeds from issuance of preferred stock........................... 50,000 --
Borrowings from line of credit...................................... 33,800 20,851
Repayment of line of credit......................................... (53,651) (15,000)
Borrowing from Bank................................................. 45,000 --
Repayments to Bank.................................................. (46,177) --
Borrowings of non-recourse project financing........................ -- 77,925
Repayment of non-recourse project financing......................... (66,600) (73,988)
Repayment of working capital loan................................... -- (4,500)
Financing costs..................................................... (4,763) (1,546)
--------- --------
Net cash provided by (used for) financing activities............. 137,609 3,742
--------- --------
Net increase (decrease) in cash and cash equivalents.................. 16,593 (15,006)
Cash and cash equivalents, beginning of period........................ 21,810 22,527
--------- --------
Cash and cash equivalents, end of period.............................. $ 38,403 $ 7,521
========= ========
Supplementary information:
Cash paid during the period for:
Interest......................................................... $ 16,517 $ 17,530
Income taxes..................................................... $ 955 $ 125
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 128
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION AND OPERATION OF THE COMPANY
Calpine Corporation (Calpine) and subsidiaries (collectively, the Company)
are engaged in the development, acquisition, ownership and operation of power
generation facilities in the United States. The Company has ownership interests
in or operates geothermal steam fields, geothermal power generation facilities,
and natural gas-fired cogeneration facilities in Northern California, Washington
and Mexico. Each of the generation facilities produces electricity for sale to
utilities. Thermal energy produced by the gas-fired cogeneration facilities is
sold to governmental and industrial users, and steam produced by the geothermal
steam fields is sold to utility-owned power plants. Founded in 1984, the Company
is wholly owned by Electrowatt Services, Inc., which is wholly owned by
Electrowatt Ltd (Electrowatt), a Swiss company. The Company has expertise in the
areas of engineering, finance, construction and plant operations and
maintenance.
In July 1996, the Company filed a registration statement with the United
States Securities and Exchange Commission relating to the initial public
offering of shares of the Company's Common Stock. In the offering, the Company
will sell newly issued shares of Common Stock and Electrowatt will sell shares
of Common Stock representing its entire ownership interest in Calpine. If the
offering is completed, Electrowatt will no longer own any interest in the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Interim Presentation
The accompanying interim condensed consolidated financial statements of the
Company have been prepared by the Company, without audit by independent public
accountants, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the condensed consolidated
financial statements include all and only normal recurring adjustments necessary
to present fairly the information required to be set forth therein. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to such rules and
regulations and, accordingly, should be read in conjunction with the audited
consolidated financial statements of the Company included in the Company's
annual report on Form 10-K for the year ended December 31, 1995. The results for
interim periods are not necessarily indicative of the results for the entire
year.
As Adjusted Earnings Per Share and As Adjusted Stockholder's Equity
Net income per share is computed using weighted average shares outstanding,
which includes the net additional number of shares which would be issuable upon
the exercise of outstanding stock options, assuming that the Company used the
proceeds received to purchase additional shares at an assumed public offering
price. Net income per share also gives effect, even if antidilutive, to common
equivalent shares from preferred stock that will automatically convert upon the
closing of the Company's initial public offering (using the as-if-converted
method). If the offering contemplated by the Company is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into shares of common stock based on the shares of
convertible preferred stock outstanding at June 30, 1996. Unaudited as adjusted
stockholder's equity at June 30, 1996, as adjusted for the conversion of
preferred stock, is disclosed on the balance sheet.
Impact of Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets
F-33
<PAGE> 129
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to be Disposed Of. This pronouncement requires that long-lived assets and
certain identifiable intangible assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss is to be recognized when the sum of
undiscounted cash flows is less than the carrying amount of the asset.
Measurement of the loss for assets that the entity expects to hold and use are
to be based on the fair market value of the asset. SFAS No. 121 must be adopted
for fiscal years beginning in 1996. The Company adopted SFAS No. 121 effective
January 1, 1996, and determined that adoption of this pronouncement had no
material impact on the results of operations or financial condition as of
January 1, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock Based Compensation. The disclosure requirements of
SFAS No. 123 are effective for the Company's 1996 fiscal year. The new
pronouncement did not have an impact on its results of operations since the
intrinsic value-based method prescribed by Accounting Principles Board Opinion
No. 25 and also allowed by SFAS No. 123 will continue to be used by the Company
to account for its stock-based compensation plans.
3. ACCOUNTS RECEIVABLE
The Company has both billed and unbilled receivables. The components of
accounts receivable as of June 30, 1996 and December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
JUNE 30, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Projects:
Billed............................................ $37,622 $ 18,341
Unbilled.......................................... 845 525
Other............................................. 224 1,258
------- -------
$38,691 $ 20,124
======= =======
</TABLE>
Other accounts receivable consist primarily of disputed amounts related to
the Greenleaf facilities purchase price. In May 1996, the Company reclassified
such accounts receivable to property, plant and equipment as an adjustment to
the purchase price of the Greenleaf facilities (see Note 6).
Accounts receivable from related parties as of June 30, 1996 and December
31, 1995 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
JUNE 30, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
O.L.S. Energy-Agnews, Inc. ......................... $ 589 $ 806
Geothermal Energy Partners, Ltd. ................... 979 462
Sumas Cogeneration Company, L.P. ................... 1,206 908
Electrowatt and subsidiaries........................ 2 1
------- -------
$ 2,776 $ 2,177
======= =======
</TABLE>
F-34
<PAGE> 130
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN POWER PROJECTS
The Company has unconsolidated investments in power projects which are
accounted for under the equity method. Unaudited financial information for the
six months ended June 30, 1996 and 1995 related to these investments is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------------------------- ----------------------------------
SUMAS O.L.S. GEOTHERMAL SUMAS O.L.S. GEOTHERMAL
COGENERATION ENERGY- ENERGY COGENERATION ENERGY- ENERGY
COMPANY, AGNEWS, PARTNERS, COMPANY, AGNEWS, PARTNERS,
L.P. INC. LTD. L.P. INC. LTD.
------------ ------- ---------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................................ $ 21,561 $4,604 $9,576 $ 15,265 $4,612 $9,847
Operating expenses............................. 12,752 4,349 6,219 13,530 4,300 5,064
------- ------ ------ ------ ------ ------
Income (loss) from operations.................. 8,809 255 3,357 1,735 312 4,783
Other expenses, net............................ 5,098 1,040 2,444 5,283 1,034 2,865
------- ------ ------ ------ ------ ------
Net income (loss).......................... $ 3,711 $ (785 ) $ 913 $ (3,548) $(722 ) $1,918
======= ====== ====== ====== ====== ======
Company's share of net income (loss)........... $ 1,855 $ (179 ) $ 37 $ (1,774) $(130 ) $ 113
======= ====== ====== ====== ====== ======
</TABLE>
5. THERMAL POWER COMPANY
In March 1996, Thermal Power Company (TPC) a wholly owned subsidiary of the
company, and Union Oil Company of California (Union Oil) entered into an
alternative pricing agreement with Pacific Gas and Electric Company (PG&E) for
any steam produced in excess of 40% of average field capacity. The alternative
pricing strategy is effective through December 31, 2000. Under the agreement,
PG&E would purchase a portion of the steam that PG&E would likely curtail under
TPC's existing steam sales agreement. The price for this portion of steam will
be set by TPC and Union Oil with the intent that it be at competitive market
prices. TPC and Union Oil will solely determine the price and duration of these
alternative price offers.
6. GREENLEAF TRANSACTION
In April 1995, the Company purchased the capital stock of the companies
which owned 100% of the assets of two 49.5 megawatt natural gas-fired
cogeneration facilities (collectively, the Greenleaf facilities) located in Yuba
City in Northern California. The initial purchase price included a cash payment
of $20.3 million and the assumption of project debt totalling $60.2 million. In
April 1996, the Company finalized the purchase price in accordance with the
Share Purchase Agreement dated March 30, 1995.
The acquisition was accounted for as a purchase and the purchase price has
been allocated to the acquired assets and liabilities based on the estimated
fair values of the acquired assets and liabilities as shown below. The adjusted
allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................................... $ 6,572
Property, plant and equipment..................................... 122,545
--------
Total assets................................................. 129,117
--------
Current liabilities............................................... (1,079)
Deferred income taxes, net........................................ (46,580)
--------
Total liabilities............................................ (47,659)
--------
Net purchase price................................................ $ 81,458
========
</TABLE>
F-35
<PAGE> 131
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. KING CITY TRANSACTION
In April 1996, the Company entered into a long-term operating lease with
BAF Energy, A California Limited Partnership (BAF), for a 120 megawatt natural
gas-fired combined cycle facility located in King City, California. The facility
generates electricity for sale to PG&E pursuant to a long-term power sales
agreement through 2019. Natural gas for the facility is supplied by Chevron USA
Inc. pursuant to a contract which expires June 30, 1997.
Under the terms of the operating lease, the Company makes semi-annual lease
payments to BAF on each February 15 and August 15, a portion of which is
supported by a $98.4 million collateral fund owned by the Company. The
collateral fund consists of a portfolio of investment grade and U.S. Treasury
Securities that will mature serially in amounts equal to a portion of the lease
payments. The collateral fund securities are accounted for as held-to-maturity
investments under SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. As of June 30, 1996, future rent payments are $11.8 million
for the remainder of 1996, $24.4 million for 1997, $23.8 million for 1998, $19.4
million for 1999, $20.1 million for 2000 and $204.1 million thereafter.
The Company has recorded the value of the above-market pricing provided in
the power sales agreement (PSA) as an asset which is included in property, plant
and equipment, since the Company has, in substance, assumed the rights of the
PSA. The Company has also recorded a deferred lease incentive equal to the value
of the above-market payments to be received. The asset and liability are being
amortized over the life of the power sales agreement and lease, respectively.
The Company financed the collateral fund and other transaction costs with
$50.0 million of proceeds from the issuance of preferred stock to Electrowatt by
Calpine (see Note 10) and other short-term borrowings, which included $13.3
million of borrowings under the Credit Suisse Credit Facility (see Note 8) below
and a $45.0 million loan from The Bank of Nova Scotia. The Company repaid the
short-term borrowings from a portion of the net proceeds of the Senior Notes Due
2006 issued in May 1996 (see Note 9).
8. LINES OF CREDIT
At June 30, 1996, the Company had borrowings under its $50.0 million Credit
Facility with Credit Suisse (whose parent company owns 44.9% of Electrowatt) and
had a letter of credit outstanding thereunder for $3,025,000. Borrowings under
the Credit Facility bear interest at the London Interbank Offered Rate (LIBOR)
plus 0.5%. Interest is paid on the last day of each interest period for such
loan, but not less often than quarterly, based on the principal amount
outstanding during the period. No stated principal amortization exists for this
indebtedness. Upon completion of the Company's proposed initial public offering,
the Credit Facility will terminate and is expected to be replaced by a
comparable facility. On July 20, 1996, the Company entered into a commitment
letter with The Bank of Nova Scotia to provide a $50 million three-year
Revolving Credit Facility. Such Revolving Credit Facility will become effective
upon the completion of the Company's initial public offering.
9. SENIOR NOTES DUE 2006
On May 16, 1996, the Company issued $180.0 million aggregate principal
amount of 10 1/2% Senior Notes Due 2006. The net proceeds of $175.2 million were
used to repay $53.7 million of borrowings under the Credit Suisse Credit
Facility, $57.0 million of non-recourse project financing, and $45.0 million of
borrowing from The Bank of Nova Scotia. The remaining $19.5 million was
available for general corporate purposes. Transaction costs of $4.8 million
incurred in connection with the public debt offering were recorded as a
F-36
<PAGE> 132
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred charge and are amortized over the ten-year life of the Senior Notes Due
2006 using the straight line method.
The Senior Notes Due 2006 will mature on May 15, 2006. The Company has no
sinking fund or mandatory redemption obligations with respect to the Senior
Notes Due 2006. Interest is payable semi-annually on May 15 and November 15 of
each year while the Senior Notes Due 2006 are outstanding, commencing on
November 15, 1996.
10. PREFERRED STOCK
The Company has 5,000,000 authorized shares of Series A Preferred Stock,
all of which were issued on March 21, 1996 and outstanding as of June 30, 1996.
All of the shares of Series A Preferred Stock are held by Electrowatt. The
shares of Series A Preferred Stock are not publicly traded. No dividends are
payable on the Series A Preferred Stock. The Series A Preferred Stock contains
provisions regarding liquidation and conversion rights. Upon the consummation of
the Company's proposed initial public offering, the Series A Preferred Stock
will be converted into Common Stock and sold to the public in the offering.
11. CONTINGENCIES
The Company, together with over 100 other parties, was named as a defendant
in the second amended complaint in an action brought in August 1993 by the
bankruptcy trustee for Bonneville Pacific Corporation (Bonneville), captioned
Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific Corporation v.
Portland General Corporation, et al., in the United States District Court for
the District of Utah (the "Court"). This complaint alleges that, in conjunction
with top executives of Bonneville and with the alleged assistance of the other
100 defendants, the Company engaged in a broad conspiracy and fraud. The
complaint has been amended a number of times. The Company has answered each
version of the complaint by denying all claims and is in the process of
conducting discovery. In August 1994, the Company successfully moved for an
order severing the trustee's claim against the Company from the claims against
the other defendants. Although the case involves over 25 separate financial
transactions entered into by Bonneville, the severed case concerns the Company
in respect of only one of these transactions. In 1988, the Company invested $2.0
million in a partnership formed with Bonneville to develop four hydroelectric
projects in the State of Hawaii. The projects were not successfully developed by
the partnership, and, subsequent to Bonneville's Chapter 11 filing, the Company
filed a claim as a creditor against Bonneville's bankruptcy estate. The trustee
alleges that the equity investment was actually a "sham" loan designed to
inflate Bonneville's earnings. The trustee initially alleged that Calpine is one
of many defendants in this case responsible for Bonneville's "deepening
insolvency" and the amount of damages attributable to the Company based on the
$2.0 million partnership investment was alleged to be $577.2 million. Based upon
statements made by the Court and the trustee in July 1996, the Company believes
that the maximum compensatory damages which the trustee may seek will not exceed
$5 million. There can be no assurance, however, of the actual amount of damages
to be sought by the Trustee. The Company believes the claims against it are
without merit and will continue to defend the action vigorously. The Company
further believes that the resolution of this matter will not have a material
adverse effect on its financial position or results of operations.
The Company is involved in various other claims and legal actions arising
out of the normal course of business. Management does not expect that the
outcome of these cases will have a material adverse effect on the Company's
financial position or results of operations.
12. SUBSEQUENT EVENT
In July 1996, the Company's Board of Directors authorized the
reincorporation of the Company into Delaware in connection with the Company's
initial public equity offering. Also, the Board of Directors approved a stock
split at a ratio of approximately 5.194 to 1. The accompanying financial
statements reflect the reincorporation and the stock split as if such
transactions had been effective for all periods.
F-37
<PAGE> 133
INDEPENDENT AUDITOR'S REPORT
To the Partners
Sumas Cogeneration Company, L.P. and Subsidiary
We have audited the accompanying consolidated balance sheet of Sumas
Cogeneration Company, L.P. and Subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of operations, changes in partners' deficit,
and cash flows for each of the three years ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sumas
Cogeneration Company, L.P. and Subsidiary as of December 31, 1995 and 1994 and
the results of their operations and cash flows for each of the three years ended
December 31, 1995, in conformity with generally accepted accounting principles.
MOSS ADAMS LLP
Everett, Washington
January 19, 1996
F-38
<PAGE> 134
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 199,169 $ 353,936
Current portion of restricted cash and cash equivalents....... 2,937,884 6,409,185
Accounts receivable........................................... 3,090,213 4,108,206
Prepaid expenses.............................................. 222,828 232,325
------------ ------------
Total current assets....................................... 6,450,094 11,103,652
Restricted cash and cash equivalents, net of current portion.... 8,017,758 7,454,923
Property, plant and equipment, at cost, net..................... 95,589,737 97,039,459
Other assets.................................................... 12,744,480 14,550,228
------------ ------------
$122,802,069 $130,148,262
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities...................... $ 2,051,178 $ 3,651,799
Current portion of related party payables
Calpine Corporation........................................ 4,864 41,871
National Energy Systems Company............................ 1,861 1,430
Current portion of long-term debt............................. 2,000,000 400,000
------------ ------------
Total current liabilities.................................. 4,057,903 4,095,100
Related party payable -- Calpine Corporation, net of current
portion....................................................... 908,679 446,624
Long-term debt, net of current portion.......................... 117,000,003 119,000,002
Future removal and site restoration costs....................... 502,600 309,600
Deferred income taxes........................................... 907,800 773,800
Commitments and contingency (Notes 6 and 8)
Partners' (deficit) equity...................................... (574,916) 5,523,136
------------ ------------
$122,802,069 $130,148,262
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE> 135
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Revenues
Power sales......................................... $ 30,603,018 $ 29,206,469 $19,525,098
Natural gas sales, net.............................. 893,690 2,832,668 2,104,407
Other............................................... 29,146 20,490 116,895
------------ ------------ -----------
Total revenues.............................. 31,525,854 32,059,627 21,746,400
------------ ------------ -----------
Costs and expenses
Operating and production costs...................... 18,493,245 19,032,754 11,779,505
Depletion, depreciation and amortization............ 6,965,496 6,715,156 4,986,300
General and administrative.......................... 1,400,129 1,412,326 1,563,509
------------ ------------ -----------
Total costs and expenses.................... 26,858,870 27,160,236 18,329,314
------------ ------------ -----------
Income from operations................................ 4,666,984 4,899,391 3,417,086
------------ ------------ -----------
Other income (expense)
Interest income..................................... 490,071 436,741 250,675
Interest expense.................................... (11,006,056) (10,172,959) (6,707,183)
Other expense....................................... (60,664) (359,000) --
------------ ------------ -----------
Total other expense......................... (10,576,649) (10,095,218) (6,456,508)
------------ ------------ -----------
Loss before provision for income taxes................ (5,909,665) (5,195,827) (3,039,422)
Provision for income taxes............................ (188,387) (581,190) (337,431)
------------ ------------ -----------
Net loss.............................................. $ (6,098,052) $ (5,777,017) $(3,376,853)
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE> 136
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<S> <C>
Partners' equity, December 31, 1992............................................. $14,688,436
Capital contributions........................................................... 1,500,000
Capital distributions........................................................... (1,500,000)
Net loss........................................................................ (3,376,853)
Cumulative foreign exchange translation adjustment.............................. (11,430)
-----------
Partners' equity, December 31, 1993............................................. 11,300,153
Net loss........................................................................ (5,777,017)
-----------
Partners' equity, December 31, 1994............................................. 5,523,136
Net loss........................................................................ (6,098,052)
-----------
Partners' deficit, December 31, 1995............................................ $ (574,916)
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE> 137
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.......................................... $(6,098,052) $(5,777,017) $(3,376,853)
Adjustments to reconcile net loss to net cash from
operating activities
Depletion, depreciation and amortization....... 6,965,496 6,715,156 4,986,300
Deferred income taxes.......................... 134,000 532,400 241,400
Changes in operating assets and liabilities
Accounts receivable.......................... 1,017,993 (1,254,639) (2,064,616)
Prepaid expenses............................. 9,497 (30,342) 203,904
Accounts payable and accrued liabilities..... (1,407,621) 1,081,431 1,168,892
Related party payables....................... 425,479 132,296 --
----------- ----------- -----------
Net cash from operating activities........ 1,046,792 1,399,285 1,159,027
----------- ----------- -----------
Cash flows from investing activities
Decrease (increase) in restricted cash and cash
equivalents.................................... 2,908,466 2,922,819 (13,286,927)
Acquisition of property, plant and equipment...... (3,710,025) (3,690,399) (16,558,101)
Other assets...................................... -- (167,483) (5,700,537)
Accounts payable and accrued liabilities.......... -- -- (3,847,743)
----------- ----------- -----------
Net cash from investing activities........ (801,559) (935,063) (39,393,308)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from long-term debt...................... -- -- 38,710,000
Repayment of long-term debt....................... (400,000) (400,025) (199,973)
Capital contributions............................. -- -- 1,500,000
Capital distributions............................. -- -- (1,500,000)
Payments to related parties....................... -- -- (864,890)
----------- ----------- -----------
Net cash from financing activities........ (400,000) (400,025) 37,645,137
----------- ----------- -----------
Effect of exchange rate changes on cash............. -- -- (11,430)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (154,767) 64,197 (600,574)
Cash and cash equivalents, beginning of year........ 353,936 289,739 890,313
----------- ----------- -----------
Cash and cash equivalents, end of year.............. $ 199,169 $ 353,936 $ 289,739
=========== =========== ===========
Supplementary disclosure of cash flow information
Cash paid for interest during the year............ $11,006,056 $10,172,959 $ 8,868,183
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE> 138
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL -- Sumas Cogeneration Company, L.P. (the Partnership) is a
Delaware limited partnership formed on August 28, 1991 between Sumas Energy,
Inc. (SEI), the general partner which currently holds a 50% interest in the
profits and losses of the Partnership and Whatcom Cogeneration Partners, L.P.
(Whatcom), the sole limited partner which holds the remaining 50% Partnership
interest. Whatcom is owned through affiliated companies by Calpine Corporation
(Calpine). The Partnership has a wholly owned Canadian subsidiary, ENCO Gas,
Ltd. (ENCO), which is incorporated in New Brunswick, Canada. The consolidated
financial statements include the accounts of the Partnership and ENCO
(collectively, the Company). All intercompany profits, transactions and balances
have been eliminated in consolidation.
Prior to the commencement of commercial operation as discussed below, the
Partnership was considered to be a development stage company in the process of
developing, constructing and owning an electrical generation facility (the
Generation Facility) in Sumas, Washington. The Generation Facility is a natural
gas-fired combined cycle electrical generation plant which has a nameplate
capacity of approximately 125 megawatts. Commercial operation of the Generation
Facility commenced on April 16, 1993. In addition, the Generation Facility
includes a lumber dry kiln facility and a 3.5 mile private natural gas pipeline.
The lumber dry kiln commenced commercial operation in May 1993.
ENCO has acquired and is operating and developing a portfolio of proven
natural gas reserves in British Columbia and Alberta, Canada which provide a
dedicated fuel supply for the Generation Facility (collectively, the Project).
ENCO produces and supplies natural gas production to the Generation Facility,
with incidental off-sales to third parties. The Generation Facility also
receives a portion of its fuel under contracts with third parties.
The Partnership produces and sells its entire electricity capacity to Puget
Sound Power & Light Company (Puget) under a 20-year electricity sales contract.
Under the electricity sales contract, the Partnership is required to be
certified as a qualifying cogeneration facility as established by the Public
Utility Regulatory Policy Act of 1978, as amended, and as administered by the
Federal Energy Regulatory Commission.
The Generation Facility produced and sold megawatt hours of electricity to
Puget as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, MEGAWATTS REVENUE
---------------------------------------------------- --------- -----------
<S> <C> <C>
1995................................................ 1,026,000 $30,603,000
1994................................................ 1,000,400 $29,206,000
1993................................................ 696,400 $19,525,000
</TABLE>
The Partnership leases a kiln facility and sells steam under a 20-year
agreement for the purchase and sale of steam and lease of the kiln (Note 6) to
Socco, Inc. (Socco), a custom lumber drying operation owned by an affiliate of
the Partnership. Steam use requirements under the agreement with Socco were
established to maintain the qualifying cogeneration facility status of the
Generation Facility.
(b) THE PARTNERSHIP -- SEI assigned all its rights, title, and interest in
the Project, including the Puget contract, to the Partnership in exchange for
its Partnership interest. SEI and Whatcom are both currently entitled to a 50%
interest in the profits and losses of the Partnership, after the payment of
certain preferential distributions to Whatcom of approximately $6,239,000 and
$5,619,000 at December 31, 1995 and 1994, respectively, and to SEI of
approximately $441,000 and $363,000 at December 31, 1995 and 1994, respectively.
A portion of these preferential distributions compound at 20% per annum. After
Whatcom has received cumulative distributions representing a fixed rate of
return of 24.5% on its equity investment,
F-43
<PAGE> 139
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exclusive of the preferential distributions referred to above, SEI's share of
operating distributions will increase to 88.67% and Whatcom's share of operating
distributions will decrease to 11.33%.
(c) DISTRIBUTIONS -- Distributions of operating cash flows are permitted
quarterly after required deposits are made and minimum cash balances are met,
and subject to certain other restrictions. During 1995 and 1994, there were no
distributions of operating cash flow. In 1993 Whatcom received a distribution of
$1,500,000, reducing its equity investment in the Partnership. Whatcom loaned
the sole shareholder of SEI $1,500,000, and the sole shareholder of SEI loaned
$1,500,000 to SEI. SEI then contributed $1,500,000 in additional equity to the
Partnership.
(d) REVENUE RECOGNITION -- Revenue from the sale of electricity is
recognized based on kilowatt hours generated and delivered to Puget at
contractual rates. Revenue from the sale of natural gas is recognized based on
volumes delivered to customers at contractual delivery points and rates. The
costs associated with the generation of electricity and the delivery of gas,
including operating and maintenance costs, gas transportation and royalties, are
recognized in the same period in which the related revenue is earned and
recorded.
(e) GAS ACQUISITION AND DEVELOPMENT COSTS -- ENCO follows the full cost
method of accounting for gas acquisition and development expenditures, wherein
all costs related to the development of gas reserves in Canada are initially
capitalized. Costs capitalized include land acquisition costs, geological and
geophysical expenditures, rentals on undeveloped properties, cost of drilling
productive and nonproductive wells, and well equipment. Gains or losses are not
recognized upon disposition or abandonment of natural gas properties unless a
disposition or abandonment would significantly alter the relationship between
capitalized costs and proven reserves.
All capitalized costs of gas properties, including the estimated future
costs to develop proven reserves, are depleted using the unit-of-production
method based on estimated proven gas reserves as determined by independent
engineers. ENCO has not assigned any value to its investment in unproven gas
properties and, accordingly, no costs have been excluded from capitalized costs
subject to depletion.
Costs subject to depletion under the full cost method include estimated
future costs of dismantlement and abandonments of $3,748,000 in 1995, $3,630,000
in 1994 and $3,026,400 in 1993. This includes the cost of production equipment
removal and environmental cleanup based upon current regulations and economic
circumstances. The provisions for future removal and site restoration costs of
$193,000 in 1995, $169,000 in 1994 and $110,000 in 1993, are included in
depletion expense.
Capitalized costs are subject to a ceiling test which limits such costs to
the aggregate of the net present value of the estimated future cash flows from
the related proven gas reserves. The ceiling test calculation is made by
estimating the future net cash flows, based on current economic operating
conditions, plus the lower of cost or fair market value of unproven reserves,
and discounting those cash flows at an annual rate of 10%.
(f) JOINT VENTURE ACCOUNTING -- Substantially all of ENCO's natural gas
production activities are conducted jointly with others and, accordingly, these
consolidated financial statements reflect only ENCO's proportionate interest in
such activities.
(g) FOREIGN EXCHANGE GAINS AND LOSSES -- During 1995 and 1994, foreign
exchange gains and losses as a result of translating Canadian dollar
transactions and Canadian dollar denominated cash, accounts receivable and
accounts payable transactions are recognized in the statement of operations.
During 1993, ENCO's functional currency was Canadian dollars. As a result,
translation adjustments were reported separately and accumulated as separate
components of partners' equity.
(h) CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash
flows, cash and cash equivalents consist of cash and short-term investments in
highly liquid instruments such as certificates of deposit, money
F-44
<PAGE> 140
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market accounts and U.S. treasury bills with an original maturity of three
months or less, excluding restricted cash and cash equivalents.
(i) CONCENTRATION OF CREDIT RISK -- Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist
primarily of cash and short-term investments in highly liquid instruments such
as certificates of deposit, money market accounts and U.S. treasury bills with
maturities of three months or less, and accounts receivable. The Company's cash
and cash equivalents are primarily held with two financial institutions.
Accounts receivable are primarily due from Puget.
(j) DEPRECIATION -- The Company provides for depreciation of property,
plant and equipment using the straight-line method over estimated useful lives
which range from 7 to 40 years for plant and equipment and 3 to 7 years for
furniture and fixtures.
(k) AMORTIZATION OF OTHER ASSETS -- The Company provides for amortization
of other assets using the straight-line method as follows:
<TABLE>
<S> <C>
Organization, start-up and development costs..................... 5-30 years
Financing costs.................................................. 15 years
Gas contract costs............................................... 20 years
</TABLE>
(l) INCOME TAXES -- Profits or losses of the Partnership are passed
directly to the partners for income tax purposes.
ENCO is subject to Canadian income taxes and accounts for income taxes on
the liability method. The liability method recognizes the amount of tax payable
at the date of the consolidated financial statements as a result of all events
that have been recognized in the consolidated financial statements, as measured
by currently enacted tax laws and rates. Deferred income taxes are provided for
temporary differences in recognition of revenues and expenses for financial and
income tax reporting purposes.
(m) USE OF ESTIMATES -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Land and land improvements.............................. $ 381,071 $ 381,071
Plant and equipment..................................... 84,061,359 82,759,005
Acquisition of gas properties, including development
thereon............................................... 25,030,165 22,815,964
Furniture and fixtures.................................. 195,914 188,444
------------ ------------
109,668,509 106,144,484
Less accumulated depreciation and depletion............. 14,078,772 9,105,025
------------ ------------
$ 95,589,737 $ 97,039,459
============ ============
</TABLE>
Depreciation expense was $3,316,748 in 1995, $3,069,446 in 1994 and
$2,133,711 in 1993. Depletion expense was $1,843,000 in 1995, $1,671,000 in 1994
and $1,332,000 in 1993.
F-45
<PAGE> 141
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Organization, start-up and development costs.............. $ 6,165,574 $ 7,487,943
Financing costs........................................... 4,254,719 4,598,746
Gas contract costs........................................ 2,324,187 2,463,539
----------- -----------
$12,744,480 $14,550,228
=========== ===========
</TABLE>
NOTE 4 -- LONG-TERM DEBT
The Partnership and ENCO have loan agreements with The Prudential Insurance
Company of America (Prudential) and Credit Suisse (collectively, the Lenders).
Credit Suisse is an affiliate of Whatcom. At December 31, 1995 and 1994, amounts
outstanding under the term loan agreements, by entity, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Sumas Cogeneration Company, L.P......................... $ 94,367,003 $ 94,684,202
ENCO Gas, Ltd........................................... 24,633,000 24,715,800
------------ ------------
119,000,003 119,400,002
Less current portion.................................... 2,000,000 400,000
------------ ------------
$117,000,003 $119,000,002
============ ============
</TABLE>
Scheduled annual principal payments under the loan agreements as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
--------------------------------------------------------------- ------------
<S> <C>
1996........................................................... $ 2,000,000
1997........................................................... 3,600,000
1998........................................................... 4,200,000
1999........................................................... 5,400,000
2000........................................................... 7,200,000
Thereafter..................................................... 96,600,003
------------
$119,000,003
============
</TABLE>
The Partnership's loan is comprised of a fixed rate loan in the original
amount of $55,510,000 and a variable rate loan in the original amount of
$39,650,000. Interest is payable quarterly on the fixed rate loan at a rate of
10.35%. Interest on the variable rate loan is payable quarterly at either the
London Interbank Offered Rate (LIBOR), certificate of deposit rate or Credit
Suisse's base rate, plus an applicable margin which ranges from 2.25% prior to
Loan Conversion to .875% after Loan Conversion as stated in the loan agreement.
During the year ended December 31, 1995, interest rates on the variable rate
loan ranged from 7.47% to 7.76%. The loans mature in May 2008.
ENCO's loan is comprised of a fixed rate loan in the original amount of
$14,490,000 and a variable rate loan in the original amount of $10,350,000.
Interest is payable quarterly on the fixed rate loan at a rate of 9.99%.
Interest on the variable rate loan is payable quarterly at either the LIBOR,
certificate of deposit rate or Credit Suisse's base rate, plus an applicable
margin as stated in the loan agreement. During the year ended
F-46
<PAGE> 142
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, interest rates on the variable rate loan ranged from 7.47% to
7.76%. The loans mature in May 2008.
The Partnership pays Prudential an agency fee of $50,000 per year, adjusted
annually by an inflation index, until the loan matures. The Partnership pays
Credit Suisse an agency fee of $40,000 per year, adjusted annually by an
inflation index, until the loan matures. The loans are collateralized by
substantially all the Company's assets and interests in the Project.
Additionally, the Company's rights under all contractual agreements are assigned
as collateral. The Partnership and ENCO loans are cross-collateralized and
contain cross-default provisions.
Under the terms of the loan agreements and the deposit and disbursement
agreements with the Lenders, the Partnership is required to establish and fund
certain accounts held by Credit Suisse and Royal Trust as security agents. The
accounts require specified minimum deposits and funding levels to meet current
and future operating, maintenance and capital costs, and to provide certain
other reserves for payment of principal, interest and other contingencies. These
accounts are presented as restricted cash and cash equivalents and include cash,
certificates of deposit, money market accounts and U.S. treasury bills, all with
maturities of 3 months or less. The current portion of restricted cash and cash
equivalents is based on the amount of current liabilities for obligations which
may be funded from the restricted accounts. The balance of restricted cash and
cash equivalents has been classified as a noncurrent asset.
During 1993, the Company incurred and paid $8,868,183 of interest,
including $6,707,183, which was charged to operations and $2,161,000, which was
capitalized.
NOTE 5 -- INCOME TAXES
The provision for income taxes represents Canadian taxes which consist of
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current
Federal large corporation tax.................... $ 34,625 $ 31,314 $ 45,262
British Columbia capital taxes................... 19,762 17,476 50,769
-------- -------- --------
54,387 48,790 96,031
Deferred........................................... 135,400 178,400 241,400
-------- -------- --------
189,787 227,190 337,431
Utilization of loss carryforwards for Canadian
income
tax purposes..................................... 47,700 259,000 --
Reduction of (increase in) Canadian loss
carryforwards
due to foreign exchange and other adjustments.... (49,100) 95,000 --
-------- -------- --------
$188,387 $581,190 $337,431
======== ======== ========
</TABLE>
F-47
<PAGE> 143
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal sources of temporary differences resulting in deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax asset
Canadian net operating loss carryforwards................. $ (840,900) $ (829,400)
Deferred tax liabilities
Acquisition and development costs of gas deducted for tax
purposes in excess of amounts deducted for financial
reporting purposes..................................... 1,748,700 1,603,200
---------- ----------
Net deferred tax liability........................ $ 907,800 $ 773,800
========== ==========
</TABLE>
The provision for income taxes differs from the Canadian statutory rate
principally due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Canadian statutory rate............................ 44.62% 44.34% 44.3%
Income taxes based on statutory rate............... $(33,852) $ 82,909 $165,100
Capital taxes, net of deductible portion........... 47,028 36,678 75,587
Non-deductible provincial royalties, net of
resource allowance............................... 95,671 39,836 50,267
Depletion on gas properties with no tax basis...... 44,641 38,420 41,778
Other foreign exchange adjustments................. 36,299 29,347 4,699
-------- -------- --------
$189,787 $227,190 $337,431
======== ======== ========
</TABLE>
As of December 31, 1995, ENCO has non-capital loss carryforwards of
approximately $1,885,000 which may be applied against taxable income of future
periods which expire as follows:
<TABLE>
<S> <C>
1999............................................................. $1,625,000
2000............................................................. $ 260,000
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS AND COMMITMENTS
(a) ADMINISTRATIVE SERVICES -- As managing partner of the Partnership, SEI
receives a fee of $250,000 per year from June 1993 through December 1995 and
$300,000 per year for periods after December 1995. The fee is subject to annual
adjustment based upon an inflation index. Approximately $258,000 in 1995,
$253,000 in 1994 and $151,000 in 1993 was paid to SEI under this agreement.
(b) OPERATING AND MAINTENANCE SERVICES -- The Partnership has an operating
and maintenance agreement with a related party to operate, repair and maintain
the Project. For these services, the Partnership pays a fixed fee of $1,140,000
per year adjustable based on the Consumer Price Index, an annual base fee of
$150,000 per year also adjustable based on the Consumer Price Index, and certain
other reimbursable expenses as defined in the agreement. In addition, the
agreement provides for an annual performance bonus of up to $400,000, adjustable
based on the Consumer Price Index, based on the achievement of certain annual
performance levels. Payment of the performance bonus is subordinated to the
payment of operating expenses, debt service and required deposits, and minimum
balances under the loan agreements, and deposit and disbursement agreements.
Accordingly, the performance bonuses earned in 1995 and 1994 are included as a
non-current liability in the consolidated balance sheet. This agreement expires
on the date Whatcom receives its 24.5% cumulative return or the tenth
anniversary of the Project completion date, subject to renewal terms.
F-48
<PAGE> 144
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximately $2,031,000 in 1995, $1,946,000 in 1994 and $1,260,000 in 1993 was
earned under this agreement.
(c) THERMAL ENERGY AND KILN LEASE -- The Partnership has a 20-year thermal
energy and kiln lease agreement with Socco. Under this agreement, Socco leases
the premises and the kiln and purchases certain amounts of thermal energy
delivered to dry lumber. Income recorded from Socco was approximately $19,000 in
1995, $61,000 in 1994 and $6,000 in 1993.
(d) CONSULTING SERVICES -- ENCO has an agreement with National Energy
Systems Company (NESCO), an affiliate of SEI, to provide consulting services for
$8,000 per month, adjustable based upon an inflation index. The agreement
automatically renews for one-year periods unless written notice of termination
is served by either party. Approximately $100,000 in 1995, $101,000 in 1994 and
$96,000 in 1993 was paid under this agreement
(e) FUEL SUPPLY AND PURCHASE AGREEMENTS -- The Partnership has a fixed
price natural gas sale and purchase agreement with ENCO. The agreement requires
ENCO to deliver up to a maximum daily contract quantity of 12,000 MMBtu's of
natural gas per day which may be increased to 24,000 MMBtu's in accordance with
the agreement. The Partnership paid ENCO $2.26 per delivered MMBtu through
October 1995 and pays $2.43 per delivered MMBtu through 1996. Prices under the
agreement then escalate at an annual rate of 7.5% until October 31, 2000, and at
4% per annum thereafter. Partnership payments to ENCO under the agreement are
eliminated in consolidation. The agreement expires on the twentieth anniversary
of the date of commercial operation.
The Partnership has a gas supply agreement with Westcoast Gas Services,
Inc. (WGSI) to provide the Partnership with quantities of firm gas. Commencing
April 1, 1993, WGSI must provide the Partnership with quantities of gas ranging
from 10,000 MMBtu's per day up to 12,900 MMBtu's per day at a firm price, as
provided under the agreement. The agreement is expected to terminate on October
31, 1996.
The Partnership and ENCO have a gas management agreement with WGSI. WGSI is
paid a gas management fee for each MMBtu of gas delivered to the Generation
Facility. The gas management fee is adjusted annually based on the British
Columbia Consumer Price Index. The gas management agreement expires October 31,
2008 unless terminated earlier as provided for in the agreement.
ENCO is committed to the utilization of pipeline capacity on the Westcoast
Energy Inc. System. These firm capacity commitments are predominantly under
one-year renewable contracts. Firm capacity has been accepted at an annual cost
of approximately $2,569,000 in 1995, $2,776,000 in 1994 and $1,347,000 in 1993.
As collateral for the obligations of the Company under the gas supply and
gas management agreements with WGSI, the Partnership secured an irrevocable
standby letter of credit with Credit Suisse in favor of WGSI. As of December 31,
1995 and 1994, the letter of credit had a face amount of $2,500,000 and the
Partnership had a cash deposit of $2,500,000 held in a restricted money market
account as collateral for the letter of credit. As of December 31, 1995 and
1994, $2,500,000 held in a restricted money market account is included in the
current portion of restricted cash and cash equivalents. In January 1996, the
letter of credit was reduced in accordance with its terms to a face amount of
$500,000.
(f) UTILITY SERVICES -- The Partnership entered into an agreement for
utility services with the City of Sumas, Washington. The City of Sumas has
agreed to provide a guaranteed annual supply of water at its wholesale rate
charged to external association customers. Should the Partnership fail to
purchase the daily average minimum of 550 gallons per minute from the City of
Sumas during the first 10 years of commercial operation, except for
uncontrollable forces or reasonable and necessary shutdowns, the Partnership
shall make up the lost revenue to the City of Sumas in accordance with the
agreement.
F-49
<PAGE> 145
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership entered into an agreement for waste water disposal with the
City of Bellingham, Washington. The City of Bellingham has agreed to accept up
to 70,000 gallons of waste water daily at a rate of one cent per gallon. The
agreement expires on December 31, 1998.
(g) LEASE COMMITMENTS -- In December 1990, the Partnership entered into a
23.5-year land lease which may be renewed for five consecutive five-year
periods. Rental expense was approximately $48,400 in 1995 and 1994, and $45,300
in 1993.
In April 1992, ENCO signed an operating lease for office space which
expires in March 1997. Monthly rental expense is approximately $1,700. Rental
expense was approximately $17,700 in 1995, $17,000 in 1994 and $16,000 in 1993.
Future minimum land and office lease commitments as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1996............................................................. $ 66,800
1997............................................................. 51,000
1998............................................................. 49,300
1999............................................................. 49,300
2000............................................................. 52,500
Thereafter....................................................... 868,200
----------
$1,137,100
==========
</TABLE>
(h) PROJECT MANAGEMENT SERVICES -- NESCO entered into a project management
agreement with the Partnership for which it received $45,000 per month through
June 1993. Approximately $264,000 was paid to NESCO in 1993, under this
agreement.
(i) CONSTRUCTION MANAGEMENT SERVICES -- Calpine entered into a construction
management agreement with the Partnership for which it received $40,000 per
month through June 1993. Approximately $235,000 was paid to Calpine in 1993,
under this agreement.
(j) PARTNER LOAN -- In March 1994, the sole shareholder of SEI borrowed
$10,000,000 from Calpine. The loan bears interest at 16.25%, compounded
quarterly, and is collateralized by a subordinated assignment in SEI's interest
in the Partnership and a subordinated pledge of SEI's stock. The loan requires
payments of interest and principal to be made from 50% of SEI's cash
distributions from the Partnership, less amounts due to Whatcom under a previous
note made in connection with Loan Conversion (Note 1). On March 15, 2004, all
unpaid principal and interest on the loan is due.
NOTE 7 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of all cash and cash equivalents reported in the
consolidated balance sheet is estimated by the Company to approximate their fair
value.
The Company is not able to estimate the fair value of its long-term debt
with a carrying amount of $119,000,003 at December 31, 1995. There is no ability
to assess current market interest rates of similar borrowing arrangements for
similar projects because the terms of each such financing arrangement is the
result of substantial negotiations among several parties.
F-50
<PAGE> 146
SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- CONTINGENCY
ENCO terminated protracted contract negotiations with two Canadian natural
gas suppliers in January 1995. One of the suppliers notified ENCO it considered
a draft contract to be effective although it had not been executed by ENCO. The
supplier indicated it may pursue legal action if ENCO would not execute the
contract. As of January 19, 1996, no legal action has been served on ENCO.
Management believes if legal action is commenced, it has significant defenses
and believes such action will not result in any material adverse impact to the
Company's financial condition or results of operations.
F-51
<PAGE> 147
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Calpine Geysers Company, L.P.:
We have audited the accompanying statements of operations and cash flows
for the period from January 1, 1993 to April 18, 1993 of Calpine Geysers
Company, L.P., a Delaware limited partnership. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Calpine
Geysers Company, L.P. for the period from January 1, 1993 through April 18, 1993
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
March 18, 1994
F-52
<PAGE> 148
CALPINE GEYSERS COMPANY, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1993 TO APRIL 18, 1993
<TABLE>
<S> <C>
Revenue from power contracts.................................................... $20,759,116
-----------
Costs and expenses:
Production royalties.......................................................... 3,150,076
Operating expenses............................................................ 4,893,878
Depreciation and amortization................................................. 5,153,239
General and administrative.................................................... 787,005
-----------
Total costs and expenses.............................................. 13,984,198
-----------
Income from operations................................................ 6,774,918
Other (income) expense
Interest expense.............................................................. 4,794,952
Other income.................................................................. (193,179)
-----------
Net income............................................................ $ 2,173,145
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 149
CALPINE GEYSERS COMPANY, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1993 TO APRIL 18, 1993
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................................... $ 2,173,145
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 5,153,239
Amortization of deferred costs............................................ 146,277
Changes in operating assets and liabilities:
Accounts receivable..................................................... 2,157,353
Supplies inventory...................................................... 81,061
Prepaid expenses........................................................ 837,841
Accounts payable and accrued liabilities................................ 2,634,254
Deferred revenue........................................................ 395,100
Payment on note payable................................................. (543,778)
------------
Net cash provided by operating activities............................ 13,034,492
------------
Cash flows from investing activities:
Acquisition of property, plant and equipment................................. (3,401,378)
Increase in restricted cash requirements..................................... (12,862)
------------
Net cash used for investing activities............................... (3,414,240)
------------
Cash flows from financing activities:
Repayment of debt............................................................ (2,200,000)
Partner distributions........................................................ (7,416,018)
------------
Net cash used for financing activities............................... (9,616,018)
------------
Net increase in cash and cash equivalents...................................... 4,234
Cash and cash equivalents at beginning of period............................... 2,700,135
------------
Cash and cash equivalents at end of period..................................... $ 2,704,369
============
Supplementary information:
Cash paid during the period for interest..................................... $ 3,914,710
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 150
CALPINE GEYSERS COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1993 TO APRIL 18, 1993
1. BUSINESS AND FORMATION OF THE PARTNERSHIP
Business
Calpine Geysers Company, L.P. ("CGC"), a Delaware limited partnership, was
formed on April 5, 1990. CGC is the owner of two operating geothermal power
plants and their respective steam fields, and three geothermal steam fields
located in The Geysers area of northern California. Electricity and steam
generated by CGC is sold to two utilities under long-term power sales contracts
(see Note 9).
Formation of the Partnership
CGC was formed by Sonoma Geothermal Partners, L.P. ("SGP"), wholly owned by
Calpine Corporation ("Calpine"), and Freeport-McMoRan Resource Partners, Limited
Partnership ("FMRP") for the purpose of acquiring from FMRP the assets
constituting the geothermal business described above. On July 2, 1990, FMRP
contributed an undivided 15.93 percent interest in the existing assets and
geothermal business and $1,178,567 in cash for financing costs. SGP contributed
$22,165,718 in cash, including financing and closing costs of $2,008,000.
Concurrent with the formation of CGC, an agreement was entered into between
CGC and FMRP to purchase the remaining undivided 84.07 percent interest in the
existing assets and geothermal business for $227.0 million in cash plus the
assumption of the liabilities, not including existing project debt. The amount
was funded by SGP's contribution and a new nonrecourse credit arrangement with a
consortium of banks (see Note 5).
Under the CGC partnership agreement, profits are allocated first to SGP to
the extent necessary to achieve a target return, as defined. Thereafter, profits
are allocated 22.5 percent to SGP and 77.5 percent to FMRP.
Upon liquidation, equity is allocated first to SGP to the extent necessary
to achieve a target return as defined; second, equity is allocated to achieve
the target capital account ratios (22.5 percent to SGP and 77.5 percent to
FMRP); and third, equity is allocated 22.5 percent to SGP and 77.5 percent to
FMRP.
Cash distributions are allocated 99 percent to SGP and 1 percent to FMRP
until the target return is reached. Distributions made during the period from
January 1, 1993 to April 18, 1993 were $7,352,017 to SGP and $64,001 to FMRP.
Acquisition of FMRP Interest in CGC
On April 19, 1993, Calpine purchased all of FMRP's interest in CGC for
$59.8 million, terminating the partnership with FMRP. The purchase price
includes a $23.0 million cash payment by Calpine and a $36.8 million note
payable to FMRP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
CGC's cash, cash equivalents and restricted cash are primarily held by one
major international financial institution. CGC considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents. The carrying amount of these instruments approximates fair
value because of their short maturity.
F-55
<PAGE> 151
CALPINE GEYSERS COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Cash
CGC is required to maintain cash balances that are restricted by provisions
of its debt agreements and by regulatory agencies. CGC's debt agreements specify
restrictions based on debt service payments and drilling costs for the following
year. Regulatory agencies require cash to be restricted to ensure that funds
will be available to restore property to its original condition. Restricted cash
is invested in accounts earning market rates. Therefore, their carrying value
approximates fair value.
Supplies Inventory
Supplies are valued at the lower of cost or market. Cost for large
replacement parts is determined using the specific identification method. For
the remaining supplies, cost is determined using the weighted average cost
method.
Property, Plant and Equipment
CGC uses the full cost method of accounting for costs incurred in
connection with the exploration and development of geothermal properties. All
such costs, including geological and geophysical expenses, costs of drilling
productive, nonproductive and reinjection wells and overhead directly related to
development activities, together with the costs of production equipment, the
related facilities and the operating power plants, are capitalized.
Geothermal costs, including an estimate of future development costs to be
incurred and the estimated costs to dismantle, are amortized by the units of
production method based on the estimated total productive output over the
estimated useful lives of the related steam fields. Depreciation of the
buildings and roads is computed using the straight line method over the
estimated remaining useful lives of the buildings and roads.
Proceeds from the sale of assets are applied against capitalized costs,
with no gain or loss recognized.
Deferred Costs
Deferred costs consist of financing costs, a commitment fee and Partnership
closing costs. These costs are amortized over the following periods:
<TABLE>
<S> <C>
Financing costs................................................. 15 years
Partnership closing costs....................................... 5 to 7 years
</TABLE>
Revenue Recognition
Revenues from sales of electricity are recognized as service is delivered.
Revenues from sales of steam are calculated considering a future period when
steam will be delivered without receiving corresponding revenue. This free steam
is being recorded at an average rate over future steam production as deferred
revenue.
A recent accounting principle requires companies to recognize revenue on
power sales agreements entered into after May 1992 using the lower of the actual
cash received or the average rate measured on a cumulative basis. CGC's power
sales agreements were entered into prior to May 1992. Had CGC applied this
principle, the revenues CGC recorded for the period from January 1, 1993 to
April 18, 1993 would have been approximately $488,000 less.
Income Taxes
Income taxes are the responsibility of the individual partners; therefore,
there is no provision for Federal and state income taxes in the financial
statements.
F-56
<PAGE> 152
CALPINE GEYSERS COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. WORKING CAPITAL LOAN
CGC has a working capital agreement with a bank providing for advances not
to exceed $5.0 million less any outstanding letters of credit. The aggregate
unpaid principal of the working capital loan is payable in full at least once a
year commencing in 1991, with the final payment of principal, interest and fees
due June 30, 1995; interest accrues at the London Interbank Offered Rate (LIBOR)
plus .625 percent over the term of the loan.
4. NOTE PAYABLE
During 1992, CGC entered into a note payable with a financing company for
$543,778. The note bears interest at 3.79 percent annually and was repaid in two
installments in January and April 1993.
5. LONG-TERM DEBT
CGC has a $200.0 million ($176.8 million outstanding at April 18, 1993)
loan agreement with a bank, the components of which are as follows:
Senior term loans: $156.8 million outstanding at April 18, 1993 with
principal and interest payable in quarterly installments at variable
amounts beginning September 30, 1990 and the final payment of principal,
interest and fees due June 30, 2002; interest on $136.8 million is fixed at
9.93 percent with the remainder accruing at LIBOR plus .75 percent to 1.25
percent over the term of the loan; collateralized by all of CGC's assets
and the partners' interest.
Junior term loans: $20.0 million outstanding at April 18, 1993 with
principal and interest payable in quarterly installments at variable
amounts beginning September 30, 2002 and the final payment of principal,
interest and fees due June 30, 2005; interest accrues at LIBOR plus 1.5
percent to 2.75 percent over the term of the loan; the loan is
collateralized by all of CGC's assets and the partners' interest.
The annual principal maturities of the long-term debt outstanding at April
18, 1993 are as follows:
<TABLE>
<S> <C>
1993........................................................... $ 8,800,000
1994........................................................... 16,000,000
1995........................................................... 18,000,000
1996........................................................... 21,000,000
1997........................................................... 22,000,000
Thereafter..................................................... 91,000,000
------------
$176,800,000
============
</TABLE>
The senior and junior term loan agreements contain a number of covenants.
Two of these covenants require that CGC maintain restricted cash balances as
defined in the agreements, and that CGC maintain certain insurance coverages.
During the period from January 1, 1993 to April 18, 1993, CGC did not meet the
insurance covenant and has obtained a waiver for this violation.
The carrying value of the $136.8 million portion of the senior term notes
has an effective rate of 9.93 percent under CGC's interest rate swap agreements
(see Note 6). Based on the borrowing rates currently available to CGC for bank
loans with similar terms and maturities, the fair value of the debt as of April
18, 1993 is approximately $150.2 million.
The carrying value of the remaining $20.0 million of the senior and the
$20.0 million junior term loans approximates the debt's fair market value as the
rates are variable and are based on current LIBOR.
F-57
<PAGE> 153
CALPINE GEYSERS COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INTEREST RATE SWAP AGREEMENTS:
CGC entered into two interest rate swap agreements to minimize the impact
of changes in interest rates by effectively fixing its interest rate at 9.93
percent on a portion of its senior term note. The interest rate swap agreements
mature through December 31, 2000. CGC is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements.
7. COMMITMENTS AND CONTINGENCIES
Royalties and Leases
CGC is committed under several geothermal and right of way leases. The
geothermal leases generally provide for royalties based on production revenue,
with reductions for property taxes paid and the right of way leases are based on
flat rates and are not material. Under the terms of certain geothermal land
leases, royalties accrue at rates ranging from 7 percent to 12.5 percent of
electricity, steam and effluent revenue, net of property taxes. Certain
properties also have net profits and overriding royalty interests ranging from
approximately 1.7 percent to 23.5 percent, which are in addition to the land
lease royalties. CGC also has a working interest agreement with a third party
providing for the sharing of approximately 30 percent of drilling and other well
costs, various percentages of other operating costs and 30 percent of revenues
on specified wells of Unit 13 and Unit 16.
Most lease agreements contain clauses providing for minimum lease payments
to leaseholders if production temporarily ceases or if production falls below a
specified level.
Expenses under these agreements for the period from January 1, 1993 to
April 18, 1993 are as follows:
<TABLE>
<S> <C>
Production royalties............................................. $3,150,076
Lease payments................................................... 119,081
</TABLE>
Litigation
CGC is a party to lawsuits and claims arising out of the normal course of
business, principally related to royalty interests on geothermal property sites.
Management believes that the outcome of these claims and lawsuits will not have
a material adverse effect on CGC's financial position and results of operations.
8. RELATED PARTY TRANSACTIONS
The power plants and steam fields of CGC are operated by Calpine Operating
Plant Services, Inc. ("COPS"), wholly owned by Calpine Corporation, under an
Operating and Maintenance Agreement. Under the agreement, COPS is obligated to
perform all operation and maintenance services in connection with the business,
including operation, repair and maintenance of the power plants and steam
fields, arranging for new well drilling, providing administrative and billing
services, and performing technical analyses and contract administration.
For performance of these services, COPS is reimbursed for its direct costs
plus a general and administrative recovery rate of 12 percent for direct labor
costs, 10 percent for specific costs, and 5 percent for capital expenditures up
to $5.0 million per year, then 2 percent for additional capital expenditures. In
addition, the contract also includes an annual operating fee of $1.0 million,
escalating in relation to the Consumer Price Index. During the period from
January 1, 1993 to April 18, 1993, total charges under the Operating and
Maintenance Agreement amounted to approximately $7.1 million, including
approximately $3.7 million for capital expenditures.
F-58
<PAGE> 154
CALPINE GEYSERS COMPANY, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Calpine also charges CGC directly for expenses in connection with its
duties as general partner, and for technical and administrative services. During
the period from January 1, 1993 to April 18, 1993, charges amounted to
approximately $185,000.
FMRP has a royalty interest in one of the properties in production. During
the period from January 1, 1993 to April 18, 1993, production royalty expense
related to FMRP amounted to approximately $397,000.
9. SIGNIFICANT CUSTOMERS AND SUMMARY OF OPERATIONS:
CGC's revenue is derived primarily from two sources -- Pacific Gas and
Electric ("PG&E") and Sacramento Municipal Utility District ("SMUD"). Revenue
for the period from January 1, 1993 to April 18, 1993 is as follows:
<TABLE>
<S> <C>
PG&E............................................................ $17,323,683
SMUD............................................................ 3,830,533
-----------
21,154,216
Less revenues deferred.......................................... (395,100)
-----------
Total................................................. $20,759,116
===========
</TABLE>
Operating Geothermal Power Plants
Electricity from CGC's two operating geothermal power plants, Bear Canyon
and West Ford Flat, is sold to PG&E under the terms of twenty-year contracts
which began in 1989.
Under the terms of the contracts, CGC is paid for energy delivered based
upon a fixed price which escalates annually for the first ten years of the
contract and upon PG&E's full short-run avoided operating costs for the second
ten years.
CGC also receives capacity payments from PG&E. Under certain circumstances,
if CGC is unable to deliver firm capacity, then CGC may owe PG&E certain minimum
damages, as specified in the contracts.
Geothermal Steam Fields
Steam from CGC's three geothermal steam fields is sold to PG&E and SMUD
under contracts. PG&E is obligated to operate the plants (Unit 13 and Unit 16)
as close to full capacity and as continuously as possible. SMUD is obligated to
make its best effort to continuously accept steam generated by the plant, except
during outages.
Under the terms of the PG&E contract, the price paid for steam is adjusted
annually based upon prices paid by PG&E for fossil fuels (oil and natural gas)
and nuclear fuel. Under the terms of the SMUD contract, the price paid for steam
is adjusted bi-annually based upon inflation and price indices reflecting the
economy and the cost of fuel.
The contracts with both PG&E and SMUD also provide that CGC receive an
additional amount per mwh of net output as compensation for the cost of
disposing of liquid effluents, primarily steam condensate.
In the event the quantity of steam delivered at any of the plants is less
than 50 percent of the units rated capacity during any given month, PG&E or SMUD
is not required to pay for steam delivered during such month until the cost of
the power plants has been completely amortized.
The contracts may be terminated upon written notice under conditions
specified in the contract if further operation of the plants becomes
uneconomical. In the event that the contract is terminated by CGC, and if
requested by either PG&E or SMUD, CGC must assign to PG&E (Unit 13 and Unit 16)
or SMUD (SMUDGEO #1) all rights, title and interest to the wells, lands and
related facilities.
F-59
<PAGE> 155
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of LFC No. 38 Corp. and Portsmouth Leasing Corporation:
We have audited the accompanying combined balance sheets of LFC No. 38 Corp. and
Portsmouth Leasing Corporation and Subsidiaries as of December 31, 1994 and
1993, and the related combined statements of operations, changes in
shareholder's deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of LFC No. 38 Corp. and
Portsmouth Leasing Corporation and Subsidiaries as of December 31, 1994 and
1993, and the combined results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Companies changed their
method of accounting for income taxes in 1993.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 3, 1995, except
as to the information presented
in Note 7 for which the date is
March 30, 1995
F-60
<PAGE> 156
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents............................................ $ 2,986,606 $ 3,911,692
Accounts receivable............................................. 1,888,467 1,774,335
Other current assets............................................ 74,729 145,754
----------- -----------
Total current assets.................................... 4,949,802 5,831,781
Power production facility, less accumulated depreciation of
$6,086,660 and $5,057,568, respectively......................... 24,228,646 25,239,115
Project development rights, less accumulated amortization of
$1,093,026 and $915,778, respectively........................... 4,287,918 4,465,166
Deferred costs, less accumulated amortization of $1,335,381 and
$1,215,708, respectively........................................ 712,224 831,898
Land.............................................................. 340,938 340,938
----------- -----------
Total assets............................................ $34,519,528 $36,708,898
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
Current liabilities
Accounts payable and accrued liabilities........................ $ 1,372,360 $ 1,606,528
Accrued interest payable........................................ 136,294 245,135
Notes payable................................................... 1,819,071 1,633,676
Due to affiliates............................................... 224,413 555,185
----------- -----------
Total current liabilities............................... 3,552,138 4,040,524
Notes payable..................................................... 26,767,423 28,553,740
Liability for major maintenance................................... 1,850,728 1,266,518
Deferred income taxes............................................. 9,233,673 8,613,266
----------- -----------
Total liabilities....................................... 41,403,962 42,474,048
----------- -----------
Shareholder's deficiency
Common stock $1 par value, 2,000 shares authorized,
2,000 shares issued.......................................... 2,000 2,000
Capital in excess of par value.................................. 1,279 1,279
Accumulated deficit............................................. (565,743) (1,668,429)
----------- -----------
(562,464) (1,665,150)
Advances to affiliates.......................................... (6,321,970) (4,100,000)
----------- -----------
Total shareholder's deficiency.......................... (6,884,434) (5,765,150)
----------- -----------
Total liabilities and shareholder's deficiency.......... $34,519,528 $36,708,898
=========== ===========
</TABLE>
See Accompanying Notes to Combined Financial Statements
F-61
<PAGE> 157
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues
Power sales....................................................... $17,431,700 $18,134,824
Interest income................................................... 234,154 89,318
----------- -----------
17,665,854 18,224,142
----------- -----------
Expenses
Operating costs................................................... 12,702,761 9,271,110
Depreciation and amortization..................................... 1,338,734 1,515,297
Interest expense.................................................. 1,738,152 1,740,675
----------- -----------
15,779,647 12,527,082
----------- -----------
Income before income taxes.......................................... 1,886,207 5,697,060
Income tax provision................................................ 783,521 2,307,233
----------- -----------
Income before cumulative effect of change in accounting principle... 1,102,686 3,389,827
Cumulative effect of change in accounting for income taxes.......... -- (5,108,294)
----------- -----------
Net income (loss)......................................... $ 1,102,686 $(1,718,467)
=========== ===========
</TABLE>
See Accompanying Notes to Combined Financial Statements
F-62
<PAGE> 158
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIENCY
(FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993)
<TABLE>
<CAPTION>
RETAINED
CAPITAL IN EARNINGS SHAREHOLDER'S
COMMON EXCESS OF (ACCUMULATED ADVANCES TO EQUITY
STOCK PAR VALUE DEFICIT) AFFILIATES (DEFICIENCY)
------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992............. $2,000 $1,279 $ 50,038 -- $ 53,317
Advance to affiliates.................. -- -- -- $(4,100,000) (4,100,000)
Net loss............................... -- -- (1,718,467) -- (1,718,467)
------ ------ --------- ---------- ----------
Balance, December 31, 1993............. 2,000 1,279 (1,668,429) (4,100,000) (5,765,150)
Advance to affiliates.................. -- -- -- (2,221,970) (2,221,970)
Net income............................. -- -- 1,102,686 -- 1,102,686
------ ------ --------- ---------- ----------
Balance, December 31, 1994............. $2,000 $1,279 $ (565,743) $(6,321,970) $ (6,884,434)
====== ====== ========= ========== ==========
</TABLE>
See Accompanying Notes to Combined Financial Statements
F-63
<PAGE> 159
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)............................................... $ 1,102,686 $(1,718,467)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization................................ 1,338,734 1,515,297
Provision for major maintenance.............................. 584,210 710,872
Payments for major maintenance............................... -- (814,244)
Cumulative effect of change in accounting for income taxes... -- 5,108,294
Deferred income taxes........................................ 620,408 2,306,433
Changes in operating assets and liabilities
Accounts receivable........................................ (114,132) 476,265
Due to affiliates.......................................... (330,771) (161,838)
Accounts payable and accrued liabilities................... (234,169) (1,862,005)
Other current assets....................................... 71,025 (20,955)
Accrued interest payable................................... (108,842) (23,990)
----------- -----------
Net cash provided by operating activities....................... 2,929,149 5,515,662
----------- -----------
Cash flows used in investing activities
Investment in power production facility......................... (31,343) (10,433)
----------- -----------
Cash flows used in financing activities
Repayment of financing.......................................... (1,600,922) (1,416,935)
Advances to affiliates.......................................... (2,221,970) (4,100,000)
----------- -----------
Net cash used in financing activities........................... (3,822,892) (5,516,935)
----------- -----------
Net decrease in cash and equivalents.............................. (925,086) (11,706)
Cash and equivalents -- beginning of period....................... 3,911,692 3,923,398
----------- -----------
Cash and equivalents -- end of period............................. $ 2,986,606 $ 3,911,692
=========== ===========
</TABLE>
See Accompanying Notes to Combined Financial Statements
F-64
<PAGE> 160
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE PARTNERSHIP AND THE PROJECT
LFC No. 38 Corp. (the "Limited Partner"), a Delaware corporation, is the
sole Limited Partner and Greenleaf Unit One Associates, Inc. (the "General
Partner"), a California corporation, is the sole General Partner (collectively
the "Partners") of Greenleaf Unit One Associates, L.P. (the "Partnership"), a
California Limited Partnership. Portsmouth Leasing Corporation ("Portsmouth"), a
Delaware corporation, is the sole owner of the General Partner. Portsmouth and
the Partners are wholly owned subsidiaries of Radnor Energy Partners, L.P.
("L.P."). L.P. is, in turn, a majority-owned subsidiary of LFC Financial Corp
("Financial"). The combined financial statements include the accounts of the
Partners, the Partnership, and Portsmouth (collectively the "Company") after
elimination of all material intercompany balances and transactions.
The Partnership owns and operates a 49.5 megawatt natural gas fired
cogeneration facility located in Yuba City, California (the "Project"). The
facility, which was completed in March 1989, produces electrical power which it
sells to Pacific Gas and Electric Company ("PG&E") pursuant to a power purchase
agreement that provides for electricity and capacity payments over a thirty-year
period. The exhaust gas generated by the Project is used to dry wood chips. The
wood drying facility is operated by Wood Fuel Processing, Inc. ("WFP") pursuant
to a processing facilities agreement. The agreement provides that WFP will pay
certain royalties to the Partnership in the future based on the profitability of
the wood drying operation. Operations and maintenance of the Project is
performed by Stockmar Energy Inc., which does business as LFC Power Systems
Corporation ("Power Systems"), an affiliate. Power Systems is a wholly owned
subsidiary of LFC Energy Corporation ("Energy"), which, in turn, is a
majority-owned subsidiary of Financial.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Power Production Facility -- The power production facility, which was
constructed by Power Systems, includes the cogeneration plant (including the
wood drying facility) and the related equipment and is stated at cost.
Depreciation is recorded utilizing the straight-line method over the estimated
useful life of the Project of thirty years. Upon disposition, the cost and
related accumulated depreciation of equipment removed from the accounts and the
resulting gain (loss) is included in gains (losses) on equipment sales for the
period.
Project Development Rights -- The Project development rights include all of
the essential contracts, agreements, permits, licenses and other agreements
which were required to construct and operate the Project, as well as the
preliminary design of the Project, the power purchase agreement, the FERC
certification and other contracts and agreements. These Project development
rights are being amortized by the Partnership over a thirty-year period.
Deferred Costs -- Deferred costs include lender, legal, and other
professional fees incurred in connection with the acquisition and construction
of the Project and pre-operating expenses which were capitalized. Capitalized
fees are amortized over their estimated useful lives and pre-operating expenses
are amortized over sixty months.
Major Maintenance -- Major maintenance costs are accrued ratably over the
scheduled maintenance period and are included in operating costs. Costs
anticipated to be incurred within the next twelve months are classified as a
current liability.
Income Taxes -- Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 -- "Accounting For Income Taxes"
("SFAS109"). SFAS109 requires the recognition of deferred income tax liabilities
and assets for the future tax consequences of transactions that have been
recognized for financial reporting or income tax purposes and includes a
requirement for adjustment of deferred tax balances for tax rate changes. The
Company joins with L.P. and affiliated companies in the filing of a consolidated
U.S. federal income tax return. The Company's policy is to provide for federal
and state
F-65
<PAGE> 161
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
income taxes on a separate return basis. In addition, the Company has a tax
sharing arrangement with L.P. that provides to the extent that net operating
loss or investment tax credit carryforwards are not utilized by the Company on a
separate return basis, but are utilized in the consolidated tax return of L.P.,
the Company will receive a portion of these tax benefits. These payments will be
classified as capital in excess of par value.
Statements of Cash Flows -- The Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents for
purposes of the statement of cash flows. Net cash provided by operating
activities includes cash payments for interest of $1,846,993 and $1,764,666 in
1994 and 1993, respectively.
NOTE 3 -- NOTES PAYABLE
Notes payable at December 31, 1994 and 1993 consist of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Note payable -- Bank...................................... $25,996,000 $27,507,000
Note payable -- Individuals............................... 2,590,494 2,680,416
----------- -----------
Total........................................... 28,586,494 30,187,416
Less current portion...................................... 1,819,071 1,633,676
----------- -----------
Noncurrent portion........................................ $26,767,423 $28,553,740
=========== ===========
</TABLE>
The Partnership's note payable is payable pursuant to a credit agreement
with the New York branch of Credit Suisse ("Credit Suisse") and is
collateralized by substantially all of the Partnership's assets. The credit
agreement contains certain restrictive covenants including the maintenance of
certain debt service coverage ratios, working capital requirements, and
limitations on distributions. In addition, all cash and equivalents are
maintained in accounts at Credit Suisse. The loan bears interest at variable
rates or fixed rates at the option of the Partnership. The effective interest
rate on the loan was 8.05% at December 31, 1994. The loan is being repaid over
ten years, commencing in 1990, in level quarterly debt service payments on a
fourteen-year amortization schedule with a balloon payment at the end of the
tenth year.
The note payable-individuals is payable pursuant to a sale/purchase
agreement with the former owners of the General Partner. The loan bears interest
at a fixed rate of 8.25%. The loan is scheduled to be repaid in twenty (20)
annual installments plus interest, with each payment being based upon 1.59% of
power sales. If the obligation is repaid prior to maturity, the Company must
continue the payments as defined until the payment period ends, 2010.
The required principal payments by year are as follows:
<TABLE>
<S> <C>
1995....................................................... $ 1,819,071
1996....................................................... 2,016,092
1997....................................................... 2,231,533
1998....................................................... 2,529,127
1999....................................................... 2,794,776
2000....................................................... 16,092,618
Thereafter................................................. 1,103,277
-----------
Total............................................ $28,586,494
===========
</TABLE>
F-66
<PAGE> 162
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS109, which requires the
liability method of accounting for income taxes. The cumulative effect of the
change in method of accounting for income taxes of $5,108,294 was reported in
the 1993 statement of operations and as an increase in the net deferred tax
liability at January 1, 1993.
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
Current
State...................................................... $ 26,944 $ 800
Federal.................................................... 136,169 --
Deferred
State...................................................... 175,417 529,827
Federal.................................................... 444,991 1,776,606
-------- ----------
Total $783,521 $2,307,233
======== ==========
</TABLE>
The provision for income taxes as a percentage of income before income tax
can be reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Federal statutory tax rate............................................. 34% 34%
State tax, net of federal benefit...................................... 6% 6%
Other.................................................................. 2% --
-- -
---
Provision for income taxes............................................. 42% 40%
=== ===
</TABLE>
The net deferred tax liability (determined in accordance with SFAS109)
consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accumulated depreciation................................ $10,872,804 $11,353,409
----------- -----------
Deferred tax assets:
Liability for major maintenance......................... 742,845 508,355
Investment tax credit carryforward...................... 821,862 1,254,862
Net operating loss carryforward......................... 74,424 976,926
----------- -----------
1,639,131 2,740,143
----------- -----------
Net deferred tax liability................................ $ 9,233,673 $ 8,613,266
=========== ===========
</TABLE>
As of December 31, 1994, the Company had, on a separate company basis, a
state net operating loss carryforward of $800,260 which expires in 1996 through
1999 and investment tax credit carryforwards of $821,862 which expires in 2003.
NOTE 5 -- RELATED PARTIES AND OPERATING COSTS
The Partnership incurred operating costs through Power Systems of
$1,976,599 and $1,910,189 in 1994 and 1993, respectively. The Partnership's 1994
and 1993 operating costs include $3,264,328 and $2,680,216, respectively, for
the purchase of natural gas from affiliates. Affiliates also provided gathering,
transportation and fuel management services at a cost of $2,328,028 and $725,000
to the Partnership in 1994 and 1993,
F-67
<PAGE> 163
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. The Partnership incurred $1,307,649 and $104,114 in 1994 and 1993,
respectively, for management services provided by L.P.
NOTE 6 -- COMMON STOCK
The combined common stock of the Company as of December 31, 1994 and 1993
consists of the following:
<TABLE>
<CAPTION>
CAPITAL
SHARES IN
AUTHORIZED $1 PAR EXCESS OF
AND ISSUED VALUE PAR VALUE
---------- ------ ---------
<S> <C> <C> <C>
LFC No. 38 Corp....................................... 1,000 $1,000 --
Portsmouth Leasing Corporation........................ 1,000 1,000 $ 1,279
----- ------ ------
Total....................................... 2,000 $2,000 $ 1,279
===== ====== ======
</TABLE>
NOTE 7 -- SUBSEQUENT EVENTS
On March 30, 1995, Financial entered into a stock purchase agreement to
sell the stock of the Company to Calpine Corporation. The transaction is
scheduled to close by April 28, 1995. No effect of the proposed sale has been
recognized in the accompanying financial statements.
F-68
<PAGE> 164
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of LFC No. 60 Corp.:
We have audited the accompanying consolidated balance sheets of LFC No. 60 Corp.
and Subsidiary as of December 31, 1994 and 1993, and the related consolidated
statements of operations, changes in shareholder's deficiency and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LFC No. 60 Corp.
and Subsidiary as of December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for income taxes in 1993.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 3, 1995, except
as to the information presented
in Note 6 for which the date is
March 30, 1995
F-69
<PAGE> 165
LFC NO. 60 CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents............................................ $ 2,088,588 $ 2,491,825
Accounts receivable, net of allowance for doubtful accounts of
$200,000 in 1993............................................. 2,076,594 1,967,998
Due from affiliates............................................. 776,253 --
Prepaid assets.................................................. 513,954 266,690
----------- -----------
Total current assets.................................... 5,455,389 4,726,513
Power production facility, less accumulated depreciation of
$5,430,948 and $4,339,447, respectively......................... 26,636,147 27,711,561
Project development rights, less accumulated amortization of
$330,417 and $265,417, respectively............................. 1,619,583 1,684,583
Deferred costs, less accumulated amortization of $1,410,676 and
$1,148,992, respectively........................................ 580,706 842,390
----------- -----------
Total assets............................................ $34,291,825 $34,965,047
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
Current liabilities
Accounts payable and accrued liabilities........................ $ 1,785,800 $ 882,746
Due to affiliates............................................... -- 634,451
Accrued interest payable........................................ 13,972 131,200
Note payable.................................................... 600,000 600,000
Liability for major maintenance................................. -- 969,996
----------- -----------
Total current liabilities............................... 2,399,772 3,218,393
Note payable...................................................... 31,600,000 32,200,000
Liability for major maintenance................................... 1,737,908 1,273,328
Deferred income taxes............................................. 6,368,319 5,764,303
----------- -----------
Total liabilities....................................... 42,105,999 42,456,024
----------- -----------
Shareholder's deficiency
Common stock $1 par value, authorized, issued and outstanding --
1,000 shares................................................. 1,000 1,000
Capital in excess of par value.................................. 1,199,000 1,199,000
Deficit......................................................... (395,931) (1,290,977)
----------- -----------
804,069 (90,977)
Advances to affiliates.......................................... (8,618,243) (7,400,000)
----------- -----------
Total shareholder's deficiency.......................... (7,814,174) (7,490,977)
----------- -----------
Total liabilities and shareholder's deficiency.......... $34,291,825 $34,965,047
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-70
<PAGE> 166
LFC NO. 60 CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues
Power sales..................................................... $18,495,832 $19,223,155
Steam sales..................................................... 61,780 62,496
Interest income................................................. 155,715 68,247
----------- -----------
18,713,327 19,353,898
----------- -----------
Expenses
Operating costs................................................. 13,961,525 12,620,397
Depreciation and amortization................................... 1,418,185 1,436,668
Interest expense................................................ 1,773,839 1,702,354
----------- -----------
17,153,549 15,759,419
----------- -----------
Income before income taxes........................................ 1,559,778 3,594,479
Income tax provision.............................................. (664,732) (1,616,815)
----------- -----------
Income before cumulative effect of change in accounting
principle....................................................... 895,046 1,977,664
Cumulative effect of change in accounting for income taxes........ -- (2,773,609)
----------- -----------
Net income (loss)................................................. $ 895,046 $ (795,945)
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-71
<PAGE> 167
LFC NO. 60 CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIENCY
(FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ADVANCES TO
STOCK PAR VALUE DEFICIT AFFILIATES TOTAL
------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992.... $1,000 $1,199,000 $ (495,032) $(3,600,000) $(2,895,032)
Net loss..................... -- -- (795,945) -- (795,945)
Advance to affiliates........ -- -- -- (3,800,000) (3,800,000)
------ ---------- ----------- ----------- -----------
Balance December 31, 1993.... 1,000 1,199,000 (1,290,977) (7,400,000) (7,490,977)
Net income................... -- -- 895,046 -- 895,046
Advance to affiliates........ -- -- -- (1,218,243) (1,218,243)
------ ---------- ----------- ----------- -----------
Balance, December 31, 1994... $1,000 $1,199,000 $ (395,931) $(8,618,243) $(7,814,174)
====== ========= ========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-72
<PAGE> 168
LFC NO. 60 CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating expenses
Net income (loss)............................................... $ 895,046 $ (795,945)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization................................ 1,418,185 1,436,668
Provision for major maintenance.............................. 331,134 818,329
Payments for major maintenance............................... (836,550) --
Provision for doubtful accounts.............................. -- 200,000
Cumulative effect of change in accounting principle.......... -- 2,773,609
Deferred income tax provision................................ 604,016 1,364,083
Changes in operating assets and liabilities
Accounts receivable........................................ (108,595) 41,995
Due from affiliates........................................ (1,410,704) (112,443)
Accounts payable and accrued liabilities................... 903,054 (1,184,769)
Prepaid assets............................................. (247,264) (19,510)
Accrued interest payable................................... (117,228) (20,866)
----------- -----------
Net cash provided by operating activities....................... 1,431,094 4,501,151
----------- -----------
Cash flows used in investing activities
Investment in power production facility......................... (16,088) (21,968)
----------- -----------
Cash flows used in financing activities
Repayment of financing.......................................... (600,000) (600,000)
Advances to affiliates.......................................... (1,218,243) (3,800,000)
----------- -----------
Net cash used in financing activities........................... (1,818,243) (4,400,000)
----------- -----------
Net increase (decrease) in cash and equivalents................... (403,237) 79,183
Cash and equivalents -- beginning of period....................... 2,491,825 2,412,642
----------- -----------
Cash and equivalents -- end of period............................. $ 2,088,588 $ 2,491,825
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-73
<PAGE> 169
LFC NO. 60 CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND THE PROJECT
LFC No. 60 Corp., a Delaware corporation, is a wholly-owned subsidiary of
Radnor Energy Partners, L.P. ("L.P."). L.P. is, in turn, a majority-owned
subsidiary of LFC Financial Corp ("Financial"). LFC No. 60 Corp. owns 100% of
the Greenleaf Unit Two Associates, Inc. ("GUTA"). The consolidated financial
statements include the accounts of LFC No. 60 Corp. and GUTA (the "Company")
after elimination of all material intercompany balances and transactions.
GUTA is a California corporation which owns and operates a 49.5 megawatt
natural gas fired cogeneration plant located in Yuba City, California (the
"Project"). The facility, which was completed in December 1989, produces
electrical power which it sells to Pacific Gas and Electric Company ("PG&E")
pursuant to a power purchase agreement that provides for electricity and
capacity payments over a thirty year period. The steam produced by the Project
is sold to Sunsweet Growers, Inc. under a long-term steam purchase agreement.
Operations and maintenance of the Project is performed by Stockmar Energy Inc.,
which does business as LFC Power Systems Corporation ("Power Systems"), an
affiliate. Power Systems is a wholly-owned subsidiary of LFC Energy Corporation
("Energy"), which, in turn, is a majority-owned subsidiary of Financial.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Power Production Facility -- The power production facility, which was
constructed by Power Systems, includes the cogeneration plant and the related
equipment and is stated at cost. Depreciation is recorded utilizing the
straight-line method over the estimated useful life of the Project of thirty
years. Upon disposition, the cost and related accumulated depreciation of
equipment is removed from the accounts and the resulting gain (loss) is included
in gains (losses) on equipment sales for the period.
Project Development Rights -- The Project development rights include all of
the essential contracts, agreements, permits, licenses and other agreements
which were required to construct and operate the Project as well as the
preliminary design of the Project, the power purchase agreement, the FERC
certification and other contracts and agreements. These Project development
rights are being amortized by the Company over a thirty-year period.
Deferred Costs -- Deferred costs include lender, legal, and other
professional fees incurred in connection with the acquisition and construction
of the Project and pre-operating expenses which were capitalized. Capitalized
fees are amortized over their estimated useful lives and pre-operating expenses
are amortized over sixty months.
Major Maintenance -- Major maintenance costs are accrued ratably over the
scheduled maintenance period and are included in operating costs. Costs
anticipated to be incurred within the next twelve months are classified as a
current liability.
Income Taxes -- Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 -- "Accounting For Income Taxes" ("SFAS
109"). SFAS109 requires the recognition of deferred income tax liabilities and
assets for the future tax consequences of transactions that have been recognized
for financial reporting or income tax purposes and includes a requirement for
adjustment of deferred tax balances for tax rate changes. The Company joins with
L.P. and affiliated companies in the filing of a consolidated U.S. federal
income tax return. The Company's policy is to provide for federal and state
income taxes on a separate return basis. In addition, the Company has a tax
sharing arrangement with L.P. that provides to the extent that net operating
loss or investment tax credit carryforwards are not utilized by the Company on a
separate return basis, but are utilized in the consolidated tax return of L.P.,
the Company will receive a portion of these tax benefits. These payments will be
classified as capital in excess of par value.
F-74
<PAGE> 170
LFC NO. 60 CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows -- The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents for purposes of the statement of cash flows. Net cash provided by
operating activities includes cash payments for interest of $1,891,067 and
$1,723,220 in 1994 and 1993, respectively.
NOTE 3 -- NOTE PAYABLE
The Company's note payable is payable pursuant to a credit agreement with
the New York branch of Credit Suisse ("Credit Suisse") and is collateralized by
substantially all of the Company's assets. The credit agreement contains certain
restrictive covenants including the maintenance of certain debt service coverage
ratios, working capital requirements, and limitations on distributions. In
addition, all cash and equivalents are maintained in accounts at Credit Suisse.
The note bears interest at variable or fixed rates at the option of the Company.
The effective interest rate on the note was 7.81% at December 31, 1994. The note
is being repaid in quarterly payments through 2005.
The required principal payments by year are as follows:
<TABLE>
<S> <C>
1995....................................................... $ 600,000
1996....................................................... 600,000
1997....................................................... 600,000
1998....................................................... 2,000,000
1999....................................................... 2,500,000
Thereafter................................................. 25,900,000
-----------
Total................................................. $32,200,000
===========
</TABLE>
NOTE 4 -- INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS 109, which requires the
liability method of accounting for income taxes. The cumulative effect of the
change in method of accounting for income taxes of $2,773,609 was reported in
the 1993 statement of operations and as an increase in the net deferred tax
liability at January 1, 1993.
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
Deferred
Federal.................................................... $490,009 $1,293,236
State...................................................... 114,007 70,847
Current -- State............................................. 60,716 252,732
-------- ----------
Total.............................................. $664,732 $1,616,815
======== ==========
</TABLE>
The provision for income taxes as a percentage of income before income
taxes can be reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Federal statutory tax rate............................................. 34% 34%
State Tax.............................................................. 8% 6%
Other.................................................................. 1% 5%
-- --
Provision for income taxes........................................... 43% 45%
== ==
</TABLE>
F-75
<PAGE> 171
LFC NO. 60 CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax liability (determined in accordance with SFAS109)
consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Accumulated depreciation.................................. $9,123,465 $8,509,818
---------- ----------
Deferred tax assets:
Liability for major maintenance........................... 713,324 922,858
Investment tax credit carryforward........................ 1,333,448 1,333,448
Net operating loss carryforward........................... 708,374 418,977
Other..................................................... -- 70,232
---------- ----------
2,755,146 2,745,515
---------- ----------
Net deferred tax liability.................................. $6,368,319 $5,764,303
========== ==========
</TABLE>
As of December 31, 1994, the Company had a tax net operating loss carry
forward determined on a separate company basis of $2,023,928 which expires in
2007 through 2009. As of December 31, 1994, the Company had ITC carryforwards
determined on a separate company basis of $1,333,448 which expire in 2004.
NOTE 5 -- RELATED PARTIES AND OPERATING COSTS
The Company incurred operating costs of $1,610,780 and $2,330,001 through
Power Systems in 1994 and 1993, respectively. The Company's 1994 and 1993
operating costs include $1,088,550 and $1,421,558, respectively, for the
purchase of natural gas from affiliates. Affiliates provided gathering,
transportation and fuel management services at a cost of $2,181,758 and $400,000
in 1994 and 1993, respectively. The Company incurred $1,307,465 and $104,106 in
1994 and 1993, respectively, for management services provided by L.P.
NOTE 6 -- SUBSEQUENT EVENT
On March 30, 1995, Financial entered into a stock purchase agreement to
sell the stock of the Company and certain affiliates to Calpine Corporation. The
transaction is scheduled to close by April 28, 1995. No effect of the proposed
sale has been recognized in the accompanying financial statements.
F-76
<PAGE> 172
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the General Partner of
BAF Energy, A California Limited Partnership:
We have audited the accompanying balance sheets of BAF Energy, A California
Limited Partnership, as of October 31, 1995 and 1994, and the related statements
of income, partners' equity and cash flows for each of the three years ended
October 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BAF Energy, A California
Limited Partnership, as of October 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years ended October 31,
1995, 1994 and 1993 in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective November 1,
1994, the Company changed its method of accounting for investments.
As discussed in Note 8 to the financial statements, subsequent to October
31, 1995, the Partnership signed a letter agreement with a third party to lease
substantially all of its property, plant and equipment and assign all related
contracts to a third party.
ARTHUR ANDERSEN LLP
San Francisco, California
December 6, 1995
F-77
<PAGE> 173
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 3,757,921 $ 5,363,057
Available for sale securities................................. 1,919,184 --
Restricted available-for-sale securities...................... 7,241,305 12,332,244
Accounts receivable -- trade.................................. 10,916,919 5,277,413
Supplies inventory............................................ 2,153,129 2,060,935
Prepaid insurance............................................. 288,383 251,375
------------ ------------
Total current assets.................................. 26,276,841 25,285,024
------------ ------------
Property, plant and equipment................................... 100,258,434 100,210,960
Accumulated depreciation and amortization..................... (24,387,912) (20,854,389)
------------ ------------
75,870,522 79,356,571
------------ ------------
Total assets.......................................... $102,147,363 $104,641,595
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable.............................................. $ 1,598,177 $ 2,824,110
Interest payable.............................................. 1,309,566 1,396,495
Payable to affiliate.......................................... 166,569 615,881
Current portion of long-term liabilities...................... 5,444,386 5,283,785
------------ ------------
Total current liabilities............................. 8,518,698 10,120,271
------------ ------------
Long-term liabilities........................................... 66,804,704 71,157,714
------------ ------------
Commitments and contingencies (Note 6)
Partners' equity:
Contributed equity............................................ 9,901,600 9,901,600
Undistributed earnings........................................ 16,922,361 13,462,010
------------ ------------
Total partners' equity................................ 26,823,961 23,363,610
------------ ------------
Total liabilities and partners' equity................ $102,147,363 $104,641,595
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-78
<PAGE> 174
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues.................................. $43,835,619 $47,955,622 $49,738,504
Operating Expenses:
Fuel.............................................. 9,193,490 14,079,684 16,449,118
Depreciation and amortization..................... 3,578,572 3,575,442 3,576,710
Labor, supplies and other......................... 6,614,543 6,959,891 6,343,755
----------- ----------- -----------
Total operating expenses.................. 19,386,605 24,615,017 26,369,583
----------- ----------- -----------
Operating income.......................... 24,449,014 23,340,605 23,368,921
----------- ----------- -----------
Other Income and Expense:
Interest income and other......................... 955,299 477,666 448,961
General and administrative........................ (773,610) (784,401) (653,373)
Interest expense.................................. (8,165,273) (8,654,453) (9,091,695)
----------- ----------- -----------
Total other income and expense............ (7,983,584) (8,961,188) (9,296,107)
----------- ----------- -----------
Partnership Income.................................. $16,465,430 $14,379,417 $14,072,814
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-79
<PAGE> 175
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL LIMITED UNREALIZED TOTAL
PARTNERS' PARTNERS' UNDISTRIBUTED LOSSES ON PARTNERS'
EQUITY EQUITY EARNINGS SECURITIES EQUITY
--------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1992.......... $ 100 $9,901,500 $ 13,509,779 $ -- $ 23,411,379
Net income....................... -- -- 14,072,814 -- 14,072,814
Cash distributions............... -- -- (15,000,000) -- (15,000,000)
---- ---------- ------------ ------- ----
Balance, October 31, 1993.......... 100 9,901,500 12,582,593 -- 22,484,193
Net income....................... -- -- 14,379,417 -- 14,379,417
Cash distributions............... -- -- (13,500,000) -- (13,500,000)
---- ---------- ------------ ------- ----
Balance, October 31, 1994.......... 100 9,901,500 13,462,010 -- 23,363,610
Net income....................... -- -- 16,465,430 -- 16,465,430
Cash distributions............... -- -- (13,000,000) -- (13,000,000)
Change in unrealized losses on
available-for-sale
securities.................... -- -- -- (5,079) (5,079)
---- ---------- ------------ ------- ----
Balance, October 31, 1995.......... $ 100 $9,901,500 $ 16,927,440 $ (5,079) $ 26,823,961
==== ========== ============ ======= ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-80
<PAGE> 176
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Partnership income............................. $ 16,465,430 $ 14,379,417 $ 14,072,814
Adjustments to reconcile partnership income to
net cash provided from operating
activities --
Depreciation and amortization............. 3,578,572 3,575,442 3,576,710
Realized (gains) losses on sales of
available-for-sale securities, net..... (465) 10,189 (22,701)
Change in operating assets &
liabilities --
Accounts receivable -- trade........... (5,639,506) 7,560,768 (6,403,581)
Supplies inventory..................... (92,194) (301,309) (11,406)
Prepaid insurance...................... (37,008) (69,663) 4,270
Accounts payable....................... (1,225,933) (1,375,739) 1,516,130
Interest payable....................... (86,929) (77,740) (69,540)
Payable to affiliate................... (449,312) 463,194 (1,130,695)
Other, net............................. (45,049) -- --
---------- ---------- ----------
Net cash provided by operating
activities........................ 12,467,606 24,164,559 11,532,001
---------- ---------- ----------
Cash flows from investing activities:
Purchases of available-for-sale securities..... (34,628,300) (25,334,642) (16,319,709)
Proceeds from sales and maturities of
available-for-sale securities............... 37,795,441 20,232,824 20,074,603
Additions to property, plant and equipment,
net......................................... (47,474) (21,066) (131,924)
---------- ---------- ----------
Net cash provided by (used in)
investing activities.............. 3,119,667 (5,122,884) 3,622,970
---------- ---------- ----------
Cash flows from financing activities:
Reductions of long-term liabilities, net....... (4,192,409) (3,587,576) (3,250,397)
Cash distributions to partners................. (13,000,000) (13,500,000) (15,000,000)
---------- ---------- ----------
Net cash used in financing
activities........................ (17,192,409) (17,087,576) (18,250,397)
---------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents.................................... (1,605,136) 1,954,099 (3,095,426)
Cash and cash equivalents, beginning of year..... 5,363,057 3,408,958 6,504,384
---------- ---------- ----------
Cash and cash equivalents, end of year........... $ 3,757,921 $ 5,363,057 $ 3,408,958
========== ========== ==========
Supplemental disclosure of noncash investing and
financing activities
Unrealized holding losses, net, on
available-for-sale securities, recorded as
additions to undistributed earnings......... $ (5,079) $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-81
<PAGE> 177
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Basic American, Inc. (BAI) formed BAF Energy, A California Limited
Partnership (BAF Energy or the Partnership) on March 25, 1986, for the purpose
of developing, constructing and operating a cogeneration facility. The term of
the Partnership is through December 2020 unless terminated earlier in accordance
with the Partnership Agreement. The facility produces and sells electricity and
steam. On December 6, 1995, the Partnership signed a letter agreement with a
third party to lease substantially all of the Partnership's property, plant and
equipment and to assign all related contracts. The third party lessee will
operate the cogeneration facility through April, 2019 (see Note 8).
BAF Energy, Inc. (BEI) is the general partner of the Partnership and has an
ownership interest of 1 percent. BEI is a wholly owned subsidiary of Basic
Vegetable Products, Inc. (BVP). BVP is a wholly owned subsidiary of BAI. As of
October 31, 1995, BAI also owned approximately 51 percent of the Limited
Partnership units of BAF Energy then outstanding.
Distributions and profit and loss are allocated 99 percent to the limited
partners, based on their proportionate share of limited partnership units, and 1
percent to the general partner.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to be consistent with the current year presentation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on deposit with banks, money market funds, and commercial paper. Cash paid
for interest during the years ended October 31, 1995, 1994 and 1993 was
$8,252,202, $8,732,052 and $9,161,241, respectively.
Available-for-Sale Securities
Effective November 1, 1994, the Partnership adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). The Partnership has classified its investments as
available-for-sale securities and as restricted available-for-sale securities
and has recorded all securities holdings at fair value. Unrealized gains and
losses are reported as a separate component of partners' equity until realized.
Premiums and discounts are amortized over the life of the related security
as an adjustment to interest income using the effective interest method.
Interest income is recognized when earned. Realized gains and losses on
securities transactions are included in net income and are derived using the
specific identification method for determining the cost of securities sold.
Prior to the November 1, 1994 adoption of SFAS 115, the Partnership's
short-term investments were included in cash and short-term investments and were
valued at the lower of aggregate cost or market. Such securities have been
reclassified as available-for-sale securities to conform with SFAS 115
presentation requirements.
The effect of adopting SFAS 115 was to recognize net unrealized holding
losses of $32,599 as a decrease in partners' equity as of November 1, 1994. At
October 31, 1995, net unrealized holding losses were $5,079.
Restricted securities are required under the term loans described in Note
4.
F-82
<PAGE> 178
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of property, plant
and equipment are computed on a straight-line method principally over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings and improvements.......................................... 30
Machinery and equipment............................................. 5 to 30
</TABLE>
Major Maintenance Accruals
The Partnership accrues for the estimated future costs of major overhauls
and equipment replacement based upon engineering studies.
Income Taxes
Federal and state income tax regulations provide that no income taxes are
levied on a partnership. Instead, each partners' share of partnership profit or
loss is reported on his or her separate income tax return. Accordingly, no
partnership income taxes are provided for in the accompanying financial
statements.
(2) AVAILABLE-FOR-SALE SECURITIES
As of October 31, 1995, the amortized cost and estimated fair values of the
Partnership's investments in tax-exempt municipal securities are summarized as
follows:
<TABLE>
<CAPTION>
RESTRICTED
AVAILABLE- AVAILABLE-
FOR-SALE FOR-SALE
SECURITIES SECURITIES TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Amortized cost......................... $1,919,184 $7,246,384 $9,165,568
Gross unrealized losses................ -- (5,079) (5,079)
---------- ---------- ----------
Estimated fair value................... $1,919,184 $7,241,305 $9,160,489
========== ========== ==========
</TABLE>
The amortized cost and estimated fair value of tax-exempt municipal
securities by contractual maturity are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
DUE IN FISCAL YEAR ENDING OCTOBER 31, COST FAIR VALUE
---------------------------------------------------- ---------- ----------
<S> <C> <C>
1996................................................ $2,137,292 $2,134,000
1997-2000........................................... 7,028,276 7,026,489
---------- ----------
Total..................................... $9,165,568 $9,160,489
========== ==========
</TABLE>
Proceeds from sales of investments for the year ended October 31, 1995 are
as follow:
<TABLE>
<S> <C>
Gross proceeds.................................................. $26,099,037
Gross gains..................................................... $ 4,404
Gross losses.................................................... $ 3,939
</TABLE>
F-83
<PAGE> 179
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation and amortization
consist of:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cost
Buildings and improvements............................ $ 1,410,873 $ 1,313,304
Machinery and equipment............................... 98,847,561 98,897,656
------------ ------------
100,258,434 100,210,960
Accumulated depreciation and amortization............... (24,387,912) (20,854,389)
------------ ------------
$ 75,870,522 $ 79,356,571
============ ============
</TABLE>
On December 6, 1995, the Partnership signed a letter agreement with a third
party to lease substantially all of the Partnership's property, plant and
equipment (see Note 8).
(4) LONG-TERM LIABILITIES
Long-term liabilities are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Term loan at 10.88%, due in equal installments through
March 2004, non-recourse to the Partnership, secured by
the facility and associated contracts................... $60,514,066 $64,678,085
Term loan at 15.65%, due in equal installments through
March 2004, with recourse to BEI, secured by the
facility and associated contracts....................... 8,137,159 8,575,025
Major maintenance accruals................................ 3,597,865 3,188,389
----------- -----------
72,249,090 76,441,499
Less -- Current maturities................................ 5,444,386 5,283,785
----------- -----------
$66,804,704 $71,157,714
=========== ===========
</TABLE>
Annual Maturities,
Annual maturities of long-term liabilities at October 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, AMOUNT
---------------------------------------------------------------- -----------
<S> <C>
1996............................................................ $ 5,444,386
1997............................................................ 6,121,107
1998............................................................ 6,716,700
1999............................................................ 7,224,887
2000............................................................ 10,541,918
Thereafter...................................................... 36,200,092
-----------
$72,249,090
===========
</TABLE>
(5) RELATED PARTY TRANSACTIONS
The Partnership Agreement requires that the Partnership pay BEI a monthly
administrative fee. This fee amounted to $146,596, $139,613 and $132,966 for the
years ended October 31, 1995, 1994 and 1993, respectively.
F-84
<PAGE> 180
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership has entered into a ground lease with a remaining term of 23
years with BAI for the land on which the facility is located. The lease includes
options to extend the lease term up to an additional 30 years. Rent was
$146,572, $139,593 and $132,946 for the years ended October 31, 1995, 1994 and
1993, respectively. Rents will escalate at the rate of 5% each year. In fiscal
1996, this lease will be assigned to a third party lessee pursuant to a letter
agreement discussed at Note 8.
The Partnership negotiated a steam sales contract with a remaining term of
23 years with Basic Vegetable Products, LP (BVP, LP). The General Partner of
BVP, LP is BVP. Under the contract, the Partnership supplies steam to BVP, LP's
King City, California food processing plant. Revenues recorded under the
contract totaled $669,341, $840,959 and $1,068,141 in 1995, 1994 and 1993,
respectively. In fiscal 1996, this contract will also be assigned (see Note 8).
(6) COMMITMENTS AND CONTINGENCIES
Facilities
The Partnership executed an Operations and Maintenance (O & M) Agreement
with Bechtel North American Power Corporation (Bechtel) in which Bechtel is
required to operate and maintain the facility for a term of five years from May
1989. The Partnership reimburses Bechtel for all costs incurred in the
performance of the service. O & M expenses paid totaled $3,665,168, $3,884,943
and $4,556,321 in 1995, 1994 and 1993, respectively, including a payment of base
fees of $275,000, $387,456 and $500,000 per year, respectively, and a payment of
earned fees of $380,000, $306,803 and $902,430 per year, respectively. The
agreement also provided for a "high performance" bonus fee dependent on meeting
certain performance standards. In April 1994, the O & M Agreement was
renegotiated and extended through October 1998. The renegotiated terms include
payment of base fees of $275,000 and elimination of the high performance bonus
fee. The bonus paid in 1994 and 1995 totaled $3,107 and $175,327, respectively.
In connection with the anticipated transaction described at Note 8, the
Partnership will sever its O & M Agreement with Bechtel. The severance payment
will be made with funds directly contributed by the third party lessee.
Financing
Calcorp Group, Inc. (CGI), a limited partner, has a put option to sell its
23 percent investment in the Partnership back to the Partnership at fair market
value in certain circumstances. The put is subject to a subordination agreement
with the Partnership's lenders. CGI has entered into a technical support
agreement with the Partnership, wherein CGI is reimbursed for services rendered
based upon time and expenses incurred.
(7) REVENUE RECOGNITION
BEI has an exclusive Power Purchase Agreement with Pacific Gas and Electric
(PG&E) under which PG&E pays capacity payments, as defined in the agreement, and
purchases all available energy, except for amounts sold to BVP, LP (see Note 5).
The Partnership receives substantially all of its capacity payments from PG&E
during May through October, and receives payment for energy sales to PG&E during
May through January. In fiscal 1996, this agreement will be assigned to a third
party lessee pursuant to a letter agreement discussed at Note 8.
(8) SIGNIFICANT LEASE TRANSACTION
On December 6, 1995, BAF Energy signed a letter agreement with a third
party to enter into a 23-year lease of the cogeneration property, plant and
equipment and to assign all related contracts. Under the terms of the lease, the
lessee will assume all rights and responsibilities related to the ground lease
(see Note 5), the BVP, LP steam sales contract (see Note 5), and the PG&E Power
Purchase Agreement (see Note 7). BAF Energy expects to sign the lease in early
1996.
F-85
<PAGE> 181
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
1995
JANUARY 31, -------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 2,211,511 $ 3,757,921
Available for sale securities................................. -- 1,919,184
Restricted available-for-sale securities...................... 10,953,152 7,241,305
Accounts receivable -- trade.................................. 2,703,251 10,916,919
Supplies inventory............................................ 2,128,361 2,153,129
Prepaid insurance............................................. 144,633 288,383
------------ ------------
Total current assets.................................. 18,140,908 26,276,841
------------ ------------
Property, Plant and Equipment................................... 100,258,434 100,258,434
Accumulated depreciation and amortization..................... (25,280,413) (24,387,912)
------------ ------------
74,978,021 75,870,522
------------ ------------
$93,118,929 $ 102,147,363
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $ 811,919 $ 1,598,177
Interest payable.............................................. 3,273,915 1,309,566
Payable to affiliate.......................................... 38,428 166,569
Current portion of long-term liabilities...................... 5,546,361 5,444,386
------------ ------------
Total current liabilities............................. 9,670,623 8,518,698
------------ ------------
Long-Term Liabilities........................................... 66,702,729 66,804,704
------------ ------------
Commitments and Contingencies................................... -- --
Partners' Equity:
Contributed equity............................................ 9,901,600 9,901,600
Undistributed earnings........................................ 6,843,977 16,922,361
------------ ------------
Total partners' equity................................ 16,745,577 26,823,961
------------ ------------
$93,118,929 $ 102,147,363
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE> 182
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING REVENUES................................................ $ 4,957,368 $ 7,941,577
OPERATING EXPENSES:
Fuel............................................................ 1,479,116 3,408,912
Depreciation and amortization................................... 892,500 1,072,028
Labor, supplies and other....................................... 1,066,580 1,431,321
----------- -----------
Total operating expenses................................ 3,438,196 5,912,261
----------- -----------
Operating income...................................... 1,519,172 2,029,316
----------- -----------
OTHER INCOME AND EXPENSE:
Interest income and other....................................... 154,073 130,313
General and administrative...................................... (290,763) (201,340)
Interest expense................................................ (1,965,945) (2,094,761)
----------- -----------
Total other income and expense.......................... (2,102,635) (2,165,788)
----------- -----------
PARTNERSHIP LOSS.................................................. $ (583,463) $ (136,472)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-87
<PAGE> 183
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net Cash Provided by Operating Activities....................... $ 9,779,417 $ 2,298,789
------------ ------------
Cash Flows from Investing Activities:
Purchases of available-for-sale securities.................... (25,170,795) (12,290,102)
Proceeds from sales and redemptions of available-for-sale
securities................................................. 23,344,968 12,841,335
Additions to property, plant and equipment, net............... -- (20,189)
------------ ------------
Net cash (used in) provided by investing activities... (1,825,827) 531,044
------------ ------------
Cash Flows From Financing Activities:
Increase in long-term liabilities, net........................ -- 307,110
Cash distributions to partners................................ (9,500,000) (8,500,000)
------------ ------------
Net cash used in financing activities................. (9,500,000) (8,192,890)
------------ ------------
Net Decrease in Cash and Cash Equivalents....................... (1,546,410) (5,363,057)
Cash and Cash Equivalents, beginning of period.................. 3,757,921 5,363,057
------------ ------------
Cash and Cash Equivalents, end of period........................ $ 2,211,511 $ --
============ ============
Supplementary Information:
Unrealized holding gains/losses, net, on available-for-sale
securities, recorded as additions to undistributed
earnings................................................... $ 5,079 $ --
Cash paid during the period for interest...................... $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-88
<PAGE> 184
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1996
(UNAUDITED)
(1) GENERAL
Organization
BAF Energy, A California Limited Partnership (BAF Energy or the
Partnership) was founded in 1986 and is engaged in the development, construction
and operation of a cogeneration facility. The term of the Partnership is through
December 2020 unless terminated earlier in accordance with the Partnership
Agreement. The facility produces and sells electricity and steam.
BAF Energy, Inc. (BEI) is the general partner of the Partnership and has an
ownership interest of 1 percent. BEI is a wholly owned subsidiary of Basic
Vegetable Products, Inc. (BVP). BVP is a wholly owned subsidiary of Basic
American, Inc. (BAI). As of January 31, 1996, BAI also owned approximately 51
percent of the limited partnership units of BAF Energy then outstanding.
Distributions and profit and loss are allocated 99 percent to the limited
partners, based on their proportionate share of limited partnership units, and 1
percent to the general partner.
Basis of Interim Presentation
The accompanying interim condensed financial statements of the Partnership
have been prepared by the Partnership, without audit by independent public
accountants, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the condensed consolidated
financial statements include all normal recurring adjustments necessary to
present fairly the information required to be set forth therein. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to such rules and
regulations and, accordingly, should be read in conjunction with the audited
financial statements of the Partnership for the year ended October 31, 1995.
Consistent with the operating schedule of the cogeneration facility, the
Partnership receives a majority of its operating revenue between May and
September. Therefore, the results of operations for the three months ended
January 31, 1996 and 1995 are not indicative of the results for the entire year.
(2) RELATED PARTY TRANSACTIONS
The Partnership Agreement requires that the Partnership pay BEI a monthly
administrative fee. This fee amounted to $37,558 and $35,770 for the quarters
ended January 31, 1996 and 1995, respectively.
The Partnership has entered into a ground lease with BAI for the land on
which the facility is located. Rent was $37,554 and $35,764 for the quarters
ended January 31, 1996 and 1995, respectively.
The Partnership negotiated a steam sales contract with Basic Vegetable
Products, LP (BVP, LP). The General Partner of BVP, LP is BVP. Under the
contract, the Partnership supplies steam to BVP, LP's food processing plant.
Revenues recorded under the contract totaled $38,333 and $55,788 for the
quarters ended January 31, 1996 and 1995, respectively.
(3) PARTNERS' EQUITY:
The Partnership made distributions of $9,500,000 and $8,500,000 for the
quarters ended January 31, 1996 and 1995, respectively.
F-89
<PAGE> 185
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 1996
(UNAUDITED)
(4) SIGNIFICANT LEASE TRANSACTION:
In April 1996, the Partnership signed an agreement with a third party to
enter into a 23-year lease of the cogeneration property, plant and equipment and
to assign all related contracts. Under the terms of the lease, the lessee will
assume all rights and responsibilities related to the ground lease with BAI (see
Note 2), the BVP, LP steam sales contract (see Note 2) and a Pacific Gas &
Electric (PG&E) Power Purchase Agreement. The ground lease has a remaining term
of 23 years with BAI for the land on which the facility is located. This lease
includes options to extend the lease term up to an additional 30 years. The BVP,
LP steam sales contract has a remaining term of 23 years. The PG&E Power
Purchase Agreement states that PG&E pays capacity payments, as defined in the
agreement, and purchases all available energy, except for amounts sold to BVP,
LP.
F-90
<PAGE> 186
REPORT OF INDEPENDENT AUDITORS
The Shareholder
Gilroy Energy Company
We have audited the accompanying balance sheets of Gilroy Energy Company
(the Company), a wholly owned subsidiary of Gilroy Foods, Inc. which in turn is
a wholly owned subsidiary of McCormick & Company, Inc., as of November 30, 1995
and 1994 and the related statements of income, shareholder's equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gilroy Energy Company at
November 30, 1995 and 1994 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Baltimore, Maryland
July 18, 1996
F-91
<PAGE> 187
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30
---------------------
1995 1994
MAY 31, -------- --------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable..................................... $ 4,428 $ 1,615 $ 1,503
Prepaid expenses........................................ 462 725 776
-------- -------- --------
Total current assets............................ 4,890 2,340 2,279
Property and equipment, at cost:
Buildings............................................... 2,720 2,720 2,720
Machinery and equipment................................. 93,421 93,349 93,098
Furniture and fixtures.................................. 64 64 62
Software................................................ 65 65 58
-------- -------- --------
96,270 96,198 95,938
Less accumulated depreciation and amortization............ 39,202 36,712 31,701
-------- -------- --------
57,068 59,486 64,237
Due from parent and affiliates............................ 64,780 69,422 61,522
-------- -------- --------
Total assets.............................................. $ 126,738 $131,248 $128,038
======== ======== ========
LIABILITIES
Current liabilities:
Bank overdraft.......................................... -- $ 58 $ 618
Accounts payable........................................ $ 1,653 2,678 1,767
Accrued interest........................................ 3,093 3,238 3,363
Other liabilities....................................... 336 993 241
Current portion of long-term debt....................... 2,848 2,468 2,152
-------- -------- --------
Total current liabilities....................... 7,930 9,435 8,141
Long-term debt, due after one year........................ 50,120 52,968 55,436
Other liabilities......................................... 399 49 1,083
-------- -------- --------
50,519 53,017 56,519
Shareholder's equity:
Common stock, no par value:
Authorized shares -- 10,000
Issued and outstanding shares -- 1,000............... 10 10 10
Additional paid-in capital.............................. 16,946 16,946 16,946
Retained earnings....................................... 51,333 51,840 46,422
-------- -------- --------
Total shareholder's equity...................... 68,289 68,796 63,378
-------- -------- --------
Total liabilities and shareholder's equity................ $ 126,738 $131,248 $128,038
======== ======== ========
</TABLE>
See accompanying notes.
F-92
<PAGE> 188
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
MAY 31, NOVEMBER 30,
---------------- -------------------
1996 1995 1995 1994
------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Electricity revenue................................ $9,306 $11,158 $35,132 $40,037
Steam revenue from Gilroy Foods, Inc............... 185 260 1,089 1,367
------ ------- ------- -------
9,491 11,418 36,221 41,404
Cost of sales........................................ 6,525 8,125 18,825 23,766
------ ------- ------- -------
Gross margin......................................... 2,966 3,293 17,396 17,638
Operating expenses;
Selling, general and administrative................ 720 946 1,888 1,885
------ ------- ------- -------
Operating income..................................... 2,246 2,347 15,508 15,753
Interest expense..................................... 3,093 3,237 6,477 6,731
------ ------- ------- -------
(Loss) Income before income taxes.................... (847) (890) 9,031 9,022
Provision for income tax (benefit) expense........... (340) (356) 3,613 3,622
------ ------- ------- -------
Net (loss) income.................................... $ (507) $ (534) $ 5,418 $ 5,400
====== ======= ======= =======
</TABLE>
See accompanying notes.
F-93
<PAGE> 189
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1993............. 1,000 $ 10 $ 16,946 $ 41,022 $57,978
Net income............................... -- -- -- 5,400 5,400
------ ------ ---------- -------- -------------
Balance at November 30, 1994............. 1,000 10 16,946 46,422 63,378
Net income............................... -- -- -- 5,418 5,418
------ ------ ---------- -------- -------------
Balance at November 30, 1995............. 1,000 10 16,946 51,840 68,796
Net (loss) (unaudited)................... -- -- -- (507) (507)
------ ------ ---------- -------- -------------
Balance at May 31, 1996
(unaudited)............................ 1,000 $ 10 $ 16,946 $ 51,333 $68,289
===== ====== ======= ======= ==========
</TABLE>
See accompanying notes.
F-94
<PAGE> 190
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
MAY 31, NOVEMBER 30,
------------------- -------------------
1996 1995 1995 1994
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $ (507) $ (534) $ 5,418 $ 5,400
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating
activities:
Depreciation and amortization.................. 2,490 2,482 5,011 4,880
Changes in operating assets and liabilities:
Accounts receivable.......................... (2,813) (3,577) (113) 51
Prepaid expenses............................. 263 325 52 49
Accounts payable............................. (1,025) (360) 912 (1,221)
Accrued expenses and other liabilities....... (452) (644) (408) 364
------- ------- ------- -------
Net cash (used in) provided by operating
activities........................................ (2,044) (2,308) 10,872 9,523
------- ------- ------- -------
INVESTING ACTIVITIES:
Due from parent and affiliates...................... 4,642 5,071 (7,900) (4,610)
Purchase of property and equipment.................. (72) (117) (260) (3,376)
------- ------- ------- -------
Net cash provided by (used in) investing
activities........................................ 4,570 4,954 (8,160) (7,986)
------- ------- ------- -------
FINANCING ACTIVITIES:
Principal payments on long-term debt................ (2,468) (2,152) (2,152) (2,152)
------- ------- ------- -------
Net cash (used in) financing activities............. (2,468) (2,152) (2,152) (2,152)
------- ------- ------- -------
Net decrease (increase) in bank overdraft........... 58 494 560 (615)
Bank overdraft at beginning of period............... (58) (618) (618) (3)
------- ------- ------- -------
Bank overdraft at end of period..................... $ -- $ (124) $ (58) $ (618)
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid....................................... $ 3,238 $ 3,359 $ 6,602 $ 6,602
</TABLE>
See accompanying notes.
F-95
<PAGE> 191
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Gilroy Energy Company (the Company) was incorporated in the State of
California in July 1984. The Company is a wholly owned subsidiary of Gilroy
Foods, Inc. which in turn is a wholly owned subsidiary of McCormick & Company,
Inc. (McCormick). The Company runs a cogeneration facility in Gilroy, California
which uses natural gas and steam turbine engines to generate steam for sale to
Gilroy Foods, Inc. and electricity for sale to Pacific Gas and Electric Company.
Sales to Pacific Gas and Electric Company represented approximately 97% of
total revenues for each of the years ended November 30, 1995 and 1994 and 98%
for the six months ended May 31, 1996 and 1995.
Approximately 80% of the Company's net revenues are recognized during the
months of May through October of each year. As such, the results of operations
for the six month periods ended May 31, 1996 and 1995 are not indicative of the
results of operations that may be realized for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Bank Overdrafts
The Company maintains a zero balance bank account. Amounts sufficient to
cover checks presented to the bank are deposited into the account by McCormick &
Company, Inc. The bank overdrafts represent checks that have been written but
have not cleared the bank as of the balance sheet date.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, ranging from five to forty years.
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of " (FAS 121). FAS 121 requires
recognition of impairment of long-lived assets in the event that the net book
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. The Company will be required to adopt FAS 121 in its 1997 fiscal
year. Management does not believe that the initial adoption of FAS 121 will have
a significant impact on the Company.
Repairs and Maintenance
The cogeneration plant requires a periodic shutdown for major overhauls of
its primary components every several years. The Company's policy is to accrue
the anticipated cost of these overhauls during the operating periods prior to
the scheduled overhaul dates. The amounts and period of accruals for overhaul
costs are revised annually based on management's estimate of time remaining
before the next scheduled overhaul and the estimated cost of the overhaul.
Repairs and maintenance expenditures that are not a part of major overhauls
or do not extend the useful life of the related equipment are charged to expense
when incurred.
F-96
<PAGE> 192
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Due from Parent and Affiliates
The due from parent and affiliates included in the balance sheet represents
a net balance as the result of various transactions between the Company and
Gilroy Foods, Inc. and McCormick & Company, Inc. There are no terms of
settlement, or interest charges associated with the account balance. The balance
is primarily the result of the Company's participation in McCormick's central
cash management program, wherein all the Company's cash receipts are remitted to
McCormick and all cash disbursements are funded by McCormick. Other transactions
include steam sales to Gilroy Foods, Inc., the Company's estimated income tax
payable or receivable resulting from the current and prior years estimated
provisions, and miscellaneous other administrative expenses incurred by Gilroy
Foods, Inc. or McCormick & Company, Inc. on behalf of the Company.
An analysis of transactions in the due from parent and affiliates balance
for the six months ended May 31, 1996 and 1995 (unaudited) and each of the two
years in the period ended November 30, 1995 follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
MAY 31, NOVEMBER 30,
------------------- -------------------
1996 1995 1995 1994
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance in due from parent and affiliates at
beginning of period............................... $69,422 $61,522 $61,522 $56,912
Net cash remitted (from) to Gilroy Foods, Inc. or
McCormick......................................... (4,616) (5,578) 10,671 7,729
Net intercompany sales.............................. 196 275 1,146 1,438
Net intercompany purchases for cost of sales........ (532) (3) (218) (6)
Net intercompany purchases for selling, general and
administrative expenses........................... (30) (121) (87) (929)
Benefit (provision) for income taxes................ 340 356 (3,612) (3,622)
------- ------- ------- -------
Balance in due from parent and affiliated at end of
period............................................ $64,780 $56,451 $69,422 $61,522
======= ======= ======= =======
Average balance during the period................... $66,384 $58,373 $61,811 $56,828
======= ======= ======= =======
</TABLE>
Gilroy Foods, Inc. provides certain administrative services to the Company
including the services of the President of Gilroy Energy Company, Inc.,
accounting, and other administrative services. It is the policy of Gilroy Foods,
Inc. to charge these expenses and all other central operating costs on the basis
of direct usage. In the opinion of management, no other costs of Gilroy Foods,
Inc. should be allocated to the Company.
McCormick provides various administrative services to the Company including
legal assistance and treasury services. McCormick does not charge the Company
for these services. In the opinion of management, the cost of the services
rendered by McCormick in these areas during each of the two years ended November
30, 1995 and 1994 and the six months ended May 31, 1996 and 1995 are nominal.
Concentration of Credit Risk
The Company sells electricity to Pacific Gas and Electric Company under a
long-term contract. All accounts receivable at May 31, 1996 (unaudited) and
November 30, 1995 and 1994 are due from this customer. No collateral is required
for accounts receivable. Management believes that no reserves are required for
potential credit losses at May 31, 1996 and November 30, 1995 and 1994.
F-97
<PAGE> 193
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Sources of Supply
The Company purchases natural gas for the operation of the cogeneration
facility under a supply contract with one supplier. The supply contract requires
the Company to purchase substantially all of its natural gas needs from the
supplier at a price based on the market value determined in accordance with the
contract through July 31, 1997. Management believes that in the event that this
supplier is not able to meet its obligations under the contract, alternative
sources of supply for natural gas are readily available at comparable prices.
2. LONG-TERM DEBT
The Company's outstanding indebtedness is as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1994
MAY 31, ------- -------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable in annual installments through $52,968 $55,436 $57,588
2006 with interest at 11.68% per annum....
Less current portion........................ 2,848 2,468 2,152
------- ------- -------
$50,120 $52,968 $55,436
======= ======= =======
</TABLE>
The note payable requires the maintenance of a $5,000 maintenance fund and
a $10,000 debt service fund. The note holder has agreed to accept a guarantee of
up to $15,000 by McCormick & Company, Inc. in lieu of establishing these funds.
The terms of the note payable require the Company to comply with certain
nonfinancial covenants. Management believes that the Company was in compliance
with all applicable covenants at November 30, 1995 and 1994. The note payable is
secured by the cogeneration facility.
The note payable agreement provides for the payment of a prepayment penalty
in the event of early retirement. The amount of the prepayment penalty
approximates the present value of the differential between current market
interest rates and the stated rate over the remaining life of the debt as
defined by the agreement.
Aggregate maturities of long-term debt over the next five fiscal years
ending November 30 and thereafter are as follows:
<TABLE>
<S> <C>
1996....................................................... $ 2,468
1997....................................................... 2,848
1998....................................................... 3,101
1999....................................................... 3,481
2000....................................................... 3,797
Thereafter................................................. 39,741
-------
$55,436
=======
</TABLE>
3. INCOME TAXES
The Company is included in the consolidated federal and state income tax
returns of McCormick. McCormick does not have a formal tax sharing arrangement
with its subsidiaries. The income tax provisions included in the statements of
income has been provided under the liability method assuming that Gilroy Energy
Company had prepared separate income tax returns for the years ended November
30, 1995 and 1994 and the six months ended May 31, 1996 and 1995 (unaudited).
Any income taxes receivable or payable as a
F-98
<PAGE> 194
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
result of the income tax provisions, including any deferred amounts due or
payable resulting from the current or prior years provisions are included in due
from parent and affiliates.
The (benefit) provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
MAY 31, NOVEMBER 30,
--------------- -------------------
1996 1995 1995 1994
----- ----- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal.............................. $(288) $(303) $ 3,877 $ 4,061
State................................ (52) (53) 1,169 1,225
----- ----- ------- -------
(340) (356) 5,046 5,286
----- ----- ------- -------
Deferred:
Federal.............................. -- -- (1,095) (1,278)
State................................ -- -- (338) (386)
----- ----- ------- -------
-- -- (1,433) (1,664)
----- ----- ------- -------
$(340) $(356) $ 3,613 $ 3,622
===== ===== ======= =======
</TABLE>
The reconciliation between income tax computed at the United States federal
statutory rate and income taxes actually provided follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31, YEARS ENDED NOVEMBER 30,
------------------------------- -------------------------------
1996 1995 1995 1994
------------- ------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ---- ------ ---- ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at federal rate....... $ (288) 34.0% $ (303) 34.0% $3,071 34.0% 3,067 34.0%
State income taxes, net of
federal benefit......... (52) 6.1% (53) 6.0% 542 6.0% 555 6.1%
------ ------ ------
Actual income taxes
(benefit) provided...... $ (340) 40.1% $ (356) 40.0% $3,613 40.0% $3,622 40.1%
====== ====== ======
</TABLE>
The temporary differences that give rise to significant portions of the
deferred tax assets and liabilities that have been netted in due from parent and
affiliates consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1994
------- -------
<S> <C> <C>
Temporary differences resulting in deferred tax assets:
Repairs and maintenance expenditures................... $ 986 $ 1,082
------- -------
Temporary differences resulting in deferred tax
liabilities:
Depreciation........................................... 50,897 54,587
Prepaid expenses....................................... 810 758
Other.................................................. 357 357
------- -------
52,064 55,702
------- -------
$51,078 $54,620
======= =======
</TABLE>
No valuation allowance is provided for deferred tax assets.
F-99
<PAGE> 195
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS
The Company sells substantially all of the steam, which is a byproduct of
the cogeneration process to Gilroy Foods, Inc. During the years ended November
30, 1995 and 1994, the amount of revenue recognized by the Company from steam
sales to Gilroy Foods, Inc. was $1,089 and $1,367, respectively. During the six
months ended May 31, 1996 and 1995, the amount of revenue recognized by the
Company from steam sales to Gilroy Foods, Inc. was $185 and $261, respectively.
Gilroy Foods, Inc. provides certain accounting and administrative services
to Gilroy Energy Company, Inc. A portion of the cost of these services is billed
directly to Gilroy Energy Company, Inc.
The Company leases the land where the cogeneration facility is located
under an operating lease with Gilroy Foods, Inc. The lease agreement runs
through 2018 and provides for minimum annual rental payments with provisions for
the escalation of costs every three years based on the average increase in the
Consumer Price Index. The future minimum lease payments under this lease,
excluding any future increases, are as follows:
<TABLE>
<S> <C>
1996.................................................................................. $ 40
1997.................................................................................. 40
1998.................................................................................. 40
1999.................................................................................. 40
2000.................................................................................. 40
2001 through 2018..................................................................... 715
----
$915
====
</TABLE>
Rent expense recognized under this lease was $38 and $37 in the years ended
November 30, 1995 and 1994, respectively, and $20 and $19 in the six months
ended May 31, 1996 and 1995, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company has an agreement with the Pacific Gas and Electric Company
(PG&E) to sell all electricity generated by the cogeneration facility to PG&E.
The agreement establishes the methodology used to calculate the purchase price
of the electricity, establishes the operating hours of the cogeneration
facility, and provides for the payment to the Company of additional capacity
payments if certain operating targets as defined are achieved. The current
provisions of this agreement extend through December 31, 1998. Subsequent to
December 31, 1998 and continuing through the expiration of the base agreement on
December 31, 2017, the pricing and operating provisions of the agreement will be
established by negotiation between PG&E and Gilroy Energy Company.
The Company has an agreement with Gilroy Foods, Inc. whereby Gilroy Foods,
Inc. has agreed to purchase substantially all of the steam produced by the
Company. The terms of the agreement, which extends through 2017, provide for the
establishment of the purchase price for steam based on the current cost of
alternative sources of energy available to Gilroy Foods, Inc.
The Company has an operating and maintenance agreement with an outside
party for the daily operation and maintenance of the cogeneration facility. This
agreement, which extends through November 1996, provides for all operating and
routine maintenance of the cogeneration facility at direct costs plus a minimum
annual fee of $100,000. The contract also provides for the payment of bonuses,
as defined, if certain operating targets are met.
F-100
<PAGE> 196
GILROY ENERGY COMPANY
(A WHOLLY OWNED SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. FAIR VALUE
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
Accounts receivable, due from parent and affiliates, bank overdrafts,
current portion of long-term debt, accounts payable, and accrued
liabilities -- The amounts reported in the balance sheet approximate fair value.
Long-term debt. The fair value of long-term debt, based on a discounted
cash flow analysis using current interest rates for debt with similar
characteristics and maturities is as follows:
<TABLE>
<CAPTION>
NOVEMBER 30
---------------------------------------------
1995 1994
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Long-term debt............................ $68,100 $ 52,968 $63,000 $ 55,436
</TABLE>
7. SUBSEQUENT EVENT
In May 1996, McCormick & Company, Inc. announced its intention to sell the
assets and liabilities, excluding the due from parent and affiliates, the
current portion of long-term debt and the long-term debt of the Company to
Calpine Corporation. At the time of the closing of the sale, McCormick &
Company, Inc. will assume the due from parent and affiliates and will be
required to retire the current portion of the long-term debt and the long-term
debt. In addition to all remaining assets and liabilities of Gilroy Energy
Company, Calpine Corporation will assume all rights and obligations under the
following agreements to which Gilroy Energy Company is currently a party:
- Long-term contract to sell electricity to Pacific Gas and Electric
Company.
- Natural gas supply contract through July 31, 1997.
- Lease for the land with Gilroy Foods, Inc. upon which the cogeneration
facility is located.
- Steam sale contract with Gilroy Foods, Inc.
Upon closing of the sale, the management contract with the current operator
of the cogeneration facility will be terminated by McCormick & Company, Inc.
It is currently anticipated that the closing date for the sale of the
applicable assets and liabilities of Gilroy Energy Company to Calpine
Corporation will take place in the third quarter of 1996.
F-101
<PAGE> 197
(Domestic Inside Front Cover)
Graphics:
Sumas 125 mw Gas-fired Facility (Illustration of Facility)
King City 120 mw Gas-fired Facility (Illustration of Facility)
Calpine Logo
<PAGE> 198
ALTERNATE PAGE A-2
(International Inside Front Cover)
Graphics:
Sumas 125 mw Gas-fired Facility (Illustration of Facility)
Calpine Logo
<PAGE> 199
(Inside Back Cover)
Graphics:
Cerro Prieto 80 mw Geothermal Steam Field (Illustration of Steam
Field)
The Power of Innovation
West Ford Flat 27 mw Geothermal Facility (Illustration of Facility)
Calpine Logo
<PAGE> 200
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Pro Forma Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 38
Management............................ 70
Certain Transactions.................. 80
Principal and Selling Stockholders.... 82
Description of Capital Stock.......... 83
Shares Eligible for Future Sale....... 85
Certain United States Federal Tax
Consequences to Non-U.S. Holders.... 86
Underwriting.......................... 89
Notice to Canadian Residents.......... 92
Legal Matters......................... 92
Experts............................... 93
Available Information................. 93
Consolidated Financial Statements..... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
LOGO
18,045,000 Shares
Common Stock
PROSPECTUS
CS First Boston
Morgan Stanley & Co.
Incorporated
PaineWebber Incorporated
Salomon Brothers Inc
------------------------------------------------------
<PAGE> 201
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
ALTERNATE PAGE A-1
SUBJECT TO COMPLETION, DATED AUGUST 22, 1996
18,045,000 Shares
Calpine Corporation
Common Stock
($.001 par value)
------------------
Of the shares of Common Stock, $.001 par value ("Common Stock"), of Calpine
Corporation (the "Company" or "Calpine") offered hereby, 5,477,820 shares are
being sold by the Company and 12,567,180 shares are being sold by the
Selling Stockholder named herein under "Principal and Selling
Stockholders." Of the 18,045,000 shares of Common Stock being offered,
3,609,000 shares are initially being offered outside the United States
and Canada (the "International Shares") by the Managers (the
"International Offering") and 14,436,000 shares are initially being
concurrently offered in the United States and Canada (the "U.S.
Shares") by the U.S. Underwriters (the "U.S. Offering" and,
together with the International Offering, the "Common Stock
Offering"). The offering price and underwriting discounts and
commissions of the International Offering and the U.S. Offering
are identical.
Prior to the Common Stock Offering, there has been no public market for the
Common Stock. It is anticipated that the initial public offering price will be
between $17.00 and $20.00 per share. For information relating to the factors
considered in determining the initial public offering price to the public,
see "Subscription and Sale."
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "CPN," subject to notice of issuance.
------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT
IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREIN.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Calpine(1) Stockholder
----------------------------------------------------------------
Per Share.............................. $ $ $ $
Total(2)............................... $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by Calpine, estimated at $809,000.
(2) The Company has granted the Managers and the U.S. Underwriters an option,
exercisable by CS First Boston Corporation for 30 days from the date of this
Prospectus, to purchase a maximum of 2,706,750 additional shares to cover
over-allotments of shares. If the option is exercised in full, the total
Price to Public will be $ , Underwriting Discounts and Commissions
will be $ , Proceeds to Calpine will be $ and Proceeds to
Selling Stockholder will be $ .
The International Shares are offered by the several Managers when, as and if
delivered to and accepted by the Managers and subject to their right to reject
orders in whole or in part. It is expected that the International Shares will be
ready for delivery on or about , 1996, against payment in
immediately available funds.
CS First Boston Morgan Stanley & Co.
International
PaineWebber International Salomon Brothers International
The date of this Prospectus is , 1996.
LOGO
<PAGE> 202
ALTERNATE PAGE A-2
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
IN THIS PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
IN CONNECTION WITH THE COMMON STOCK OFFERING, CS FIRST BOSTON CORPORATION
ON BEHALF OF THE U.S. UNDERWRITERS AND MANAGERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THE COMMON STOCK OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS
PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN
ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO
EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT
OF 1934.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
Use of Proceeds........................... 17
Dividend Policy........................... 17
Capitalization............................ 18
Dilution.................................. 19
Selected Consolidated Financial Data...... 20
Pro Forma Consolidated Financial Data..... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 29
Business.................................. 38
Management................................ 70
<CAPTION>
PAGE
----
<S> <C>
Certain Transactions...................... 80
Principal and Selling Stockholders........ 82
Description of Capital Stock.............. 83
Shares Eligible for Future Sale........... 85
Certain United States Federal Tax
Consequences to Non-U.S. Holders........ 86
Subscription and Sale..................... 89
Notice to Canadian Residents.............. 92
Legal Matters............................. 92
Experts................................... 93
Available Information..................... 93
Consolidated Financial Statements......... F-1
</TABLE>
A-2
<PAGE> 203
ALTERNATE PAGE A-3
Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcements of new
acquisitions or power projects by the Company or its competitors, general
conditions in the independent power production industry, and other events or
factors. In addition, stock markets have experienced extreme price and trading
volume volatility in recent years. This volatility has had a substantial effect
on the market prices of securities of many companies for reasons frequently
unrelated to the operating performance of the specific companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. Moreover, investors in the Common Stock Offering will incur
immediate, substantial book value dilution. See "Dilution" and "Subscription and
Sale."
QUARTERLY FLUCTUATIONS; SEASONALITY
The Company's quarterly operating results have fluctuated in the past and
may continue to do so in the future as a result of a number of factors,
including but not limited to the timing and size of acquisitions, the completion
of development projects, the timing and amount of curtailment, and variations in
levels of production. Furthermore, the majority of capacity payments under
certain of the Company's power sales agreements are received during the months
of May through October. The market price of the Common Stock could be subject to
significant fluctuations in response to those variations in quarterly operating
results and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results of Operations
and Seasonality."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Common Stock Offering could adversely affect the prevailing market price of the
Common Stock. Other than the 18,045,000 shares of Common Stock offered hereby,
there will be no shares of Common Stock outstanding immediately following the
completion of the Common Stock Offering. All of the shares of Common Stock sold
in the Common Stock Offering will be freely transferable without registration or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless held by an "affiliate" of the Company (as defined in
the Securities Act). As of the date of this Prospectus, options to purchase
2,392,026 shares of Common Stock are outstanding under the Company's Stock
Option Program. Of such amount, options to purchase 1,366,696 shares were
exercisable, all of which will become eligible for sale 180 days after the date
of this Prospectus, upon expiration of certain lock-up agreements with the
Underwriters and pursuant to Rule 701, subject in some cases to certain volume
and other resale restrictions. Shares issuable upon the exercise of stock
options that are currently exercisable will become eligible for sale in the
public market beginning on the effective date of a registration statement on
Form S-8, which the Company intends to file with the Securities and Exchange
Commission (the "Commission") 180 days from the date of this Prospectus. See
"Shares Eligible for Future Sale."
A-3
<PAGE> 204
ALTERNATE PAGE A-4
Rule 144 and (ii) by Affiliates, beginning 90 days after the date of this
Prospectus, subject to all provisions of Rule 144 except its two-year minimum
holding period.
LOCK-UP AGREEMENTS
All holders of options to purchase shares of Common Stock have agreed with
the Underwriters that they will not, without the prior written consent of CS
First Boston, offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock beneficially owned by them or any shares issuable upon exercise
of stock options for a period of 180 days from the date of this Prospectus. See
"Subscription and Sale."
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of an investment in Common Stock by a holder
that, for United States federal income tax purposes, is not a "United States
person" (a "Non-U.S. Holder"). For purposes of this discussion, a "United States
person" means a citizen or resident (as defined for United States federal income
and estate tax purposes, as the case may be) of the United States, a corporation
or partnership created or organized in the United States or under the laws of
the United States or of any State thereof or an estate or trust whose income is
includible in gross income for United States federal income tax purposes
regardless of its source. The discussion is based on the United States Internal
Revenue Code of 1986, as amended (the "Code"). Treasury regulations promulgated
thereunder, and judicial and administrative interpretations thereof, all as in
effect on the date hereof and all of which are subject to change, possibly
retroactively, and is for general information only. The discussion does not
address aspects of United States federal taxation other than income and estate
taxation and does not address all aspects of United States federal income and
estate taxation. The discussion does not consider any specific facts or
circumstances that may apply to a particular Non-U.S. Holder. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE UNITED
STATES FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES TO
THEM OF AN INVESTMENT IN COMMON STOCK.
DIVIDENDS
Dividends paid to a Non-U.S. Holder will generally be subject to
withholding of United States federal income tax at a rate equal to 30% of the
gross amount of the distribution (or at a lower rate prescribed by an applicable
tax treaty) unless the dividends are effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder, in which case
the dividends generally will not be subject to withholding (if the Non-U.S.
Holder files certain forms with the payor of the dividend) and generally will be
subject to the United States federal income tax on net income that applies to
United States persons generally (and, in the case of corporate holders,
effectively connected dividends may also, under certain circumstances, be
subject to the branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty). An applicable income tax treaty
may, however, change these rules. To determine the applicability of a tax treaty
providing for a lower rate of withholding, dividends paid to an address in a
foreign country are presumed under current interpretation of existing Treasury
regulations to be paid to a resident of that country. Treasury regulations
proposed to be effective for payments made after December 31, 1997, which have
not been finally adopted, however, would require Non-U.S. Holders to file
certain new forms to obtain the benefit of any applicable tax treaty providing
for a lower rate of withholding tax on dividends. Such forms would contain the
holder's name and address and certain other information.
The gross amount of a distribution with respect to Common stock will be
treated as a dividend to the extent of the Company's current and accumulated
earnings and profits as determined for U.S. federal income tax purposes. In the
event that such a distribution exceeds the amount of the Company's earnings and
profits, it will be treated first as a non-taxable return of capital to the
extent of the Non-U.S. Holder's basis in Common Stock (but not below zero), and
thereafter as capital gain. A Non-U.S. Holder will have to file a refund claim
to obtain a refund of tax withheld on distributions in excess of the dividend
portion of any distribution.
A-4
<PAGE> 205
ALTERNATE PAGE A-5
SUBSCRIPTION AND SALE
The institutions named below (the "Managers") have, pursuant to a
Subscription Agreement dated , 1996 (the "Subscription
Agreement"), severally and not jointly, agreed with Calpine and the Selling
Stockholder to subscribe and pay for the following respective numbers of
International Shares as set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
MANAGER INTERNATIONAL SHARES
- -------------------------------------------------------------------------- --------------------
<S> <C>
CS First Boston Limited...................................................
Morgan Stanley & Co. International Limited................................
PaineWebber International (U.K.) Limited..................................
Salomon Brothers International Limited....................................
--------------------
Total........................................................... 3,609,000
==============
</TABLE>
The Subscription Agreement provides that the obligations of the Managers
are subject to certain conditions precedent and the Managers will be obligated
to purchase all of the International Shares offered hereby (other than those
shares covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of the
non-defaulting managers may be increased or the Subscription Agreement may be
terminated.
Calpine has entered into an Underwriting Agreement (the "Underwriting
Agreement") with the U.S. Underwriters of the U.S. Offering (the "U.S.
Underwriters" and, together with the Managers, the "Underwriters") providing for
the concurrent offer and sale of the U.S. Shares in the United States and
Canada. The closing of the U.S. Offering is a condition to the closing of the
International Offering and vice versa.
Calpine has granted to the Managers and the U.S. Underwriters an option,
exercisable by CS First Boston Corporation, expiring at the close of business on
the 30th day after the date of this Prospectus to purchase up to 2,706,750
additional shares at the initial public offering price, less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments in the
sale of the shares of Common Stock offered hereby. To the extent that this
option to purchase is exercised, each Manager and each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of additional shares being sold to the Managers and the U.S.
Underwriters as the number of International Shares set forth next to such
Manager's name in the preceding table and as the number set forth next to such
U.S. Underwriter's name in the corresponding table in the Prospectus relating to
the U.S. Offering bears to the sum of the total number of shares of Common Stock
in such tables.
Calpine has been advised by CS First Boston Limited, on behalf of the
Managers, that the Managers propose to offer the International Shares outside
the United States and Canada initially at the public offering price set forth on
the cover page of this Prospectus and, through the Managers, to certain dealers
at such price less a commission of $ per share and that the Managers and
such dealers may reallow a commission of $ per share on sales to certain
other dealers. After the initial public offering, the public offering price and
commission and reallowances may be changed by the Managers.
A-5
<PAGE> 206
ALTERNATE PAGE A-6
The offering price and the aggregate underwriting discounts and commissions
per share and per share commission and re-allowance to dealers for the
International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Common Stock Offering, changes in
the offering price, the aggregate underwriting discounts and commissions per
share and per share commission and reallowance to dealers will be made only upon
the mutual agreement of CS First Boston Limited, on behalf of the Managers, and
CS First Boston Corporation, on behalf of the U.S. Underwriters.
Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock in the United States or Canada or to any other dealer who does
not so agree. Each of the U.S. Underwriters has agreed that, as part of the
distribution of the U.S. Shares and subject to certain exceptions, it has not
offered or sold and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any prospectus relating to the Common Stock to any
person outside the United States and Canada or to any other dealer who does not
so agree. The foregoing limitations do not apply to stabilization transactions
or to transactions between the Managers and the U.S. Underwriters pursuant to
the Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the State and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction. "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price less such amount agreed upon by CS First Boston Limited, on
behalf of the Managers, and CS First Boston Corporation, as representative of
the U.S. Underwriters, but not exceeding the selling concession applicable to
such shares. To the extent there are sales between the Managers and the U.S.
Underwriters pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the Managers or by the U.S.
Underwriters may be more or less than the amount appearing on the cover page of
this Prospectus. Neither the Managers nor the U.S. Underwriters are obligated to
purchase from the other any unsold shares of Common Stock.
Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (i) it has not offered or sold and, prior to the date six months
after the date of issue of the Common Stock will not offer or sell, any Common
Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which do not constitute an offer to the public in the
United Kingdom for the purposes of the Public Offers of Securities Regulations
1995; (ii) it has complied and will comply with all applicable provisions of the
Public Offers of Securities Regulations 1995 and the Financial Services Act 1986
with respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document in
connection with the issue or sale of the Common Stock to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
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ALTERNATE PAGE A-7
Calpine has agreed that it will not offer, sell, contract to sell, announce
its intention to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Securities and Exchange Commission a registration statement
under the Securities Act relating to, any additional shares of its Common Stock
or securities convertible into or exchangeable or exercisable for any shares of
its Common Stock without the prior written consent of CS First Boston
Corporation for a period of 180 days after the date of this Prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof. In addition, all holders of options to purchase shares of Common
Stock have agreed that they will not, without the prior written consent of CS
First Boston Corporation, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock beneficially owned by them or any shares issuable
upon exercise of stock options for a period of 180 days after the date of this
Prospectus.
Calpine has agreed to indemnify the Managers and the U.S. Underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the Managers and the U.S. Underwriters
may be required to make in respect thereof.
CS First Boston Corporation, one of the U.S. Underwriters, is an affiliate
of the Company. The Common Stock Offering therefore is being conducted in
accordance with the applicable provisions of Rule 2720 to the Conduct Rules of
the National Association of Securities Dealers, Inc. Rule 2720 requires that the
initial public offering price of the Common Stock not be higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
Accordingly, PaineWebber Incorporated is assuming the responsibilities of acting
as the qualified independent underwriter in pricing the Common Stock Offering
and conducting due diligence. The initial public offering price of the Common
Stock set forth on the cover page of this Prospectus is no higher than the price
recommended by PaineWebber Incorporated.
In connection with the Common Stock Offering, PaineWebber Incorporated in
its role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
In addition, the Underwriters may not confirm sales to any discretionary account
without the prior specific written approval of the customer.
The decision made by CS First Boston Corporation and CS First Boston
Limited to underwrite the Common Stock Offering was made independently of the
Company, CS Holding and Electrowatt. The net proceeds from the Common Stock
Offering will not be applied for the benefit of CS First Boston Corporation or
CS First Boston Limited. CS First Boston Corporation and CS First Boston Limited
will not receive any benefit from the Common Stock Offering other than their
respective portion of the underwriting discounts and commissions.
The Common Stock has been approved for listing on the New York Stock
Exchange, subject to notice of issuance, under the symbol "CPN." In connection
with the listing of the Common Stock on the New York Stock Exchange, the
Underwriters have undertaken to sell round lots of 100 shares or more to a
minimum of 2,000 beneficial holders.
Prior to the Common Stock Offering, there has been no public market for the
shares of Common Stock offered hereby. The initial public offering price for the
shares was determined by negotiations among the Company, the Selling Stockholder
and CS First Boston Corporation, as one of the Representatives of the U.S.
Underwriters, and by CS First Boston Limited, on behalf of the Managers, and
does not necessarily reflect the secondary market prices for the Common Stock
following the initial offering hereby. Among the principal factors considered in
determining the initial public offering price were prevailing economic
prospects, the sales, earnings and financial and operating performance of the
Company in recent periods, the future prospects of the Company, market
valuations of companies in related businesses and the history and prospects for
the industries in which the Company competes. Additionally, consideration has
been given to the general condition of the securities markets, the market for
new issues of securities and the demand for securities of comparable companies.
In the ordinary course of their business, CS First Boston Corporation and
certain of the other Underwriters and their affiliates have engaged in and may
in the future engage in investment banking
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ALTERNATE PAGE A-8
transactions with Calpine, including the provision of certain advisory services
to Calpine. CS Holding, a Swiss corporation, holds approximately 44.9% of the
outstanding shares of Electrowatt, which indirectly holds all of the outstanding
capital stock of the Company. CS Holding also holds (i) approximately 100% of
the outstanding shares of Credit Suisse and (ii) approximately 69.3% of the
outstanding common stock of CS First Boston, Inc., which holds all of the
outstanding common stock of CS First Boston Corporation and of CSFBL. CS First
Boston Corporation was one of the Underwriters in connection with the public
offering of the Company's 9 1/4% Senior Notes in February 1994, one of the
placement agents in connection with the sale of the 10 1/2% Senior Notes in May
1996 and is one of the Representatives of the U.S. Underwriters in the U.S.
Offering, and CSFBL is one of the Managers in the International Offering. See
"Certain Transactions."
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<PAGE> 210
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the NASD filing fee and the NYSE listing application fee.
<TABLE>
<S> <C>
SEC registration fee...................................................... $150,272
NASD filing fee........................................................... 30,500
NYSE listing application fee.............................................. 93,200
Transfer Agent fees and expenses.......................................... 10,000
Printing and engraving expenses........................................... 125,000
Legal fees and expenses................................................... 175,000
Blue Sky fees and expenses................................................ 25,500
Accounting fees and expenses.............................................. 175,000
Miscellaneous............................................................. 24,528
--------
Total........................................................... $809,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article X of the Registrant's Bylaws provides
for mandatory indemnification of its directors and officers and permissible
indemnification of employees and other agents to the maximum extent permitted by
the Delaware General Corporation Law. The Registrant's Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibits 10.11 and 10.12 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is also made to Section 7 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 21, 1996, the Company issued and sold 5,000,000 shares of its
Series A Preferred Stock to Electrowatt Ltd for an aggregate purchase price of
$50.0 million pursuant to Section 4(2) under the Securities Act of 1933, as
amended.
On May 16, 1996, the Company issued and sold $180,000,000 aggregate
principal amount of 10 1/2% Senior Notes Due 2006 to certain institutional and
accredited investors pursuant to Rule 144A under the Securities Act of 1933, as
amended.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
1.2* Form of Subscription Agreement.
3.1 Amended and Restated Articles of Incorporation of Calpine Corporation, a
California corporation.(k)
3.2* Form of Amended and Restated Certificate of Incorporation of Calpine Corporation,
a Delaware corporation, to be filed prior to the consummation of the offering
made pursuant to this Registration Statement.
3.3 Amended and Restated Bylaws of Calpine Corporation, a California corporation.(a)
3.4* Form of Amended and Restated Bylaws of Calpine Corporation, a Delaware
corporation, to be adopted prior to the consummation of the offering made
pursuant to this Registration Statement.
4.1 Indenture dated as of February 17, 1994 between the Company and Shawmut Bank of
Connecticut, National Association, as Trustee, including form of Notes.(a)
4.2 Indenture dated as of May 16, 1996 between the Company and Fleet National Bank,
as Trustee, including form of Notes.(l)
4.3** Specimen Common Stock Certificate.
4.4* Form of Agreement and Plan of Merger Between Calpine Corporation, a Delaware
corporation, and Calpine Corporation, a California corporation.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Financing Agreements
10.1.1 Term and Working Capital Loan Agreement, dated as of June 1, 1990, between
Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and
Deutsche Bank AG, New York Branch.(a)
10.1.2 First Amendment to Term and Working Capital Loan Agreement, dated as of June 29,
1990, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.), and Deutsche Bank AG, New York Branch.(a)
10.1.3 Second Amendment to Term and Working Capital Loan Agreement, dated as of December
1, 1990, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.), and Deutsche Bank AG, New York Branch.(a)
10.1.4 Third Amendment to Term and Working Capital Loan Agreement, dated as of June 26,
1992, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.), Deutsche Bank AG, New York Branch, National Westminster Bank PLC,
Union Bank of Switzerland, New York Branch, and The Prudential Insurance Company
of America.(a)
10.1.5 Fourth Amendment to Term and Working Capital Loan Agreement, dated as of April 1,
1993, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.), Deutsche Bank AG, New York Branch, National Westminster Bank PLC,
Union Bank of Switzerland, New York Branch, and The Prudential Insurance Company
of America.(a)
10.1.6 Construction and Term Loan Agreement, dated as of January 30, 1992, between Sumas
Cogeneration Company, L.P., The Prudential Insurance Company of America, and
Credit Suisse, New York Branch.(a)
10.1.7 Amendment No. 1 to Construction and Term Loan Agreement, dated as of May 24,
1993, between Sumas Cogeneration Company, L.P., The Prudential Insurance Company
of America, and Credit Suisse, New York Branch.(a)
10.1.8 Credit Agreement-Construction Loan and Term Loan Facility, dated as of January
10, 1990, between Credit Suisse and O.L.S. Energy-Agnews.(a)
10.1.9 Amendment No. 1 to Credit Agreement-Construction Loan and Term Loan Facility,
dated as of December 5, 1990, between Credit Suisse and O.L.S. Energy-Agnews.(a)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<S> <C>
10.1.10 Participation Agreement, dated as of December 1, 1990, between O.L.S.
Energy-Agnews, Nynex Credit Company, Credit Suisse, Meridian Trust Company of
California, and GATX Capital Corporation.(a)
10.1.11 Facility Lease Agreement, dated as of December 1, 1990, between Meridian Trust
Company of California and O.L.S. Energy-Agnews.(a)
10.1.12 Project Revenues Agreement, dated as of December 1, 1990, between O.L.S.
Energy-Agnews, Meridian Trust Company of California and Credit Suisse.(a)
10.1.13 Credit Agreement, dated as of September 9, 1994, between Calpine Thermal Power,
Inc., Thermal Power Company and The Bank of Nova Scotia.(b)
10.1.14 Project Credit Agreement, dated as of June 30, 1995, between Calpine Greenleaf
Corporation, Greenleaf Unit One Associates, Greenleaf Unit Two Associates, Inc.
and The Sumitomo Bank, Limited.(g)
10.1.15 Lease dated as of April 24, 1996 between BAF Energy A California Limited
Partnership, Lessor, and Calpine King City Cogen, LLC, Lessee.(j)
10.2 Purchase Agreements
10.2.1 Purchase Agreement, dated as of April 1, 1993, between Sonoma Geothermal
Partners, L.P., Healdsburg Energy Company, L.P., and Freeport-McMoRan Resource
Partners, Limited Partnership.(a)
10.2.2 Stock Purchase Agreement, dated as of June 27, 1994, between Maxus International
Energy Company, Natomas Energy Company, Calpine Corporation and Calpine Thermal
Power, Inc. and amendment thereto dated July 28, 1994.(b)
10.2.3 Share Purchase Agreement dated March 30, 1995 between Calpine Corporation,
Calpine Greenleaf Corporation, Radnor Power Corp. and LFC Financial Corp.(e)
10.3 Power Sales Agreements
10.3.1 Long-Term Energy and Capacity Power Purchase Agreement relating to the Bear
Canyon Facility, dated November 30, 1984, between Pacific Gas & Electric and
Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.),
Amendment dated October 17, 1985, Second Amendment dated October 19, 1988, and
related documents.(a)
10.3.2 Long-Term Energy and Capacity Power Purchase Agreement relating to the Bear
Canyon Facility, dated November 29, 1984, between Pacific Gas & Electric and
Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and
Modification dated November 29, 1984, Amendment dated October 17, 1985, Second
Amendment dated October 19, 1988, and related documents.(a)
10.3.3 Long-Term Energy and Capacity Power Purchase Agreement relating to the West Ford
Flat Facility, dated November 13, 1984, between Pacific Gas & Electric and
Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and
amendments dated May 18, 1987, June 22, 1987, July 3, 1987 and January 21, 1988,
and related documents.(a)
10.3.4 Agreement for Firm Power Purchase, dated as of February 24, 1989, between Puget
Sound Power & Light Company and Sumas Energy, Inc. and amendment thereto dated
September 30, 1991.(a)
10.3.5 Long-Term Energy and Capacity Power Purchase Agreement, dated April 16, 1985,
between O.L.S. Energy-Agnews and Pacific Gas & Electric Company and amendment
thereto dated February 24, 1989.(a)
10.3.6 Long-Term Energy and Capacity Power Purchase Agreement, dated November 15, 1984,
between Geothermal Energy Partners, Ltd., and Pacific Gas & Electric Company and
related documents.(a)
10.3.7 Long-Term Energy and Capacity Power Purchase Agreement, dated November 15, 1984,
between Geothermal Energy Partners, Ltd., and Pacific Gas & Electric Company (see
Exhibit 10.3.6 for related documents).(a)
</TABLE>
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<TABLE>
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EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
10.3.8 Long-Term Energy and Capacity Power Purchase Agreement, dated December 12, 1984,
between Greenleaf Unit One Associates, Inc. and Pacific Gas and Electric
Company.(f)
10.3.9 Long-Term Energy and Capacity Power Purchase Agreement, dated December 12, 1984,
between Greenleaf Unit Two Associates, Inc. and Pacific Gas and Electric
Company.(f)
10.4 Steam Sales Agreements
10.4.1 Geothermal Steam Sales Agreement, dated July 19, 1979, between Calpine Geysers
Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and Sacramento
Municipal Utility District and related documents.(a)
10.4.2 Agreement for the Sale and Purchase of Geothermal Steam, dated March 23, 1973,
between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company,
L.P.), and Pacific Gas & Electric Company and related letter dated May 18,
1987.(a)
10.4.3 Thermal Energy and Kiln Lease Agreement, dated as of January 16, 1992, between
Sumas Cogeneration Company, L.P., and Socco, Inc. and amendment thereto dated May
24, 1993.(a)
10.4.4 Amended and Restated Energy Service Agreement, dated as of December 1, 1990,
between the State of California and O.L.S. Energy-Agnews.(a)
10.4.5 Agreement for the Sale of Geothermal Steam, dated as of July 28, 1992, between
Thermal Power Company and Pacific Gas & Electric Company.(c)
10.4.6 Amendment to the Agreement for the Sale of Geothermal Steam, dated as of August
9, 1995, between Union Oil Company of California, NEC Acquisition Company,
Thermal Power Company, and Pacific Gas and Electric Company.(h)
10.5 Service Agreements
10.5.1 Operation and Maintenance Agreement, dated as of April 5, 1990, between Calpine
Operating Plant Services, Inc. (formerly Calpine-Geysers Plant Services, Inc.),
and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company,
L.P.).(a)
10.5.2 Amended and Restated Operating and Maintenance Agreement, dated as of January 24,
1992, between Calpine Operating Plant Services, Inc. and Sumas Cogeneration
Company, L.P.(a)
10.5.3 Amended and Restated Operation and Maintenance Agreement, dated as of December
31, 1990, between O.L.S. Energy-Agnews and Calpine Operating Plant Services, Inc.
(formerly Calpine Cogen-Agnews, Inc.).(a)
10.5.4 Operating and Maintenance Agreement, dated as of January 1, 1995, between Calpine
Corporation and Geothermal Energy Partners, Ltd.(h)
10.5.5 Amended and Restated Operating Agreement for the Geysers, dated as of December 1,
1993, by and between Magma-Thermal Power Project, a joint venture composed of NEC
Acquisition Company and Thermal Power Company, and Union Oil Company of
California.(c)
10.6 Gas Supply Agreements
10.6.1 Gas Sale and Purchase Agreement, dated as of December 23, 1991, between ENCO Gas,
Ltd. and Sumas Cogeneration Company, L.P.(a)
10.6.2 Gas Management Agreement, dated as of December 23, 1991, between Canadian
Hydrocarbons Marketing Inc., ENCO Gas, Ltd. and Sumas Cogeneration Company,
L.P.(a)
10.6.4 Natural Gas Sales Agreement, dated as of November 1, 1993, between O.L.S.
Energy-Agnews, Inc. and Amoco Energy Trading Corporation.(a)
10.6.5 Natural Gas Service Agreement, dated November 1, 1993, between Pacific Gas &
Electric Company and O.L.S. Energy-Agnews, Inc.(a)
10.7 Agreements Regarding Real Property
10.7.1 Office Lease, dated March 15, 1991, between 50 West San Fernando Associates,
L.P., and Calpine Corporation.(a)
10.7.2 First Amendment to Office Lease, dated April 30, 1992, between 50 West San
Fernando Associates, L.P. and Calpine Corporation.(a)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<S> <C>
10.7.3 Geothermal Resources Lease CA 1862, dated July 25, 1974, between the United
States Bureau of Land Management and Calpine Geysers Company, L.P. (formerly
Santa Rosa Geothermal Company, L.P.).(a)
10.7.4 Geothermal Resources Lease PRC 5206.2, dated December 14, 1976, between the State
of California and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.).(a)
10.7.5 First Amendment to Geothermal Resources Lease PRC 5206.2, dated April 20, 1994,
between the State of California and Calpine Geysers Company, L.P. (formerly Santa
Rosa Geothermal Company, L.P.).(a)
10.7.6 Industrial Park Lease Agreement, dated December 18, 1990, between Port of
Bellingham and Sumas Energy, Inc.(a)
10.7.7 First Amendment to Industrial Park Lease Agreement, dated as of July 16, 1991,
between Port of Bellingham, Sumas Energy, Inc., and Sumas Cogeneration Company,
L.P.(a)
10.7.8 Second Amendment to Industrial Park Lease Agreement, dated as of December 17,
1991 between Port of Bellingham and Sumas Cogeneration Company, L.P.(a)
10.7.9 Amended and Restated Cogeneration Lease, dated as of December 1, 1990, between
the State of California and O.L.S. Energy-Agnews.(a)
10.8 General
10.8.1 Limited Partnership Agreement of Sumas Cogeneration Company, L.P., dated as of
August 28, 1991, between Sumas Energy, Inc. and Whatcom Cogeneration Partners,
L.P.(a)
10.8.2 First Amendment to Limited Partnership Agreement of Sumas Cogeneration Company,
L.P., dated as of January 30, 1992, between Whatcom Cogeneration Partners, L.P.,
and Sumas Energy, Inc.(a)
10.8.3 Second Amendment to Limited Partnership Agreement of Sumas Cogeneration Company,
L.P., dated as of May 24, 1993, between Whatcom Cogeneration Partners, L.P., and
Sumas Energy, Inc.(a)
10.8.4 Second Amended and Restated Shareholders' Agreement, dated as of October 22,
1993, among GATX Capital Corporation, Calpine Agnews, Inc., JGS-Agnews, Inc., and
GATX/Calpine-Agnews, Inc.(a)
10.8.5 Amended and Restated Reimbursement Agreement, dated October 22, 1993, between
GATX Capital Corporation, Calpine Agnews, Inc., JGS-Agnews, Inc.,
GATX/Calpine-Agnews, Inc., and O.L.S. Energy-Agnews, Inc.(a)
10.8.6 Amended and Restated Limited Partnership Agreement of Geothermal Energy Partners
Ltd., L.P., dated as of May 19, 1989, between Western Geothermal Company, L.P.,
Sonoma Geothermal Company, L.P., and Cloverdale Geothermal Partners, L.P.(a)
10.8.7 Assignment and Security Agreement, dated as of January 10, 1990, between O.L.S.
Energy-Agnews and Credit Suisse.(a)
10.8.8 Pledge Agreement, dated as of January 10, 1990, between GATX/Calpine-Agnews,
Inc., and Credit Suisse.(a)
10.8.9 Equity Support Agreement, dated as of January 10, 1990, between Calpine
Corporation and Credit Suisse.(a)
10.8.10 Assignment and Security Agreement, dated as of December 1, 1990, between O.L.S.
Energy-Agnews and Meridian Trust Company of California.(a)
10.8.11 Calpine Subordination Agreement, dated as of April 1, 1993, between
Freeport-McMoRan Resource Partners, L.P., Calpine Corporation, Sonoma Geothermal
Partners, L.P., Calpine Sonoma, Inc., Healdsburg Energy Company, L.P., and
Calpine Geysers Company, L.P. (formerly Santa Rosa Energy Company, L.P.).(a)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<S> <C>
10.8.12 First Amended and Restated Limited Partner Pledge and Security Agreement, dated
as of April 1, 1993, between Sonoma Geothermal Partners, L.P., Healdsburg Energy
Company, L.P., Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.), Freeport-McMoRan Resource Partners, L.P., and Meridian Trust
Company of California.(a)
10.8.13 Management Services Agreement, dated January 1, 1995, between Calpine Corporation
and Electrowatt Ltd.(k)
10.8.14 Revolving Credit Facility Letter Agreements, dated April 21, 1995, between
Calpine Corporation and Credit Suisse, and between Calpine Greenleaf Corporation
and Credit Suisse.(g)
10.8.15 Letter regarding Credit Facility, dated April 7, 1993, from Electrowatt Ltd. to
Credit Suisse.(a)
10.8.16 Promissory Grid Note, dated April 29, 1996, between Calpine Corporation and
Credit Suisse.(k)
10.8.17 Guarantee Fee Agreement, dated January 1, 1995, between Calpine Corporation and
Electrowatt Ltd.(g)
10.8.18 Registration Rights Agreement dated as of May 16, 1996 between the Company,
Morgan Stanley & Co. Incorporated, CS First Boston, Goldman Sachs & Co. and
Scotia Capital Markets (USA) Inc.(l)
10.8.19* Commitment Letter between The Bank of Nova Scotia and Calpine Corporation.
10.9.1 Calpine Corporation Stock Option Program and forms of agreements thereunder.(a)
10.9.2* Calpine Corporation 1996 Stock Incentive Plan and forms of agreements thereunder.
10.9.3* Calpine Corporation Employee Stock Purchase Plan and forms of agreements
thereunder.
10.10.1* Amended and Restated Employment Agreement between Calpine Corporation and Mr.
Peter Cartwright.
10.10.2* Senior Vice President Employment Agreement between the Company and Ms. Ann B.
Curtis.
10.10.3* Senior Vice President Employment Agreement between the Company and Mr. Lynn A.
Kerby.
10.10.4* Vice President Employment Agreement between the Company and Mr. Ron A. Walter.
10.10.5* Vice President Employment Agreement between the Company and Mr. Robert D. Kelly.
10.10.6* First Amended and Restated Consulting Contract between Calpine Corporation and
Mr. George J. Stathakis.
10.11* Form of Indemnification Agreement for directors and officers.
21.1* Subsidiaries of the Company.
23.1* Consent of Brobeck, Phleger & Harrison LLP (contained in the opinion filed as
Exhibit 5).
23.2* Independent Public Accountants' Consent of Arthur Andersen LLP.
23.3* Independent Public Accountants' Consent of Moss Adams LLP.
23.4* Independent Accountants' Consent of Coopers & Lybrand L.L.P.
23.5* Independent Public Accountants' Consent of Ernst & Young LLP.
24.1*** Power of Attorney.
</TABLE>
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* Filed herewith.
** To be filed by Amendment.
*** Previously filed
(a) Incorporated by reference to Registrant's Registration Statement on Form
S-1 (Registration Statement No. 33-73160).
(b) Incorporated by reference to Registrant's Current Report on Form 8-K dated
September 9, 1994 and filed on September 26, 1994.
(c) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated September 30, 1994 and filed on November 14, 1994.
(d) Incorporated by reference to Registrant's Annual Report on Form 10-K dated
December 31, 1994 and filed on March 29, 1995.
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(e) Incorporated by reference to Registrant's Current Report on Form 8-K dated
April 21, 1995 and filed on May 5, 1995.
(f) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated March 31, 1995 and filed on May 12, 1995.
(g) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated June 30, 1995 and filed on August 14, 1995.
(h) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated September 30, 1995 and filed on November 14, 1995.
(i) Incorporated by reference to Registrant's Annual Report on Form 10-K dated
December 31, 1995 and filed on March 29, 1996.
(j) Incorporated by reference to Registrant's Current Report on Form 8-K dated
May 1, 1996 and filed on May 14, 1996.
(k) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated March 31, 1996 and filed on May 15, 1996.
(l) Incorporated by reference to Registrant's Registration Statement on Form
S-4 (Registration Statement No. 333-6259).
FINANCIAL STATEMENT SCHEDULES
Schedule I -- Condensed Financial Information of Registrant
Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-7
<PAGE> 217
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SAN JOSE, CALIFORNIA, ON THE 21ST DAY OF AUGUST, 1996.
CALPINE CORPORATION
By: /s/ PETER CARTWRIGHT
------------------------------------
Peter Cartwright
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ PETER CARTWRIGHT President and Chief Executive August 21, 1996
- ---------------------------------------- Officer, Director (principal
Peter Cartwright executive officer)
Director and
- ---------------------------------------- Chairman of the Board
Pierre Krafft
Director August 21, 1996
*
- ----------------------------------------
Hans-Peter Aebi
Director August 21, 1996
*
- ----------------------------------------
Rudolf Boesch
/s/ ANN B. Senior Vice President August 21, 1996
CURTIS (principal financial officer)
- ----------------------------------------
Ann B. Curtis
/s/ GLORIA S. Corporate Controller August 21, 1996
GEE (principal accounting officer)
- ----------------------------------------
Gloria S. Gee
*By: /s/ PETER CARTWRIGHT
- ----------------------------------------
Peter Cartwright
Attorney-in-Fact
*By: /s/ ANN B. CURTIS
- ----------------------------------------
Ann B. Curtis
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 218
After the reincorporation and the effectiveness of the stock split
discussed in Note 6 to Schedule I, we expect to be in a position to render the
following report.
ARTHUR ANDERSEN LLP
San Jose, California
March 15, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Calpine Corporation and subsidiaries
included in this Registration Statement and have issued our report thereon dated
March 15, 1996. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the index
of financial statement schedules are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
March 15, 1996 (except with respect to
the matter discussed in Note 6 to Schedule I,
as to which the date is , 1996)
S-1
<PAGE> 219
CALPINE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ (1,970,526) $ 5,514,002
Accounts receivable........................................... 6,304,594 2,196,912
Acquisition project receivables............................... 8,805,186 --
Intercompany receivables...................................... 38,360,583 57,696,201
Other current assets.......................................... 270,806 189,526
------------ ------------
Total current assets....................................... 51,770,643 65,596,641
Property, plant and equipment, net.............................. 724,359 554,582
Investments in power projects................................... 82,610,719 44,913,432
Notes receivable from related parties........................... 19,090,286 23,953,294
Notes receivable from Coperlasa................................. 6,394,462 --
Deferred charges................................................ 3,390,677 3,807,425
Other assets.................................................... 197,144 74,900
------------ ------------
Total assets............................................... $164,178,290 $138,900,274
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................................. $ 2,667,808 $ 777,637
Accrued payroll and related expenses.......................... 2,582,194 2,417,302
Accrued interest payable...................................... 4,051,785 4,046,875
Other accrued expenses........................................ 2,704,257 964,312
------------ ------------
Total current liabilities.................................. 12,006,044 8,206,126
Long-term line of credit........................................ 14,000,000 --
Senior Notes Due 2004........................................... 105,000,000 105,000,000
Deferred income taxes........................................... 7,877,537 6,976,950
Deferred revenue................................................ 67,925 67,925
------------ ------------
Total liabilities.......................................... 138,951,506 120,251,001
------------ ------------
Stockholder's equity:
Common stock.................................................. 10,000 10,000
Additional paid-in capital.................................... 6,214,000 6,214,000
Retained earnings............................................. 19,002,784 12,425,273
------------ ------------
Total stockholder's equity................................. 25,226,784 18,649,273
------------ ------------
Total liabilities and stockholder's equity................. $164,178,290 $138,900,274
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-2
<PAGE> 220
CALPINE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Service contract revenue from related parties... $28,733,399 $22,929,897 $ 2,373,319
Income from unconsolidated investments in power
projects..................................... 32,397,392 23,711,895 15,450,720
----------- ----------- -----------
Total revenue................................ 61,130,791 46,641,792 17,824,039
Cost of revenue:
Service contract expenses....................... 27,433,069 19,161,445 1,914,375
----------- ----------- -----------
Gross profit...................................... 33,697,722 27,480,347 15,909,664
Project development expenses...................... 3,087,316 2,822,459 1,280,125
General and administrative expenses............... 8,081,458 6,867,520 4,808,139
----------- ----------- -----------
Income from operations....................... 22,528,948 17,790,368 9,821,400
Other (income) expense:
Interest expense................................ 10,479,144 9,207,381 2,613,212
Other income, net............................... (377,276) (1,290,739) (1,153,797)
Income before provision for income taxes and
cumulative effect of change in accounting
principle.................................. 12,427,080 9,873,726 8,361,985
Provision for income taxes........................ 5,049,568 3,853,115 4,194,733
----------- ----------- -----------
Income before cumulative effect of change in
accounting principle....................... 7,377,512 6,020,611 4,167,252
Cumulative effect of adoption of SFAS No. 109..... -- -- (413,410)
----------- ----------- -----------
Net income................................... $ 7,377,512 $ 6,020,611 $ 3,753,842
========== ========== ==========
As adjusted earnings per share assuming conversion
of preferred stock:
As adjusted weighted average shares
outstanding.................................. 14,187,433
==========
Net income per share............................ $ 0.52
==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-3
<PAGE> 221
CALPINE CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net cash used in operating activities................ $ (8,874,945) $(44,753,732) $ (84,812)
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment...... (367,711) (299,961) (73,292)
Investments in power projects...................... (1,262,000) (175,352) (882,730)
Decrease (increase) in notes receivable............ (10,336,640) 3,294,727 (15,576,775)
Other, net......................................... (122,244) 97,838 (85,478)
------------ ------------ ------------
Net cash provided by (used in) investing
activities................................. (12,088,595) 2,917,252 (16,618,275)
------------ ------------ ------------
Cash flows from financing activities:
Payment of dividends............................... (800,000) (800,000) (800,000)
Borrowings under line of credit.................... 14,000,000 -- 23,000,000
Repayment of borrowings under line of credit....... -- (52,595,000) (5,872,500)
Proceeds from Senior Notes Due 2004................ -- 105,000,000 --
Costs associated with future financing............. 279,012 (3,419,003) (748,993)
Repayment of note payable to shareholder........... -- (1,200,000) --
------------ ------------ ------------
Net cash provided by financing activities..... 13,479,012 46,985,997 15,578,507
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents........................................ (7,484,528) 5,149,517 (1,124,580)
Cash and cash equivalents, beginning of period....... 5,514,002 364,485 1,489,065
------------ ------------ ------------
Cash and cash equivalents, end of period............. $ (1,970,526) $ 5,514,002 $ 364,485
============ ============ ============
Supplementary information:
Cash paid during the period for:
Interest........................................ $ 9,945,443 $ 4,917,773 $ 2,120,637
Income taxes.................................... $ 4,293,725 $ 683,364 $ 12,800
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-4
<PAGE> 222
CALPINE CORPORATION
SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND OPERATION OF CALPINE
Calpine Corporation (Calpine) is engaged in the development, acquisition,
ownership and operation of power generation facilities in the United States.
Calpine has ownership interests in and operates geothermal power generation
facilities and steam fields and natural gas-fired cogeneration facilities
through subsidiaries and investees. Founded in 1984 as a supplier of engineering
and management services, Calpine is wholly-owned by Electrowatt Services, Inc.,
which is wholly-owned by Electrowatt Ltd (Electrowatt), a Swiss company. Calpine
brings expertise in the area of engineering, finance, construction and plant
operations and maintenance.
For the purposes of these registrant-only financial statements, Calpine's
wholly-owned subsidiaries are accounted for under the equity method and are
included in investments in power projects in the accompanying balance sheets.
In 1994, Calpine assumed the operations and maintenance agreements for the
projects in which Calpine has an interest. Prior to 1994, a wholly-owned
subsidiary, Calpine Operating Plant Services, Inc. (COPS) performed these
services. In 1993, COPS recorded service contract revenue from related parties
of $15.6 million and service contract expenses of $13.4 million pursuant to
these agreements.
As Adjusted Earnings Per Share
Net income per share is computed using weighted average shares outstanding,
which includes the net additional number of shares which would be issuable upon
the exercise of outstanding stock options, assuming that the Company used the
proceeds received to purchase additional shares at an assumed public offering
price. Net income per share also gives effect, even if antidilutive, to common
equivalent shares from preferred stock that will automatically convert upon the
closing of the Company's initial public offering (using the as-if-converted
method). If the offering contemplated by the Company is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into shares of common stock based on the shares of
convertible preferred stock outstanding at June 30, 1996.
2. LINES OF CREDIT AND REVOLVING CREDIT FACILITY
At December 31, 1995, the line of credit with Credit Suisse (whose parent
company owns approximately 44.2% of Electrowatt) provided for advances of $50.0
million. Interest may be paid at either LIBOR or the Credit Suisse base rate,
plus applicable margins in both cases. At December 31, 1995, Calpine had $19.9
million of borrowings outstanding, bearing interest at LIBOR plus 0.5% (6.4% at
December 31, 1995). At Calpine's discretion, the debt outstanding can be held
for various maturity periods of up to six months. Interest is paid on the last
day of each interest period for such loans, but not less often than quarterly,
based on the principal amount outstanding during the period. No stated
amortization exists for this indebtedness. From January 1 to March 13, 1996,
Calpine borrowed an additional $8.8 million and issued a letter of credit for
$3.0 million for working capital requirements, other development projects and to
fund Calpine Vapor, Inc. (Calpine Vapor), a subsidiary of Calpine. Calpine Vapor
made loans for construction of new geothermal wells in Mexico. No borrowings
were outstanding at December 31, 1994. The credit agreement specifies that
Calpine maintain certain covenants with which Calpine was in compliance.
At December 31, 1995, Calpine had three loan facilities with available
borrowings totaling $10.2 million. Borrowings and letters of credit outstanding
were $1.2 million and $3.8 million as of December 31, 1995, respectively, with
interest payable at variable interest rates based on bank base rates, LIBOR or
prime plus applicable margins in all cases (approximately 7.6% at December 31,
1995 on borrowings). At December 31,
S-5
<PAGE> 223
CALPINE CORPORATION
SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
1994, no borrowings and $900,000 of letters of credit were outstanding on these
facilities. The credit agreements specify that Calpine maintain certain
covenants with which Calpine was in compliance.
3. NOTE PAYABLE TO STOCKHOLDER
On December 31, 1991, Calpine declared a dividend of $1.2 million to its
parent company, Electrowatt Services, Inc. On the same date, Calpine issued a
note payable to Electrowatt Services, Inc. for $1.2 million. Interest was paid
quarterly at a rate of 4.25%, which approximated market. The note was paid on
June 30, 1994, the maturity date.
4. SENIOR NOTES DUE 2004
On February 17, 1994, Calpine completed a $105.0 million public debt
offering of 9 1/4% Senior Notes Due 2004 (Senior Notes). The net proceeds of
$100.9 million were used to repay all of the indebtedness outstanding under
Calpine's existing line of credit, and to repay subsidiaries' non-recourse notes
payable to Freeport-McMoRan Resource Partners, L.P. (FMRP) plus accrued
interest. The remaining proceeds were used for general corporate purposes
including a loan to the sole shareholder of Sumas Energy, Inc., the partner in
one of Calpine's power projects. The transaction costs of $4.1 million incurred
in connection with the public debt offering have been recorded as a deferred
charge and are amortized over the ten-year life of the Senior Notes using the
interest method.
The Senior Notes will mature on February 1, 2004 and bear interest at
9 1/4% payable semiannually on February 1 and August 1 of each year, commencing
August 1, 1994, to holders of record. Based on the traded yield to maturity, the
approximate fair market value of the Senior Notes was $97.0 million as of
December 31, 1995.
Under provisions of the indenture applicable to the Senior Notes, Calpine
may, under certain circumstances be limited in its ability to make restricted
payments, as defined, which include dividends and certain purchases and
investments, incur additional indebtedness and engage in certain transactions.
5. COMMITMENTS AND CONTINGENCIES
Capital Projects
Calpine has 1996 commitments for capital expenditures totaling $6.8 million
related to various projects at its geothermal facilities. In March 1996, Calpine
entered into an energy agreement with Phillips Petroleum Company to develop,
construct, own and operate a 240 megawatt gas-fired cogeneration facility at
Phillips Houston Chemical Complex in Pasadena, Texas. The initial permitting
process is underway, with construction of the facility planned to begin in late
1996 and to be completed in 1998. Calpine is currently evaluating options to
finance the construction of this facility. Calpine issued a $3.0 million letter
of credit and has a 1996 capital commitment of $3.0 million in connection with
this facility. In a separate transaction, as of March 15, 1996, Calpine was
negotiating the potential acquisition of an operating lease for a 120 megawatt
gas-fired cogeneration facility located in Northern California.
S-6
<PAGE> 224
CALPINE CORPORATION
SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Office and Equipment Leases
Calpine leases its corporate office, Santa Rosa office facilities and
certain office equipment under noncancellable operating leases expiring through
2000. Future minimum lease payments under these leases are (in thousands):
<TABLE>
<S> <C>
1996........................................................ $ 899
1997........................................................ 905
1998........................................................ 907
1999........................................................ 776
2000........................................................ 745
thereafter.................................................. 286
------
Total future minimum lease commitments...................... $4,518
======
</TABLE>
Lease payments are subject to adjustment for Calpine's pro rata portion of
annual increases or decreases in building operating costs. In 1995, 1994 and
1993, rent expense for noncancellable operating leases amounted to $733,000,
$663,000 and $636,000, respectively.
S-7
<PAGE> 225
CALPINE CORPORATION
SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CPUC Restructuring
Electricity and steam sales agreements with PG&E are regulated by the
California Public Utilities Commission (CPUC). In December 1995, the CPUC
proposed the transition of the electric generation market to a competitive
market beginning January 1, 1998, with all consumers participating by 2003. The
proposed restructuring provides for phased-in customer choice, development of
non-discriminatory market structure, recovery of utilities' stranded costs,
sanctity of existing contracts, and continuation of existing public policy
programs including the promotion of fuel diversity through a renewable energy
purchase requirement.
As the proposed restructuring has widespread impact and the market
structure requires the participation and oversight of the Federal Energy
Regulatory Commission (FERC), the CPUC will seek to build a California consensus
involving the legislature, the Governor, public and municipal utilities, and
customers. The consensus would then be placed before the FERC so that both the
CPUC and FERC would implement the new market structure no later than January 1,
1998. There can be no assurance that the proposed restructuring will be enacted
in substantially the same form as discussed above. Calpine is unable to predict
the ultimate outcome of the restructuring.
Litigation
Calpine, together with over 100 other parties, was named as a defendant in
the second amended complaint in an action brought in August 1993 by the
bankruptcy trustee for Bonneville Pacific Corporation (Bonneville), captioned
Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific Corporation v.
Portland General Corporation, et al., in the United States District Court for
the District of Utah. This complaint alleges that, in conjunction with top
executives of Bonneville and with the alleged assistance of the other 100
defendants, Calpine engaged in a broad conspiracy and fraud. The complaint has
been amended a number of times. Calpine has answered each version of the
complaint by denying all claims and is in the process of conducting discovery.
In August 1994 Calpine successfully moved for an order severing the trustee's
claim against Calpine from the claims against the other defendants. Although the
case involves over 25 separate financial transactions entered into by
Bonneville, the severed case concerns Calpine in respect of only one of these
transactions. In 1988, Calpine invested $2.0 million in a partnership formed
with Bonneville to develop four hydroelectric projects in the State of Hawaii.
The projects were not successfully developed by the partnership, and, subsequent
to Bonneville's Chapter 11 filing, Calpine filed a claim as a creditor against
Bonneville's bankruptcy estate. The trustee alleges that the equity investment
was actually a "sham" loan designed to inflate Bonneville's earnings. The
trustee further alleges that Calpine is one of many defendants in this case
responsible for Bonneville's insolvency and the amount of damages attributable
to Calpine based on the $2.0 million partnership investment is alleged to be
$577.2 million. The trustee is seeking to hold each of the other defendants
liable for a portion, all or, in certain cases, more than this amount. Calpine
expects the matter will be set for trial in 1996. Calpine believes the claims
against it are without merit and will continue to defend the action vigorously.
Calpine further believes that the resolution of this matter will not have a
material adverse effect on its financial position or results of operations.
Calpine is involved in various other claims and legal actions arising out
of the normal course of business. Management does not expect that the outcome of
these cases will have a material adverse effect on Calpine's financial position
or results of operations.
6. SUBSEQUENT EVENT
In July 1996, the Company's Board of Directors authorized the
reincorporation of the Company into Delaware in connection with the Company's
initial public equity offering. Also, the Board of Directors approved a stock
split at a ratio of approximately 5.194 to 1. The accompanying financial
statements reflect the reincorporation and the stock split as if such
transactions had been effective for all periods.
S-8
<PAGE> 226
CALPINE CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for capitalized costs.... $ 1,838 $ -- $ -- $ -- $ 1,838(1)
========= ======== ======== ======== ========
Allowance for uncollectible
accounts....................... $ 238 $ -- $ -- $ -- $ 238
========= ======== ======== ======== ========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for capitalized costs.... $ 800 $ 1,038 $ -- $ -- $ 1,838(1)
========= ======== ======== ======== ========
Allowance for uncollectible
accounts....................... -- 238 $ -- $ -- $ 238
========= ======== ======== ======== ========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for capitalized costs.... $ 800 $ -- $ -- $ -- $ 800(1)
========= ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Provision for write-off of project development expenses.
S-9
<PAGE> 227
APPENDIX -- CALPINE GRAPHIC IMAGES
GRAPHIC (Inside Front Cover)
Upper Photo--Sumas 125 mw Gas-fired Facility
Lower Photo--King City 120 mw Gas-fired Facility
GRAPHIC (Inside Back Cover)
Upper Photo--Cerro Prieto 80 mw Geothermal Steam Field
Lower Photo--West Ford Flat 27 mw Geothermal Facility
GRAPHIC (page 43)
CALPINE CORPORATION
1 - Calpine Corporation Headquarters
San Jose, California
2 - Calpine Corporation Geothermal Office
Santa Rosa, California
3 - Aidlin 20 mw Geothermal Facility
4 - Agnews 29 mw Cogeneration Facility
5 - Bear Canyon 20 mw Geothermal Facility
6 - Black Hills 80 mw Coal Project
7 - Cerro Prieto 80 mw Steam Fields
8 - Coso 150 mw Geothermal Project
9 - Gilroy 120 mw Cogeneration Facility
10 - Glass Mountain 145 mw Geothermal Project
11 - Greenleaf 1 49.5 mw Cogeneration Facility
12 - Greenleaf 2 49.5 mw Cogeneration Facility
13 - King City 120 mw Cogeneration Facility
14 - Navajo South 1,700 mw Coal Project
15 - Pasadena 240 mw Cogeneration Facility
16 - PG&E Unit 13 Steam Fields
17 - PG&E Unit 16 Steam Fields
18 - SMUDGEO #1 Steam Fields
19 - Sumas 125 mw Cogeneration Facility
20 - Thermal Power Company Steam Fields
21 - Watsonville 28.5 mw Cogeneration Facility
22 - West Ford Flat 27 mw Geothermal Facility
Map of western and southwestern United States indicating:
Corporate Headquarters
Corporate Geothermal Office
Operating Facility
Steam Fields
Future Projects
Graphic (page 40)
Illustration of a Combined Cycle Power Plant
Graphic (page 41)
Illustration of a Geothermal Power Plant
<PAGE> 1
EXHIBIT 1.1
18,045,000 SHARES
CALPINE CORPORATION
COMMON STOCK, $.001 PAR VALUE
UNDERWRITING AGREEMENT
SEPTEMBER , 1996
CS FIRST BOSTON CORPORATION
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC
As Representatives of the Several Underwriters
c/o CS First Boston Corporation
Park Avenue Plaza
New York, N.Y. 10055
Dear Sirs:
1. Introductory. Calpine Corporation, a Delaware corporation ("Company"),
proposes to issue and sell 4,382,256 shares of its Common Stock, $.001 par value
("Securities"), and Electrowatt, Ltd. ("Selling Stockholder") proposes to sell
10,053,744 outstanding shares of the Securities (such shares of Securities being
hereinafter referred to as the "U.S. Firm Securities") to the several
Underwriters named in Schedule A hereto (the "Underwriters").
It is understood that the Company and the Selling Stockholder are
concurrently entering into a Subscription Agreement, dated the date hereof
("Subscription Agreement"), with CS First Boston Limited ("CSFBL"), Morgan
Stanley & Co. International Limited, PaineWebber International (U.K.) Limited,
Salomon Brothers International Limited, and the other managers named therein
("Managers") relating to the concurrent offering and sale of 1,095,564 shares of
Securities by the Company and 2,513,436 shares of Securities by the Selling
Stockholder ("International Firm Securities") outside the United States and
Canada ("International Offering").
In addition, as set forth below, the Company proposes to issue and sell (i)
to the Underwriters, at the option of the Underwriters, an aggregate of not more
than 2,165,400 additional shares of Securities ("U.S. Optional Securities") and
(ii) to the Managers, at the option of the Managers, an aggregate of not more
than 541,350 additional shares of Securities ("International Optional
Securities"). The U.S. Firm Securities and the U.S. Optional Securities are
hereinafter called the "U.S. Securities"; the International Firm Securities and
the International Optional Securities are hereinafter called the "International
Securities"; the U.S. Firm Securities and the International Firm Securities are
hereinafter called the "Firm Securities"; the U.S. Optional Securities and the
International Optional Securities are hereinafter called the "Optional
Securities". The U.S. Securities and the International Securities are
collectively referred to as the "Offered Securities". To provide for the
coordination of their activities, the Underwriters and the Managers have entered
into an Agreement Between U.S. Underwriters and Managers which permits them,
among other things, to sell the Offered Securities to each other for purposes of
resale.
The Company and the Selling Stockholder hereby agree with the several
Underwriters as follows:
2. Representations and Warranties of the Company and the Selling
Stockholder. (a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 333-07497) relating to the Offered
Securities, including a form of prospectus relating to the U.S. Securities
and a form of prospectus relating to the International Securities
<PAGE> 2
being offered in the International Offering, has been filed with the
Securities and Exchange Commission ("Commission") and either (A) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (B) is proposed to be amended by amendment or
post-effective amendment. If such registration statement (the "initial
registration statement") has been declared effective, either (A) an
additional registration statement (the "additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (B) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the U.S. Securities and the form of
prospectus relating to the International Securities, each as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in
the Registration Statement, are hereinafter referred to as the "U.S.
Prospectus" and the "International Prospectus", respectively, and
collectively as the "Prospectuses". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial
2
<PAGE> 3
Registration Statement conformed in all respects to the requirements of the
Act and the rules and regulations of the Commission ("Rules and
Regulations") and did not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (B) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include,
or will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (C)
on the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of each of the
Prospectuses pursuant to Rule 424(b) or (if no such filing is required) at
the Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will conform, in all respects to the requirements of the Act
and the Rules and Regulations, and none of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: (A) on the Effective Date of the Initial Registration Statement,
the Initial Registration Statement will conform in all respects to the
requirements of the Act and the Rules and Regulations, (B) none of such
documents will include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (C) no Additional
Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a Registration
Statement or either of the Prospectuses based upon written information
furnished to the Company by any Underwriter through the Representatives or
by any Manager through CSFBL specifically for use therein, it being
understood and agreed that the only such information is that described as
such in Section 7(c).
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectuses; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
(iv) Each subsidiary of the Company (x) other than those subsidiaries
specified in clause (y) of this subparagraph has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectuses or (y) that is not a corporation is a limited partnership, has
been duly formed and is validly existing as a limited partnership in good
standing under the laws of the jurisdiction of its formation, and has full
power and authority to own its properties and conduct its business as
described in the Prospectuses; each subsidiary of the Company is duly
qualified to do business as a foreign corporation or limited partnership,
as the case may be, in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; except as set forth on Schedule B hereto
the capital stock of each subsidiary owned by the Company, directly or
through subsidiaries, is owned free from liens, encumbrances and defects;
and, except as set forth on Schedule C hereto, the Company is not a general
partner in any partnership.
(v) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement and the
Subscription Agreement on each Closing Date (as defined below), such
Offered Securities will have been, validly issued, fully paid and
nonassessable and will conform to the description thereof contained in the
Prospectuses; and the stockholders of the Company have no preemptive rights
with respect to the Securities.
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<PAGE> 4
(vi) Except as disclosed in the Prospectuses, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter or
Manager for a brokerage commission, finder's fee or other like payment.
(vii) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act.
(viii) The Offered Securities have been approved for listing on the
New York Stock Exchange subject to notice of issuance.
(ix) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement or the
Subscription Agreement in connection with the issuance and sale of the
Offered Securities by the Company, except such as have been obtained and
made under the Act and such as may be required under state securities laws.
(x) The execution, delivery and performance of this Agreement and the
Subscription Agreement, and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company or
any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, or the charter or by-laws of the Company
or any such subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by this
Agreement and the Subscription Agreement, respectively.
(xi) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by the Company.
(xii) Except as disclosed in the Prospectuses, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectuses, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(xiii) The Company and its subsidiaries possess adequate certificates,
authorities, licenses or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by them
as described in the Prospectuses and have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority, license or permit that, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(xiv) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its subsidiaries
taken as a whole.
(xv) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any
4
<PAGE> 5
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(xvi) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(xvii) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably concluded
that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(xviii) Except as disclosed in the Prospectuses, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a material adverse effect on the condition (financial
or other), business, properties or results of operations of the Company and
its subsidiaries taken as a whole, or would materially and adversely affect
the ability of the Company to perform its obligations under this Agreement
or the Subscription Agreement, or which are otherwise material in the
context of the sale of the Offered Securities; and no such actions, suits
or proceedings are threatened or, to the Company's knowledge, contemplated.
(xix) The financial statements included in each Registration Statement
and the Prospectuses present fairly the financial position of the Company
and its consolidated subsidiaries as of the dates shown and their results
of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis;
the schedules included in each Registration Statement present fairly the
information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting the
significant effects directly attributable to the transactions or events
described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding historical
financial statement amounts.
(xx) Except as disclosed in the Prospectuses, since the date of the
latest audited financial statements included in the Prospectuses there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the Prospectuses, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(xxi) Neither the Company nor any of its subsidiaries is (i) subject
to regulation as a "holding company" or a "Subsidiary company" of a holding
company or a "public utility company" under Section 2(a) of the Public
Utility Holding Company Act of 1935 ("PUHCA"), (ii) subject to regulation
under the Federal Power Act, as amended ("FPA"), other than as contemplated
by 18 C.F.R.
5
<PAGE> 6
sec. 292.601(c) or (iii) subject to any state law or regulation with
respect to rates or the financial or organizational regulation of electric
utilities, other than as contemplated by 18 C.F.R. sec. 292.602(c).
(xxii) Each of the power generation projects in which the Company or
its subsidiaries has an interest which is subject to the requirements under
the Public Utility Regulatory Policies Act of 1978, as amended (16 U.S.C.
sec. 796, et seq.), and the regulations of the Federal Energy Regulatory
Commission promulgated thereunder, as amended from time to time, necessary
to be a "qualifying cogeneration facility" and/or a "qualifying small power
production facility" meets such requirements.
(xxiii) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(xxiv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(b) The Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters that:
(i) The Selling Stockholder has and on each Closing Date hereinafter
mentioned will have valid and unencumbered title to the Offered Securities
to be delivered by the Selling Stockholder on such Closing Date and full
right, power and authority to enter into this Agreement and the
Subscription Agreement and to sell, assign, transfer and deliver the
Offered Securities to be delivered by the Selling Stockholder on such
Closing Date hereunder; this Agreement and the Subscription Agreement have
been duly authorized, executed and delivered by the Selling Stockholder;
and upon the delivery of and payment for the Offered Securities on each
Closing Date hereunder, the several Underwriters will acquire valid and
unencumbered title to the Offered Securities to be delivered by the Selling
Stockholder on such Closing Date.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, (B) on
the Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations did not include, or
will not include, any untrue statement of a material fact and did not omit,
or will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (C) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the Effective
Date of the Additional Registration Statement in which the Prospectus is
included, each Registration Statement and the Prospectus will conform, in
all respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement:
(A) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectuses will conform in all
respects to the requirements of the Act and the Rules and Regulations, and
(B) none of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectuses based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for
6
<PAGE> 7
use therein, it being understood and agreed that the only such information
is that described as such in Section 7(c).
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholder
agree, severally and not jointly, to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholder, at a purchase price of US$ per share, the
number of U.S. Firm Securities set forth below the caption "Company" or "Selling
Stockholder", as the case may be, and opposite the name of such Underwriter in
Schedule A hereto.
The Company and the Selling Stockholder will deliver the U.S. Firm
Securities to the Representatives for the accounts of the Underwriters, against
payment of the purchase price by wire transfer in Federal (same day) funds by
official check or checks or wire transfer to accounts previously designated to
CSFBC by the Company and the Selling Stockholder at a bank or banks acceptable
to CSFBC to the order of (x) the Company in the case of 4,382,256 shares of U.S.
Firm Securities and (y) the Selling Stockholder in the case of 10,053,744 shares
of U.S. Firm Securities, at the office of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York 10022, at A.M., New York time, on
, 1996, or at such other time not later than seven full business
days thereafter as CS First Boston Corporation ("CSFBC") and the Company
determine, such time being herein referred to as the "First Closing Date". For
purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the First
Closing Date (if later than the otherwise applicable settlement date) shall be
the settlement date for payment of funds and delivery of securities for all the
Offered Securities sold pursuant to the U.S. Offering and the International
Offering. The certificates for the U.S. Firm Securities so to be delivered will
be in definitive form, in such denominations and registered in such names as
CSFBC requests and will be made available for checking and packaging at the
above office of Skadden, Arps, Slate, Meagher & Flom, at least 24 hours prior to
the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectuses, the
Underwriters may purchase all or less than all of the U.S. Optional Securities
at the purchase price per Security to be paid for the U.S. Firm Securities. The
U.S. Optional Securities to be purchased by the Underwriters on any Optional
Closing Date shall be in the same proportion to all the Optional Securities to
be purchased by the Underwriters and the Managers on such Optional Closing Date
as the U.S. Firm Securities bear to all the Firm Securities. The Company agrees
to sell to the Underwriters such U.S. Optional Securities and the Underwriters
agree, severally and not jointly, to purchase such U.S. Optional Securities.
Such U.S. Optional Securities shall be purchased for the account of each
Underwriter in the same proportion as the number of shares of U.S. Firm
Securities set forth opposite such Underwriter's name bears to the total number
of shares of U.S. Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the sale of the U.S. Firm
Securities. No Optional Securities shall be sold or delivered unless the U.S.
Firm Securities and the International Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CSFBC on behalf of the Underwriters and the Managers to the
Company. It is understood that CSFBC is authorized to make payment for and
accept delivery of such Optional Securities on behalf of the Underwriters and
Managers pursuant to the terms of CSFBC's instructions to the Company.
Each time for the delivery of and payment for the U.S. Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
U.S. Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official check or
checks or wire transfer to an account previously designated to CSFBC by the
Company at a bank acceptable to CSFBC to the order of the Company, at the office
of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022. The
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<PAGE> 8
certificates for the U.S. Optional Securities will be in definitive form, in
such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the above office of Skadden, Arps, Slate, Meagher
& Flom, at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the U.S. Securities for sale to the public as set forth in the
U.S. Prospectus.
5. Certain Agreements of the Company and the Selling Stockholder. The
Company agrees with the several Underwriters and the Selling Stockholder that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file each of the Prospectuses with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to by
CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of (A)
the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of the
Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time either Prospectus is printed and
distributed to any Underwriter or Manager, or will make such filing at such
later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
either of the related prospectuses or the Initial Registration Statement,
the Additional Registration Statement (if any) or either of the
Prospectuses and will not effect such amendment or supplementation without
CSFBC's prior consent; and the Company will also advise CSFBC promptly of
the effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or either of the
Prospectuses and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as
soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter, Manager or dealer, any event occurs as a result
of which either or both of the Prospectuses as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend either or both of the Prospectuses to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent to,
nor the Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date,
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<PAGE> 9
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end
of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of the
Registration Statement (five of which will be signed and will include all
exhibits), each preliminary prospectus relating to the U.S. Securities,
and, so long as delivery of a prospectus relating to the Offered Securities
is required to be delivered under the Act in connection with sales by any
Underwriter or dealer, the U.S. Prospectus and all amendments and
supplements to such documents, in each case in such quantities as CSFBC
requests. The U.S. Prospectus shall be so furnished on or prior to 3:00
P.M., New York time, on the business day following the later of the
execution and delivery of this Agreement or the Effective Time of the
Initial Registration Statement. All other such documents shall be so
furnished as soon as available. The Company will pay the expenses of
printing and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions in the United
States as CSFBC designates and will continue such qualifications in effect
so long as required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of CSFBC, except
grants of employee stock options pursuant to the terms of a plan in effect
on the date hereof, issuances of Securities pursuant to the exercise of
such options or the exercise of any other employee stock options
outstanding on the date hereof.
The Company and the Selling Stockholder agree with the several Underwriters
that the Company and the Selling Stockholder will pay all expenses incident to
the performance of the obligations of the Company and the Selling Stockholder,
as the case may be, under this Agreement, and will jointly and severally
reimburse the Underwriters (if and to the extent incurred by them) for any
filing fees and other expenses (including fees and disbursements of counsel)
incurred by them in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions in the United States as CSFBC
designates and the printing of memoranda relating thereto, for any fees charged
by investment rating agencies for the rating of the Offered Securities, for the
filing fee of the National Association of Securities Dealers, Inc. relating to
the Offered Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities, for any
transfer taxes on the sale by the Selling Stockholder of the Offered Securities
to the Underwriters and for expenses incurred in distributing preliminary
prospectuses and the Prospectuses (including any amendments and supplements
thereto) to the Underwriters.
The Selling Stockholder agrees to deliver to CSFBC, attention: Investment
Banking Department -- Transactions Advisory Group on or prior to the First
Closing Date a properly completed and executed United States Treasury Department
Form W-8 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the U.S. Firm Securities on the
First Closing Date and the U.S. Optional Securities to be purchased on each
Optional Closing Date will be subject to the accuracy of the representations and
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<PAGE> 10
warranties on the part of the Company and the Selling Stockholder herein, to the
accuracy of the statements of Company and Selling Stockholder officers made
pursuant to the provisions hereof, to the performance by the Company and the
Selling Stockholder of their obligations hereunder and to the following
additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of Arthur Andersen LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above,
a reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial statements
for them to be in conformity with generally accepted accounting
principles;
(B) at the date of the latest available balance sheet read by
such accountants, or at a subsequent specified date not more than
five days prior to the date of this Agreement, there was any change
in the capital stock or any increase in short-term indebtedness or
long-term debt of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current
assets or net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectuses; or
(C) for the period from the closing date of the latest income
statement included in the Prospectuses to the closing date of the
latest available income statement read by such accountants there were
any decreases, as compared with the corresponding period of the
previous year in consolidated revenues or net operating income or in
the total or per share amounts of consolidated net income;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectuses disclose have occurred or
may occur or which are described in such letter;
(iv) on the basis of their review of the unaudited pro forma
financial statements included in the Registration Statement and
inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that the unaudited
pro forma financial statements included in the Registration Statement do
not comply as to form in all material respects with the applicable
accounting requirements under the Act; and
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<PAGE> 11
(v) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by analysis
or computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results, except as
otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"Registration Statements" shall mean the Initial Registration Statement and
the additional registration statement as proposed to be filed or as
proposed to be amended by the post-effective amendment to be filed shortly
prior to its Effective Time, and (iii) "Prospectuses" shall mean the
prospectuses included in the Registration Statements.
(b) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), from each of Coopers &
Lybrand L.L.P., Moss Adams LLP and Ernst & Young LLP confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to the
effect that they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information contained
in the Registration Statements (in each case to the extent that such dollar
amounts, percentages and other financial information are derived from the
general accounting records of the Company or its subsidiaries subject to
the internal controls of the Company's or such subsidiaries' accounting
systems or are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a reading of such
general accounting records and other procedures specified in such letter
and have found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as otherwise
specified in such letter.
(c) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time either
Prospectus is printed and distributed to any Underwriter or Manager, or
shall have occurred at such later date as shall have been consented to by
CSFBC. If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, each of the Prospectuses
shall have been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to such Closing Date,
no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives,
shall be contemplated by the Commission.
(d) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
subsidiaries which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and
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<PAGE> 12
adverse and makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the U.S. Securities;
(ii) any downgrading in the rating of any debt securities of the Company by
any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading
in securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if,
in the judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the U.S.
Securities.
(e) The Representatives shall have received an opinion, dated such
Closing Date, of Brobeck Phleger & Harrison LLP, counsel for the Company,
to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct its
business as described in the Prospectuses; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease property or the
conduct of its business requires such qualification;
(ii) The Offered Securities delivered on such Closing Date and all
other outstanding shares of the Securities of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and
conform to the description thereof contained in the Prospectuses; and
the stockholders of the Company have no preemptive rights with respect
to the Securities;
(iii) There are no contracts, agreements or understandings known to
such counsel between the Company and any person granting such person the
right to require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such securities in
the securities registered pursuant to the Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(iv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement or the
Subscription Agreement in connection with the issuance or sale of the
Offered Securities by the Company, except such as have been obtained and
made under the Act and such as may be required under state securities
laws;
(vi) The execution, delivery and performance of this Agreement and
the Subscription Agreement and the consummation of the transactions
herein and therein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Company or any subsidiary
of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the
charter or by-laws of the Company or any such subsidiary, and the
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<PAGE> 13
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement and the
Subscription Agreement, respectively;
(vii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, each of the Prospectuses either were filed
with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or were included
in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and each of
the Prospectuses, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
such counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or as of
such Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that either
of the Prospectuses or any amendment or supplement thereto, as of its
issue date or as of such Closing Date, contained any untrue statement of
a material fact or omitted to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; the descriptions in the
Registration Statements and the Prospectuses of contracts and agreements
under "Certain Transactions" and "Description of Capital Stock" and of
statutes, legal and governmental proceedings are accurate and fairly
present the information required to be shown; and after due inquiry such
counsel does not know of any legal or governmental proceedings required
to be described in a Registration Statement or the Prospectuses which
are not described as required or of any contracts or documents of a
character required to be described in a Registration Statement or the
Prospectuses or to be filed as exhibits to a Registration Statement
which are not described and filed as required; it being understood that
such counsel need express no opinion as to the financial statements or
other financial data contained in the Registration Statement or the
Prospectuses; and
(viii) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by the Company.
(f) The Representatives shall have received an opinion, dated such
Closing Date, of Joseph E. Ronan, Jr., General Counsel of the Company, to
the effect that:
(i) Each subsidiary of the Company (x) other than those
subsidiaries specified in clause (y) of this Section 6(f)(i) has been
duly incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, and has
corporate power and authority to own its property and to conduct its
business as described in the Prospectuses or (y) that is not a
corporation is a limited partnership, has been duly formed and is
validly existing as a limited partnership in good standing under the
laws of the jurisdiction of its formation, and has full power and
authority to own its property and to conduct its business as described
in the Prospectuses; and, in either case, is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires
such qualification;
(ii) The Company and each of its subsidiaries possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business as now
operated by them as described in the Prospectuses and such counsel is
not aware of the receipt of any notice of proceedings relating to the
revocation or modification of any such certificate, authority, license
or permit that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
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<PAGE> 14
(iii) The descriptions in the Registration Statements and the
Prospectuses of contracts and agreements of the Company and its
subsidiaries and affiliates under "Business -- Description of
Facilities -- Power Generation Facilities" and of statutes, legal and
governmental proceedings are accurate and fairly present the information
required to be shown;
(iv) Such counsel is of the opinion that the Company and each
subsidiary of the Company (i) is in compliance with any and all
applicable Environmental Laws, (ii) has received all permits, licenses
or other approvals required of it under applicable Environmental Laws to
conduct its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not, singly
or in the aggregate, have a material adverse effect on the Company; and
(v) Neither the Company nor any of its subsidiaries is (i) subject
to regulation as a "holding company" or a "Subsidiary company" of a
holding company or an "affiliate" of a Subsidiary or holding company or
a "public utility company" under Section 2(a) of PUHCA, (ii) subject to
regulation under the FPA, other than as contemplated by 18 C.F.R.
sec. 292.601(c) or (iii) subject to any state law or regulation with
respect to the rates or the financial or organizational regulation of
electric utilities, other than as contemplated by 18 C.F.R.
sec. 292.602(c).
(g) The Representatives shall have received an opinion, dated such
Closing Date, of [Brobeck Phleger & Harrison LLP], counsel for the Selling
Stockholder, to the effect that:
(i) The Selling Stockholder had valid and unencumbered title to the
Offered Securities delivered by the Selling Stockholder on such Closing
Date and had full right, power and authority to sell, assign, transfer
and deliver the Offered Securities delivered by the Selling Stockholder
on such Closing Date hereunder; and the several Underwriters have
acquired valid and unencumbered title to the Offered Securities
purchased by them from the Selling Stockholder on such Closing Date
hereunder;
(ii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Selling Stockholder for the consummation of the
transactions contemplated by this Agreement or the Subscription
Agreement in connection with the sale of the Offered Securities sold by
the Selling Stockholder, except such as have been obtained and made
under the Act and such as may be required under state securities laws;
(iii) The execution, delivery and performance of this Agreement and
the Subscription Agreement and the consummation of the transactions
herein and therein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Selling Stockholder or
any of its properties or any agreement or instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder is
bound or to which any of the properties of the Selling Stockholder is
subject or the charter or bylaws of the Selling Stockholder; and
(iv) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by the Selling Stockholder.
In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of
New York, the federal law of the United States and the corporate laws of
the State of Delaware, upon opinions of other counsel, who shall be counsel
reasonably satisfactory to counsel for the Underwriters, in which case (i)
the opinion of such other counsel shall also be addressed to the
Underwriters and (ii) the opinion of Brobeck, Phleger & Harrison LLP shall
state that, in their opinion, they and the Underwriters are justified in
relying on such counsel's opinion.
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(h) The Representatives shall have received from Skadden, Arps, Slate,
Meagher & Flom, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the Company,
the validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectuses and other related matters as the
Representatives may require, and the Selling Stockholder and the Company
shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice-President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time either
Prospectus was printed and distributed to any Underwriter or Manager; and,
subsequent to the date of the most recent financial statements in the
Prospectuses, there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in
the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole except as
set forth in or contemplated by the Prospectuses or as described in such
certificate.
(j) The Representatives shall have received a letter, dated such
Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than five days prior to such
Closing Date for the purposes of this subsection.
(k) The Representatives shall have received a letter, dated such
Closing Date, from each of Coopers & Lybrand L.L.P., Moss Adams LLP and
Ernst & Young LLP which meets the requirements of subsection (b) of this
Section, except that the specified date referred to in such subsection will
be a date not more than five days prior to such Closing Date for the
purposes of this subsection.
(l) The Underwriters shall have received "lock-up" letters, dated on
or prior to the First Closing Date, which letters shall be in the form of
Schedule D hereto, from each holder of options to purchase Securities
outstanding on the date of this Agreement.
(m) The Underwriters shall have received certificates, dated the First
Closing Date, of two executive officers of the Selling Stockholder in which
such officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of the
Selling Stockholder in this Agreement are true and correct and the Selling
Stockholder has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to the First
Closing Date.
(n) On such Closing Date, the Managers shall have purchased the
International Firm Securities or the International Optional Securities, as
the case may be, pursuant to the Subscription Agreement.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, either of the Prospectuses, or any amendment or
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<PAGE> 16
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being understood
and agreed that the only information furnished by any Underwriter consists of
the information described as such in subsection (c) below.
(b) The Selling Stockholder will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectuses, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal
or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Selling
Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by an Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (c) below and provided
further, however, that the liability of the Selling Stockholder pursuant to
this Section 7 is limited to the amount of the net proceeds of the offering
of the U.S. Firm Securities (after deducting the underwriting discount but
before deducting expenses) received by the Selling Stockholder.
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and the Selling Stockholder against any losses,
claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, either of the Prospectuses, or any
amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Company
and the Selling Stockholder in connection with investigating or defending
any such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such information
furnished by any Underwriter consists of (i) the following information in
the U.S. Prospectus furnished on behalf of each Underwriter: the last
paragraph at the bottom of the cover page concerning the terms of the
offering by the Underwriters, the legends concerning over-allotments and
stabilizing and passive market making on the inside front cover page, the
concession and reallowance figures appearing in the fifth paragraph under
the caption "Underwriting" and the statements contained in the twelfth
paragraph under the caption "Underwriting"; and (ii) the following
information in the U.S. Prospectus furnished on behalf of CSFBC: the
material relationship disclosure appearing in the eleventh and fifteenth
paragraphs under the caption "Underwriting".
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(d) Promptly after receipt by an indemnified party under this Section
or Section 9 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a), (b) or (c) above or Section 9,
notify the indemnifying party of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under subsection
(a), (b) or (c) above or Section 9. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section or
Section 9, as the case may be, for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
other than reasonable costs of investigation. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all
liability on any claims that are the subject matter of such action.
(e) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a), (b) or (c)
above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholder on the one
hand and the Underwriters on the other from the offering of the U.S.
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholder on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the U.S.
Securities (before deducting expenses) received by the Company and the
Selling Stockholder bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Selling Stockholder or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim
which is the subject of this subsection (e). Notwithstanding the provisions
of this subsection (e), no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the U.S.
Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholder under
this Section and Section 9 shall be in addition to any liability which the
Company and the Selling Stockholder may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls
any
17
<PAGE> 18
Underwriter or the QIU (as hereinunder defined) within the meaning of the
Act; and the obligations of the Underwriters under this Section shall be in
addition to any liability which the respective Underwriters may otherwise
have and shall extend, upon the same terms and conditions, to each director
of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase U.S. Securities hereunder on either the First or
any Optional Closing Date and the aggregate number of shares of U.S. Securities
that such defaulting Underwriter or Underwriters agreed but failed to purchase
does not exceed 10% of the total number of shares of U.S. Securities that the
Underwriters are obligated to purchase on such Closing Date, CSFBC may make
arrangements satisfactory to the Company and the Selling Stockholder for the
purchase of such U.S. Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
nondefaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the U.S. Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares
U.S. Securities with respect to which such default or defaults occur exceeds 10%
of the total number of shares of U.S. Securities that the Underwriters are
obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC and the Company and the Selling Stockholder for the purchase of such U.S.
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholder, except as
provided in Section 10 (provided that if such default occurs with respect to
U.S. Optional Securities after the First Closing Date, this Agreement will not
terminate as to the U.S. Firm Securities or any U.S. Optional Securities
purchased prior to such termination). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
9. Qualified Independent Underwriter. The Company and the Selling
Stockholder hereby confirm that at their request PaineWebber Incorporated has
without compensation acted as "qualified independent underwriter" (in such
capacity, the "QIU") within the meaning of Rule 2720(b)(15)(A) through
(b)(15)(G) of the Conduct Rules of the National Association of Securities
Dealers, Inc. in connection with the offering of the Offered Securities. The
Company and the Selling Stockholder will indemnify and hold harmless the QIU
against any losses, claims, damages or liabilities, joint or several, to which
the QIU may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the QIU's acting (or alleged failing to act) as such "qualified
independent underwriter" and will reimburse the QIU for any legal or other
expenses reasonably incurred by the QIU in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred.
10. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Stockholder, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the U.S. Securities. If this Agreement is terminated pursuant to Section 8
or if for any reason the purchase of the U.S. Securities by the Underwriters is
not consummated, the Company and the Selling Stockholder shall remain
responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Company, the Selling
Stockholders and the Underwriters pursuant to Section 7 and the obligations of
the Company and the Selling Stockholder pursuant to Section 9 shall remain in
effect, and if any U.S. Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the U.S. Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iii), (iv) or (v) of Section 6(d), the Company and
the Selling Stockholder will reimburse
18
<PAGE> 19
the Underwriters for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the U.S. Securities.
11. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives c/o CS First Boston Corporation, Park Avenue Plaza, New
York, N.Y. 10055, Attention: Investment Banking Department -- Transactions
Advisory Group, or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at Calpine Corporation, 50 West San Fernando
Street, San Jose, California 95113, Attention: General Counsel, or if sent to
the Selling Stockholder, will be mailed, delivered or telegraphed and confirmed
to it at Electrowalt Ltd., Bellerivestrasse 36, P.O. Box CH-8022, Zurich,
Switzerland, Attention: Rudolf Boesch; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and
confirmed to such Underwriter.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
13. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company and the Selling Stockholder hereby submit to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
The Selling Stockholder irrevocably appoints [ ] as its
authorized agent in the Borough of Manhattan in the City of New York upon which
process may be served in any such suit or proceeding, and agrees that service of
process upon such agent, and written notice of said service to the Selling
Stockholder by the person serving the same to the address provided in Section 11
shall be deemed in every respect effective service of process upon the Company
in any such suit or proceeding. The Selling Stockholder further agrees to take
any and all action as may be necessary to maintain such designation and
appointment of such agent in full force and effect for a period of seven years
from the date of this Agreement.
The obligation of the Selling Stockholder in respect of any sum due to any
Underwriter shall, notwithstanding any judgment in a currency other than United
States dollars, not be discharged until the first business day, following
receipt by such Underwriter of any sum adjudged to be so due in such other
currency, on which (and only to the extent that) such Underwriter may in
accordance with normal banking procedures purchase United States dollars with
such other currency; if the United States dollars so purchased are less than the
sum originally due to such Underwriter hereunder, the Selling Stockholder
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify such Underwriter against such loss. If the United States dollars so
purchased are greater than the sum originally due to such Underwriter hereunder,
such Underwriter agrees to pay the Selling Stockholder an amount equal to the
excess of the dollars so purchased over the sum originally due to such
Underwriter hereunder.
19
<PAGE> 20
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company and to the Selling
Stockholder one of the counterparts hereof, whereupon it will become a binding
agreement among the Selling Stockholder, the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
Electrowatt Ltd.
By:
--------------------------------------
Name:
Title:
Calpine Corporation
By:
--------------------------------------
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed
and accepted as of the date first above written.
CS FIRST BOSTON CORPORATION
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC
Acting on behalf of themselves and as the Repre-
sentatives of the several Underwriters.
ByCS FIRST BOSTON CORPORATION
By
---------------------------------------------
Name:
Title:
20
<PAGE> 21
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
U.S. FIRM SECURITIES
TO BE SOLD BY:
----------------------- TOTAL NUMBER OF U.S.
SELLING FIRM SECURITIES
UNDERWRITER COMPANY STOCKHOLDER TO BE PURCHASED
- --------------------------------------------------- --------- ----------- --------------------
<S> <C> <C> <C>
CS First Boston Corporation........................
Morgan Stanley & Co. Incorporated..................
PaineWebber Incorporated...........................
Salomon Brothers Inc...............................
------- ------- -------
Total.................................... 4,382,256 10,053,744 14,436,000
======= ======= =======
</TABLE>
21
<PAGE> 22
SCHEDULE B
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY % OF OUTSTANDING SECURITIES PLEDGED PLEDGE
- --------------------------------------- --------------------------------------- ----------
<S> <C> <C>
</TABLE>
<PAGE> 23
SCHEDULE C
GENERAL PARTNERSHIP INTERESTS
<PAGE> 24
SCHEDULE D
FORM OF LOCK-UP LETTER
September , 1996
CALPINE CORPORATION
50 West San Fernando Street
San Jose, California 95113
CS FIRST BOSTON CORPORATION
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC.
As Representatives of the Several Underwriters
c/o CS First Boston Corporation
Park Avenue Plaza
New York, N.Y. 10055
CS FIRST BOSTON LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
PAINEWEBBER INTERNATIONAL (U.K.) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
As Representatives of the Several Managers
c/o CS First Boston Limited
One Cabot Square
London, England E14 4OJ
Dear Sirs:
As an inducement to the Underwriters (as defined below) and Managers (as
defined below) to execute the Underwriting Agreement, dated September , 1996
("Underwriting Agreement"), among Calpine Corporation (the "Company"), the
selling stockholder named therein (the "Selling Stockholder") and CS First
Boston Corporation, Morgan Stanley & Co. Incorporated, PaineWebber Incorporated,
Salomon Brothers Inc. and the other underwriters listed in Schedule A thereto
(the "Underwriters") and the Subscription Agreement, dated September , 1996
("Subscription Agreement"), among the Company, the Selling Stockholder and CS
First Boston Limited, Morgan Stanley & Co. International Limited, PaineWebber
International (U.K.) Limited, Salomon Brothers International Limited, and the
other managers named therein (the "Managers"), as the case may be, pursuant to
which an offering will be made that is intended to result in the establishment
of a public market for the common stock, no par value (the "Securities"), of the
Company, the undersigned hereby agrees that, for a period of 180 days after the
initial public offering (the "Commencement Date") of the Securities pursuant to
the Underwriting Agreement and the Subscription Agreement to which you are or
expect to become parties, the undersigned will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any shares of
Securities beneficially owned by the undersigned or issuable upon exercise of
options beneficially owned by the undersigned or any securities convertible into
or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal without
the prior written consent of CS First Boston Corporation.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.
<PAGE> 25
This Agreement shall be binding on the undersigned and the respective
successors, heirs, personal representatives and assigns of the undersigned. This
agreement shall lapse and become null and void if the Commencement Date shall
not have occurred on or before October , 1996.
Very truly yours,
Name:
<PAGE> 1
EXHIBIT 1.2
18,045,000 SHARES
CALPINE CORPORATION
COMMON STOCK, $.001 PAR VALUE
SUBSCRIPTION AGREEMENT
LONDON, ENGLAND
SEPTEMBER , 1996
CS FIRST BOSTON LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
PAINEWEBBER INTERNATIONAL (U.K.) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
As Representatives of the Several Managers
c/o CS First Boston Limited ("CSFBL")
One Cabot Square
London, England B14 40J
Dear Sirs:
1. Introductory. Calpine Corporation, a Delaware corporation ("Company"),
proposes to issue and sell 1,095,564 shares of its Common Stock, $.001 par value
("Securities"), and Electrowatt, Ltd. ("Selling Stockholder") proposes to sell
2,513,436 outstanding shares of the Securities (such shares of Securities being
hereinafter referred to as the "International Firm Securities") to the several
Managers named in Schedule A hereto (the "Managers").
It is understood that the Company and the Selling Stockholder are
concurrently entering into an Underwriting Agreement, dated the date hereof
("Underwriting Agreement"), with certain United States underwriters listed in
Schedule A thereto (the "U.S. Underwriters"), for whom CS First Boston
Corporation ("CFSBC"), Morgan Stanley & Co. Incorporated, PaineWebber
Incorporated and Salomon Brothers Inc. are acting as representatives (the "U.S.
Representatives") relating to the concurrent offering and sale of 4,382,256
shares of Securities by the Company and 10,053,744 shares of Securities by the
Selling Stockholder ("U.S. Firm Securities") in the United States and Canada
("U.S. Offering").
In addition, as set forth below, the Company proposes to issue and sell (i)
to the U.S. Underwriters, at the option of the U.S. Underwriters, an aggregate
of not more than 2,165,400 additional shares of Securities ("U.S. Optional
Securities") and (ii) to the Managers, at the option of the Managers, an
aggregate of not more than 541,350 additional shares of Securities
("International Optional Securities"). The U.S. Firm Securities and the U.S.
Optional Securities are hereinafter called the "U.S. Securities"; the
International Firm Securities and the International Optional Securities are
hereinafter called the "International Securities"; the U.S. Firm Securities and
the International Firm Securities are hereinafter called the "Firm Securities";
the U.S. Optional Securities and the International Optional Securities are
hereinafter called the "Optional Securities". The U.S. Securities and the
International Securities are collectively referred to as the "Offered
Securities". To provide for the coordination of their activities, the U.S.
Underwriters and the Managers have entered into an Agreement Between U.S.
Underwriters and Managers which permits them, among other things, to sell the
Offered Securities to each other for purposes of resale.
The Company and the Selling Stockholder hereby agree with the several
Managers as follows:
2. Representations and Warranties of the Company and the Selling
Stockholder. (a) The Company represents and warrants to, and agrees with, the
several Managers that:
(i) A registration statement (No. 333-07497) relating to the Offered
Securities, including a form of prospectus relating to the U.S. Securities
and a form of prospectus relating to the International Securities
<PAGE> 2
being offered in the International Offering, has been filed with the
Securities and Exchange Commission ("Commission") and either (A) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (B) is proposed to be amended by amendment or
post-effective amendment. If such registration statement (the "initial
registration statement") has been declared effective, either (A) an
additional registration statement (the "additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (B) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the CSFBL that it does not propose to amend such
registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any)
filed prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing pursuant to
Rule 462(c), or (ii) if the Company has advised the CSFBL that it proposes
to file an amendment or post-effective amendment to such registration
statement, the date and time as of which such registration statement, as
amended by such amendment or post-effective amendment, as the case may be,
is declared effective by the Commission. If an additional registration
statement has not been filed prior to the execution and delivery of this
Agreement but the Company has advised CSFBL that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is filed
and becomes effective pursuant to Rule 462(b). "Effective Date" with
respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective
Time, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration statement
pursuant to the General Instructions of the Form on which it is filed and
including all information (if any) deemed to be a part of the initial
registration statement as of its Effective Time pursuant to Rule 430A(b)
("Rule 430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as amended
at its Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all information
(if any) deemed to be a part of the additional registration statement as of
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as
the "Additional Registration Statement". The Initial Registration Statement
and the Additional Registration Statement are hereinafter referred to
collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the U.S.
Securities and the form of prospectus relating to the International
Securities, each as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such
filing is required) as included in the Registration Statement, are
hereinafter referred to as the "U.S. Prospectus" and the "International
Prospectus", respectively, and collectively as the "Prospectuses". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial
2
<PAGE> 3
Registration Statement conformed in all respects to the requirements of the
Act and the rules and regulations of the Commission ("Rules and
Regulations") and did not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (B) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include,
or will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (C)
on the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of each of the
Prospectuses pursuant to Rule 424(b) or (if no such filing is required) at
the Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will conform, in all respects to the requirements of the Act
and the Rules and Regulations, and none of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: (A) on the Effective Date of the Initial Registration Statement,
the Initial Registration Statement will conform in all respects to the
requirements of the Act and the Rules and Regulations, (B) none of such
documents will include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (C) no Additional
Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a Registration
Statement or either of the Prospectuses based upon written information
furnished to the Company by any Manager through CSFBL or by any U.S.
Underwriter through the U.S. Representatives specifically for use therein,
it being understood and agreed that the only such information is that
described as such in Section 7(c).
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectuses; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
(iv) Each subsidiary of the Company (x) other than those subsidiaries
specified in clause (y) of this subparagraph has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectuses or (y) that is not a corporation is a limited partnership, has
been duly formed and is validly existing as a limited partnership in good
standing under the laws of the jurisdiction of its formation, and has full
power and authority to own its properties and conduct its business as
described in the Prospectuses; each subsidiary of the Company is duly
qualified to do business as a foreign corporation or limited partnership,
as the case may be, in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects; and the Company is not a general partner
in any partnership.
(v) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement and the
Underwriting Agreement on each Closing Date (as defined below), such
Offered Securities will have been, validly issued, fully paid and
nonassessable and will conform to the description thereof contained in the
Prospectuses; and the stockholders of the Company have no preemptive rights
with respect to the Securities.
3
<PAGE> 4
(vi) Except as disclosed in the Prospectuses, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Manager or U.S.
Underwriter for a brokerage commission, finder's fee or other like payment.
(vii) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act.
(viii) The Offered Securities have been approved for listing on the
New York Stock Exchange subject to notice of issuance.
(ix) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement or the
Underwriting Agreement in connection with the issuance and sale of the
Offered Securities by the Company, except such as have been obtained and
made under the Act and such as may be required under state securities laws.
(x) The execution, delivery and performance of this Agreement and the
Underwriting Agreement, and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company or
any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, or the charter or by-laws of the Company
or any such subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by this
Agreement and the Underwriting Agreement, respectively.
(xi) This Agreement and the Underwriting Agreement have been duly
authorized, executed and delivered by the Company.
(xii) Except as disclosed in the Prospectuses, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectuses, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(xiii) The Company and its subsidiaries possess adequate certificates,
authorities, licenses or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by them
as described in the Prospectuses and have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority, license or permit that, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(xiv) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its subsidiaries
taken as a whole.
(xv) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any
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notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(xvi) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(xvii) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably concluded
that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(xviii) Except as disclosed in the Prospectuses, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a material adverse effect on the condition (financial
or other), business, properties or results of operations of the Company and
its subsidiaries taken as a whole, or would materially and adversely affect
the ability of the Company to perform its obligations under this Agreement
or the Underwriting Agreement, or which are otherwise material in the
context of the sale of the Offered Securities; and no such actions, suits
or proceedings are threatened or, to the Company's knowledge, contemplated.
(xix) The financial statements included in each Registration Statement
and the Prospectuses present fairly the financial position of the Company
and its consolidated subsidiaries as of the dates shown and their results
of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis;
the schedules included in each Registration Statement present fairly the
information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting the
significant effects directly attributable to the transactions or events
described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding historical
financial statement amounts.
(xx) Except as disclosed in the Prospectuses, since the date of the
latest audited financial statements included in the Prospectuses there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the Prospectuses, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(xxi) Neither the Company nor any of its subsidiaries is (i) subject
to regulation as a "holding company" or a "Subsidiary company" of a holding
company or a "public utility company" under Section 2(a) of the Public
Utility Holding Company Act of 1935 ("PUHCA"), (ii) subject to regulation
under the Federal Power Act, as amended ("FPA"), other than as contemplated
by 18 C.F.R.
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sec. 292.601(c) or (iii) subject to any state law or regulation with
respect to rates or the financial or organizational regulation of electric
utilities, other than as contemplated by 18 C.F.R. sec. 292.602(c).
(xxii) Each of the power generation projects in which the Company or
its subsidiaries has an interest which is subject to the requirements under
the Public Utility Regulatory Policies Act of 1978, as amended (16 U.S.C.
sec. 796, et seq.), and the regulations of the Federal Energy Regulatory
Commission promulgated thereunder, as amended from time to time, necessary
to be a "qualifying cogeneration facility" and/or a "qualifying small power
production facility" meets such requirements.
(xxiii) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(xxiv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(b) The Selling Stockholder represents and warrants to, and agrees with,
the several Managers that:
(i) The Selling Stockholder has and on each Closing Date hereinafter
mentioned will have valid and unencumbered title to the Offered Securities
to be delivered by the Selling Stockholder on such Closing Date and full
right, power and authority to enter into this Agreement and the
Underwriting Agreement and to sell, assign, transfer and deliver the
Offered Securities to be delivered by the Selling Stockholder on such
Closing Date hereunder; this Agreement and the Underwriting Agreement have
been duly authorized, executed and delivered by the Selling Stockholder;
and upon the delivery of and payment for the Offered Securities on each
Closing Date hereunder, the several Managers will acquire valid and
unencumbered title to the Offered Securities to be delivered by the Selling
Stockholder on such Closing Date.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, (B) on
the Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations did not include, or
will not include, any untrue statement of a material fact and did not omit,
or will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (C) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the Effective
Date of the Additional Registration Statement in which the Prospectus is
included, each Registration Statement and the Prospectus will conform, in
all respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement:
(A) on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectuses will conform in all
respects to the requirements of the Act and the Rules and Regulations, and
(B) none of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectuses based upon written information
furnished to the Company by any Manager through CSFBL specifically for use
therein, it being understood and agreed that the only such information is
that described as such in Section 7(c).
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3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholder
agree, severally and not jointly, to sell to each Manager, and each Manager
agrees, severally and not jointly, to purchase from the Company and the Selling
Stockholder, at a purchase price of US$ per share, the number of
International Firm Securities set forth below the caption "Company" or "Selling
Stockholder", as the case may be, and opposite the name of such Manager in
Schedule A hereto.
The Company and the Selling Stockholder will deliver the International Firm
Securities to CFSBL for the accounts of the Managers, against payment of the
purchase price by wire transfer in Federal (same day) funds by official check or
checks or wire transfer to accounts previously designated to CFSBL by the
Company and the Selling Stockholder at a bank or banks acceptable to CFSBL to
the order of (x) the Company in the case of 1,095,564 shares of International
Firm Securities and (y) the Selling Stockholder in the case of 2,513,436 shares
of International Firm Securities, at the office of Skadden, Arps, Slate, Meagher
& Flom, 919 Third Avenue, New York, New York 10022, at A.M., New York time, on
, 1996, or at such other time not later than seven full business
days thereafter as CFSBL and the Company determine, such time being herein
referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment
of funds and delivery of securities for all the Offered Securities sold pursuant
to the U.S. Offering and the International Offering. The certificates for the
International Firm Securities so to be delivered will be in definitive form, in
such denominations and registered in such names as CFSBL requests and will be
made available for checking and packaging at the above office of Skadden, Arps,
Slate, Meagher & Flom, at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectuses, the
Managers may purchase all or less than all of the International Optional
Securities at the purchase price per Security to be paid for the International
Firm Securities. The International Optional Securities to be purchased by the
Managers on any Optional Closing Date shall be in the same proportion to all the
Optional Securities to be purchased by the Managers and U.S. Underwriters on
such Optional Closing Date as the International Firm Securities bear to all the
Firm Securities. The Company agrees to sell to the Managers such International
Optional Securities and the Managers agree, severally and not jointly, to
purchase such International Optional Securities. Such International Optional
Securities shall be purchased for the account of each Manager in the same
proportion as the number of shares of International Firm Securities set forth
opposite such Managers's name bears to the total number of shares of
International Firm Securities (subject to adjustment by CSFBL to eliminate
fractions) and may be purchased by the Managers only for the purpose of covering
over-allotments made in connection with the sale of the International Firm
Securities. No Optional Securities shall be sold or delivered unless the
International Firm Securities and the U.S. Firm Securities previously have been,
or simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CSFBL on behalf of the Managers and the U.S. Underwriters to the
Company. It is understood that CSFBL is authorized to make payment for and
accept delivery of such Optional Securities on behalf of the Managers and U.S.
Underwriters pursuant to the terms of CSFBC's instructions to the Company.
Each time for the delivery of and payment for the International Optional
Securities, being herein referred to as an "Optional Closing Date", which may be
the First Closing Date (the First Closing Date and each Optional Closing Date,
if any, being sometimes referred to as a "Closing Date"), shall be determined by
CSFBC but shall be not later than five full business days after written notice
of election to purchase Optional Securities is given. The Company will deliver
the International Optional Securities being purchased on each Optional Closing
Date to CSFBLfor the accounts of the several Managers, against payment of the
purchase price therefor in Federal (same day) funds by official check or checks
or wire transfer to an account previously designated to CSFBLby the Company at a
bank acceptable to CSFBLto the order of the Company, at the office of Skadden,
Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022. The
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<PAGE> 8
certificates for the International Optional Securities will be in definitive
form, in such denominations and registered in such names as CSFBL requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the above office of Skadden, Arps, Slate, Meagher
& Flom, at a reasonable time in advance of such Optional Closing Date.
The Company will pay to the Managers as aggregate compensation for their
commitments hereunder and for their services in connection with the purchase of
the International Securities and the management of the offering thereof, if the
sale and delivery of the International Securities to the Managers provided
herein is consummated, an amount equal to U.S. $ per International
Security purchased, which may be divided among the Managers in such proportions
as they may determine. Such payment will be made on the First Closing Date in
the case of the International Firm Securities and on each Optional Closing Date
in the case of the International Optional Securities sold to the Manager on such
Closing Date, in each case by way of deduction by the Managers of said amount
from the purchase price for the International Securities referred to above.
4. Offering by Managers. It is understood that the several Managers propose
to offer the International Securities for sale to the public as set forth in the
International Prospectus.
In connection with the distribution of the International Securities, the
Managers, through a stabilizing manager, may over-allot or effect transactions
on any exchange, in any over-the-counter market or otherwise which stabilize or
maintain the market prices of the International Securities at levels other than
those which might otherwise prevail, but in such event and in relation thereto,
the Managers will act for themselves and not as agents of the Company, and any
loss resulting from over-allotment and stabilization will be borne, and any
profit arising therefrom will be beneficially retained, by the Managers. Such
stabilizing, if commenced, may be discontinued at any time.
5. Certain Agreements of the Company and the Selling Stockholder. The
Company agrees with the several Managers and the Selling Stockholder that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file each of the Prospectuses with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to by
CSFBL, subparagraph (4)) of Rule 424(b) not later than the earlier of (A)
the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of the
Initial Registration Statement.
The Company will advise CSFBL promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time either Prospectus is printed and
distributed to any Manager or U.S. Underwriter, or will make such filing at
such later date as shall have been consented to by CSFBL.
(b) The Company will advise CSFBL promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
either of the related prospectuses or the Initial Registration Statement,
the Additional Registration Statement (if any) or either of the
Prospectuses and will not effect such amendment or supplementation without
CSFBL's prior consent; and the Company will also advise CSFBL promptly of
the effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or either of the
Prospectuses and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as
soon as possible its lifting, if issued.
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(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any U.S. Underwriter, Manager or dealer, any event occurs as a
result of which either or both of the Prospectuses as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend either or both of the Prospectuses
to comply with the Act, the Company will promptly notify CSFBL of such
event and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance. Neither CSFBL's
consent to, nor the Managers' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Managers copies of the
Registration Statement (five of which will be signed and will include all
exhibits), each preliminary prospectus relating to the International
Securities, and, until completion of the distribution of the International
Securities as determined by CSFBL, the International Prospectus and all
amendments and supplements to such documents, in each case in such
quantities as CSFBL requests. The International Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other such
documents shall be so furnished as soon as available. The Company will pay
the expenses of printing and distributing to the Managers all such
documents.
(f) No action has been or, prior to the completion of the distribution
of the Offered Securities, will be taken by the Company in any jurisdiction
outside the United States and Canada that would permit a public offering of
the Offered Securities, or possession or distribution of the International
Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus issued in connection with the offering of the
Offered Securities, or any other offering material, in any country or
jurisdiction where action for that purpose is required.
(g) During the period of five years hereafter, the Company will
furnish to CSFBL and, upon request, to each of the other Underwriters, as
soon as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to CSFBL
(i) as soon as available, a copy of each report and any definitive proxy
statement of the Company filed with the Commission under the Securities
Exchange Act of 1934 or mailed to stockholders, and (ii) from time to time,
such other information concerning the Company as CSFBL may reasonably
request.
(h) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of CSFBC, except
grants of employee stock options pursuant to the terms of a plan in effect
on the date hereof, issuances of Securities pursuant to the exercise of
such options or the exercise of any other employee stock options
outstanding on the date hereof.
The Company and the Selling Stockholder agree with the several Managers
that the Company and the Selling Stockholder will pay all expenses incident to
the performance of the obligations of the Company and the Selling Stockholder,
as the case may be, under this Agreement, and will jointly and severally
reimburse
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the Managers (if and to the extent incurred by them), for any fees charged by
investment rating agencies for the rating of the Offered Securities, for the
filing fee of the National Association of Securities Dealers, Inc. relating to
the Offered Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities and for
expenses incurred in distributing preliminary prospectuses and the Prospectuses
(including any amendments and supplements thereto) to the Managers.
The Selling Stockholder agrees to deliver to CSFBC, attention: Investment
Banking Department -- Transactions Advisory Group on or prior to the First
Closing Date a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
6. Conditions of the Obligations of the Managers. The obligations of the
several Managers to purchase and pay for the International Firm Securities on
the First Closing Date and the International Optional Securities to be purchased
on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholder herein, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by the Company and the
Selling Stockholder of their obligations hereunder and to the following
additional conditions precedent:
(a) The Managers shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Arthur Andersen LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above,
a reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial statements
for them to be in conformity with generally accepted accounting
principles;
(B) at the date of the latest available balance sheet read by
such accountants, or at a subsequent specified date not more than
five days prior to the date of this Agreement, there was any change
in the capital stock or any increase in short-term indebtedness or
long-term debt of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current
assets or net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectuses; or
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(C) for the period from the closing date of the latest income
statement included in the Prospectuses to the closing date of the
latest available income statement read by such accountants there were
any decreases, as compared with the corresponding period of the
previous year in consolidated revenues or net operating income or in
the total or per share amounts of consolidated net income;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectuses disclose have occurred or
may occur or which are described in such letter;
(iv) on the basis of their review of the unaudited pro forma
financial statements included in the Registration Statement and
inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that the unaudited
pro forma financial statements included in the Registration Statement do
not comply as to form in all material respects with the applicable
accounting requirements under the Act; and
(v) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by analysis
or computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results, except as
otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"Registration Statements" shall mean the Initial Registration Statement and
the additional registration statement as proposed to be filed or as
proposed to be amended by the post-effective amendment to be filed shortly
prior to its Effective Time, and (iii) "Prospectuses" shall mean the
prospectuses included in the Registration Statements.
(b) The Managers shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), from each of Coopers & Lybrand
L.L.P. and Moss Adams LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that they have
compared specified dollar amounts (or percentages derived from such dollar
amounts) and other financial information contained in the Registration
Statements (in each case to the extent that such dollar amounts,
percentages and other financial information are derived from the general
accounting records of the Company or its subsidiaries subject to the
internal controls of the Company's or such subsidiaries' accounting systems
or are derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general accounting
records and other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such letter.
(c) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBL. If the
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Effective Time of the Additional Registration Statement (if any) is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or, if earlier, the time either Prospectus is printed and
distributed to any Manager or U.S. Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBL. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, each of the Prospectuses shall have been filed
with the Commission in accordance with the Rules and Regulations and
Section 5(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or,
to the knowledge of the Company or the Managers, shall be contemplated by
the Commission.
(d) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (A) a change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of CSFBL, be likely to prejudice
materially the success of the proposed issue, sale or distribution of the
International Securities, whether in the primary market or in respect of
dealings in the secondary market, or (B)(i) any change, or any development
or event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company or its
subsidiaries which, in the judgment of CSFBL is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the International
Securities; (ii) any downgrading in the rating of any debt securities of
the Company by any "nationally recognized statistical rating organization"
(as defined for purposes of Rule 436(g) under the Act), or any public
announcement that any such organization has under surveillance or review
its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any
suspension or limitation of trading in securities generally on the New York
Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company on
any exchange or in the over-the-counter market; (iv) any banking moratorium
declared by U.S. Federal or New York authorities; or (v) any outbreak or
escalation of major hostilities in which the United States is involved, any
declaration of war by the United States Congress or any other substantial
national or international calamity or emergency if, in the judgment of
CSFBL, the effect of any such outbreak, escalation, declaration, calamity
or emergency makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the International
Securities.
(e) The Managers shall have received an opinion, dated such Closing
Date, of Brobeck Phleger & Harrison LLP, counsel for the Company, to the
effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct its
business as described in the Prospectuses; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease property or the
conduct of its business requires such qualification;
(ii) The Offered Securities delivered on such Closing Date and all
other outstanding shares of the Securities of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and
conform to the description thereof contained in the Prospectuses; and
the stockholders of the Company have no preemptive rights with respect
to the Securities;
(iii) There are no contracts, agreements or understandings known to
such counsel between the Company and any person granting such person the
right to require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such securities in
the securities registered pursuant to the Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Act;
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<PAGE> 13
(iv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement or the
Underwriting Agreement in connection with the issuance or sale of the
Offered Securities by the Company, except such as have been obtained and
made under the Act and such as may be required under state securities
laws;
(vi) The execution, delivery and performance of this Agreement and
the Underwriting Agreement and the consummation of the transactions
herein and therein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Company or any subsidiary
of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the
charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement and the
Underwriting Agreement, respectively;
(vii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, each of the Prospectuses either were filed
with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or were included
in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and each of
the Prospectuses, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
such counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or as of
such Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that either
of the Prospectuses or any amendment or supplement thereto, as of its
issue date or as of such Closing Date, contained any untrue statement of
a material fact or omitted to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; the descriptions in the
Registration Statements and the Prospectuses of contracts and agreements
under "Certain Transactions" and " " and of statutes, legal and
governmental proceedings are accurate and fairly present the information
required to be shown; and after due inquiry such counsel does not know
of any legal or governmental proceedings required to be described in a
Registration Statement or the Prospectuses which are not described as
required or of any contracts or documents of a character required to be
described in a Registration Statement or the Prospectuses or to be filed
as exhibits to a Registration Statement which are not described and
filed as required; it being understood that such counsel need express no
opinion as to the financial statements or other financial data contained
in the Registration Statement or the Prospectuses; and
(viii) This Agreement and the Underwriting Agreement have been duly
authorized, executed and delivered by the Company.
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(f) The Managers shall have received an opinion, dated such Closing
Date, of Joseph E. Ronan, Jr., General Counsel of the Company, to the
effect that:
(i) Each subsidiary of the Company (x) other than those
subsidiaries specified in clause (y) of this Section 6(f)(i) has been
duly incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, and has
corporate power and authority to own its property and to conduct its
business as described in the Prospectuses or (y) that is not a
corporation is a limited partnership, has been duly formed and is
validly existing as a limited partnership in good standing under the
laws of the jurisdiction of its formation, and has full power and
authority to own its property and to conduct its business as described
in the Prospectuses; and, in either case, is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires
such qualification;
(ii) The Company and each of its subsidiaries possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business as now
operated by them as described in the Prospectuses and such counsel is
not aware of the receipt of any notice of proceedings relating to the
revocation or modification of any such certificate, authority, license
or permit that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(iii) The descriptions in the Registration Statements and the
Prospectuses of contracts and agreements of the Company and its
subsidiaries and affiliates under "Business -- Description of
Facilities -- Power Generation Facilities" and of statutes, legal and
governmental proceedings are accurate and fairly present the information
required to be shown;
(iv) Such counsel is of the opinion that the Company and each
subsidiary of the Company (i) is in compliance with any and all
applicable Environmental Laws, (ii) has received all permits, licenses
or other approvals required of it under applicable Environmental Laws to
conduct its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not, singly
or in the aggregate, have a material adverse effect on the Company; and
(v) Neither the Company nor any of its subsidiaries is (i) subject
to regulation as a "holding company" or a "Subsidiary company" of a
holding company or an "affiliate" of a Subsidiary or holding company or
a "public utility company" under Section 2(a) of PUHCA, (ii) subject to
regulation under the FPA, other than as contemplated by 18 C.F.R.
sec. 292.601(c) or (iii) subject to any state law or regulation with
respect to the rates or the financial or organizational regulation of
electric utilities, other than as contemplated by 18 C.F.R.
sec. 292.602(c).
(g) The Managers shall have received an opinion, dated such Closing
Date, of [Brobeck Phleger & Harrison LLP], counsel for the Selling
Stockholder, to the effect that:
(i) The Selling Stockholder had valid and unencumbered title to the
Offered Securities delivered by the Selling Stockholder on such Closing
Date and had full right, power and authority to sell, assign, transfer
and deliver the Offered Securities delivered by the Selling Stockholder
on such Closing Date hereunder; and the several Managers have acquired
valid and unencumbered title to the Offered Securities purchased by them
from the Selling Stockholder on such Closing Date hereunder;
(ii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Selling Stockholder for the consummation of the
transactions contemplated by this Agreement or the Underwriting
Agreement in connection with the sale of the Offered Securities sold by
the Selling Stockholder, except such as have been obtained and made
under the Act and such as may be required under state securities laws;
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<PAGE> 15
(iii) The execution, delivery and performance of this Agreement and
the Underwriting Agreement and the consummation of the transactions
herein and therein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Selling Stockholder or
any of its properties or any agreement or instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder is
bound or to which any of the properties of the Selling Stockholder is
subject or the charter or bylaws of the Selling Stockholder; and
(iv) This Agreement and the Underwriting Agreement have been duly
authorized, executed and delivered by the Selling Stockholder.
In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of
New York, the federal law of the United States and the corporate law of the
State of Delaware, upon opinions of other counsel, who shall be counsel
reasonably satisfactory to counsel for the Managers, in which case (i) the
opinion of such other counsel shall also be addressed to the Managers and
(ii) the opinion of Brobeck Phleger & Harrison LLP shall state that in
their opinion, they and the Managers are justified in relying on such other
counsel's opinion.
(h) The Managers shall have received from Skadden, Arps, Slate,
Meagher & Flom, counsel for the Managers, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectuses and other related matters as the
Representatives may require, and the Selling Stockholder and the Company
shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(i) The Managers shall have received a certificate, dated such Closing
Date, of the President or any Vice-President and a principal financial or
accounting officer of the Company in which such officers, to the best of
their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true
and correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior
to such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b),
including payment of the applicable filing fee in accordance with Rule
111(a) or (b) under the Act, prior to the time either Prospectus was
printed and distributed to any Manager or U.S. Undewriter; and, subsequent
to the date of the most recent financial statements in the Prospectuses,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectuses or as described in such certificate.
(j) The Managers shall have received a letter, dated such Closing
Date, of Arthur Andersen LLP which meets the requirements of subsection (a)
of this Section, except that the specified date referred to in such
subsection will be a date not more than five days prior to such Closing
Date for the purposes of this subsection.
(k) The Managers shall have received a letter, dated such Closing
Date, from each of Coopers & Lybrand L.L.P. and Moss Adams LLP which meets
the requirements of subsection (b) of this Section, except that the
specified date referred to in such subsection will be a date not more than
five days prior to such Closing Date for the purposes of this subsection.
(l) The Managers shall have received "lock-up" letters, dated on or
prior to the First Closing Date, which letters shall be in the form of
Schedule D hereto, from each holder of options to purchase Securities
outstanding on the date of this Agreement.
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(m) The Managers shall have received a certificate, dated the First
Closing Date, of two executive officers of the Selling Stockholder in which
such officers, to the best of their knowledge after reasonable
investigation, shall state that: the representatives and warranties of the
Selling Stockholder in this Agreement are true and correct; and the Selling
Stockholder has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to the First
Closing Date.
(n) On such Closing Date, the Managers shall have purchased the
International Firm Securities or the International Optional Securities, as
the case may be, pursuant to the Subscription Agreement.
The Company will furnish the Managers with such conformed copies of such
opinions, certificates, letters and documents as the Managers reasonably
request. CSFBL may in its sole discretion waive on behalf of the Managers
compliance with any conditions to the obligations of the Managers hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Manager against any losses, claims, damages or liabilities,
joint or several, to which such Manager may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
either of the Prospectuses, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Manager for any legal or other expenses reasonably incurred by
such Manager in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Manager through CSFBL specifically
for use therein, it being understood and agreed that the only information
furnished by any Manager consists of the information described as such in
subsection (c) below.
(b) The Selling Stockholder will indemnify and hold harmless each
Manager against any losses, claims, damages or liabilities, joint or
several, to which such Manager may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectuses, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Manager for any legal or
other expenses reasonably incurred by such Manager in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Selling
Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by a Manager through CSFBL
specifically for use therein, it being understood and agreed that the only
such information furnished by any Manager consists of the information
described as such in subsection (c) below; and provided further, however,
that the liability of the Selling Stockholder pursuant to this Section 7 is
limited to the amount of the net proceeds of the offering of the
International Firm Securities (after deducting the underwriting discount
but before deducting expenses) received by the Selling Stockholder.
(c) Each Manager will severally and not jointly indemnify and hold
harmless the Company and the Selling Stockholder against any losses,
claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any
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<PAGE> 17
material fact contained in any Registration Statement, either of the
Prospectuses, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Manager through CSFBL specifically for use therein, and
will reimburse any legal or other expenses reasonably incurred by the
Company and the Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action as such
expenses are incurred, it being understood and agreed that the only such
information furnished by any Manager consists of (i) the following
information in the International Prospectus furnished on behalf of each
Manager: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Manager, the legends concerning
over-allotments and stabilizing and passive market making on the inside
front cover page, the concession and reallowance figures appearing in the
fifth paragraph under the caption "Subscription and Sale" and the
statements contained in the twelfth paragraph under the caption
"Subscription and Sale"; and (ii) the following information in the U.S.
Prospectus furnished on behalf of CSFBL: the material relationship
disclosure appearing in the twelfth and sixteenth paragraphs under the
caption "Underwriting".
(d) Promptly after receipt by an indemnified party under this Section
or Section 9 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a), (b) or (c) above or Section 9,
notify the indemnifying party of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under subsection
(a), (b) or (c) above or Section 9. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section or
Section 9, as the case may be, for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
other than reasonable costs of investigation. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all
liability on any claims that are the subject matter of such action.
(e) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a), (b) or (c)
above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholder on the one
hand and the Managers on the other from the offering of the International
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholder on the
one hand and the Managers on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholder on the one hand and the
Managers on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering of the International Securities
(before deducting expenses) received by the Company and the Selling
Stockholder bear to the total underwriting discounts and commissions
received by the Managers. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission
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or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Stockholder or the Managers and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (e) shall
be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
action or claim which is the subject of this subsection (e).
Notwithstanding the provisions of this subsection (e), no Manager shall be
required to contribute any amount in excess of the amount by which the
total price at which the International Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Manager has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Managers'
obligations in this subsection (e) to contribute are several in proportion
to their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholder under
this Section and Section 9 shall be in addition to any liability which the
Company and the Selling Stockholder may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls
any Manager or the QIU (as hereinunder defined) within the meaning of the
Act; and the obligations of the Managers under this Section shall be in
addition to any liability which the respective Managers may otherwise have
and shall extend, upon the same terms and conditions, to each director of
the Company, to each officer of the Company who has signed a Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Act.
8. Default of Managers. If any Manager or Managers default in their
obligations to purchase International Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of International
Securities that such defaulting Manager or Managers agreed but failed to
purchase does not exceed 10% of the total number of shares of International
Securities that the Managers are obligated to purchase on such Closing Date,
CSFBL may make arrangements satisfactory to the Company and the Selling
Stockholder for the purchase of such International Securities by other persons,
including any of the Managers, but if no such arrangements are made by such
Closing Date, the nondefaulting Managers shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
International Securities that such defaulting Manager agreed but failed to
purchase on such Closing Date. If any Manager or Managers so default and the
aggregate number of shares International Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of
International Securities that the Managers are obligated to purchase on such
Closing Date and arrangements satisfactory to CSFBL and the Company and the
Selling Stockholder for the purchase of such International Securities by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Manager or the
Company or the Selling Stockholder, except as provided in Section 10 (provided
that if such default occurs with respect to International Optional Securities
after the First Closing Date, this Agreement will not terminate as to the
International Firm Securities or any International Optional Securities purchased
prior to such termination). As used in this Agreement, the term "Manager"
includes any person substituted for a Manager under this Section. Nothing herein
will relieve a defaulting Manager from liability for its default.
9. Qualified Independent Underwriter. The Company and the Selling
Stockholder hereby confirm that at their request [ ] has without
compensation acted as "qualified independent underwriter" (in such capacity, the
"QIU") within the meaning of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc. in connection with the offering of the
Offered Securities. The Company and the Selling Stockholder will indemnify and
hold harmless the QIU against any losses, claims, damages or liabilities, joint
or several, to which the QIU may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the QIU's acting (or alleged failing to
act) as such "qualified independent underwriter" and will reimburse the QIU for
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any legal or other expenses reasonably incurred by the QIU in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred.
10. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Stockholder, of the Company or its officers and of the several Managers
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Manager, the Selling Stockholder, the Company or any
of their respective representatives, officers or directors or any controlling
person, and will survive delivery of and payment for the International
Securities. If this Agreement is terminated pursuant to Section 8 or if for any
reason the purchase of the International Securities by the Managers is not
consummated, the Company and the Selling Stockholder shall remain responsible
for the expenses to be paid or reimbursed by it pursuant to Section 5 and the
respective obligations of the Company, and the Managers pursuant to Section 7
and the obligations of the Company and the Selling Stockholder pursuant to
Section 9 shall remain in effect, and if any International Securities have been
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
International Securities by the Managers is not consummated for any reason other
than solely because of the termination of this Agreement pursuant to Section 8
or the occurrence of any event specified in clause (iii), (iv) or (v) of Section
6(d), the Company will reimburse the Managers for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the International Securities.
11. Notices. All communications hereunder will be in writing and, if sent
to the Managers, will be mailed, delivered or telegraphed and confirmed to CSFBL
at One Cabot Square, London E14 4QJ England, Attention: Company Secretary, or,
if sent to the Company, will be mailed, delivered or telegraphed and confirmed
to it at Calpine Corporation, 50 West San Fernando Street, San Jose, California
95113, Attention: General Counsel, or if sent to the Selling Stockholder, will
be mailed, delivered or telegraphed and confirmed to it at________, Attention:
________; provided, however, that any notice to a Manager pursuant to Section 7
will be mailed, delivered or telegraphed and confirmed to such Manager.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
13. Representation of Managers. CSFBL will act for the several Managers in
connection with this financing, and any action under this Agreement taken by
CSFBL will be binding upon all the Managers.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company and the Selling Stockholder hereby submit to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
The Selling Stockholder irrevocably appoints [ ] as its
authorized agent in the Borough of Manhattan in the City of New York upon which
process may be served in any such suit or proceeding, and agrees that service of
process upon such agent, and written notice of said service to the Selling
Stockholder by the person serving the same to the address provided in Section 11
shall be deemed in every respect effective service of process upon the Company
in any such suit or proceeding. The Selling Stockholder further agrees to take
any and all action as may be necessary to maintain such designation and
appointment of such agent in full force and effect for a period of seven years
from the date of this Agreement.
The obligation of the Selling Stockholder in respect of any sum due to any
shall, notwithstanding any judgment in a currency other than United States
dollars, not be discharged until the first business day, following receipt by
such Manager of any sum adjudged to be so due in such other currency, on which
(and
19
<PAGE> 20
only to the extent that) such Manager may in accordance with normal banking
procedures purchase United States dollars with such other currency; if the
United States dollars so purchased are less than the sum originally due to such
Manager hereunder, the Selling Stockholder agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify such Manager against such loss.
If the United States dollars so purchased are greater than the sum originally
due to such Manager hereunder, such Manager agrees to pay the Selling
Stockholder an amount equal to the excess of the dollars so purchased over the
sum originally due to such Manager hereunder.
If the foregoing is in accordance with the Managers' understanding of our
agreement, kindly sign and return to the Company one of the counterparts hereof,
whereupon it will become a binding agreement among the Selling Stockholder, the
Company and the several Managers in accordance with its terms.
Very truly yours,
Electrowatt Ltd.
By:
--------------------------------------
Name:
Title:
Calpine Corporation
By:
--------------------------------------
Name:
Title:
The foregoing Subscription Agreement is hereby confirmed
and accepted as of the date first above written.
CS FIRST BOSTON LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
PAINEWEBBER INTERNATIONAL (U.K.) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
BY CS FIRST BOSTON LIMITED, their duly authorized attorney-in-fact.
By
----------------------------------------------
Name:
Title:
20
<PAGE> 21
SCHEDULE A
<TABLE>
<CAPTION>
TOTAL NUMBER OF
INTERNATIONAL
FIRM SECURITIES
TO BE PURCHASED
------------------------
NUMBER OF
INTERNATIONAL
FIRM SECURITIES
TO BE SOLD BY:
------------------------
SELLING
MANAGER COMPANY STOCKHOLDER
- ---------------------------------------------- ---------- -----------
<S> <C> <C> <C> <C>
CS First Boston International Limited.........
Morgan Stanley & Co. International Limited....
PaineWebber International (U.K.) Limited......
Salomon Brothers International Limited........
------- ------- -------
Total............................... 1,095,564 2,513,436 3,609,000
======= ======= =======
</TABLE>
21
<PAGE> 22
SCHEDULE B
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY % OF OUTSTANDING SECURITIES PLEDGED PLEDGE
- --------------------------------------- --------------------------------------- ----------
<S> <C> <C>
</TABLE>
<PAGE> 23
SCHEDULE C
GENERAL PARTNERSHIP INTERESTS
<PAGE> 24
SCHEDULE D
FORM OF LOCK-UP LETTER
September , 1996
CALPINE CORPORATION
50 West San Fernando Street
San Jose, California 95113
CS FIRST BOSTON CORPORATION
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC.
As Representatives of the Several Underwriters
c/o CS First Boston Corporation
Park Avenue Plaza
New York, N.Y. 10055
CS FIRST BOSTON LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
PAINEWEBBER INTERNATIONAL (U.K.) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
As Representatives of the Several Managers
c/o CS First Boston Limited
One Cabot Square
London, England E14 4OJ
Dear Sirs:
As an inducement to the Underwriters (as defined below) and Managers (as
defined below) to execute the Underwriting Agreement, dated September , 1996
("Underwriting Agreement"), among Calpine Corporation (the "Company"), the
selling stockholder named therein (the "Selling Stockholder") and CS First
Boston Corporation, Morgan Stanley & Co. Incorporated, PaineWebber Incorporated,
Salomon Brothers Inc. and the other underwriters listed in Schedule A thereto
(the "Underwriters") and the Subscription Agreement, dated September , 1996
("Subscription Agreement"), among the Company, the Selling Stockholder and CS
First Boston Limited, Morgan Stanley & Co. International Limited, PaineWebber
International (U.K.) Limited, Salomon Brothers International Limited, and the
other managers named therein (the "Managers"), as the case may be, pursuant to
which an offering will be made that is intended to result in the establishment
of a public market for the common stock, no par value (the "Securities"), of the
Company, the undersigned hereby agrees that, for a period of 180 days after the
initial public offering (the "Commencement Date") of the Securities pursuant to
the Underwriting Agreement and the Subscription Agreement to which you are or
expect to become parties, the undersigned will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any shares of
Securities beneficially owned by the undersigned or issuable upon exercise of
options beneficially owned by the undersigned or any securities convertible into
or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal without
the prior written consent of CS First Boston Corporation.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.
<PAGE> 25
This Agreement shall be binding on the undersigned and the respective
successors, heirs, personal representatives and assigns of the undersigned. This
agreement shall lapse and become null and void if the Commencement Date shall
not have occurred on or before October , 1996.
Very truly yours,
Name:
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CALPINE CORPORATION
FIRST. The name of the corporation is Calpine Corporation (the
"Corporation").
SECOND. The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. (a) The Corporation is authorized to issue 110,000,000 shares
of capital stock, $.001 par value. The shares shall be divided into two classes,
designated as follows:
<TABLE>
<CAPTION>
Designation of Class Number of Shares
-------------------- ----------------
<S> <C>
Common Stock 100,000,000
Preferred Stock 10,000,000
-----------
Total 110,000,000
</TABLE>
(b) The Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is expressly authorized, in the
resolution or resolutions providing for the issuance of any wholly unissued
series of Preferred Stock, to fix, state and express the powers, rights,
designations, preferences, qualifications, limitations and restrictions thereof,
including without limitation: the rate of dividends upon which and the times at
which dividends on shares of such series shall be payable and the preference, if
any, which such dividends shall have relative to dividends on shares of any
other class or classes or any other series of stock of the Corporation; whether
such dividends shall be cumulative or noncumulative, and if cumulative, the date
or dates from which dividends on shares of such series shall be cumulative; the
voting rights, if any, to be provided for shares of such series; the rights, if
any, which the holders of shares of such series shall have in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation; the rights, if any, which the holders of shares of such
series shall have to convert such shares into or exchange such shares for shares
of stock of the Corporation, and the terms and conditions, including price and
rate of exchange of such conversion or exchange; the redemption rights
(including sinking fund provisions), if any, for shares of such series; and such
other powers, rights, designations, preferences, qualifications, limitations and
restrictions as the Board of Directors may desire to so fix. The Board of
Directors is also expressly authorized to fix the number of shares constituting
such series and to increase or decrease the number of shares of any series prior
to the issuance of shares of that series and to increase or decrease the number
of shares of any series subsequent to the issuance of shares of that series, but
not to decrease such number below the number
1.
<PAGE> 2
of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is authorized to make, alter or repeal any or
all of the Bylaws of the Corporation; provided, however, that any Bylaw
amendment adopted by the Board of Directors increasing or reducing the
authorized number of Directors shall require the affirmative vote of a majority
of the total number of Directors which the Corporation would have if there were
no vacancies. In addition, new Bylaws may be adopted or the Bylaws may be
amended or repealed by the affirmative vote of at least 66-2/3% of the combined
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 66-2/3% of the combined voting power
of all shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter,
change, amend, repeal or adopt any provision inconsistent with, this Article
FIFTH.
SIXTH. (a) Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders.
(b) Special meetings of stockholders of the Corporation may be
called only (i) by the Chairman of the Board of Directors, or (ii) by the
Chairman or the Secretary at the written request of a majority of the total
number of Directors which the Corporation would have if there were no vacancies
upon not fewer than 10 nor more than 60 days' written notice. Any request for a
special meeting of stockholders shall be sent to the Chairman and the Secretary
and shall state the purposes of the proposed meeting. Special meetings of
holders of the outstanding Preferred Stock may be called in the manner and for
the purposes provided in the resolutions of the Board of Directors providing for
the issue of such stock. Business transacted at special meetings shall be
confined to the purpose or purposes stated in the notice of meeting.
(c) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SIXTH.
SEVENTH. (a) The number of Directors which shall constitute the whole
Board of Directors of this corporation shall be as specified in the Bylaws of
this corporation, subject to this Article SEVENTH.
(b) The Directors shall be classified with respect to the time
for which they severally hold office into three classes designated Class I,
Class II and Class III, as nearly equal in
2.
<PAGE> 3
number as possible, as shall be provided in the manner specified in the Bylaws
of the Corporation. Each Director shall serve for a term ending on the date of
the third annual meeting of stockholders following the annual meeting at which
the Director was elected; provided, however, that each initial Director in Class
I shall hold office until the annual meeting of stockholders in 1997, each
initial Director in Class II shall hold office until the annual meeting of
stockholders in 1998 and each initial Director in Class III shall hold office
until the annual meeting of stockholders in 1999. Notwithstanding the foregoing
provisions of this Article SEVENTH, each Director shall serve until his
successor is duly elected and qualified or until such Director's death,
resignation or removal.
(c) In the event of any increase or decrease in the authorized
number of Directors, (i) each Director then serving as such shall nevertheless
continue as a Director of the class of which such Director is a member until the
expiration of his current term, or his early resignation, removal from office or
death and (ii) the newly created or eliminated directorship resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of Directors so as to maintain such classes as nearly equally as
possible.
(d) Any Director or the entire Board of Directors may be
removed by the affirmative vote of the holders of at least 66-2/3% of the
combined voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
(e) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SEVENTH.
EIGHTH. (a) 1. In addition to any affirmative vote required by law, any
Business Combination (as hereinafter defined) shall require the affirmative vote
of at least 66-2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class (for purposes of this Article EIGHTH, the "Voting
Shares"). Such affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that some lesser percentage may be specified by law
or in any agreement with any national securities exchange or otherwise.
2. The term "Business Combination" as used in this Article
EIGHTH shall mean any transaction which is referred to in any one or more of the
following clauses (A) through (E):
(A) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Stockholder) which is, or after such merger
or consolidation would be, an Affiliate (as hereinafter defined) or Associate
(as hereinafter defined) of an Interested Stockholder; or
3.
<PAGE> 4
(B) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a series
of related transactions) to or with, or proposed by or on behalf of, any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary constituting not
less than five percent of the total assets of the Corporation, as reported in
the consolidated balance sheet of the Corporation as of the end of the most
recent quarter with respect to which such balance sheet has been prepared; or
(C) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any Subsidiary to, or
proposed by or on behalf of, any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) constituting not less than five
percent of the total assets of the Corporation, as reported in the consolidated
balance sheet of the Corporation as of the end of the most recent quarter with
respect to which such balance sheet has been prepared; or
(D) the adoption of any plan or
proposal for the liquidation or dissolution of the Corporation, or any spin-off
or split-up of any kind of the Corporation or any Subsidiary, proposed by or on
behalf of an Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder; or
(E) any reclassification of
securities (including any reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation with any of its
Subsidiaries or any similar transaction (whether or not with or into or
otherwise involving an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the percentage of the outstanding shares of (i) any
class of equity securities of the Corporation or any Subsidiary or (ii) any
class of securities of the Corporation or any Subsidiary convertible into equity
securities of the Corporation or any Subsidiary, represented by securities of
such class which are directly or indirectly owned by any Interested Stockholder
or any Affiliate or Associate of any Interested Stockholder.
(b) The provisions of section (a) of this Article
EIGHTH shall not be applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as is required by
law and any other provision of this Certificate of Incorporation, if such
Business Combination has been approved by two-thirds of the whole Board of
Directors.
(c) For the purposes of this Article EIGHTH:
1. A "person" shall mean any individual,
firm, corporation or other entity.
2. "Interested Stockholder" shall mean, in
respect of any Business Combination, any person (other than the Corporation or
any Subsidiary) who or which, as of the
4.
<PAGE> 5
record date for the determination of stockholders entitled to notice of and to
vote on such Business Combination, or immediately prior to the consummation of
any such transaction
(A) is or was, at any time within
two years prior thereto, the beneficial owner, directly or indirectly, of 15% or
more of the then outstanding Voting Shares, or
(B) is an Affiliate or Associate of
the Corporation and at any time within two years prior thereto was the
beneficial owner, directly or indirectly, of 15% or more of the then outstanding
Voting Shares, or
(C) is an assignee of or has
otherwise succeeded to any shares of capital stock of the Corporation which were
at any time within two years prior thereto beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction, or series of transactions, not involving a public offering
within the meaning of the Securities Act of 1933, as amended.
3. A "person" shall be the "beneficial
owner" of any Voting Shares
(A) which such person or any of its
Affiliates and Associates (as hereinafter defined) beneficially own, directly or
indirectly, or
(B) which such person or any of its
Affiliates or Associates has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (ii) the right to
vote pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned,
directly or indirectly, by any other person with which such first mentioned
person or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting or disposing of any
shares of capital stock of the Corporation.
4. The outstanding Voting Shares shall
include shares deemed owned through application of paragraph 3 above but shall
not include any other Voting Shares which may be issuable pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise.
5. "Affiliate" and "Associate" shall have
the respective meanings given those terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on the date
of adoption of this Certificate of Incorporation (the "Exchange Act").
5.
<PAGE> 6
6. "Subsidiary" shall mean any corporation
of which a majority of any class of equity security (as defined in Rule 3a11-1
of the General Rules and Regulations under the Exchange Act) is owned, directly
or indirectly, by the Corporation; provided, however, that for the purposes of
the definition of Interested Stockholder set forth in paragraph 2 of this
section (c) the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or indirectly, by
the Corporation.
(d) A majority of the directors shall have the power
and duty to determine for the purposes of this Article EIGHTH on the basis of
information known to them, (1) whether a person is an Interested Stockholder,
(2) the number of Voting Shares beneficially owned by any person, (3) whether a
person is an Affiliate or Associate of another, (4) whether a person has an
agreement, arrangement or understanding with another as to the matters referred
to in paragraph 3 of section (c) or (5) whether the assets subject to any
Business Combination or the consideration received for the issuance or transfer
of securities by the Corporation or any Subsidiary constitutes not less than
five percent of the total assets of the Corporation.
(e) Nothing contained in this Article EIGHTH shall be
construed to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
(f) Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66-2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, change, amend, repeal or
adopt any provision inconsistent with, this Article EIGHTH.
NINTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
TENTH. A Director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware or (iv) for any transaction from which the Director derived any
improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to authorize, with the approval of a corporation's
stockholders, further reductions in the liability of a corporation's directors
for breach of fiduciary duty, then a Director of the Corporation shall not be
liable for any such breach to the fullest extent permitted by the General
Corporation Law of Delaware as so amended. Any repeal or modification of the
foregoing provisions of this Article NINTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification. This
corporation is authorized to indemnify the directors and officers of the
corporation to the fullest extent permissible under Delaware law.
6.
<PAGE> 1
Exhibit 3.4
BYLAWS
OF
CALPINE CORPORATION
(A Delaware corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I - OFFICES.................................................................................... 1
Section 1. Registered Office.......................................................... 1
Section 2. Other Offices.............................................................. 1
ARTICLE II - CORPORATE SEAL............................................................................ 1
Section 3. Corporate Seal.............................................................. 1
ARTICLE III - MEETINGS OF STOCKHOLDERS AND VOTING RIGHTS............................................... 1
Section 4. Place of Meetings........................................................... 1
Section 5. Annual Meeting.............................................................. 2
Section 6. Postponement of Annual Meeting.............................................. 2
Section 7. Special Meetings............................................................ 2
Section 8. Notice of Meetings.......................................................... 2
Section 9. Manner of Giving Notice..................................................... 3
Section 10. Quorum and Transaction of Business.......................................... 3
Section 11. Adjournment and Notice of Adjourned Meetings................................ 5
Section 12. Waiver of Notice, Consent to Meeting or Approval of
Minutes.............................................................................. 5
Section 13. Action by Written Consent Without a Meeting................................. 6
Section 14. Voting...................................................................... 6
Section 15. Persons Entitled to Vote or Consent......................................... 6
Section 16. Proxies..................................................................... 6
Section 17. Inspectors of Election...................................................... 7
ARTICLE IV - BOARD OF DIRECTORS........................................................................ 7
Section 18. Powers...................................................................... 7
Section 19. Number of Directors......................................................... 7
Section 20. Election Of Directors, Term, Qualifications................................. 7
Section 21. Resignations................................................................ 8
Section 22. Removal..................................................................... 8
Section 23. Vacancies................................................................... 9
Section 24. Regular Meetings............................................................ 9
Section 25. Participation by Telephone.................................................. 9
Section 26. Special Meetings............................................................ 9
Section 27. Notice of Meetings.......................................................... 9
Section 28. Place of Meetings........................................................... 10
Section 29. Action by Written Consent Without a Meeting................................. 10
</TABLE>
i.
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Section 30. Quorum and Transaction of Business.......................................... 10
Section 31. Adjournment................................................................. 10
Section 32. Organization................................................................ 10
Section 33. Compensation................................................................ 10
Section 34. Committees.................................................................. 11
ARTICLE V - OFFICERS................................................................................... 11
Section 35. Officers.................................................................... 11
Section 36. Appointment................................................................. 11
Section 37. Inability to Act............................................................ 12
Section 38. Resignation................................................................. 12
Section 40. Vacancies................................................................... 12
Section 41. Chairman of the Board....................................................... 12
Section 42. President................................................................... 13
Section 43. Vice Presidents............................................................. 13
Section 44. Secretary and Assistant Secretary........................................... 13
Section 45. Chief Financial Officer..................................................... 14
Section 46. Compensation................................................................ 15
ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS........................................ 15
Section 47. Execution of Contracts and Other Instruments................................ 15
Section 48. Loans....................................................................... 15
Section 49. Bank Accounts............................................................... 15
Section 50. Checks, Drafts, Etc......................................................... 16
ARTICLE VII - CERTIFICATES FOR STOCK AND THEIR TRANSFER................................................ 16
Section 51. Certificate for Stock....................................................... 16
Section 52. Transfer on the Books....................................................... 17
Section 53. Lost, Destroyed and Stolen Certificates..................................... 17
Section 54. Issuance, Transfer and Registration of Shares............................... 17
ARTICLE VIII - INSPECTION OF CORPORATE RECORDS......................................................... 18
Section 55. Inspection by Directors..................................................... 18
Section 56. Inspection by Stockholders.................................................. 18
Section 57. Written Form................................................................ 18
ARTICLE IX - MISCELLANEOUS............................................................................. 19
Section 58. Fiscal Year................................................................. 19
Section 59. Annual Report............................................................... 19
Section 60. Record Date................................................................. 19
Section 61. Bylaw Amendments............................................................ 20
Section 62. Construction and Definition................................................. 20
Section 63. Registered Stockholders..................................................... 20
</TABLE>
ii.
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 64. Dividends................................................................... 20
ARTICLE X - INDEMNIFICATION............................................................................ 21
Section 65. Indemnification of Directors, Officers, Employees And Other
Agents...................................................................... 21
ARTICLE XI - LOANS OF OFFICERS AND OTHERS.............................................................. 22
Section 67. Certain Corporate Loans and Guaranties...................................... 22
</TABLE>
iii.
<PAGE> 5
BYLAWS
OF
CALPINE CORPORATION
(A Delaware Corporation)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. OTHER OFFICES. Additional offices of the
corporation shall be located at such place or places, within or outside the
State of Delaware, as the Board of Directors may from time to time authorize or
the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal having inscribed thereon the name of the corporation, the year of
its organization and the words "Corporate Seal, Delaware." If and when a seal is
adopted by the Board of Directors, such seal may be used by causing it or a
facsimile thereof to be engraved, lithographed, printed, stamped, impressed upon
or affixed to any contract, conveyance, certificate for stock or other
instrument executed by the corporation.
ARTICLE III
MEETINGS OF STOCKHOLDERS AND VOTING RIGHTS
SECTION 4. PLACE OF MEETINGS. All meetings of the stockholders
for the election of directors shall be held at such place as may be fixed from
time to time by the Board of Directors, or at such other place either within or
without the State of Delaware as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
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SECTION 5. ANNUAL MEETING. Annual meetings of stockholders,
commencing with the year 1997, shall be held at such date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. At such annual meeting, directors shall be elected and any other
business may be transacted which may properly come before the meeting.
SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of
Directors and the President shall each have authority to hold at an earlier date
and/or time, or to postpone to a later date and/or time, the annual meeting of
stockholders.
SECTION 7. SPECIAL MEETINGS.
(a) Special meetings of the stockholders, for any
purpose or purposes, may be called by the Board of Directors, the Chairman of
the Board of Directors or the President, or otherwise as specified in the
Certificate of Incorporation.
(b) Upon written request to the Chairman of the Board
of Directors, the President, any vice president or the Secretary of the
corporation by any person or persons (other than the Board of Directors)
entitled to call a special meeting of the stockholders, such officer forthwith
shall cause notice to be given to the stockholders entitled to vote, that a
meeting will be held at a time requested by the person or persons calling the
meeting, such time to be not less than 10 nor more than 60 days after receipt of
such request. If such notice is not given within 20 days after receipt of such
request, the person or persons calling the meeting may give notice thereof in
the manner provided by law or in these bylaws. Nothing contained in this Section
7 shall be construed as limiting, fixing or affecting the time or date when a
meeting of stockholders called by action of the Board of Directors may be held.
SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be
required by law and subject to subsection 7(b) above, written notice of each
meeting of stockholders shall be given to each stockholder entitled to vote at
that meeting (see Section 15 below), by the Secretary, assistant secretary or
other person charged with that duty, not less than 10 nor more than 60 days
before such meeting.
Notice of any meeting of stockholders shall state the date,
place and hour of the meeting and,
(a) in the case of a special meeting, the general
nature of the business to be transacted;
(b) in the case of an annual meeting, the general
nature of matters which the Board of Directors, at the time the notice is given,
intends to present for action by the stockholders; and
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(c) in the case of any meeting at which directors are
to be elected, the names of the nominees intended at the time of the notice to
be presented by management for election.
At a special meeting, notice of which has been given in
accordance with this Section, action may not be taken with respect to business
the general nature of which has not been stated in such notice. At an annual
meeting, action may be taken with respect to business stated in the notice of
such meeting and any other business as may properly come before the meeting.
SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of
stockholders shall be given either personally or by first-class mail,
telegraphic or other written communication, addressed to the stockholder at the
address of that stockholder appearing on the books of the corporation or given
by the stockholder to the corporation for the purpose of notice. If no such
address appears on the corporation's books or is given, notice shall be deemed
to have been given if sent to that stockholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a stockholder at the address of
that stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at that address, all future notices shall be deemed to have been duly given
without further mailing if these shall be available to the stockholder on
written demand by the stockholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance
with the provisions of this Section 9, executed by the Secretary, Assistant
Secretary or any transfer agent, shall be prima facie evidence of the giving of
the notice.
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.
(a) At any meeting of the stockholders, a majority of
the shares entitled to vote, represented in person or by proxy, shall constitute
a quorum. If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the stockholders, unless the vote of a greater number or voting by classes is
required by law or by the Certificate of Incorporation, and except as provided
in subsection (c) below.
(b) At any meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (1)
pursuant to the corporation's notice of meeting, (2) by or at the direction of
the Board of Directors or (3) by any stockholder of the
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corporation who is a stockholder of record at the time of giving of the notice
provided for in this Bylaw, who shall be entitled to vote at such meeting and
who complies with the notice procedures set forth in this Bylaw.
For business to be properly brought before
any meeting by a stockholder pursuant to clause (3) of this Section 10(b), the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than 20 days nor more than 60 days prior to the date of the meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at a meeting except in accordance
with the procedures set forth in this Section 10(b). The presiding officer of
the meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the procedures prescribed by this Section 10(b), and if such person should so
determine, such person shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 10(b), a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 10(b).
(c) The stockholders present at a duly called or held
meeting of the stockholders at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, provided that any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
(d) In the absence of a quorum, no business other
than adjournment may be transacted, except as described in subsection (c) above.
SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders may be adjourned from time to time, whether or not a
quorum is present, by the affirmative vote of a majority of shares represented
at such meeting either in person or by proxy and entitled to vote at such
meeting.
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In the event any meeting is adjourned, it shall not be
necessary to give notice of the time and place of such adjourned meeting
pursuant to Sections 8 and 9 of these bylaws; provided that if any of the
following three events occur, such notice must be given:
(1) announcement of the adjourned meeting's time and
place is not made at the original meeting which it continues or
(2) such meeting is adjourned for more than 30 days
from the date set for the original meeting or
(3) after the adjournment a new record date is fixed
for the adjourned meeting.
At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL
OF MINUTES.
(a) Subject to subsection (b) of this Section, the
transactions of any meeting of stockholders, however called and noticed, and
wherever held, shall be as valid as though made at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to vote
but not present in person or by proxy signs a written waiver of notice or a
consent to holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a
meeting or approval of the minutes thereof need not specify the business to be
transacted or transacted at nor the purpose of the meeting.
(c) All waivers, consents and approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall
constitute waiver of notice of and presence at such meeting, except when such
person objects at the beginning of the meeting to transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters which are required by law or these bylaws to be in such
notice (including those matters described in subsection (d) of Section 8 of
these bylaws), but are not so included if such person expressly objects to
consideration of such matter or matters at any time during the meeting.
SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Effective upon the closing of the corporation's initial public offering of
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, the stockholders of the Corporation may not take
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action by written consent without a meeting but must take any such actions at a
duly called annual or special meeting.
SECTION 14. VOTING. The stockholders entitled to vote at any
meeting of stockholders shall be determined in accordance with the provisions of
Section 15 of these bylaws.
Unless otherwise provided in the Certificate of Incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder.
Any stockholder may vote part of such stockholder's shares in
favor of a proposal and refrain from voting the remaining shares or vote them
against the proposal, other than elections to office, but, if the stockholder
fails to specify the number of shares such stockholder is voting affirmatively,
it will be conclusively presumed that the stockholder's approving vote is with
respect to all shares such stockholder is entitled to vote.
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The officer
who has charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 16. PROXIES. Every person entitled to vote or execute
consents may do so either in person or by one or more agents authorized to act
by a written proxy executed by the person or such person's duly authorized agent
and filed with the Secretary of the corporation; provided that no such proxy
shall be valid after the expiration of three years from the date of its
execution, unless the proxy provides for a longer period. The manner of
execution, suspension, revocation, exercise and effect of proxies is governed by
law.
SECTION 17. INSPECTORS OF ELECTION. Before any meeting of
stockholders, the Board of Directors may appoint any persons, other than
nominees for office, to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of the
meeting may, and on the request of any stockholder or a stockholder's proxy
shall, appoint inspectors of election at the meeting. The number of inspectors
shall be either one or three. If inspectors are appointed at a meeting on the
request of one or more stockholders or proxies, the majority of shares
represented in person or proxy shall determine whether one or three inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the
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chairman of the meeting may, and upon the request of any stockholder or a
stockholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall: (a) determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity, and effect of
proxies; (b) receive votes, ballots, or consents; (c) hear and determine all
challenges and questions in any way arising in connection with the right to
vote; (d) count and tabulate all votes or consents; (e) determine when the polls
shall close; (f) determine the result; and (g) do any other acts that may be
proper to conduct the election or vote with fairness to all stockholders.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 18. POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.
SECTION 19. NUMBER OF DIRECTORS. The authorized number of
directors of this corporation shall be not less than a minimum of [FIVE] nor
more than a maximum of [NINE], and the number presently authorized is [FIVE].
The exact number of directors shall be set within these limits from time to time
by resolution of the Board of Directors or by the stockholders at the annual
meeting of the stockholders. No reduction in the number of directors shall
remove any director prior to the expiration of such director's term of office.
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The
directors shall be elected at each annual meeting of stockholders, in accordance
with the Certificate of Incorporation, to hold office until the next annual
meeting. Each director elected shall hold office until his or her successor is
elected and qualified, or until his death, resignation or removal.
Nominations for election to the Board of Directors must be
made by the Board of Directors or by any stockholder of any outstanding class of
capital stock of thecorporation entitled to vote for the election of directors.
Nominations, other than those made by the Board of Directors of the corporation,
must be preceded by notification in writing received by the Secretary of the
corporation not less than twenty (20) days nor more than 60 days prior to any
meeting of stockholders called for the election of directors. Such notification
shall contain the written consent of each proposed nominee to serve as a
director if so elected and the following information as to each proposed nominee
and as to each person, acting alone or in conjunction with one or more other
persons as a partnership, limited partnership, syndicate or other group, who
participates or is expected to participate in making such nomination or in
organizing, directing or financing such nomination or solicitation of proxies to
vote for the nominee:
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(a) the name, age, residence, address, and business
address of each proposed nominee and of each such person;
(b) the principal occupation or employment, the name,
type of business and address of the corporation or other organization in which
such employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned
beneficially, either directly or indirectly, by each proposed nominee and each
such person; and
(d) a description of any arrangement or understanding
of each proposed nominee and of each such person with each other or any other
person regarding future employment or any future transaction to which the
corporation will or may be a party.
The presiding officer of the meeting shall have the authority
to determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
SECTION 21. RESIGNATIONS. Any director of the corporation may
resign effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.
SECTION 22. REMOVAL. The Board of Directors may declare vacant
the office of a director who has been declared of unsound mind by an order of
court or who has been convicted of a felony. The entire Board of Directors or
any individual director may be removed from office without cause by the
affirmative vote of a majority of the outstanding shares entitled to vote on
such removal.
SECTION 23. VACANCIES. A vacancy or vacancies on the Board of
Directors shall be deemed to exist in case of the death, resignation or removal
of any director, or upon increase in the authorized number of directors or if
stockholders fail to elect the full authorized number of directors at an annual
meeting of stockholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and qualified or until his earlier resignation or removal. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute.
SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times, places and dates as fixed in these bylaws
or by the Board of Directors;
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provided, however, that if the date for such a meeting falls on a legal holiday,
then the meeting shall be held at the same time on the next succeeding full
business day. Regular meetings of the Board of Directors held pursuant to this
Section 24 may be held without notice.
SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board
of Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Such participation constitutes presence in person
at such meeting.
SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called by the Chairman of the Board or the
President or any vice president or the Secretary of the corporation or any two
directors.
SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and
place of all meetings of the Board of Directors, other than regular meetings
held pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone, telegraph or facsimile to each director, at least 48
hours before the meeting, or sent in writing to each director by first-class
mail, charges prepaid, at least four days before the meeting. Such notice may be
given by the Secretary of the corporation or by the person or persons who called
a meeting. Such notice need not specify the purpose of the meeting. Notice of
any meeting of the Board of Directors need not be given to any director who
signs a waiver of notice of such meeting, or a consent to holding the meeting or
an approval of the minutes thereof, either before or after the meeting, or who
attends the meeting without protesting prior thereto or at its commencement such
director's lack of notice. All such waivers, consents and approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
SECTION 28. PLACE OF MEETINGS. Meetings of the Board of
Directors may be held at any place within or without the state which has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, designated in the bylaws or by resolution of the Board of
Directors.
SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action required or permitted to be taken by the Board of Directors may be taken
without a meeting, if all members of the Board of Directors individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board of Directors.
Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of
the authorized number of directors shall constitute a quorum for the transaction
of business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Certificate of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum
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is initially present may continue to transact business, notwithstanding
withdrawal of directors, if any action taken is approved by at least a majority
of the number of directors constituting a quorum for such meeting. In the
absence of a quorum at any meeting of the Board of Directors, a majority of the
directors present may adjourn the meeting, as provided in Section 31 of these
bylaws.
SECTION 31. ADJOURNMENT. Any meeting of the Board of
Directors, whether or not a quorum is present, may be adjourned to another time
and place by the affirmative vote of a majority of the directors present. If the
meeting is adjourned for more than 24 hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
SECTION 32. ORGANIZATION. The Chairman of the Board shall
preside at every meeting of the Board of Directors, if present. If there is no
Chairman of the Board or if the Chairman is not present, a Chairman chosen by a
majority of the directors present shall act as chairman. The Secretary of the
corporation or, in the absence of the Secretary, any person appointed by the
Chairman shall act as secretary of the meeting.
SECTION 33. COMPENSATION. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
SECTION 34. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
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dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
ARTICLE V
OFFICERS
SECTION 35. OFFICERS. The officers of the corporation shall be
a President, Treasurer and a Secretary. The Board of Directors may elect from
among its members a Chairman of the Board and a Vice Chairman of the Board. The
Board of Directors may also choose one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these bylaws otherwise
provide.
SECTION 36. APPOINTMENT. All officers shall be chosen and
appointed by the Board of Directors. The Board of Directors at its first meeting
after each annual meeting of stockholders shall choose a President, a Treasurer,
and a Secretary and may choose Vice Presidents. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the board.
SECTION 37. INABILITY TO ACT. In the case of absence or
inability to act of any officer of the corporation or of any person authorized
by these bylaws to act in such officer's place, the Board of Directors may from
time to time delegate the powers or duties of such officer to any other officer,
or any director or other person whom it may select, for such period of time as
the Board of Directors deems necessary.
SECTION 38. RESIGNATION. Any officer may resign at any time
upon written notice to the corporation, without prejudice to the rights, if any,
of the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The acceptance
of any such resignation shall not be necessary to make it effective unless
otherwise specified in such notice.
SECTION 39. REMOVAL. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in
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the notice for effectiveness of such resignation. The acceptance of any such
resignation shall not be necessary to make it effective unless otherwise
specified in such notice.
Any officer may be removed from office at any time, with or
without cause, but subject to the rights, if any, of such officer under any
contract of employment, by the Board of Directors or by any committee to whom
such power of removal has been duly delegated, or, with regard to any officer
who has been appointed by the chief executive officer pursuant to Section 36
above, by the chief executive officer or any other officer upon whom such power
of removal may be conferred by the Board of Directors.
SECTION 40. VACANCIES. A vacancy occurring in any office for
any cause may be filled by the Board of Directors, in the manner prescribed by
this Article of the bylaws for initial appointment to such office.
SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if any, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He/she shall have and may exercise
such powers as are, from time to time, assigned to him by the Board and as may
be provided by law. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
SECTION 42. PRESIDENT. Subject to such powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the general manager and chief executive
officer of the corporation and shall have general supervision, direction, and
control over the business and affairs of the corporation, subject to the control
of the Board of Directors. The President may sign and execute, in the name of
the corporation, any instrument authorized by the Board of Directors, except
when the signing and execution thereof shall have been expressly delegated by
the Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have such
other powers and duties as may be prescribed from time to time by the Board of
Directors or these bylaws. The President shall have discretion to prescribe the
duties of other officers and employees of the corporation in a manner not
inconsistent with the provisions of these bylaws and the directions of the Board
of Directors.
SECTION 43. VICE PRESIDENTS. In the absence or disability of
the President, in the event of a vacancy in the office of President, or in the
event such officer refuses to act, the Vice President shall perform all the
duties of the President and, when so acting, shall have all the powers of, and
be subject to all the restrictions on, the President. If at any such time the
corporation has more than one vice president, the duties and powers of the
President shall pass to each vice president in order of such vice president's
rank as fixed by the Board of Directors or, if the vice presidents are not so
ranked, to the vice president designated by the Board of Directors. The vice
presidents shall have such other powers and perform such other duties as may be
prescribed for them from time to
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time by the Board of Directors or pursuant to Sections 35 and 36 of these bylaws
or otherwise pursuant to these bylaws.
SECTION 44. SECRETARY AND ASSISTANT SECRETARY. The Secretary
shall:
(a) Keep, or cause to be kept, minutes of all
meetings of the corporation's stockholders, Board of Directors, and committees
of the Board of Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal
executive office of the corporation, or at the office of its transfer agent or
registrar, if any, a record of the corporation's stockholders, showing the names
and addresses of all stockholders, and the number and classes of shares held by
each. Such records shall be kept in written form or any other form capable of
being converted into written form.
(c) Keep, or cause to be kept, at the principal
executive office of the corporation.
(d) Give, or cause to be given, notice of all
meetings of stockholders, directors and committees of the Board of Directors, as
required by law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe
custody.
(f) Exercise such powers and perform such duties as
are usually vested in the office of secretary of a corporation, and exercise
such other powers and perform such other duties as may be prescribed from time
to time by the Board of Directors or these bylaws.
If any assistant secretaries are appointed, the assistant
secretary, or one of the assistant secretaries in the order of their rank as
fixed by the Board of Directors or, if they are not so ranked, the assistant
secretary designated by the Board of Directors, in the absence or disability of
the Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these bylaws or by the Board of Directors.
SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall:
(a) Be responsible for all functions and duties of
the treasurer of the corporation.
(b) Keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of account for the
corporation.
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(c) Receive or be responsible for receipt of all
monies due and payable to the corporation from any source whatsoever; have
charge and custody of, and be responsible for, all monies and other valuables of
the corporation and be responsible for deposit of all such monies in the name
and to the credit of the corporation with such depositaries as may be designated
by the Board of Directors or a duly appointed and authorized committee of the
Board of Directors.
(d) Disburse or be responsible for the disbursement
of the funds of the corporation as may be ordered by the Board of Directors or a
duly appointed and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the
Board of Directors a statement of the financial condition of the corporation if
called upon to do so.
(f) Exercise such powers and perform such duties as
are usually vested in the office of chief financial officer of a corporation,
and exercise such other powers and perform such other duties as may be
prescribed by the Board of Directors or these bylaws.
If any assistant financial officer is appointed, the assistant
financial officer, or one of the assistant financial officers, if there are more
than one, in the order of their rank as fixed by the Board of Directors or, if
they are not so ranked, the assistant financial officer designated by the Board
of Directors, shall, in the absence or disability of the Chief Financial Officer
or in the event of such officer's refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer, and shall have such powers
and discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.
SECTION 46. COMPENSATION. The compensation of the officers
shall be fixed from time to time by the Board of Directors, and no officer shall
be prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
ARTICLE VI
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS.
Except as these bylaws may otherwise provide, the Board of Directors or its duly
appointed and authorized committee may authorize any officer or officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and such authorization may be
general or confined to specific instances. Except as so authorized or otherwise
expressly provided in these bylaws, no officer, agent, or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or in any amount.
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SECTION 48. LOANS. No loans shall be contracted on behalf of
the corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firms, corporation or individual, and for such loans
and advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.
SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly
appointed and authorized committee from time to time may authorize the opening
and keeping of general and/or special bank accounts with such banks, trust
companies, or other depositaries as may be selected by the Board of Directors,
its duly appointed and authorized committee or by any officer or officers, agent
or agents, of the corporation to whom such power may be delegated from time to
time by the Board of Directors. The Board of Directors or its duly appointed and
authorized committee may make such rules and regulations with respect to said
bank accounts, not inconsistent with the provisions of these bylaws, as are
deemed advisable.
SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, notes, acceptances or other evidences of
indebtedness issued in the name of the corporation shall be signed by such
officer or officers, agent or agents, of the corporation, and in such manner, as
shall be determined from time to time by resolution of the Board of Directors or
its duly appointed and authorized committee. Endorsements for deposit to the
credit of the corporation in any of its duly authorized depositaries may be
made, without counter-signature by the President or any vice president or the
Chief Financial Officer or any assistant financial officer or by any other
officer or agent of the corporation to whom the Board of Directors or its duly
appointed and authorized committee, by resolution, shall have delegated such
power or by hand-stamped impression in the name of the corporation.
ARTICLE VII
CERTIFICATES FOR STOCK AND THEIR TRANSFER
SECTION 51. CERTIFICATE FOR STOCK. Every holder of shares in
the corporation shall be entitled to have a certificate signed in the name of
the corporation by the Chairman or Vice Chairman of the Board or the President
or a Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the stockholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer
15.
<PAGE> 20
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as
only partly paid, the certificate issued to represent such partly paid shares
shall have stated thereon the total consideration to be paid for such shares and
the amount paid thereon.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the
Secretary or transfer agent (if any) of the corporation of a certificate for
shares of the corporation duly endorsed, with reasonable assurance that the
endorsement is genuine and effective, or accompanied by proper evidence of
succession, assignment or authority to transfer and upon compliance with
applicable federal and state securities laws and if the corporation has no
statutory duty to inquire into adverse claims or has discharged any such duty
and if any applicable law relating to the collection of taxes has been complied
with, it shall be the duty of the corporation, by its Secretary or transfer
agent, to cancel the old certificate, to issue a new certificate to the person
entitled thereto and to record the transaction on the books of the corporation.
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The
holder of any certificate for shares of the corporation alleged to have been
lost, destroyed or stolen shall notify the corporation by making a written
affidavit or affirmation of such fact. Upon receipt of said affidavit or
affirmation the Board of Directors, or its duly appointed and authorized
committee or any officer or officers authorized by the Board so to do, may order
the issuance of a new certificate for shares in the place of any certificate
previously issued by the corporation and which is alleged to have been lost,
destroyed or stolen. However, the Board of Directors or such authorized
committee, officer or officers may require the owner of the allegedly lost,
destroyed or stolen certificate, or such owner's legal representative, to give
the corporation a bond or other adequate security sufficient to indemnify the
corporation and its transfer agent and/or registrar, if any, against any claim
that may be made against it or them on account of such allegedly lost, destroyed
or stolen certificate or the replacement thereof. Said bond or other security
shall be in such amount, on such terms and conditions and, in the case of a
bond, with such surety or sureties as may be acceptable to the Board of
Directors or to its
16.
<PAGE> 21
duly appointed and authorized committee or any officer or officers authorized by
the Board of Directors to determine the sufficiency thereof. The requirement of
a bond or other security may be waived in particular cases at the discretion of
the Board of Directors or its duly appointed and authorized committee or any
officer or officers authorized by the Board of Directors so to do.
SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The
Board of Directors may make such rules and regulations, not inconsistent with
law or with these bylaws, as it may deem advisable concerning the issuance,
transfer and registration of certificates for shares of the capital stock of the
corporation. The Board of Directors may appoint a transfer agent or registrar of
transfers, or both, and may require all certificates for shares of the
corporation to bear the signature of either or both.
ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
SECTION 55. INSPECTION BY DIRECTORS. Every director shall have
the absolute right at any reasonable time to inspect and copy all books,
records, and documents of every kind of the corporation and any of its
subsidiaries and to inspect the physical properties of the corporation and any
of its subsidiaries. Such inspection may be made by the director in person or by
agent or attorney, and the right of inspection includes the right to copy and
make extracts.
SECTION 56. INSPECTION BY STOCKHOLDERS.
(a) INSPECTION OF CORPORATE RECORDS. Any stockholder,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at is registered
office in the State of Delaware or at its principal place of business.
(b) INSPECTION OF BYLAWS. The original or a copy of
these bylaws shall be kept as provided in Section 44 of these bylaws and shall
be open to inspection by the stockholders at all reasonable times during office
hours. A current copy of these bylaws shall be furnished to any stockholder upon
written request.
SECTION 57. WRITTEN FORM. If any record subject to inspection
pursuant to Section 56 above is not maintained in written form, a request for
inspection is not complied with unless and until the corporation at its expense
makes such record available in written form.
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ARTICLE IX
MISCELLANEOUS
SECTION 58. FISCAL YEAR. Unless otherwise freed by resolution
of the Board of Directors, the fiscal year of the corporation shall end on the
31st day of December in each calendar year.
SECTION 59. ANNUAL REPORT.
(a) Subject to the provisions of Section 59(b) below,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation in the manner provided in Section 9 of these
bylaws not later than 120 days after the close of the corporation's fiscal year.
Such report shall include a balance sheet as of the end of such fiscal year and
an income statement and statement of changes in financial position for such
fiscal year, accompanied by any report thereon of independent accountants or, if
there is no such report, the certificate of an authorized officer of the
corporation that such statements were prepared without audit from the books and
records of the corporation. Such report shall be sent to stockholders at least
15 (or, if sent by third-class mail, 35) days prior to the next annual meeting
of stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100
holders of record of the corporation's shares, the requirement of sending of an
annual report to the stockholders of the corporation is hereby expressly waived.
SECTION 60. RECORD DATE. The Board of Directors may fix a time
in the future as a record date for the determination of the stockholders
entitled to notice of or to vote at any meeting or entitled to receive payment
of any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than 60 days nor less than 10 days prior
to the date of the meeting nor more than 60 days prior to any other action or
event for the purpose of which it is fixed. If no record date is fixed, the
provisions of Section 15 of these bylaws shall apply with respect to notice of
meetings, votes, and consents and the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolutions relating thereto, or the 60th day
prior to the date of such other action or event, whichever is later.
Only stockholders of record at the close of business on the
record date shall be entitled to notice and to vote or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the Certificate of
Incorporation, by agreement or by law.
18.
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SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by
law or Section 19 of these bylaws, these bylaws may be amended or repealed by
the Board of Directors or by the affirmative vote of a majority of the
outstanding shares entitled to vote, including, if applicable, the affirmative
vote of a majority of the outstanding shares of each class or series entitled by
law or the Certificate of Incorporation to vote as a class or series on the
amendment or repeal or adoption of any bylaw or bylaws; provided, however, after
issuance of shares, a bylaw specifying or changing a fixed number of directors
or the maximum or minimum number or changing from a fixed to a variable board or
vice versa may only be adopted by approval of the outstanding shares as provided
herein.
SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions contained in the Delaware General Corporation Law shall govern the
construction of these bylaws. Without limiting the foregoing, "shall" is
mandatory and "may" is permissive.
SECTION 63. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
SECTION 64. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
ARTICLE X
INDEMNIFICATION
SECTION 65. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS. The corporation shall, to the fullest extent authorized under
the laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation; provided,
19.
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however, that the corporation shall indemnify any such agent in connection with
a proceeding initiated by such agent only if such proceeding was authorized by
the Board of Directors of the corporation. The indemnification provided for in
this Section 65 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, and (iii)
inure to the benefit of the heirs, executors and administrators of such a
person. The corporation's obligation to provide indemnification under this
Section 65 shall be offset to the extent of any other source of indemnification
or any otherwise applicable insurance coverage under a policy maintained by the
corporation or any other person.
Expenses incurred by a director of the corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he is or was a director of the corporation (or was serving at the
corporation's request as a director or officer of another corporation) shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 65 shall be deemed to
be a contract between the corporation and each director who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer, employee or agent of the
corporation.
To assure indemnification under this Section 65 of all
directors, officers, employees and agents who are determined by the corporation
or otherwise to be or to have been "fiduciaries" of any employee benefit plan of
the corporation which may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Section 65, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan, including without limitation, any plan of the corporation
which is governed by the Act of Congress entitled "Employee Retirement Income
Security Act of 1974," as amended from time to time; the corporation
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shall be deemed to have requested a person to serve an employee benefit plan
where the performance by such person of his duties to the corporation also
imposes duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan; excise taxes assessed on a person
with respect to an employee benefit plan pursuant to such Act of Congress shall
be deemed "fines."
ARTICLE XI
LOANS OF OFFICERS AND OTHERS
SECTION 66. CERTAIN CORPORATE LOANS AND GUARANTIES. If the
corporation has outstanding shares held of record by 100 or more persons on the
date of approval by the Board of Directors, the corporation may make loans of
money or property to, or guarantee the obligations of, any officer of the
corporation or its parent or any subsidiary, whether or not a director of the
corporation or its parent or any subsidiary, or adopt an employee benefit plan
or plans authorizing such loans or guaranties, upon the approval of the Board of
Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that such
a loan or guaranty or plan may reasonably be expected to benefit the
corporation. Notwithstanding the foregoing, the corporation shall have the power
to make loans permitted by the Delaware General Corporation Law.
21.
<PAGE> 26
CERTIFICATE OF SECRETARY
I hereby certify that:
I am the duly elected and acting Secretary of Calpine
Corporation, a Delaware corporation (the "Company"); and
Attached hereto is a complete and accurate copy of the Bylaws
of the Company as duly adopted by the Board of Directors by Unanimous Written
Consent dated July ___, 1996 and said Bylaws are presently in effect.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of the Company this ___ th day of July, 1996.
-----------------------------------
Ann B. Curtis, Secretary
22.
<PAGE> 1
Exhibit 4.4
AGREEMENT AND PLAN OF MERGER
OF CALPINE CORPORATION, INC.,
A DELAWARE CORPORATION
AND
CALPINE CORPORATION,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of this ____ day of
_________, 1996 (the "Agreement"), is between Calpine Corporation, a Delaware
corporation ("Calpine Delaware") (formerly "Electrowatt Services Inc."), and
Calpine Corporation, a California corporation ("Calpine California"). Calpine
Delaware and Calpine California are sometimes referred to herein as the
"Constituent Corporations."
R E C I T A L S
A. Calpine Delaware is a corporation duly organized and existing
under the laws of the State of Delaware and has a total authorized capital stock
of 1,500 shares of Common Stock, par value $1.00 per share. As of the date
hereof, and before giving effect to the transactions contemplated hereby, 1,035
shares of Common Stock of Calpine Delaware were issued and outstanding, all of
which were held by Electrowatt Ltd. ("Electrowatt"). No other securities of
Calpine Delaware are outstanding as of the date hereof.
B. Calpine California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital stock of
11,500,000 shares. The number of shares of Preferred Stock authorized to be
issued is 5,000,000, par value $.01 per share, of which 5,000,000 shares have
been designated Series A Preferred Stock (the "Series A Preferred Stock"). The
number of shares of Common Stock, par value $.01 per share, authorized to be
issued is 6,500,000,000 shares, of which 3,500,000 shares have been designated
Class A Common Stock and 3,000,000 shares have been designated Class B Common
Stock. As of the date hereof, and before giving effect to the transactions
contemplated hereby, 5,000,000 shares of Series A Preferred Stock were issued
and outstanding, all of which were held by Calpine Delaware, no shares of Class
A Common Stock were issued and outstanding, and 2,000,000 shares of Class B
Common Stock were issued and outstanding, all of which were held by Calpine
Delaware. In addition, as of the date hereof, there are stock options
outstanding entitling the holders thereof to purchase an aggregate of 500,000
shares of Class A Common Stock upon the terms and conditions thereof.
C. The Board of Directors of Calpine California has determined that,
for the purpose of effecting the reincorporation of Calpine California in the
State of Delaware, it is advisable and in the best interests of Calpine
California that Calpine California merge with and into Calpine Delaware upon the
terms and conditions herein provided.
<PAGE> 2
D. The respective Boards of Directors and shareholders of Calpine
Delaware and Calpine California have approved this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, Calpine Delaware and Calpine California hereby
agree, subject to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
General Corporation Law of the State of Delaware and the General Corporation Law
of the State of California, Calpine California shall be merged with and into
Calpine Delaware (the "Merger"), the separate existence of Calpine California
shall cease and Calpine Delaware shall be the surviving corporation in the
Merger. Calpine Delaware is herein sometimes referred to as the "Surviving
Corporation." The name of the Surviving Corporation shall be "Calpine
Corporation".
1.2 Filing and Effectiveness. The Merger shall become effective when
the following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the sole shareholder of Calpine California and the sole
stockholder of Calpine Delaware in accordance with the requirements of the
General Corporation Law of the State of California and the General
Corporation Law of the State of Delaware, respectively;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the General
Corporation Law of the State of Delaware shall have been filed with the
Secretary of State of the State of Delaware; and
(d) An executed counterpart of the Certificate of Merger, an
executed counterpart of this Agreement or any other document filed with
the Secretary of State of the State of Delaware pursuant to section (c)
above, shall have been filed with the Secretary of State of the State of
California.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Calpine California shall cease and Calpine Delaware, as
the Surviving Corporation,
2.
<PAGE> 3
(i) shall continue to possess all of its assets, rights, powers and property as
constituted immediately prior to the Effective Date of the Merger, (ii) shall be
subject to all actions previously taken by Calpine Delaware's and Calpine
California's Board of Directors, (iii) shall succeed, without other transfer, to
all of the assets, rights, powers and property of Calpine California in the
manner more fully set forth in Section 259 of the General Corporation Law of the
State of Delaware, (iv) shall continue to be subject to all of the debts,
liabilities and obligations of Calpine Delaware as constituted immediately prior
to the Effective Date of the Merger, and (v) shall succeed, without other
transfer, to all of the debts, liabilities and obligations of Calpine California
in the same manner as if Calpine Delaware had itself incurred them, all as more
fully provided under the applicable provisions of the General Corporation Law of
the State of Delaware and the General Corporation Law of the State of
California.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Amended and Restated
Certificate of Incorporation of Calpine Delaware shall be as set forth as
Exhibit A to this Agreement as of the Effective Date of the Merger, and shall
continue in full force and effect as the Certificate of Incorporation of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law. Such Amended and Restated Certificate of
Incorporation shall be filed with the Secretary of State of the State of
Delaware in accordance with applicable law as a part of the Merger.
2.2 Bylaws. The Bylaws of Calpine Delaware shall be as set forth as
Exhibit B to this Agreement as of the Effective Date of the Merger, and shall
continue in full force and effect as the Bylaws of the Surviving Corporation
until duly amended in accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Calpine
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Calpine California Common Shares. Upon the Effective Date of the
Merger, each one share of Calpine California Class B Common Stock, par value
$.01 per share, issued and outstanding immediately prior thereto, by virtue of
the Merger and without any action by the Constituent Corporations, the holder of
such shares or any other person, shall be converted into and exchanged for
5.1938465 fully paid and nonassessable shares of Common Stock, $.001 par value,
of the Surviving Corporation. No fractional shares of the Surviving Corporation
Common Stock shall be issued in exchange for Calpine California Class B Common
Stock.
3.
<PAGE> 4
3.2 Calpine California Preferred Shares. Upon the Effective Date of
the Merger, each one share of Calpine California Series A Preferred Stock, par
value $.01 per share, issued and outstanding immediately prior thereto, by
virtue of the Merger and without any action by the Constituent Corporations, the
holder of such shares or any other person, shall be converted into and exchanged
for 4.358974 fully paid and nonassessable shares of Common Stock, $.001 par
value, of the Surviving Corporation. No fractional shares of the Surviving
Corporation Common Stock shall be issued in exchange for shares of Calpine
California Series A Preferred Stock.
3.3 Calpine California 1992 Stock Option Program.
(a) Upon the Effective Date of the Merger, the Surviving Corporation
shall assume the obligations of Calpine California under its 1992 Stock Option
Program, its 1996 Stock Incentive Plan, its 1996 Employee Stock Purchase Plan
and those non-statutory stock options granted pursuant to certain written
compensation agreements (collectively, the "Plans"). Each outstanding and
unexercised option to purchase Calpine California Common Stock (an "Option")
under the Plans shall become, on the basis of 5.1938465 shares of the Surviving
Corporation's Common Stock for each one share of Calpine California Common Stock
issuable pursuant to any such option, an option to purchase the Surviving
Corporation's Common Stock on the same terms and conditions and at an exercise
price reflecting the 5.1938465-for-one conversion ratio described above.
(b) 5.1938465 shares of the Surviving Corporation's Common Stock
shall be reserved for issuance upon the exercise of options for each one share
of Calpine California Common Stock so reserved immediately prior to the
Effective Date of the Merger. Accordingly, no "additional benefits" (within the
meaning of Section 424(a)(2) of the Internal Revenue Code of 1986, as amended)
shall be accorded to the optionees pursuant to the assumption of their options.
3.4 Calpine Delaware Common Stock. Upon the Effective Date of the
Merger, each share of Common Stock, par value $1.00 per share, of Calpine
Delaware issued and outstanding immediately prior thereto shall, by virtue of
the Merger and without any action by Calpine Delaware, the holder of such shares
or any other person, be cancelled and returned to the status of authorized but
unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the
Merger, each holder of an outstanding certificate representing shares of Calpine
California Common Stock or Preferred Stock may be asked to surrender the same
for cancellation to Calpine Delaware, and each such holder shall be entitled to
receive in exchange therefor a certificate or certificates representing the
number of shares of the Surviving Corporation's Common Stock into which the
surrendered shares were converted as herein provided. Until so surrendered, each
outstanding certificate theretofore representing shares of Calpine California
Common Stock or Preferred Stock shall be deemed for all purposes to represent
the number of shares of the Surviving Corporation's Common Stock into which such
shares of Calpine California Common Stock or Preferred Stock, as the case may
be, were converted in the Merger.
4.
<PAGE> 5
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation, have and be entitled to
exercise any voting and other rights with respect to and to receive dividends
and other distributions upon the shares of Common Stock of the Surviving
Corporation represented by such outstanding certificate as provided above.
Each certificate representing Common Stock of the Surviving
Corporation so issued in the Merger shall bear the same legends, if any, with
respect to the restrictions on transferability as the certificates of Calpine
California so converted and given in exchange therefore, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws, or other such additional legends as agreed upon by the
holder and the Surviving Corporation.
If any certificate for shares of Calpine Delaware stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
Calpine Delaware any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Calpine Delaware
that such tax has been paid or is not payable.
IV. GENERAL
4.1 Covenants of Calpine Delaware. Calpine Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) File any and all documents with the California Franchise Tax
Board necessary for the assumption by Calpine Delaware of all of the franchise
tax liabilities of Calpine California.
(b) Take such other actions as may be required by the General
Corporation Law of the State of California.
4.2 Further Assurances. From time to time, as and when required by
Calpine Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Calpine California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or conform
of record or otherwise by Calpine Delaware the title to and possession of all
the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Calpine California and otherwise to carry out the
purposes of this Agreement, and the officers and directors of Calpine Delaware
are fully authorized in the name and on behalf of Calpine California or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
5.
<PAGE> 6
4.3 Abandonment. At any time before the Effective Date of the
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either Calpine California or of
Calpine Delaware, or of both, notwithstanding the approval of this Agreement by
the shareholder of Calpine California.
4.4 Amendment. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretary of State of the
State of Delaware, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholder or shareholders of either Constituent
Corporation shall not: (1) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of such
Constituent Corporation, (2) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the Merger or (3)
alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the holders of any class or series
of capital stock of any Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle, and The Corporation Trust Company is the
registered agent of the Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at
the principal place of business of the Surviving Corporation at 50 West San
Fernando Street, San Jose, California 95113, and copies thereof will be
furnished to any stockholder or shareholder of either Constituent Corporation,
upon request and without cost.
4.7 Governing Law. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the merger provisions of the
General Corporation Law of the State of California.
4.8 Counterparts. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
6.
<PAGE> 7
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of Calpine Corporation, a Delaware
corporation, and Calpine Corporation, a California corporation, is hereby
executed on behalf of each of such two corporations and attested by their
respective officers thereunto duly authorized.
CALPINE CORPORATION,
a California corporation
By:______________________________________
Peter Cartwright
President and Chief Executive Officer
ATTEST:
_______________________________________
Ann B. Curtis
Senior Vice President
and Secretary
CALPINE CORPORATION,
a Delaware corporation
(formerly Electrowatt Services Inc.)
By:______________________________________
Peter Cartwright
President and Chief Executive Officer
ATTEST:
_______________________________________
Ann B. Curtis
Senior Vice President
and Secretary
7.
<PAGE> 8
EXHIBIT A
Amended and Restated
Certificate of Incorporation
of
Calpine Delaware
<PAGE> 9
EXHIBIT B
Amended and Restated
Bylaws
of
Calpine Delaware
<PAGE> 1
EXHIBIT 5.1
August 21, 1996
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Ladies and Gentlemen:
We have acted as counsel to Calpine Corporation, a Delaware corporation
(the "Company"), in connection with its registration of 5,477,820 shares of
Common Stock proposed to be issued by the Company and 12,567,180 to be sold by
the stockholder of the Company, plus an over-allotment of 2,706,750 shares
offered by the Company (the "Shares"), all as described in the Company's
Registration Statement on Form S-1 (No. 333-07497), filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Registration Statement"). The Shares are to be sold pursuant to an Underwriting
Agreement to be entered into between the Company and CS First Boston
Corporation, Morgan Stanley & Co. Incorporated, PaineWebber Incorporated and
Salomon Brothers Inc, as representatives of the several underwriters named in
such Underwriting Agreement (the "Underwriting Agreement"), and a Subscription
Agreement to be entered into between the Company and CS First Boston Limited,
Morgan Stanley & Co. International Limited, PaineWebber International (U.K.)
Limited and Salomon Brothers International Limited, as representatives of the
several international managers named in such Subscription Agreement (the
"Subscription Agreement").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation that the Company intends to file with the
Secretary of State of the State of Delaware on or prior to consummation of the
offering, the Company's Amended and Restated Bylaws and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memorandum or other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below and (ii) assumed that the
Shares will be sold by the underwriters and the managers at a price established
by the Pricing Committee of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares have been duly authorized, and, when sold and issued by
the Company in accordance with the terms of the Underwriting Agreement and the
Subscription Agreement, will be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus which is part of the Registration Statement.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
Exhibit 10.8.19
[The Bank of Nova Scotia Letterhead]
CONFIDENTIAL
------------
July 19, 1996
Calpine Corporation
50 West San Fernando St.
San Jose, California 95113
Attention: Mr. Robert Kelly, V.P.-Finance
CALPINE CORPORATION
Commitment Letter
---------------------
Dear Sirs:
You have informed us of your desire to establish a three year revolving
facility to be established concurrently with your planned initial public
offering in September 1996 and to replace your existing line of credit with
Credit Suisse. We understand that you are interested in obtaining $50,000,000
of commitments for the new facility (the "Revolving Facility").
The Bank of Nova Scotia ("Scotiabank") is pleased to commit (i) to
provide up to $50,000,0000 of the Revolving Facility; (ii) to use reasonable
commercial efforts to form a syndicate of other financial institutions
(together with Scotiabank, the "Lenders") that will participate in the
Revolving Facility and (iii) to act as administrative agent (the "Agent") for
such syndicate of Lenders. Our commitments hereunder are subject to (a) the
terms and conditions set forth herein and in the term sheet annexed hereto as
Annex I (the "Term Sheet"), (b) there being no facts, events or circumstances,
now existing or hereafter arising, which come to our attention and which, in
our good faith determination, materially adversely affect your business,
assets, financial condition, operations or prospects, in which event we reserve
the right to either terminate our commitments hereunder (and thereafter have no
other or further obligations hereunder or in connection with the Revolving
Facility) or to propose alternative financing amounts or structures that assure
adequate protection for Scotiabank, and (c) a satisfactory prescreening of
prospective invitees, which will be limited to existing Calpine relationship
banks, as provided by Calpine.
You agree to actively assist us, in all commercially reasonable respects
with the syndication of the Revolving Facility, which assistance will require,
among other things, that you provide all information we deem to be reasonably
necessary to successfully complete the syndication, including all of the
information prepared by you or on your behalf related to your assets, financial
condition, operations and prospects, as we may deem to be reasonably necessary.
In addition you agree to make certain members of your management, as well as
and to the best of your ability, your consultants and advisors, available
during regular business hours to answer questions regarding the Revolving
Facility, to review and assist in the preparation of the syndication memorandum
relating to the Revolving Facility, to meet with prospective lenders and to use
your best efforts to ensure that our syndication efforts benefit from your
lending relationships.
<PAGE> 2
By your signature below you hereby indemnify and hold harmless
Scotiabank, each other Lender committing to participate in the Revolving
Facility, and each of their affiliates, directors, officers, agents and
employees as set forth in Paragraphs (ii) and (iii) of the section entitled
"Miscellaneous" of the Term Sheet (which paragraphs are herein incorporated by
reference), whether or not definite credit documentation (collectively, the
"Credit Documentation") is ultimately executed and delivered or the
transactions contemplated hereby are consummated.
This commitment letter and Term Sheet is delivered to you with the
understanding that neither it, the Term Sheet, the confidential fee letter
dated the date hereof (the "Fee Letter"), nor the substance hereof or thereof
shall be disclosed to any third party without our prior written consent, except
those in confidential relationship to you, such as legal counsel or
accountants, or as required by law or any court or governmental agency (and in
each such event of permitted disclosure you agree promptly to inform us). This
commitment letter and Term Sheet constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto. THIS COMMITMENT LETTER AND
THE TERM SHEET SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF NEW YORK. BOTH OF THE UNDERSIGNED PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF OR IN CONNECTION WITH THIS
COMMITMENT LETTER, THEIR TERM SHEET AND ANY OTHER COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER OF THE
UNDERSIGNED PARTIES IN CONNECTION HEREWITH OR THEREWITH. IN NO EVENT SHALL ANY
PARTY TO THIS COMMITMENT LETTER BE LIABLE FOR CONSEQUENTIAL DAMAGES.
If you agree with the foregoing, please sign and return to us the
enclosed copy of this commitment letter and the Fee Letter no later than 5:00
p.m., San Francisco time, on July 22, 1996. Our commitment will terminate at
such time unless (a) an executed copy of this commitment letter and the Fee
Letter, each signed by you, has been delivered to us, and (b) you have made all
payments required to be paid hereunder and thereunder; provided however, that,
any term or provision hereof to the contrary notwithstanding (i) the two
immediately preceding paragraphs shall survive any termination of our
commitment pursuant to this paragraph, and (ii) our commitment hereunder will
terminate at 5:00 p.m., San Francisco time, on September 30, 1996, unless, on
or prior to such time, definitive Credit Documentation satisfactory to us and
our counsel has been executed and delivered by you and us (with the date of such
execution and delivery being referred to as the "Closing Date").
Very truly yours,
THE BANK OF NOVA SCOTIA
By: /s/ Eric Knight
-----------------------------
Title: Relationship Manager
Agreed to and Accepted
this 20 day of July, 1996
CALPINE CORPORATION
By: /s/ Robert D. Kelly
----------------------
Title: Vice President
<PAGE> 3
ANNEX I
TERM SHEET CALPINE CORPORATION
- -------------------------------------------------------------------------------
(Unless otherwise defined, terms used in this Term Sheet shall have the
meanings ascribed thereto in the commitment letter dated July 19, 1996 (the
"Commitment Letter"), to which this Term Sheet is annexed)
I. PARTIES
BORROWER Calpine Corporation, which is a holding company
currently organized under the laws of California
but to be reorganized and incorporated under the
laws of Delaware ("Calpine" or the "Borrower")
prior to the Closing Date.
Subject to Lenders' approval, Calpine
subsidiaries can be co-borrowers under the
Revolving Facility provided all obligations
under the Revolving Facility are also joint and
several obligations of Calpine.
AGENT The Bank of Nova Scotia ("Scotiabank" or the
"Agent").
LENDERS Scotiabank and a group of financial institutions
(collectively, the "Lenders") as may be
acceptable to Scotiabank and the Borrower.
II. THE REVOLVING FACILITY
REVOLVING FACILITY A maximum amount of $50,000,000 in senior
DESCRIPTION financing will be provided to the Borrower,
(the "Revolving Facility Commitment") under
which commitments to lend will be provided to
the Borrower in the form of a revolving loan
facility (the "Revolving Facility"). The
Revolving Facility will be made available to the
Borrower pursuant to which (i) revolving credit
loans ("Revolving Loans") may be borrowed,
prepaid and reborrowed; and (ii) letters of
credit ("Letters of Credit") may be issued,
reimbursed and re-issued, in each case from time
to time prior to the Commitment Termination
Date; provided that no letter of credit may have
a maturity that exceeds one year.
LETTER OF CREDIT Outstanding Letters of Credit and related
AVAILABILITY reimbursement obligations may not exceed
$25,000,000
LETTER OF CREDIT ISSUING Scotiabank
BANK
USE OF PROCEEDS The Revolving Facility will be used by the
Borrower to refinance the existing $50mm line of
credit provided by Credit Suisse for working
capital and other general corporate purposes,
including, subject to certain conditions,
acquisition bridge financing.
COMMITMENT Three years from the Closing Date of the
TERMINATION DATE Revolving Facility (the "Commitment
Termination Date"). The Commitment Termination
Data will reduce to two years from the Closing
Date if Calpine receives less than $90mm in net
proceeds from the initial public offering.
CLOSING DATE The date on which: i) all required documentation
related to the Revolving Facility is duly
executed to the satisfaction of the Borrower and
Lenders; and ii) all Conditions Precedent to
closing have been met (the "Closing Date"). The
Closing Date is expected to occur on or before
September 15, 1996, but in any event no later
than September 30, 1996.
SECURITY Unsecured. To the extent that the approved
subsidiary borrowers utilize the Revolving
Facility as acquisition financing for power
project, equipment and similar purposes, the
Lenders will receive a first priority security
interest (if available) in all acquired assets
including the stock of any entity acquired with
Revolving Loans and pledge of stock of the
intermediate holding company created by the
Borrower for such acquisition. The pledged
security will be released upon repayment in full
of all Revolving Loans used to fund the
acquisition.
- 1 -
<PAGE> 4
INTEREST RATES At the Borrower's option, the Revolving Loans
will bear interest at either Scotiabank's
Alternative Base Rate ("Base Rate Loans") or
Scotiabank's reserve adjusted LIBO rate ("LIBO
Rate Loans") plus the interest margins set forth
in Appendix I.
INTEREST PAYMENT DATES Interest periods for LIBO rate loans shall be,
at the Borrower's option, one, three or six
months. Interest on LIBO rate loans shall be
payable on the last business day of the
applicable interest period for such loans or,
if earlier, the 90th day following the
commencement of such interest period. Interest
on Base Rate Loans shall be payable quarterly in
arrears.
LETTER OF CREDIT A fee equivalent to the amount of the Applicable
FEES AND PAYMENT LIBO Rate Margin in Appendix I will accrue on
DATES the daily average undrawn portion of all
outstanding Letters of Credit, payable
quarterly in advance.
LETTER OF CREDIT ISSUING 15 bps per annum on the amount of the Letter of
FEE Credit, payable quarterly in advance.
COMMITMENT FEE Commencing on the Closing Date, a non-refundable
fee in the applicable amount set forth in
Appendix I per annum will accrue on the daily
average undrawn portion of the committed amount
of the Revolving Facility, payable quarterly in
arrears and on the Commitment Termination Date
of the Revolving Facility.
AGENT'S FEES As defined in the confidential Fee Letter dated
as of July 16, 1996
OPTIONAL PREPAYMENTS Outstanding Loans are voluntarily payable
without penalty; provided, however, that LIBO
rate breakage costs, if any, shall be for the
account of Borrower.
MANDATORY PREPAYMENTS Customary for the type of transaction proposed
and others to be reasonably specified by
Scotiabank.
REPRESENTATIONS Customary for the type of transaction proposed
AND WARRANTIES and others to be reasonably specified by
Scotiabank.
CONDITIONS PRECEDENT Customary for the type of transaction proposed
TO CLOSING and others to be reasonably specified by
Scotiabank, including, without limitation, the
following:
i) Execution and delivery of satisfactory
credit, and other related documentation
embodying the structure, terms and
conditions contained herein and other
terms and conditions as may be
negotiated.
ii) There shall not have occurred any
material adverse change in the status of
the Borrower or any of its subsidiaries
(including projects) since Dec. 31,
1995.
iii) Receipt of closing certificates,
opinions of counsel, etc. customary for
the type of transaction proposed.
iv) Cancellation of the existing $50mm line
of credit provided by Credit Suisse.
CONDITIONS PRECEDENT Customary for the type of transaction proposed
TO INITIAL FUNDING and others to be reasonably specified by
Scotiabank, including without limitation, the
following.
i) Borrower shall have completed an initial
public offering and received net
proceeds in the amount of at least $75
million.
ii) There shall not have occurred any
material adverse change in the status of
the Borrower or any of its subsidiaries
(including the power projects) since
Dec. 31, 1995.
- 2 -
<PAGE> 5
CONDITION PRECEDENT A CFCR (as defined in Financial Covenants,
FOR EACH NEW DRAWING paragraph (iv)) of at least 1.7x for the most
recent four quarters will be required for each
new drawing (excluding rollovers & letter of
credit renewals of existing outstandings or
issuances) under the Revolving Facility. New
drawing availability under the Revolving
Facility will be granted when the CFCR returns
to 1.7x or higher based on a monthly test
calculated on a rolling twelve-month basis.
AFFIRMATIVE COVENANTS Customary for the type of transaction proposed
and others to be reasonably specified by
Scotiabank.
NEGATIVE COVENANTS Customary for the type of transaction proposed
and others to be reasonably specified by
Scotiabank, including, without limitation, the
following:
i) Restriction on mergers, consolidations
and similar combinations, including, but
not limited to, Subsidiaries having a
direct interest in a power generating
facility may not merge with Subsidiaries
that have a direct or indirect interest
in any other power generating facility
or other business;
ii) Limitation on the incurrence of liens,
guarantees, commitments to invest or
other encumbrances.
iii) Restriction on the making of dividends
or similar distributions;
iv) Restrictions on the incurrence of
additional debt and contingent
liabilities;
v) Restrictions on the sale of assets or
similar transfers.
vi) Restrictions on additional investments,
including, but not limited to,
restrictions on the Borrower's and
subsidiaries' investments in unrelated
businesses and restrictions on
investments in subsidiaries that are in
default.
FINANCIAL COVENANTS Customary for the type of transaction proposed
and others to be reasonably specified by
Scotiabank, including without limitation, the
following:
i) Maintenance of a minimum tangible net
worth ("TNW") of $150 million. The
minimum TNW will increase quarterly by
an amount equal to 50% of net income
for the previous quarter plus 100% of
the proceeds of net equity issuance
(post-IPO).
ii) Maintenance of a minimum consolidated
interest coverage ratio (Consolidated
EBITDA/Consolidated Interest Expense) of
1.75 to 1, calculated quarterly and
based on the previous four quarters.
iii) Maintenance of a maximum leverage ratio
(Total Debt (incl. contingent
liabilities)/Total Debt plus TNW) of
85%.
iv) Maintenance of a minimum consolidating
Calpine Corporation Cash Flow Coverage
Ratio ("CFCR") of 1.6 to 1. The CFCR is
defined as Calpine's consolidating Cash
Flow Available for Debt Service (to be
defined) divided by Calpine's
consolidating Interest Expense. The CFCR
will be calculated quarterly based on
the previous four quarters.
v) Other financial covenants as the Agent
may reasonably request.
EVENTS OF DEFAULT Customary for the type of transaction proposed
and others to be reasonably specified by
Scotiabank and its legal counsel, including,
without limitation, the following:
i) Cross-default to all other indebtedness
(including the Sr. Notes) of the
Borrower and subsidiaries individually
or in the aggregate totalling $2 million
or more.
ii) Change of ownership or control (to be
defined).
- 3 -
<PAGE> 6
MISCELLANEOUS Customary provisions to be included, together with
others to be reasonably specified by Scotiabank
including, without limitation, the following:
i) The Borrower will undertake all reasonable
efforts to assist the Agent in the successful
syndication of the Revolving Facility.
ii) Customary indemnification of Scotiabank and
each of the Lenders and each of their respective
affiliates, directors, officers, agents and
employees (collectively, the "Indemnified
Parties") from and against any losses, claims,
damages, liabilities or other expenses which
arise out of or in connection with the Revolving
Facility, including those which may arise from
or in connection with any action, suit or
proceeding (whether or not any Indemnified
Party is a party or is subject thereto).
iii) The Borrower will pay all of Scotiabank's
reasonable fees and other out-of-pocket
expenses (including the reasonable fees and
out-of-pocket expenses of Scotiabank's legal
counsel, Mayer, Brown & Platt) arising out of
or in connection with the Revolving Facility.
iv) Customary indemnity and capital adequacy,
increased cost, and tax provisions.
v) The Lenders will be permitted to assign and
participate Loans, notes, Letters of Credit
and commitments with consent of Borrower, such
consent not to be unreasonably withheld.
vi) Waiver or jury trial.
vii) New York governing law.
This Term Sheet is intended as an outline only and does not purport to summarize
all the conditions, covenants, representations, warranties and other provisions
which would be contained in the definitive Credit Documentation. Scotiabank's
commitment will be subject to negotiation and execution of definitive Credit
Documentation in form and substance satisfactory to Scotiabank and its Counsel.
- 4 -
<PAGE> 1
EXHIBIT 10.9.2
CALPINE CORPORATION
1996 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the
interests of Calpine Corporation, a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity
programs:
- the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under
which eligible employees may elect to have a portion of their base salary
invested each year in special option grants,
- the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which
eligible non- employee Board members shall automatically receive option grants
at periodic intervals to purchase shares of Common Stock, and
- the Director Fee Option Grant Program under which
non- employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special option grant.
<PAGE> 2
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered by
the Board. Beginning with the Section 12 Registration Date, the Primary
Committee shall have sole and exclusive authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and shall have sole and exclusive authority to administer the Salary
Investment Option Grant Program with respect to all eligible individuals.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary
2.
<PAGE> 3
Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grants or stock issuances under the Plan.
F. Administration of the Automatic Option Grant and Director
Fee Option Grant Programs shall be self-executing in accordance with the terms
of that program, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals serving
as non-employee
3.
<PAGE> 4
Board members on the Underwriting Date who have not previously received a stock
option grant from the Corporation, (ii) those individuals who first become
non-employee Board members after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders, and
(iii) those individuals who continue to serve as non-employee Board members at
one or more Annual Stockholders Meetings held after the Underwriting Date. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
4,041,858 shares. Such authorized share reserve is comprised of (i) the number
of shares which remain available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for future
grant, plus (ii) an additional increase of 1,444,935 shares authorized by the
Board but subject to stockholder approval prior to the Section 12 Registration
Date.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 1997 calendar
year, by an amount equal to one percent (1%) of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year.
No Incentive Options may be granted on the basis of the additional shares of
Common Stock resulting from such annual increases.
C. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1996 calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share,
4.
<PAGE> 5
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.
E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under this Plan per calendar year, (iii) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members, (iv) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan and (v) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
5.
<PAGE> 6
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
written instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by
6.
<PAGE> 7
the Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of ten (10) years measured from
the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise
of any options held by the Optionee at the time of cessation of Service or
death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in
part by the Optionee at the time of death may be subsequently exercised
by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of
Service from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the option
term, and/or
7.
<PAGE> 8
(ii) permit the option to be exercised, during
the applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established exclusively
for one or more such family members. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the option
pursuant to the assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
8.
<PAGE> 9
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such
9.
<PAGE> 10
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase right
is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority
to grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority
to grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
10.
<PAGE> 11
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar limitation
is exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority
to grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the
right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator, either at
the time of the actual option surrender or at any earlier time. If the
surrender is so approved, then the distribution to which the Optionee
shall be entitled may be made in shares of Common Stock valued at Fair
Market Value on the option
11.
<PAGE> 12
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the last
day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such
rights be exercised more than ten (10) years after the option grant
date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be
granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to
the excess of (A) the Take-Over Price of the shares of Common Stock
which are at the time vested under each surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in
connection with such option surrender and cash distribution.
(iv) The balance of the option (if any) shall
remaining outstanding and exercisable in accordance with the documents
evidencing such option.
12.
<PAGE> 13
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Grant Program is to be in effect and to select the Section 16
Insiders and other highly compensated Employees eligible to participate in the
Salary Investment Option Grant Program for those calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of participation,
file with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall be granted an option under the
Salary Investment Grant Program on or before the last trading day in January for
the calendar year for which the salary reduction is to be in effect.
All grants under the Salary Investment Option Grant Program shall be at the
sole discretion of the Primary Committee.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
13.
<PAGE> 14
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)- year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee under
this Salary Investment Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
Each such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable
14.
<PAGE> 15
for the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall immediately become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for any or all of those shares as fully- vested shares of
Common Stock. The option shall remain so exercisable until the earlier or (i)
the expiration of the ten (10)-year option term or (ii) the expiration of the
three (3)- year period measured from the date of the Optionee's cessation of
Service.
C. The grant of options under the Salary Investment Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
15.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the
Plan Administrator, but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article
Seven, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation
(or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the
shares are to vest,
16.
<PAGE> 17
(iii) the interval or intervals (if any) which
are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive
the surrender and cancellation of one or more unvested shares of Common Stock
which would otherwise occur upon the cessation of the Participant's Service or
the non-attainment of the performance objectives applicable to those shares.
Such waiver shall result in the immediate vesting of the Participant's interest
in the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
17.
<PAGE> 18
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding
repurchase/cancellation rights under the Stock Issuance Program shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent (i) those repurchase/cancellation rights are
to be assigned to the successor corporation (or parent thereof) in connection
with such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase/cancellation rights remain outstanding
under the Stock Issuance Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those
repurchase/cancellation rights are assigned to the successor corporation (or
parent thereof).
C. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase/cancellation rights remain outstanding
under the Stock Issuance Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
18.
<PAGE> 19
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the
dates specified below:
1. Each individual serving as a non-employee Board
member on the Underwriting Date shall automatically be granted at that time a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary and has not previously received a stock option grant from
the Corporation.
2. Each individual who is first elected or appointed
as a non- employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting
held after the Underwriting Date, each individual who is to continue to serve as
an Eligible Director, whether or not that individual is standing for re-election
to the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 1,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 1,000- share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received a stock
option grant from the Corporation prior to the Underwriting Date shall be
eligible to receive one or more such annual option grants over their period of
continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more
of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
19.
<PAGE> 20
C. OPTION TERM. Each option shall have a term of ten (10)
years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 10,000-share grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of four
(4) successive equal annual installments upon the Optionee's completion of each
year of Board service over the four (4)-year period measured from the option
grant date. Each annual 1,000-share grant shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's completion of one (1) year of
Board service measured from the automatic grant date.
E. TERMINATION OF BOARD SERVICE. The following provisions
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a
Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so that
such option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion of
those shares as fully- vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be
20.
<PAGE> 21
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-
OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding automatic option grants. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to each surrendered option (whether or not the Optionee is
otherwise at the time vested in those shares) over (ii) the aggregate exercise
price payable for such shares. Such cash distribution shall be paid within five
(5) days following the surrender of the option to the Corporation. No approval
or consent of the Board or any Plan Administrator shall be required in
connection with such option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
21.
<PAGE> 22
E. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
22.
<PAGE> 23
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject
to the non- employee Board member's election, and
23.
<PAGE> 24
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable for fifty percent (50%) of the option shares upon the Optionee's
completion of six (6) months of Board service in the calendar year for which his
or her election under this Director Fee Option Grant Program is in effect, and
the balance of the option shares shall become exercisable in a series of six (6)
successive equal monthly installments upon the Optionee's completion of each
additional month of Board service during that calendar year. Each option shall
have a maximum term of ten (10) years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee cease
Board service for any reason (other than death or Permanent Disability) while
holding one or more options under this Director Fee Option Grant Program, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Board service,
until the earlier of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the three (3)-year period measured from the date of such
cessation of Board service. However, each option held by the Optionee under this
Director Fee Option Grant Program at the time of his or her cessation of Board
service shall immediately terminate and cease to remain outstanding with respect
to any and all shares of Common Stock for which the option is not otherwise at
that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee under this Director Fee Option Grant Program
shall immediately become exercisable for all the shares of Common Stock at the
time subject to that option, and the option may be exercised for any or all of
those shares as fully-vested shares until the earlier of (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)- year
period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
24.
<PAGE> 25
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
Each such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully- vested shares of Common
Stock. The option shall remain so exercisable until the earlier or (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)- year period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
25.
<PAGE> 26
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee Option Grant Program) with the right to
use shares of Common Stock in satisfaction of all or part of the Taxes incurred
by such holders in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or both
of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non- Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
26.
<PAGE> 27
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan
Effective Date. However, the Salary Investment Option Grant Program shall not be
implemented until such time as the Primary Committee may deem appropriate.
Options may be granted under the Discretionary Option Grant or Automatic Option
Grant Program at any time on or after the Plan Effective Date. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
Plan Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor
Plan, and no further option grants or direct stock issuances shall be made under
the Predecessor Plan after the Section 12 Registration Date. All options
outstanding under the Predecessor Plan on the Section 12 Registration Date shall
be incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) July 16,
2006, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
27.
<PAGE> 28
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained stockholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
28.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder- approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
A-1.
<PAGE> 30
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Calpine Corporation, a Delaware corporation,
and its successors.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be deemed
equal to the closing selling price per share of Common Stock on the
date in question, as such price is reported on the Nasdaq National
Market or any successor system. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question
on the Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
A-2.
<PAGE> 31
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (B) a reduction
in his or her level of compensation (including base salary, fringe
benefits and participation in any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
A-3.
<PAGE> 32
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as set
forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean July 17, 1996, the date on which the
Plan was adopted by the Board.
A-4.
<PAGE> 33
AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.
AB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.
AC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment grant program in effect under the Plan.
AD. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
AE. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of Section 16 of the 1934
Act.
AF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AG. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
AH. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AI. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
AK. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-5.
<PAGE> 34
AL. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AM. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
AN. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AP. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
A-6.
<PAGE> 35
CALPINE CORPORATION
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Calpine Corporation (the
"Corporation"):
Optionee:
-----------------------------------------------
Grant Date:
---------------------------------------------
Vesting Commencement Date:
-------------------------------
Exercise Price: $ per share
-------------------------------
Number of Option Shares: shares
---------------------------
Expiration Date:
-----------------------------------------
Type of Option: Incentive Stock Option
-----
Non-Statutory Stock Option
-----
Exercise Schedule: The Option shall become exercisable with
respect to twenty five percent (25%) of the Option Shares upon
Optionee's completion of one (1) year of Service measured from
the Vesting Commencement Date and shall become exercisable for
the balance of the Option Shares in thirty-six (36) successive
equal monthly installments upon Optionee's completion of each
additional month of Service over the thirty-six (36) month
period measured from the first anniversary of the Vesting
Commencement Date. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's
cessation of Service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the Calpine Corporation 1996
Stock Incentive Plan (the "Plan"). Optionee further agrees to be bound by the
terms of the Plan and the terms of the Option as set forth in the Stock Option
Agreement attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
<PAGE> 36
No Employment or Service Contract. Nothing in this Notice or
in the attached Stock Option Agreement or in the Plan shall confer upon Optionee
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining Optionee) or of Optionee,
which rights are hereby expressly reserved by each, to terminate Optionee's
Service at any time for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED: , 199
------------------------------------- --
CALPINE CORPORATION
By:
-----------------------
Title:
-----------------------
OPTIONEE
-------------------
Address:
-------------------
ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE> 37
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 38
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE> 39
CALPINE CORPORATION
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee,
as of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten
(10) years measured from the Grant Date and shall accordingly expire at the
close of business on the Expiration Date, unless sooner terminated in accordance
with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. If this option is designated an
Incentive Option in the Grant Notice, then this option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with the Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of the Optionee's immediate family or
to a trust established for the exclusive benefit of one or more such family
members. The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for this option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
<PAGE> 40
4. DATES OF EXERCISE. This option shall become exercisable for
the Option Shares in one or more installments as specified in the Grant Notice.
As the option becomes exercisable for such installments, those installments
shall accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date should any of the following provisions become
applicable:
(i) Should Optionee cease to remain in Service for any
reason (other than death, Permanent Disability or Misconduct) while
this option is outstanding, then Optionee shall have a period of three
(3) months (commencing with the date of such cessation of Service)
during which to exercise this option, but in no event shall this option
be exercisable at any time after the Expiration Date.
(ii) If Optionee dies while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have
the right to exercise this option. Such right shall lapse, and this
option shall cease to be outstanding, upon the earlier of (A) the
expiration of the twelve (12)- month period measured from the date of
Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of
Permanent Disability while this option is outstanding, then Optionee
shall have a period of twelve (12) months (commencing with the date of
such cessation of Service) during which to exercise this option. In no
event shall this option be exercisable at any time after the Expiration
Date.
(iv) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for
more than the number of vested Option Shares for which the option is
exercisable at the time of Optionee's cessation of Service. Upon the
expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not
been exercised. However, this option shall, immediately upon Optionee's
cessation of Service for any reason, terminate and cease to be
outstanding with respect to any Option Shares in which Optionee is not
otherwise at that time vested or for which this option is not otherwise
at that time exercisable.
2.
<PAGE> 41
(v) Should Optionee's Service be terminated
for Misconduct, then this option shall terminate immediately and cease
to remain outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) This option, to the extent outstanding at the
time of a Corporate Transaction but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares at the time subject to this option and may be exercised for any or
all of those Option Shares as fully-vested shares of Common Stock. No such
acceleration of this option, however, shall occur if and to the extent: (i) this
option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation (or parent thereof) or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing on the unvested Option Shares at the time of the Corporate Transaction
(the excess of the Fair Market Value of those Option Shares over the aggregate
Exercise Price payable for such shares) and provides for subsequent pay-out in
accordance with the same option exercise/vesting schedule set forth in the Grant
Notice. The determination of option comparability under clause (i) shall be made
by the Plan Administrator, and such determination shall be final, binding and
conclusive.
(b) Immediately following the Corporate Transaction,
this option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
(c) If this option is assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
3.
<PAGE> 42
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to
the Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not
have any stockholder rights with respect to the Option Shares until such person
shall have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to
all or any part of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons exercising the option)
must take the following actions:
(i) Execute and deliver to the
Corporation a Notice of Exercise for the Option Shares for which the
option is exercised.
(ii) Pay the aggregate Exercise Price
for the purchased shares in one or more of the following forms:
(A) cash or check made payable to
the Corporation;
(B) a promissory note payable to the
Corporation, but only to the extent authorized by the Plan
Administrator in accordance with Paragraph 13;
(C) shares of Common Stock held by
Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date; or
(D) to the extent the option is
exercised for vested Option Shares, through a special sale and
remittance procedure pursuant to which Optionee (or any other
person or persons exercising the option) shall concurrently
provide irrevocable written instructions (I) to a
Corporation-designated brokerage firm to effect the immediate
4.
<PAGE> 43
sale of the purchased shares and remit to the Corporation, out
of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state
and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (II) to the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale transaction.
Except to the extent the sale and remittance
procedure is utilized in connection with the option exercise,
payment of the Exercise Price must accompany the Notice of
Exercise delivered to the Corporation in connection with the
option exercise.
(iii) Furnish to the Corporation
appropriate documentation that the person or persons exercising the
option (if other than Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements
with the Corporation (or Parent or Subsidiary employing or retaining
Optionee) for the satisfaction of all Federal, state and local income
and employment tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of
the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the
5.
<PAGE> 44
Corporation of any liability with respect to the non-issuance or sale of the
Common Stock as to which such approval shall not have been obtained. The
Corporation, however, shall use its best efforts to obtain all such approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to
the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
13. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse
promissory note payable to the Corporation. The terms of any such promissory
note (including the interest rate, the requirements for collateral and the terms
of repayment) shall be established by the Plan Administrator in its sole
discretion.
14. CONSTRUCTION. This Agreement and the option evidenced
hereby are made and granted pursuant to the Plan and are in all respects limited
by and subject to the terms of the Plan. All decisions of the Plan Administrator
with respect to any question or issue arising under the Plan or this Agreement
shall be conclusive and binding on all persons having an interest in this
option.
15. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
16. EXCESS SHARES. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may without stockholder approval be issued under the Plan, then this
option shall be void with respect to those excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
6.
<PAGE> 45
17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the
event this option is designated an Incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:
- This option shall cease to qualify for favorable
tax treatment as an Incentive Option if (and to the extent) this option
is exercised for one or more Option Shares: (A) more than three (3)
months after the date Optionee ceases to be an Employee for any reason
other than death or Permanent Disability or (B) more than twelve (12)
months after the date Optionee ceases to be an Employee by reason of
Permanent Disability.
- No installment under this option shall qualify for
favorable tax treatment as an Incentive Option if (and to the extent)
the aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which such installment first becomes exercisable
hereunder would, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other
securities for which this option or any other Incentive Options granted
to Optionee prior to the Grant Date (whether under the Plan or any
other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should such One Hundred
Thousand Dollar ($100,000) limitation be exceeded in any calendar year,
this option shall nevertheless become exercisable for the excess shares
in such calendar year as a Non-Statutory Option.
- Should the exercisability of this option be
accelerated upon a Corporate Transaction, then this option shall
qualify for favorable tax treatment as an Incentive Option only to the
extent the aggregate Fair Market Value (determined at the Grant Date)
of the Common Stock for which this option first becomes exercisable in
the calendar year in which the Corporate Transaction occurs does not,
when added to the aggregate value (determined as of the respective date
or dates of grant) of the Common Stock or other securities for which
this option or one or more other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should the applicable One Hundred
Thousand Dollar ($100,000) limitation be exceeded in the calendar year
of such Corporate Transaction, the option may nevertheless be exercised
for the excess shares in such calendar year as a Non-Statutory Option.
7.
<PAGE> 46
- Should Optionee hold, in addition to this option,
one or more other options to purchase Common Stock which become
exercisable for the first time in the same calendar year as this
option, then the foregoing limitations on the exercisability of such
options as Incentive Options shall be applied on the basis of the order
in which such options are granted.
18. LEAVE OF ABSENCE. The following provisions shall apply
upon the Optionee's commencement of an authorized leave of absence:
(a) The exercise schedule in effect under the Grant
Notice shall be frozen as of the first day of the authorized leave, and
this option shall not become exercisable for any additional
installments of the Option Shares during the period Optionee remains on
such leave.
(b) Should Optionee resume active Employee status
within sixty (60) days after the start date of the authorized leave,
Optionee shall, for purposes of the exercise schedule set forth in the
Grant Notice, receive Service credit for the entire period of such
leave. If Optionee does not resume active Employee status within such
sixty (60)-day period, then no Service credit shall be given for the
period of such leave.
(c) If the option is designated as an Incentive
Option in the Grant Notice, then the following additional provision
shall apply:
- If the leave of absence continues for more
than three (3) months, then this option shall automatically
convert to a Non-Statutory Option under the Federal tax laws
at the end of such three (3)-month period, unless the
Optionee's reemployment rights are guaranteed by statute or by
written agreement. Following any such conversion of the
option, all subsequent exercises of such option, whether
effected before or after Optionee's return to active Employee
status, shall result in an immediate taxable event, and the
Corporation shall be required to collect from Optionee the
Federal, state and local income and employment withholding
taxes applicable to such exercise.
(d) In no event shall this option become exercisable
for any additional Option Shares or otherwise remain outstanding if
Optionee does not resume Employee status prior to the Expiration Date
of the option term.
8.
<PAGE> 47
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Calpine Corporation (the "Corporation") that I
elect to purchase shares of the Corporation's Common Stock (the
----------
"Purchased Shares") at the option exercise price of $ per share (the
-----
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1996 Stock Incentive Plan on , 199 .
------------
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
, 199
- ---------------- --
Date
---------------------------------
Optionee
Address:
---------------------------------
Print name in exact manner
it is to appear on the ---------------------------------
stock certificate:
---------------------------------
Address to which certificate
is to be sent, if different
from address above:
---------------------------------
---------------------------------
---------------------------------
Social Security Number:
---------------------------------
Employee Number:
---------------------------------
<PAGE> 48
APPENDIX
The following definitions shall be in effect under the
Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder- approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Calpine Corporation, a Delaware corporation.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per share as specified
in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
A-1.
<PAGE> 49
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
A-2.
<PAGE> 50
Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
R. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option as specified in the Grant Notice.
S. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PERMANENT DISABILITY shall mean the inability of Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
V. PLAN shall mean the Corporation's 1996 Stock Incentive Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its administrative capacity under the Plan.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3.
<PAGE> 51
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated 2~ (the "Option
Agreement") by and between Calpine Corporation (the "Corporation") and 1~
("Optionee") evidencing the stock option (the "Option") granted on such date to
Optionee under the terms of the Corporation's 1996 Stock Incentive Plan, and
such provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed or replaced with a comparable option in accordance
with Paragraph 6 of the Option Agreement, the Option shall not accelerate upon
the occurrence of that Corporate Transaction, and the Option shall accordingly
continue, over Optionee's period of Service after the Corporate Transaction, to
become exercisable for the Option Shares in one or more installments in
accordance with the provisions of the Option Agreement. However, immediately
upon an Involuntary Termination of Optionee's Service within twelve (12) months
following such Corporate Transaction, the Option (or any replacement grant), to
the extent outstanding at the time but not otherwise fully exercisable, shall
automatically accelerate so that the Option shall become immediately exercisable
for all the Option Shares at the time subject to the Option and may be exercised
for any or all of those Option Shares as fully vested shares. The Option shall
remain so exercisable until the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the date of the Involuntary
Termination.
2. For purposes of this Addendum, an INVOLUNTARY TERMINATION
shall mean the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a
change in Optionee's position with the Corporation (or Parent or
Subsidiary employing Optionee) which materially reduces Optionee's
level of responsibility, (B) a reduction in Optionee's level of
compensation (including base salary, fringe benefits and participation
in any corporate-performance based bonus or incentive programs) by more
than fifteen percent (15%) or
<PAGE> 52
(C) a relocation of Optionee's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without Optionee's consent.
3. The provisions of Paragraph 1 of this Addendum shall govern
the period for which the Option is to remain exercisable following the
Involuntary Termination of Optionee's Service within twelve (12) months after
the Corporate Transaction and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement.
IN WITNESS WHEREOF, Calpine Corporation has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
CALPINE CORPORATION
By:
---------------------------------
Title:
---------------------------------
--------------------------------------
1~, OPTIONEE
EFFECTIVE DATE: , 199
------------------ --
2.
<PAGE> 53
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated 2~ (the "Option
Agreement") by and between Calpine Corporation (the "Corporation") and 1~
("Optionee") evidencing the stock option (the "Option") granted on such date to
Optionee under the terms of the Corporation's 1996 Stock Incentive Plan, and
such provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CHANGE IN CONTROL
1. The Option shall not accelerate upon the occurrence of a
Change in Control, and the Option shall, over Optionee's period of Service
following such Change in Control, continue to become exercisable for the Option
Shares in one or more installments in accordance with the provisions of the
Option Agreement. However, immediately upon an Involuntary Termination of
Optionee's Service within twelve (12) months following the Change in Control,
the Option, to the extent outstanding at the time but not otherwise fully
exercisable, shall automatically accelerate so that the Option shall become
immediately exercisable for all the Option Shares at the time subject to the
Option and may be exercised for any or all of those Option Shares as fully
vested shares. The Option shall remain so exercisable until the earlier of (i)
the Expiration Date or (ii) the expiration of the one (1)-year period measured
from the date of the Involuntary Termination.
2. For purposes of this Addendum, a CHANGE IN CONTROL shall be
deemed to occur in the event of a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board
over a period of thirty-six (36) consecutive months or less such that a majority
of the Board members ceases, by reason of one or more contested elections for
Board membership, to be
<PAGE> 54
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
3. For purposes of this Addendum, an INVOLUNTARY TERMINATION
shall mean the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a
change in Optionee's position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces Optionee's level of responsibility,
(B) a reduction in Optionee's level of compensation (including base salary,
fringe benefits and participation in any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a relocation of
Optionee's place of employment by more than fifty (50) miles, provided and only
if such change, reduction or relocation is effected by the Corporation without
Optionee's consent.
4. The provisions of Paragraph 1 of this Addendum shall govern
the period for which the Option is to remain exercisable following the
Involuntary Termination of Optionee's Service within twelve (12) months after
the Change in Control and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement.
IN WITNESS WHEREOF, Calpine Corporation has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
CALPINE CORPORATION
By:
-------------------------------
Title:
-------------------------------
--------------------------------------
1~, OPTIONEE
EFFECTIVE DATE: , 199
----------------------------- --
2.
<PAGE> 55
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated 2~ (the "Option
Agreement") by and between Calpine Corporation (the "Corporation") and 1~
("Optionee") evidencing the stock option (the "Option") granted on such date to
Optionee under the terms of the Corporation's 1996 Stock Incentive Plan, and
such provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to them in the Option Agreement.
LIMITED STOCK APPRECIATION RIGHT
1. Optionee is hereby granted a limited stock appreciation
right exercisable upon the following terms and conditions:
- Optionee shall have the unconditional right (exercisable at
any time during the thirty (30)-day period immediately following a Hostile
Take-Over) to surrender the Option to the Corporation, to the extent the Option
is at the time exercisable for vested shares of Common Stock. In return for the
surrendered Option, Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price of the
shares of Common Stock which are at the time vested under the surrendered Option
(or surrendered portion) over (B) the aggregate Exercise Price payable for such
shares.
- To exercise this limited stock appreciation right, Optionee
must, during the applicable thirty (30)-day exercise period, provide the
Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's copy of
the Option Agreement, together with any written amendments to such Agreement.
The cash distribution shall be paid to Optionee within five (5) business days
following such delivery date, and neither the approval of the Plan Administrator
nor the consent of the Board shall be required in connection with such option
surrender and cash distribution. Upon receipt of such cash distribution, the
Option shall be cancelled with respect to the Option Shares for which the Option
has been surrendered, and Optionee shall cease to have any further right to
acquire those Option Shares under the Option Agreement. The Option shall,
however, remain outstanding and exercisable for the balance of the Option Shares
(if any) in accordance with the terms of the Option Agreement, and the
Corporation shall issue a new stock option agreement (substantially in the same
form of the surrendered Option Agreement) for those remaining Option Shares.
<PAGE> 56
- In no event may this limited stock appreciation right be
exercised when there is not a positive spread between the Fair Market Value of
the Option Shares and the aggregate Exercise Price payable for such shares. This
limited stock appreciation right shall in all events terminate upon the
expiration or sooner termination of the option term and may not be assigned or
transferred by Optionee.
2. For purposes of this Addendum, the following definitions
shall be in effect:
- A HOSTILE TAKE-OVER shall be deemed to occur in the
event any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept.
- The TAKE-OVER PRICE per share shall be deemed to be
equal to the greater of (A) the Fair Market Value per Option Share on
the option surrender date or (B) the highest reported price per share
of Common Stock paid by the tender offeror in effecting the Hostile
Take-Over. However, if the surrendered Option is designated as an
Incentive Option in the Grant Notice, then the Take-Over Price shall
not exceed the clause (A) price per share.
IN WITNESS WHEREOF, Calpine Corporation has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
CALPINE CORPORATION
By:
----------------------------------
Title:
----------------------------------
----------------------------------
1~, OPTIONEE
EFFECTIVE DATE: , 199
--------------------- --
2.
<PAGE> 57
CALPINE CORPORATION
STOCK ISSUANCE AGREEMENT
AGREEMENT made this ____ day of ___________, 19__, by and
between Calpine Corporation, a Delaware corporation, and , a Participant in the
Corporation's 1996 Stock Incentive Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases __________ shares of
Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $______ per share (the "Purchase
Price").
2. PAYMENT. Concurrently with the delivery of this Agreement
to the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or check payable to the Corporation and shall deliver a
duly-executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit I) with respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right, Participant (or any successor in interest) shall
have all the rights of a stockholder (including voting, dividend and liquidation
rights) with respect to the Purchased Shares, subject, however, to the transfer
restrictions of this Agreement.
4. COMPLIANCE WITH LAW. Under no circumstances shall shares of
Common Stock or other assets be issued or delivered to Participant pursuant to
the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its successors, there shall have been compliance with all
applicable requirements of Federal and state securities laws, all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is at the time listed for trading and all
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery.
B. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right.
<PAGE> 58
2. RESTRICTIVE LEGEND. The stock certificate for the Purchased
Shares shall be endorsed with the following restrictive legend:
"The shares represented by this certificate are
unvested and subject to certain repurchase rights granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated __________, 199__ between the
Corporation and the registered holder of the shares (or the predecessor
in interest to the shares). A copy of such agreement is maintained at
the Corporation's principal corporate offices."
3. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
the Repurchase Right to the same extent such shares would be so subject if
retained by Participant.
C. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service, vested
in accordance with the Vesting Schedule (such shares to be hereinafter referred
to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right
shall be exercisable by written notice delivered to each Owner of the Unvested
Shares prior to the expiration of the ninety (90)-day exercise period. The
notice shall indicate the number of Unvested Shares to be repurchased and the
date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of such notice. The certificates representing
the Unvested Shares to be repurchased shall be delivered to the Corporation
prior to the close of business on the date specified for the repurchase.
Concurrently with the receipt of such stock certificates, the Corporation shall
pay to Owner, in cash or cash equivalent (including the cancellation of any
purchase-money indebtedness), an amount equal to the Purchase Price previously
paid for the Unvested Shares to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph C.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
2.
<PAGE> 59
(i) Upon Participant's completion of one (1) year of
Service measured from ______________, 199__, Participant shall acquire
a vested interest in, and the Repurchase Right shall lapse with respect
to, twenty-five percent (25%) of the Purchased Shares.
(ii) Participant shall acquire a vested interest in, and
the Repurchase Right shall lapse with respect to, the remaining
Purchased Shares in a series of thirty six (36) successive equal
monthly installments upon Participant's completion of each additional
month of Service over the thirty-six (36)-month period measured from
the initial vesting date under subparagraph (i) above.
4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right, but
only to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of securities subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
5. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any
Corporate Transaction, the Repurchase Right shall automatically lapse in its
entirety and the Purchased Shares shall vest in full, except to the extent the
Repurchase Right is to be assigned to the successor corporation (or parent
thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in
effect following a Corporate Transaction, such right shall apply to the new
capital stock or other property (including any cash payments) received in
exchange for the Purchased Shares in consummation of the Corporate Transaction,
but only to the extent the Purchased Shares are at the time covered by such
right. Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate purchase price shall remain the same.
D. SPECIAL TAX ELECTION
1. SECTION 83(b) ELECTION . Under Code Section 83, the excess
of the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary
3.
<PAGE> 60
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. Participant may elect under Code Section 83(b)
to be taxed at the time the Purchased Shares are acquired, rather than when and
as such Purchased Shares cease to be subject to such forfeiture restrictions.
Such election must be filed with the Internal Revenue Service within thirty (30)
days after the date of this Agreement. Even if the fair market value of the
Purchased Shares on the date of this Agreement equals the Purchase Price paid
(and thus no tax is payable), the election must be made to avoid adverse tax
consequences in the future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS
EXHIBIT II HERETO. PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING
WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF
ORDINARY INCOME AS THE FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
E. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
to any person or entity selected by the Board, including (without limitation)
one or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this
Agreement or in the Plan shall confer upon Participant any right to continue in
Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Participant) or of Participant, which rights are hereby
expressly reserved by each, to terminate Participant's Service at any time for
any reason, with or without cause.
3. NOTICES. Any notice required to be given under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice at the
address indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance
to exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement
4.
<PAGE> 61
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
F. MISCELLANEOUS PROVISIONS
1. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes
the entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first indicated above.
CALPINE CORPORATION
5.
<PAGE> 62
By:
-------------------------------
Title:
-------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
PARTICIPANT
Address:
-------------------------------
-------------------------------
6.
<PAGE> 63
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of the Participant has read and hereby
approves the foregoing Stock Issuance Agreement. In consideration of the
Corporation's granting the Participant the right to acquire the Purchased Shares
in accordance with the terms of such Agreement, the undersigned hereby agrees to
be irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which the Participant is not vested at the time of his or
her termination of Service.
------------------------------------------
PARTICIPANT'S SPOUSE
Address:
---------------------------------
---------------------------------
7.
<PAGE> 64
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ______________ hereby sell(s), assign(s)
and transfer(s) unto Calpine Corporation (the "Corporation"), ______________ (
______ ) shares of the Common Stock of the Corporation standing in his or her
name on the books of the Corporation represented by Certificate No.
______________ herewith and do(es) hereby irrevocably constitute and appoint
______________ Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises. Dated:
______________ , 199__.
Signature ___________________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 65
EXHIBIT II
SECTION 83(B) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
shares of the common stock of Calpine Corporation
(3) The property was issued on , 199 .
(4) The taxable year in which the election is being made is the calendar
year 199 .
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of annual
and monthly installments over a four (4)-year period ending on .
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms
will never lapse) is $ per share.
(7) The amount paid for such property is $ per share.
(8) A copy of this statement was furnished to Calpine Corporation for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on , 199 .
- ------------------------- ---------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 66
APPENDIX
The following definitions shall be in effect under the
Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Calpine Corporation, a Delaware
corporation.
G. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
H. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
I. PARTICIPANT shall mean the person to whom the Purchased Shares
are issued under the Stock Issuance Program.
J. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to
A-1.
<PAGE> 67
Participant's will or the laws of intestate succession following Participant's
death or (iii) a transfer to the Corporation in pledge as security for any
purchase-money indebtedness incurred by Participant in connection with the
acquisition of the Purchased Shares.
K. PLAN shall mean the Corporation's 1996 Stock Incentive Plan.
L. PLAN ADMINISTRATOR shall mean either the Board or a committee
of the Board acting in its administrative capacity under the Plan.
M. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
N. PURCHASED SHARES shall have the meaning assigned to such term
in Paragraph A.1.
O. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
P. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation
is not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior
to the merger, or
(iv) any transaction effected primarily to change the
state in which the Corporation is incorporated or to create a holding
company structure.
Q. REPURCHASE RIGHT shall mean the right granted to the
Corporation in accordance with Article C.
R. SERVICE shall mean the Participant's performance of services
for the Corporation (or any Parent or Subsidiary) in the capacity of an
employee, subject to the control and direction of the employer entity as to both
the work to be performed and the manner and method of performance, a
non-employee member of the board of directors or a consultant.
A-2.
<PAGE> 68
S. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program
under the Plan.
T. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
U. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph C.3, subject to the acceleration provisions of Paragraph C.5.
V. UNVESTED SHARES shall have the meaning assigned to such term
in Paragraph C.1.
A-3.
<PAGE> 69
ADDENDUM
TO
STOCK ISSUANCE AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Issuance Agreement dated 2~ (the
"Issuance Agreement") by and between Calpine Corporation (the "Corporation") and
1~ ("Participant") evidencing the stock issuance on such date to Participant
under the terms of the Corporation's 1996 Stock Incentive Plan, and such
provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to such terms in the Issuance Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the
successor corporation (or parent thereof) in connection with a Corporate
Transaction, no accelerated vesting of the Purchased Shares shall occur upon
such Corporate Transaction, and the Repurchase Right shall continue to remain in
full force and effect in accordance with the provisions of the Issuance
Agreement. The Participant shall, over Participant's period of Service following
the Corporate Transaction, continue to vest in the Purchased Shares in one or
more installments in accordance with the provisions of the Issuance Agreement.
However, immediately upon an Involuntary Termination of Participant's Service
within twelve (12) months following the Corporate Transaction, the Repurchase
Right shall terminate automatically and all the Purchased Shares shall vest in
full.
2. For purposes of this Addendum, the following definitions
shall be in effect:
An INVOLUNTARY TERMINATION shall mean the termination of
Participant's Service by reason of:
(i) Participant's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) Participant's voluntary resignation
following (A) a change in Participant's position with the Corporation
(or Parent or Subsidiary employing Participant) which materially
reduces Participant's level of responsibility, (B) a reduction in
Participant's level of compensation (including base salary, fringe
benefits and participation in any corporate-
<PAGE> 70
performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Participant's place of employment
by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without
Participant's consent.
MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Participant, any unauthorized use or
disclosure by the Participant of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by the Participant adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of the Participant or other person in the Service of
the Corporation (or any Parent or Subsidiary).
IN WITNESS WHEREOF, Calpine Corporation has caused this
Addendum to be executed by its duly-authorized officer, and Participant has
executed this Addendum, all as of the Effective Date specified below.
CALPINE CORPORATION
By:
----------------------------------
Title:
----------------------------------
----------------------------------------
1~, PARTICIPANT
EFFECTIVE DATE: , 199
------------------- --
2.
<PAGE> 71
ADDENDUM
TO
STOCK ISSUANCE AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Issuance Agreement dated 2~ (the
"Issuance Agreement") by and between Calpine Corporation (the "Corporation") and
1~ ("Participant") evidencing the stock issuance on such date to Participant
under the terms of the Corporation's 1996 Stock Incentive Plan, and such
provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to such terms in the Issuance Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CHANGE IN CONTROL
1. No accelerated vesting of the Purchased Shares shall occur
upon a Change in Control, and the Repurchase Right shall continue to remain in
full force and effect in accordance with the provisions of the Issuance
Agreement. The Participant shall, over Participant's period of Service following
the Change in Control, continue to vest in the Purchased Shares in one or more
installments in accordance with the provisions of the Issuance Agreement.
However, immediately upon an Involuntary Termination of Participant's Service
within twelve (12) months following the Change in Control, the Repurchase Right
shall terminate automatically and all the Purchased Shares shall vest in full.
2. For purposes of this Addendum, the following definitions
shall be in effect:
A CHANGE IN CONTROL shall be deemed to occur in the
event of a change in ownership or control of the Corporation effected through
either of the following transactions:
(i) the direct or indirect acquisition by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, or
<PAGE> 72
(ii) a change in the composition of the Board
over a period of thirty-six (36) months or less such that a majority of
the Board members ceases by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such period
or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
An INVOLUNTARY TERMINATION shall mean the termination
of Participant's Service by reason of:
(i) Participant's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) Participant's voluntary resignation
following (A) a change in Participant's position with the Corporation
(or Parent or Subsidiary employing Participant) which materially
reduces Participant's level of responsibility, (B) a reduction in
Participant's level of compensation (including base salary, fringe
benefits and participation in any corporate- performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of Participant's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without Participant's consent.
MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Participant, any unauthorized use or
disclosure by the Participant of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by the Participant adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of the Participant or other person in the Service of
the Corporation (or any Parent or Subsidiary).
2.
<PAGE> 73
IN WITNESS WHEREOF, Calpine Corporation has caused this
Addendum to be executed by its duly-authorized officer, and Participant has
executed this Addendum, all as of the Effective Date specified below.
CALPINE CORPORATION
By:
--------------------------------
Title:
--------------------------------
---------------------------------------
1(TILDE), PARTICIPANT
EFFECTIVE DATE: , 199
------------------ --
3.
<PAGE> 74
CALPINE CORPORATION
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. The Corporation has implemented an automatic option grant program
under the Corporation's 1996 Stock Incentive Plan pursuant to which eligible
non-employee members of the Corporation's Board will automatically receive
special option grants at designated intervals over their period of Board service
in order to provide such individuals with a meaningful incentive to continue to
serve as a member of the Board.
B. Optionee is an eligible non-employee Board member, and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the automatic grant of a stock option to purchase
shares of the Corporation's Common Stock under the Plan.
C. The granted option is intended to be a non-statutory option which
does not meet the requirements of Section 422 of the Internal Revenue Code.
D. All capitalized terms in this Agreement, to the extent not otherwise
defined in the Agreement, shall have the meaning assigned to them in the
attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee,
as of the Grant Date, a Non-Statutory Option to purchase up to the number of
Option Shares specified in the Grant Notice. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2 at
the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten
(10) years measured from the Grant Date and shall accordingly expire at the
close of business on the Expiration Date, unless sooner terminated in accordance
with Paragraph 5, 6 or 7.
3. LIMITED TRANSFERABILITY. This option may, in connection
with the Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of the Optionee's immediate family or
to a trust established for the exclusive benefit of one or more such family
members. The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for this option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Corporation may deem
appropriate. Should the Optionee die while holding this option, then this option
shall be transferred in accordance with Optionee's will or the laws of descent
and distribution.
<PAGE> 75
4. EXERCISABILITY/VESTING.
(a) This option shall be immediately exercisable for
any or all of the Option Shares, whether or not the Option Shares are vested in
accordance with the Vesting Schedule set forth in the Grant Notice, and shall
remain so exercisable until the Expiration Date or the sooner termination of the
option term under Paragraph 5, 6 or 7.
(b) Optionee shall, in accordance with the Vesting
Schedule set forth in the Grant Notice, vest in the Option Shares in a series of
installments over his or her period of Board service. Vesting in the Option
Shares may be accelerated pursuant to the provisions of Paragraph 5, 6 or 7. In
no event, however, shall any additional Option Shares vest following Optionee's
cessation of service as a Board member.
5. CESSATION OF BOARD SERVICE. Should Optionee's service as a
Board member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(i) Should Optionee cease to serve as a Board
member for any reason (other than death or Permanent Disability) while
holding this option, then the period for exercising this option shall
be reduced to a twelve (12)-month period commencing with the date of
such cessation of Board service, but in no event shall this option be
exercisable at any time after the Expiration Date. During such limited
period of exercisability, this option may not be exercised in the
aggregate for more than the number of Option Shares (if any) in which
Optionee is vested on the date of his or her cessation of Board
service. Upon the earlier of (i) the expiration of such twelve
(12)-month period or (ii) the specified Expiration Date, the option
shall terminate and cease to be exercisable with respect to any vested
Option Shares for which the option has not been exercised.
(ii) Should Optionee die during the twelve
(12)-month period following his or her cessation of Board service, then
the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have
the right to exercise this option for any or all of the Option Shares
in which Optionee is vested at the time of Optionee's cessation of
Board service (less any Option Shares purchased by Optionee after such
cessation of Board service but prior to death). Such right of exercise
shall terminate, and this option shall accordingly cease to be
exercisable for such vested Option Shares, upon the earlier of (i) the
expiration of the twelve (12)-month period measured from the date of
Optionee's cessation of Board service or (ii) the specified Expiration
Date of the option term.
2.
<PAGE> 76
(iii) Should Optionee cease service as a Board
member by reason of death or Permanent Disability, then all Option
Shares at the time subject to this option but not otherwise vested
shall immediately vest in full so that Optionee (or the personal
representative of Optionee's estate or the person or persons to whom
the option is transferred upon Optionee's death) shall have the right
to exercise this option for any or all of the Option Shares as
fully-vested shares of Common Stock at any time prior to the earlier of
(i) the expiration of the twelve (12)-month period measured from the
date of Optionee's cessation of Board service or (ii) the specified
Expiration Date.
(iv) Upon Optionee's cessation of Board
service for any reason other than death or Permanent Disability, this
option shall immediately terminate and cease to be outstanding with
respect to any and all Option Shares in which Optionee is not otherwise
at that time vested in accordance with the normal Vesting Schedule set
forth in the Grant Notice or the special vesting acceleration
provisions of Paragraph 6 or 7 below.
6. CORPORATE TRANSACTION.
(a) In the event of a Corporate Transaction, all
Option Shares at the time subject to this option but not otherwise vested shall
automatically vest so that this option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable for all
of the Option Shares at the time subject to this option and may be exercised for
all or any portion of such shares as fully-vested shares of Common Stock.
Immediately following the consummation of the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or its parent company.
(b) If this option is assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
7. CHANGE IN CONTROL/HOSTILE TAKE-OVER.
(a) All Option Shares subject to this option at the
time of a Change in Control but not otherwise vested shall automatically vest so
that this option shall, immediately prior to the effective date of such Change
in Control, become fully exercisable for all of the Option Shares at the time
subject to this option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock. This option shall remain
exercisable for such fully-vested Option Shares until the earliest to occur of
(i) the
3.
<PAGE> 77
specified Expiration Date, (ii) the sooner termination of this option in
accordance with Paragraph 5 or 6 or (iii) the surrender of this option under
Paragraph 7(b).
(b) Optionee shall have an unconditional right
(exercisable during the thirty (30)-day period immediately following the
consummation of a Hostile Take-Over) to surrender this option to the Corporation
in exchange for a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the Option Shares at the time subject
to the surrendered option (whether or not those Option Shares are otherwise at
the time vested) over (ii) the aggregate Exercise Price payable for such shares.
This Paragraph 7(b) limited stock appreciation right shall in all events
terminate upon the expiration or sooner termination of the option term and may
not be assigned or transferred by Optionee.
(c) To exercise the Paragraph 7(b) limited stock
appreciation right, Optionee must, during the applicable thirty (30)-day
exercise period, provide the Corporation with written notice of the option
surrender in which there is specified the number of Option Shares as to which
the option is being surrendered. Such notice must be accompanied by the return
of Optionee's copy of this Agreement, together with any written amendments to
such Agreement. The cash distribution shall be paid to Optionee within five (5)
business days following such delivery date, and neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option surrender and cash distribution. Upon receipt of such cash
distribution, this option shall be cancelled with respect to the shares subject
to the surrendered option (or the surrendered portion), and Optionee shall cease
to have any further right to acquire those Option Shares under this Agreement.
The option shall, however, remain outstanding for the balance of the Option
Shares (if any) in accordance with the terms and provisions of this Agreement,
and the Corporation shall accordingly issue a new stock option agreement
(substantially in the same form as this Agreement) for those remaining Option
Shares.
8. ADJUSTMENT IN OPTION SHARES. Should any change be made to
the Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the number and/or
class of securities subject to this option and (ii) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder; provided, however, that the aggregate Exercise Price shall
remain the same.
9. STOCKHOLDER RIGHTS. The holder of this option shall not
have any stockholder rights with respect to the Option Shares until such person
shall have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.
4.
<PAGE> 78
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option for all or any
part of the Option Shares for which the option is at the time exercisable,
Optionee or, in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be, must take the
following actions:
(i) To the extent the option is
exercised for vested Option Shares, the Secretary of the Corporation
shall be provided with written notice of the option exercise (the
"Exercise Notice") in substantially the form of Exhibit I attached
hereto, in which there is specified the number of vested Option Shares
to be purchased under the exercised option. To the extent that the
option is exercised for one or more unvested Option Shares, Optionee
(or other person exercising the option) shall deliver to the Secretary
of the Corporation a Purchase Agreement for those unvested Option
Shares.
(ii) The Exercise Price for the
purchased shares shall be paid in one or more of the following
alternative forms:
- cash or check made payable to the
Corporation's order; or
- shares of Common Stock held by
Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date; or
- to the extent the option is
exercised for vested Option Shares, through a special sale and
remittance procedure pursuant to which Optionee shall provide
irrevocable written instructions (A) to a
Corporation-designated brokerage firm to effect the immediate
sale of the vested shares purchased under the option and remit
to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
Exercise Price payable for those shares plus the applicable
Federal, state and local income taxes required to be withheld
by the Corporation by reason of such exercise and (B) to the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale.
(iii) Appropriate documentation
evidencing the right to exercise this option shall be furnished the
Corporation if the person or persons exercising the option is other
than Optionee.
5.
<PAGE> 79
(iv) Appropriate arrangement must be
made with the Corporation for the satisfaction of all Federal, state
and local income tax withholding requirements applicable to the option
exercise.
(b) Except to the extent the sale and remittance
procedure specified above is utilized in connection with the exercise of the
option for vested Option Shares, payment of the Exercise Price for the purchased
shares must accompany the Exercise Notice or Purchase Agreement delivered to the
Corporation in connection with the option exercise.
(c) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate or certificates representing the
purchased Option Shares. To the extent any such Option Shares are unvested, the
certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation's repurchase rights and may be held in escrow
with the Corporation until such shares vest.
(d) In no event may this option be exercised for
fractional shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of
the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. However, the Corporation shall use its best efforts to
obtain all such applicable approvals.
6.
<PAGE> 80
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraph 3 or 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
14. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
evidenced hereby are made and granted pursuant to the automatic option grant
program in effect under the Plan and are in all respects limited by and subject
to the express terms and provisions of that program. The interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
15. NOTICES. Any notice required to be given or delivered to
the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
7.
<PAGE> 81
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Calpine Corporation (the "Corporation") that I
elect to purchase ___________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $____ per share
(the "Exercise Price") pursuant to that certain option (the "Option")
granted to me pursuant to the automatic option grant program under the
Corporation's 1996 Stock Incentive Plan on __________, 199_.
Concurrently with the delivery of this Exercise Notice to the Secretary of the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
any Purchased Shares in which I am vested at the time of exercise.
___________________________________, 199_
Date
__________________________________
Optionee
Address: _________________________
__________________________________
Print name in exact manner
it is to appear on the
stock certificate: __________________________________
Address to which certificate
is to be sent, if different
from address above: __________________________________
__________________________________
Social Security Number: __________________________________
<PAGE> 82
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Automatic Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
A-1.
<PAGE> 83
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Calpine Corporation, a Delaware
corporation.
H. EXERCISE DATE shall mean the date on which the option shall
have been exercised in accordance with Paragraph 10 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price payable per share
as specified in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option term
expires as specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as
specified in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Automatic Stock
Option accompanying this Agreement, pursuant to which Optionee has been informed
of the basic terms of the option evidenced hereby.
A-2.
<PAGE> 84
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
Q. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option.
R. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
S. PERMANENT DISABILITY shall mean the inability of Optionee to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
T. PLAN shall mean the Corporation's 1996 Stock Incentive Plan.
U. PURCHASE AGREEMENT shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of service as a Board member and (ii)
preclude the sale, transfer or other disposition of any of the Option Shares
purchased under such agreement while those Option Shares remain subject to the
repurchase right.
V. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
W. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
A-3.
<PAGE> 85
X. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice, pursuant to which Optionee will vest in the Option Shares in one
or more installments over his or her period of Board service, subject to
acceleration in accordance with the provisions of the Agreement.
A-4.
<PAGE> 86
INITIAL GRANT
CALPINE CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Calpine Corporation (the
"Corporation"):
Optionee:
---------------------------------------------
Grant Date:
---------------------------------------------
Exercise Price: $ per share
--------------------------------
Number of Option Shares: 10,000 shares
Expiration Date:
---------------------------------------------
Type of Option: Non-Statutory Stock Option
Date Exercisable: Immediately Exercisable
Vesting Schedule: The Option Shares shall initially be
unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share. Optionee shall acquire a vested
interest in, and the Corporation's repurchase right shall
accordingly lapse with respect to, the Option Shares in a
series of four (4) successive equal annual installments upon
the Optionee's completion of each year of service as a member
of the Corporation's Board of Directors (the "Board") over the
four (4)-year period measured from the Grant Date. In no event
shall any additional Option Shares vest after Optionee's
cessation of Board service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the automatic option grant
program under the Calpine Corporation 1996 Stock Incentive Plan (the "Plan").
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the Automatic Stock Option Agreement attached hereto
as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
<PAGE> 87
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE
AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE
PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE AS A MEMBER OF THE
CORPORATION'S BOARD OF DIRECTORS PRIOR TO VESTING IN THOSE SHARES. THE TERMS AND
CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE
AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY
OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
No Impairment of Rights. Nothing in this Notice or in the
attached Automatic Stock Option Agreement or the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation or the Corporation's
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
DATED: , 199
------------------------------------- ---
CALPINE CORPORATION
By:
--------------------------------
Title:
--------------------------------
--------------------------------
OPTIONEE
Address:
--------------------------------
ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE> 88
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
<PAGE> 89
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE> 90
ANNUAL GRANT
CALPINE CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Calpine Corporation (the
"Corporation"):
Optionee:
-------------------------------------------------
Grant Date:
-----------------------------------------------
Exercise Price: $ per share
-------------------------------
Number of Option Shares: _____ shares
Expiration Date:
--------------------------------
Type of Option: Non-Statutory Stock Option
Date Exercisable: Immediately Exercisable
Vesting Schedule: The Option Shares shall initially be
unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share. Optionee shall acquire a vested
interest in, and the Corporation's repurchase right shall
accordingly lapse with respect to, the Option Shares upon the
Optionee's completion of one year of service as a member of
the Corporation's Board of Directors (the "Board") measured
from the Grant Date. In no event shall any additional Option
Shares vest after Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the automatic option grant
program under the Calpine Corporation 1996 Stock Incentive Plan (the "Plan").
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the Automatic Stock Option Agreement attached hereto
as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
<PAGE> 91
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE
AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE
PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE AS A MEMBER OF THE
CORPORATION'S BOARD OF DIRECTORS PRIOR TO VESTING IN THOSE SHARES. THE TERMS AND
CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE
AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY
OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
No Impairment of Rights. Nothing in this Notice or in the
attached Automatic Stock Option Agreement or the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation or the Corporation's
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
DATED: , 199
------------------------------- --
CALPINE CORPORATION
By:
--------------------------------
Title:
--------------------------------
--------------------------------
OPTIONEE
Address:
-----------------------------
-----------------------------
ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE> 92
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
<PAGE> 1
EXHIBIT 10.9.3
CALPINE CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Calpine Corporation by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed Two Hundred
Seventy Five Thousand (275,000) shares.
B. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
<PAGE> 2
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior to
the start date. The initial offering period shall commence at the Effective Time
and terminate on the last business day in August 1998. The next offering period
shall commence on the first business day in September 1998, and subsequent
offering periods shall commence as designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one
or more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in March each year to the last business day in August of the
same year and from the first business day in September each year to the last
business day in February of the following year. Accordingly, the first Purchase
Interval in effect under the initial offering period shall commence at the
Effective Time and terminate on the last business day in February 1997.
D. Should the Fair Market Value per share of Common Stock on
any Purchase Date within an offering period be less than the Fair Market Value
per share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty four (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business days
following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of any offering period under the Plan may enter that offering period on
such start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee
after the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
2.
<PAGE> 3
D. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The Plan Administrator shall, prior to the start of each
offering period, determine the maximum percentage of Cash Earnings which each
Participant may contribute to the Plan through payroll deductions during that
offering period; provided, however, that the maximum percentage shall in no
event exceed fifteen percent (15%) of such Cash Earnings. Each Participant may
then authorize a level of payroll deductions to be in effect for such offering
period in any multiple of one percent (1%) of the Cash Earnings paid to him or
her during each Purchase Interval within that offering period, up to the
maximum percentage established by the Plan Administrator for such offering
period. The deduction rate authorized by the Participant shall continue in
effect throughout the offering period, except to the extent such rate is
changed in accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with
the Plan Administrator. The Participant may not, however, effect more
than one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase the rate
of his or her payroll deduction by filing the appropriate form with the
Plan Administrator. The new rate (which may not exceed the maximum
percentage authorized by the Plan Administrator for that offering
period) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
3.
<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded pursuant to the Termination of Purchase
Right provisions below) on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall not be less than eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Interval ending with that Purchase Date by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed three hundred (300) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
4.
<PAGE> 5
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected
with respect to the terminated right shall be refunded as soon as
possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which the
purchase right so terminates shall be immediately refunded. However,
should the Participant cease to remain in active service by reason of
an approved unpaid leave of absence, then the Participant shall have
the right, exercisable up until the last business day of the Purchase
Interval in which such leave commences, to (a) withdraw all the payroll
deductions collected to date on his or her behalf for that Purchase
Interval or (b) have such funds held for the purchase of shares on his
or her behalf on the next scheduled Purchase Date. In no event,
however, shall any
5.
<PAGE> 6
further payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active service, his
or her payroll deductions under the Plan shall automatically resume at
the rate in effect at the time the leave began, unless the Participant
withdraws from the Plan prior to his or her return.
G. CORPORATE TRANSACTION. Each outstanding purchase right
shall automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share not less
than eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Common Stock on the Participant's Entry Date into the offering period
in which such Corporate Transaction occurs or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to any such
purchase.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only
by the Participant and shall not be assignable or transferable by the
Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee
6.
<PAGE> 7
stock purchase plans (within the meaning of Code Section 423) of the Corporation
or any Corporate Affiliate, would otherwise permit such Participant to purchase
more than Twenty-Five Thousand Dollars ($25,000) worth of stock of the
Corporation or any Corporate Affiliate (determined on the basis of the Fair
Market Value per share on the date or dates such rights are granted) for each
calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Interval, then
the payroll deductions which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on July 17, 1996 and
shall become effective at the Effective Time, provided no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the
7.
<PAGE> 8
Plan is adopted by the Board, the Plan shall terminate and have no further force
or effect, and all sums collected from Participants during the initial offering
period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in August 2006, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold pursuant to purchase rights exercised under the Plan or (iii) the date
on which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of
the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Calpine Corporation
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) regular base salary paid
to a Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
any pre-tax contributions made by the Participant to any Code Section 401(k)
salary deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate plus (iii)
all overtime payments, bonuses, commissions, current profit-sharing
distributions and other incentive-type payments. However, CASH EARNINGS shall
not include any contributions (other than Code Section 401(k) or Code Section
125 contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or hereafter
established.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Calpine Corporation, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Calpine Corporation which shall by appropriate action
adopt the Plan.
A-1.
<PAGE> 11
H. EFFECTIVE TIME shall mean the time at which the
Underwriting Agreement is executed and finally priced. Any Corporate Affiliate
which becomes a Participating Corporation after such Effective Time shall
designate a subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by
a Participating Corporation on a basis under which he or she is regularly
expected to render more than twenty (20) hours of service per week for more than
five (5) months per calendar year for earnings considered wages under Code
Section 3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of the initial offering period
which begins at the Effective Time, the Fair Market Value shall be
deemed to be equal to the price per share at which the Common Stock is
sold in the initial public offering pursuant to the Underwriting
Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
A-2.
<PAGE> 12
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and
such Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase
Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or
more Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be February 28, 1997.
R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
March and September each year on which an Eligible Employee may first enter an
offering period.
T. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE> 13
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
ENROLLMENT/CHANGE FORM
<TABLE>
<S> <C>
Action Complete Sections:
------ ------------------
SECTION 1:
/ / New Enrollment 2, 3, 7 and sign attached
ACTION Stock Purchase Agreement
/ / Change Payroll Deductions 2, 4, 7
/ / Terminate Payroll Deductions 2, 5, 7
/ / Leave of Absence 2, 6, 7
==================================================================================================================
SECTION 2:
Name_____________________________________________________________________
PERSONNEL Last First MI Dept.
DATA
Home Address_____________________________________________________________
Street
_____________________________________________________________________
City State Zip Code
Social Security #: / / / / - / / / - / / / / /
==================================================================================================================
SECTION 3:
Effective with the Purchase
NEW Interval Beginning: Payroll Deduction Amount: ______% of cash earnings*
ENROLLMENT / / March 1, 199_
/ / September 1, 199_ * Must be a multiple of 1% up to a maximum of 15% of
cash earnings
/ / Initial Offering Period
==================================================================================================================
SECTION 4:
Effective with the I authorize the following new level of payroll
CHANGE Pay Period Beginning: _____________________ deductions: ________% of cash earnings*
PAYROLL Month, Day and Year
DEDUCTIONS
* Must be a multiple of 1% up to a maximum of 15% of
cash earnings
NOTE: You may reduce your rate of payroll deductions once per purchase interval to become
effective as soon as possible following the filing of the change form. You may also
increase your rate of payroll deductions to become effective as of the start date of the
next purchase interval.
==================================================================================================================
SECTION 5:
Effective with the Your election to terminate your payroll deductions
TERMINATE Pay Period Beginning: _____________________ for the balance of the offering period cannot be
PAYROLL Month, Day and Year changed, and you may not rejoin the offering period
DEDUCTIONS at a later date. You will not be able to resume
participation in the ESPP until a new offering
period begins.
In connection with my voluntary termination of payroll deductions, I elect the following
action with respect to my ESPP payroll deductions to date in the current six (6)-month
purchase interval:
/ / Purchase Calpine shares at end of the interval
OR
/ / Refund ESPP payroll deductions collected
NOTE: If your employment terminates for any reason or your eligibility status changes (less than
20 hrs/wk or less than 5 months/yr), you will immediately cease to participate in the ESPP,
and your ESPP payroll deductions collected in that purchase interval will automatically be
refunded to you.
==================================================================================================================
SECTION 6
LEAVE OF In connection with my unpaid leave of absence, I elect the following action with respect
ABSENCE to my ESPP payroll deductions to date in the current purchase interval:
/ / Purchase Calpine shares at end of the interval
OR
/ / Refund ESPP payroll deductions collected
NOTE: If you take an unpaid leave of absence, your payroll deductions will immediately cease.
Upon your return to active service, your payroll deductions will automatically resume at
the rate in effect for you at the time you went on leave.
==================================================================================================================
SECTION 7
AUTHORIZATION
I hereby authorize the specific action or actions indicated above.
_____________________________ ________________________________________
Date Signature of Employee
</TABLE>
<PAGE> 14
CALPINE CORPORATION
STOCK PURCHASE AGREEMENT
I hereby elect to participate in the Employee Stock Purchase Plan (the
"ESPP") effective with the Entry Date specified below, and I hereby subscribe to
purchase shares of Common Stock of Calpine Corporation (the "Corporation") in
accordance with the provisions of this Agreement and the ESPP. I hereby
authorize payroll deductions from each of my paychecks following my entry into
the ESPP in the 1% multiple of my earnings (not to exceed a maximum of 15%)
specified in my attached Enrollment Form.
Each offering period is divided into a series of successive purchase
intervals. The initial purchase interval is to begin at the time of the initial
public offering of the Common Stock and end on February 28, 1997. Subsequent
purchase intervals will each be of six (6) months duration and will run from the
first business day of March to the last business day of August each year and
from the first business day of September each year until the last business of
February in the following year. My participation will automatically remain in
effect from one offering period to the next in accordance with this Agreement
and my payroll deduction authorization, unless I withdraw from the ESPP or
change the rate of my payroll deduction or unless my employment status changes.
I may reduce the rate of my payroll deductions on one occasion per purchase
interval, and I may increase my rate of payroll deduction to become effective at
the beginning of any subsequent purchase interval within the offering period.
My payroll deductions will be accumulated for the purchase of shares of
the Corporation's Common Stock on the last business day of each purchase
interval within the offering period. The purchase price per share will not be
less than 85% of the lower of (i) the fair market value per share of Common
Stock on my entry date into the offering period or (ii) the fair market value
per share on the semi-annual purchase date. I will also be subject to ESPP
restrictions (i) limiting the maximum number of shares which I may purchase on
any one purchase date to 300 shares and (ii) prohibiting me from purchasing more
than $25,000 worth of Common Stock for each calendar year my purchase right
remains outstanding.
I may withdraw from the ESPP at any time prior to the last business day
of a purchase interval and elect either to have the Corporation refund all my
payroll deductions for that purchase interval or to have those payroll
deductions applied to the purchase of shares of the Corporation's Common Stock
at the end of such interval. However, I may not rejoin that particular offering
period at any later date. Upon the termination of my employment for any reason,
including death or disability, or my loss of eligible employee status, my
participation in the ESPP will immediately cease and all my payroll deductions
for the purchase interval in which my employment terminates or my loss of
eligibility occurs will automatically be refunded.
If I take an unpaid leave of absence, my payroll deductions will
immediately cease, and any payroll deductions for the purchase interval in which
my leave begins will, at my election, either be refunded or applied to the
purchase of shares of Common Stock at the end of that purchase interval. Upon my
return to active service, my payroll deductions will automatically resume at the
rate in effect when my leave began.
A stock certificate for the shares purchased on my behalf at the end of
each purchase interval will automatically be deposited into a brokerage account
which the Corporation will open on my behalf. I will notify the Corporation of
any sale or disposition of my ESPP shares, and I will satisfy all applicable
income and employment tax withholding requirements at the time of such sale or
disposition.
The Corporation has the right, exercisable in its sole discretion, to
amend or terminate the ESPP at any time, with such amendment or termination to
become effective immediately following the exercise of outstanding purchase
rights at the end of any current purchase interval. Should the Corporation elect
to terminate the ESPP, I will have no further rights to purchase shares of
Common Stock pursuant to this Agreement.
I have received a copy of the official Plan Prospectus summarizing the
major features of the ESPP. I have read this Agreement and the Prospectus and
hereby agree to be bound by the terms of both this Agreement and the ESPP. The
effectiveness of this Agreement is dependent upon my eligibility to participate
in the ESPP.
Date: ________________, 199__ ______________________________________
Signature of Employee
Printed Name:_________________________
Entry Date: __________, 199__
<PAGE> 15
CALPINE CORPORATION
---------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
QUESTION AND ANSWER SUMMARY
---------------------------------------
The date of this Summary is ____________, 1996
<PAGE> 16
INFORMATION ON THE EMPLOYEE STOCK PURCHASE PLAN
Calpine Corporation, a Delaware corporation (the
"Corporation"), has established a new stock purchase program which will allow
eligible employees to acquire shares of the Corporation's common stock (the
"Common Stock") at periodic intervals through accumulated payroll deductions.
The new program is officially titled the Calpine Corporation Employee Stock
Purchase Plan and will be referred to in this document as the Purchase Plan.
QUESTIONS AND ANSWERS ABOUT THE PURCHASE PLAN
This document sets forth in question and answer format the
major features of the Purchase Plan and the principal rights and benefits
available to the participating employees.
1. WHAT IS THE PURPOSE OF THE PURCHASE PLAN?
The purpose of the Purchase Plan is to provide employees with
the opportunity to acquire stock ownership in the Corporation through periodic
payroll deductions. These deductions will be applied at semi-annual intervals to
purchase shares of Common Stock at a discount from the then current market
price.
2. WHEN WILL THE PURCHASE PLAN BECOME EFFECTIVE?
The Purchase Plan will become effective at the time the
Corporation signs the underwriting agreement for the initial public offering of
the Common Stock.
3. WHO WILL ADMINISTER THE PURCHASE PLAN?
The Purchase Plan will be administered by the Compensation
Committee of the Board. This committee is comprised of two (2) or more
non-employee Board members appointed by the Board. The members will serve for so
long as the Board deems appropriate and may be removed by the Board at any time.
The Compensation Committee in its capacity as administrator of the Purchase Plan
will be referred to in this document as the "Plan Administrator."
4. HOW MANY SHARES OF COMMON STOCK MAY BE ISSUED UNDER THE
PURCHASE PLAN?
A total of 275,000 shares of Common Stock will be reserved for
issuance under the Purchase Plan. These shares will be made available either
from the Corporation's authorized but unissued shares of Common Stock or from
shares of Common Stock reacquired by the Corporation, including shares
repurchased on the open market.
5. HOW WILL THE COMMON STOCK BE MADE AVAILABLE FOR PURCHASE?
Shares of Common Stock will be offered for purchase through a
series of one or more offering periods, each with a maximum duration of
twenty-four (24) months. The initial offering period will begin at the time the
Corporation signs the underwriting agreement for the initial public offering of
the Common Stock and will end on the last business day in August 1998. The next
offering period is expected to start on the first business day in September
1998, and any subsequent offering periods will begin as designated by the Plan
Administrator.
<PAGE> 17
Each offering period will be comprised of a series of
successive six (6)-month purchase intervals. However, the initial purchase
interval will begin on the date the Corporation signs the underwriting agreement
for the initial public offering of the Common Stock and will end on February 28,
1997. Subsequent purchase intervals will run from the first business day of
March to the last business day in August each year and from the first business
day of September each year to the last business day of February in the following
year.
If the fair market value per share of Common Stock on any
semi-annual purchase date within an offering period is less than the fair market
value per share of Common Stock on the start date of that offering period, then
that offering period will automatically terminate with the purchase of shares of
Common Stock on such semi-annual purchase date, and a new offering period will
commence on the next business day. The new offering period will have a duration
of twenty four (24) months, unless a shorter duration is established by the Plan
Administrator within five (5) business days following the start date of that
offering period.
6. AM I ELIGIBLE TO PARTICIPATE IN THE PURCHASE PLAN?
You will be eligible to participate in the Purchase Plan if
you are employed by the Corporation or any participating subsidiary on a basis
under which you are regularly expected to work more than twenty (20) hours per
week for more than five (5) months per calendar year.
7. WHEN MAY I BECOME A PARTICIPANT?
If you are an eligible employee at the time an offering period
begins, you may join the Purchase Plan at that time or on any subsequent
semi-annual entry date (first business day in March and September each year)
within that offering period, provided you remain an eligible employee.
If you are not an eligible employee on the start date of an
offering period, you may enter that offering period on the first semi-annual
entry date (first business day in March and September each year) on which you
are an eligible employee or on any subsequent semi-annual entry date within that
offering period, provided you remain an eligible employee.
The date on which you first join a particular offering period
is your "Entry Date" for that offering period. On your Entry Date, you will be
granted a purchase right to acquire shares of Common Stock for each purchase
interval you complete during the offering period.
8. HOW DO I BECOME A PARTICIPANT?
In order to participate in a particular offering period, you
must complete and file the appropriate enrollment forms with the Plan
Administrator on or before your scheduled Entry Date for that offering period.
The enrollment forms include a stock purchase agreement and a payroll deduction
authorization. These forms may be obtained from the Human Resources Department.
9. HOW MUCH MAY I INVEST THROUGH THE PURCHASE PLAN?
You may authorize payroll deductions in 1% multiples of your
cash earnings for each purchase interval you complete within the offering
period, up to maximum of fifteen percent (15%). Your cash earnings will include
(i) your regular base pay, plus (ii) any salary contributions you may make to
any Section 401(k) Plan or Section 125 Cafeteria Benefit Plan now or hereafter
maintained by the Corporation, plus (iii) all overtime payments, bonuses,
commissions, current profit-sharing distributions and other incentive-type
payments. However, your cash earnings will not include any contributions (other
than Section 401(k) or Section 125 contributions) made on your behalf by the
Corporation (or any parent or subsidiary) to any employee benefit or welfare
plan.
2.
<PAGE> 18
10. MAY I CHANGE THE RATE OF MY PAYROLL DEDUCTIONS?
You may decrease your rate of payroll deduction at any time,
but you may not make more than one reduction during the same purchase interval.
The reduced rate will become effective as soon as possible following the filing
of your reduction request with the Plan Administrator. You may increase your
rate of payroll deduction by filing a new payroll deduction authorization with
the Plan Administrator prior to the start of any new purchase interval (first
business day in March and August each year) within the offering period. Your new
rate (which may not be in excess of ten percent (10%) of your base salary) will
become effective on the start date of the first purchase interval following the
filing of your new authorization.
11. WHAT HAPPENS TO MY PAYROLL DEDUCTIONS?
Your payroll deductions will be credited to an account
established in your name on the Corporation's books. No interest will be paid on
the balance credited to your account. Since the Corporation pays all
administrative expenses of the Purchase Plan, the full amount of your payroll
deductions will be applied to the purchase of Common Stock. Your payroll
deductions may be commingled with the general assets of the Corporation and used
for general corporate purposes.
12. WHEN WILL MY PURCHASE RIGHT BE EXERCISED?
Your purchase right will be exercised on the last business day
of each purchase interval. These purchase dates will occur on the last business
day in February and August each year during the offering period.
The first purchase date will occur on February 28, 1997.
13. HOW WILL MY PURCHASE RIGHT BE EXERCISED?
Your purchase right will be exercised by applying the amount
credited to your account to the purchase of whole shares of Common Stock on each
purchase date. Any remaining amount in your account will be carried over to the
next purchase interval. However, any payroll deductions not applied to the
purchase of Common Stock by reason of the limitations on the maximum number of
shares purchasable per participant (see Question 17) will be promptly refunded
after such purchase date.
14. WHAT IS THE PURCHASE PRICE OF THE COMMON STOCK?
The purchase price per share of Common Stock will be not less
than eighty-five percent (85%) of the lower of (i) the fair market value per
share of Common Stock on your Entry Date (see Question 7) into the offering
period or (ii) the fair market value per share on the semi-annual purchase date.
15. HOW IS THE FAIR MARKET VALUE OF THE COMMON STOCK DETERMINED?
The fair market value per share on any relevant date under the
Purchase Plan will be the closing selling price of the Common Stock on that
date, as reported on the Nasdaq National Market. However, the fair market value
of the Common Stock on the start date of the initial offering period will be
deemed to be equal to the price per share at which the Common Stock is sold in
the initial public offering pursuant to the underwriting agreement.
16. WILL I RECEIVE A REPORT INDICATING THE AMOUNT AND STATUS OF MY
ACCOUNT?
After each purchase date, you will receive a report indicating
the number of shares purchased on your behalf and the purchase price paid per
share.
3.
<PAGE> 19
17. ARE THERE ANY LIMITATIONS ON THE NUMBER OF SHARES I MAY
PURCHASE?
Yes. The following limitations will apply:
(a) The total number of shares of Common Stock available for
issuance under the Purchase Plan is limited to 275,000 shares (subject to the
adjustments described under Question 24).
(b) The maximum number of shares of Common Stock that you may
purchase on any one purchase date may not exceed 300 shares (subject to the
adjustments described under Question 24).
(c) You may not purchase shares at a rate in excess of $25,000
worth of Common Stock (determined on the basis of the fair market value of the
Common Stock on your Entry Date into the offering period) for each calendar year
your purchase right remains outstanding.
(d) Finally, no purchase right will be granted to any employee
who, immediately after the grant of such right, would own (or otherwise hold
options or other rights to purchase) stock possessing five percent (5%) or more
of the total voting power or value of all classes of stock of the Corporation or
any parent or subsidiary corporation.
Any payroll deductions collected from you which cannot be
applied to the purchase of Common Stock by reason of one or more of these
limitations will be refunded.
18. WHAT IF THERE ARE NOT ENOUGH SHARES AVAILABLE TO COVER ALL THE
EXERCISED PURCHASE RIGHTS ON A PARTICULAR PURCHASE DATE?
If the total number of shares for which purchase rights are to
be exercised on any purchase date exceeds the number of shares at the time
available for issuance under the Purchase Plan, then the Plan Administrator will
make a pro-rata allocation of the available shares on a uniform and
non-discriminatory basis, and any payroll deductions not applied to the purchase
of the available shares will be refunded.
19. MAY I TERMINATE MY PURCHASE RIGHT?
Yes. You may terminate your purchase right by filing the
prescribed notification form with the Plan Administrator at any time before the
last business day of any purchase interval. No further payroll deductions will
be collected on your behalf during the remainder of that period, and any payroll
deductions already collected for that period will, at your election, be refunded
to you or applied to the purchase of Common Stock on the next semi-annual
purchase date. Once you have terminated your purchase right, you may not rejoin
the offering period at any later date, and you must wait until the start of a
new offering period to resume participation in the Purchase Plan.
EXAMPLE: The initial offering period is to continue through
August 31, 1998, and you enter that offering period on the start date.
If you were to terminate your purchase right for that offering period
on July 15, 1997, you would not be able to rejoin the Purchase Plan
until the new offering period beginning on the first business day in
September in 1998.
4.
<PAGE> 20
20. HOW DO I REJOIN THE PURCHASE PLAN IF I TERMINATE MY PURCHASE
RIGHT?
Individuals who terminate their purchase rights may
participate in any subsequent offering period by filing new enrollment forms on
or before their scheduled Entry Date into the new offering period.
21. WHAT HAPPENS IF MY EMPLOYMENT TERMINATES OR MY ELIGIBILITY
STATUS CHANGES?
Your participation in the Purchase Plan will immediately cease
should your employment terminate for any reason (including death or disability)
or should you otherwise lose your status as an eligible employee. Any payroll
deductions collected on your behalf for the purchase interval in your
termination or loss of eligibility occurs will automatically be refunded to you
(or the personal representative of your estate in the event of your death).
22. WHAT HAPPENS IF I GO ON AN UNPAID LEAVE OF ABSENCE?
Your payroll deductions will cease with the paycheck
immediately preceding the start of your leave and will not resume unless you
return to active service. Your existing payroll deductions for the purchase
interval in which your leave begins may either be withdrawn or applied to the
purchase of Common Stock on the next scheduled purchase date. You must, however,
make your election at the time your leave begins; otherwise, your payroll
deductions will automatically be refunded. Upon your return to active service,
your payroll deduction will automatically resume at the rate in effect before
your leave began.
23. WHAT HAPPENS IF THE CORPORATION IS ACQUIRED?
If the Corporation is acquired, whether by merger or asset
sale (an "Acquisition"), then all payroll deductions for the purchase interval
in which such Acquisition occurs will automatically be applied to the purchase
of Common Stock immediately prior to the effective date of the Acquisition,
subject to the share limitations summarized in Question 17. The purchase price
for your shares will be eighty-five percent (85%) of the lower of (i) the fair
market value of the Common Stock on your Entry Date into that offering period or
(ii) the fair market value of the Common Stock immediately prior to the
effective date of the Acquisition.
The Corporation will use its best efforts to provide at least
ten (10) days prior notice of any such Acquisition, and each participant will
thereafter have the right to terminate his or her outstanding purchase rights at
any time prior to the effective date of the Acquisition, should such participant
prefer not to have any shares purchased on his or her behalf in connection with
the Acquisition.
24. WHAT HAPPENS IF THERE IS A CHANGE IN THE CORPORATION'S CAPITAL
STRUCTURE?
In the event of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments will be made to (i) the
maximum number and class of securities issuable under the Purchase Plan, (ii)
the maximum number and class of securities purchasable per participant on any
one purchase date and (iii) the number and class of securities and the price per
share in effect under each outstanding purchase right. Such adjustments will
prevent any dilution or enlargement of the rights and benefits of Purchase Plan
participants.
25. MAY I ASSIGN OR TRANSFER MY PURCHASE RIGHTS UNDER THE PURCHASE
PLAN?
No. Your purchase rights may not be assigned or transferred.
5.
<PAGE> 21
26. WHEN WILL I RECEIVE THE STOCK CERTIFICATE FOR MY PURCHASED
SHARES?
As soon as practicable after each purchase date, a stock
certificate for the shares purchased on your behalf will be deposited directly
to a Corporation-designated brokerage account maintained on your behalf and held
in "street name" so that you may sell the shares promptly at any time.
27. AFTER BECOMING A STOCKHOLDER, MAY I VOTE MY SHARES?
Yes, even if you do not have physical possession of a stock
certificate.
28. WHEN MAY I SELL MY PURCHASED SHARES?
Individuals who purchase Common Stock under the Purchase Plan
may resell such shares without restriction, except for certain executive
officers of the Corporation. However, the Federal and state income tax treatment
of the sale proceeds may be more favorable if you hold your shares for a certain
period of time prior to sale (see Questions and Answers on Federal Tax
Consequences below).
At the time you sell your purchased shares, you should inform
the Corporation of the number of shares sold and the selling price per share,
and you will be required to satisfy all applicable income and employment tax
withholding requirements at the time of the sale.
29. CAN THE CORPORATION TERMINATE THE PURCHASE PLAN?
Yes. The Plan Administrator has the discretion to terminate
all outstanding purchase rights immediately following the close of any
semi-annual purchase interval. If the Plan Administrator exercises this
discretion, the Purchase Plan will terminate in its entirety, no further
purchase rights will thereafter be granted or exercised and no further payroll
deductions will be collected under the terminated plan.
30. CAN THE PURCHASE PLAN BE AMENDED?
The Board may amend the Purchase Plan at any time to become
effective immediately following the close of any semi-annual purchase interval.
However, certain amendments may require the approval of the Corporation's
stockholders.
31. WHAT IS THE MAXIMUM DURATION OF THE PURCHASE PLAN?
The Purchase Plan will in all events terminate upon the
earliest of (i) the last business day in August 2006, (ii) the date on which all
shares available for issuance under the Purchase Plan have been sold or (iii)
the date on which all purchase rights are exercised in connection with an
Acquisition.
32. DOES THE PURCHASE PLAN HAVE ANY IMPACT ON THE TERMS OF MY
EMPLOYMENT?
Neither the Purchase Plan nor any outstanding purchase right
is intended to provide any participant with the right to remain in the
Corporation's employ for any specific period, and both you and the Corporation
will each have the right to terminate your employment at any time and for any
reason, with or without cause.
6.
<PAGE> 22
QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES
The following is a description of the Federal income tax
consequences of participation in the Purchase Plan. State and local tax
treatment, which is not discussed below, may vary from such Federal income tax
treatment. You should consult with your own tax advisor as to the tax
consequences of your particular transactions under the Purchase Plan.
T1. WILL THE RECEIPT OF A PURCHASE RIGHT OR THE PURCHASE OF SHARES
ON MY BEHALF UNDER THE PURCHASE PLAN RESULT IN TAXABLE INCOME?
The Purchase Plan is intended to be an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
Under a plan which so qualifies, no taxable income is recognized by the
participant either upon receipt of the purchase right at the time of entry into
the offering period or upon the actual purchase of shares on each semi-annual
purchase date.
T2. WHEN WILL I BE SUBJECT TO FEDERAL INCOME TAX ON THE PURCHASED
SHARES?
Generally, you will recognize income in the year in which you
make a disposition of the purchased shares. The term "disposition" generally
includes any transfer of legal title, whether by sale, exchange or gift, but
does not include a transfer to your spouse or a transfer into joint ownership if
you remain one of the joint owners or a transfer into your brokerage account.
T3. HOW IS MY FEDERAL INCOME TAX LIABILITY DETERMINED WHEN I SELL
MY SHARES?
Your Federal income tax liability will depend on whether you
make a qualifying or disqualifying disposition of the purchased shares. A
qualifying disposition will occur if the sale or other disposition of those
shares is made after you have held the shares for (i) more than two (2) years
after your Entry Date into the offering period and (ii) more than one (1) year
after the actual purchase date. A disqualifying disposition is any sale or other
disposition which is made prior to the satisfaction of either of these two
minimum holding-period requirements.
T4. WHAT IF I MAKE A QUALIFYING DISPOSITION?
You will recognize ordinary income in the year of the
qualifying disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the date of the qualifying disposition exceeds the
purchase price paid for those shares or (ii) fifteen percent (15%) of the fair
market value of the shares on your Entry Date into the offering period during
which those shares were purchased. Any additional gain recognized upon the
qualifying disposition will be a long-term capital gain. If the fair market
value of the shares on the date of the qualifying disposition is less than the
purchase price you paid for the shares, there will be no ordinary income, and
any loss recognized will be a long-term capital loss.
Illustration: On your Entry Date into the initial offering
period, the fair market value of the Common Stock is $10.00 per share.
On the February 28, 1997 purchase date, 200 shares of Common Stock are
purchased on your behalf at a price of $8.50 per share when the fair
market value is $15.00 per share. On December 15, 1998, more than two
years after your Entry Date into the offering period, you sell the
shares for $20.00 per share in a qualifying disposition. The income tax
treatment of your $11.50 profit per share will be as follows:
7.
<PAGE> 23
Ordinary Income $15.00 fair market value on the purchase date less
Per Share $8.50 per share purchase price = $6.50 per share
Short-Term $20.00 per share selling price less $15.00 fair
Gain Per Share market value on the purchase date = $5.00 per share
T5. WHAT IF I MAKE A DISQUALIFYING DISPOSITION?
You will recognize ordinary income in the year of the
disqualifying disposition equal to the excess of (i) the fair market value of
the shares on the purchase date over (ii) purchase price paid for the shares.
Any additional gain recognized upon the disqualifying disposition will be
capital gain, which will be long-term if the shares are held for more than one
(1) year.
The amount of ordinary income you recognize upon such a
disqualifying disposition will be reported by the Corporation on your W-2 wage
statement for the year of such disposition, and any applicable withholding taxes
which arise in connection with such disqualifying disposition will be collected
from your wages or through your separate payment.
Example: On your Entry Date into the initial offering period,
the fair market value of the Common Stock is $10.00 per share. On the
February 28, 1997 purchase date, 200 shares of Common Stock are
purchased on your behalf at a price of $8.50 per share when the fair
market value is $15.00 per share. On September 30, 1997, less than two
years after your Entry Date into the offering period, you sell the
shares for $20.00 per share in a disqualifying disposition. The income
tax treatment of your $11.50 per share profit will be as follows:
Ordinary Income $15.00 fair market value on the purchase date less
Per Share $8.50 per share purchase price = $6.50 per share
Short-Term $20.00 per share selling price less $15.00 fair
Gain Per Share market value on the purchase date = $5.00 per share.
T6. WHAT ARE THE APPLICABLE FEDERAL TAX RATES?
Effective for the 1996 calendar year, the maximum Federal tax
rate on ordinary income in excess of $263,750 ($131,875 for a married taxpayer
filing a separate return) is 39.6%. The applicable $263,750 or $131,875
threshold is subject to future cost-of-living adjustments in taxable years
beginning after December 31, 1996. Long-term capital gains are currently taxed
at the same rates as ordinary income, subject to a maximum rate of 28%. Certain
limitations are imposed upon a taxpayer's itemized deductions, and the personal
exemptions claimed by the taxpayer are subject to phase-out. These limitations
may result in the taxation of ordinary income at an effective top marginal rate
in excess of 39.6%.
T7. WHAT IF I DIE BEFORE DISPOSING OF THE SHARES?
The personal representative of your estate must report as
ordinary income in the year of your death the lesser of (i) the amount by which
the fair market value of the shares on the date of your death exceeds the
purchase price paid for such shares or (ii) fifteen percent (15%) of the fair
market value of the shares on your Entry Date into the offering period during
which those shares were purchased.
8.
<PAGE> 1
Exhibit 10.10.1
PETER CARTWRIGHT EMPLOYMENT AGREEMENT
AMENDED AND RESTATED
This Employment Agreement (this "Agreement") dated the fifteenth day of
August, 1996, amends and restates the original Agreement between CALPINE
CORPORATION, a California corporation (the "Company"), and PETER CARTWRIGHT
("Executive") dated the first day of January, 1995. This agreement provides for
the employment of Executive on the terms and conditions set forth herein.
WHEREAS, Executive has served as the President and Chief Executive Officer
of the Company since its inception in 1984; and
WHEREAS, the Company wishes to assure itself of the continued employment
efforts of Executive for the period provided in this Agreement, and Executive is
willing to continue to serve in the employ of the Company on a full-time basis
for said period upon the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, intending to be legally bound, the Company and Executive agree as
follows:
1. Employment. The Company hereby employs Executive, and Executive hereby
accepts such employment by the Company, upon the terms and conditions herein
provided.
2. Term of Employment. Executive's employment with the Company pursuant to
this Agreement shall commence on January 1, 1995 and shall continue through
December 31, 1999, unless such employment is sooner terminated or subsequently
extended as hereinafter provided. Unless earlier terminated, this Agreement
shall automatically continue in effect for two (2) additional successive
calendar year periods after December 31, 1999, unless either the Company or
Executive elects to terminate this Agreement as of the start of any subsequent
calendar year by providing not less than one hundred eighty (180) days prior
written notice to the other party. The Company and Executive may agree to extend
the Employment Period beyond such two (2) additional calendar year periods upon
the terms and conditions of this Agreement or upon other terms, but neither the
Company nor Executive is under any obligation to do so. The period during which
this Agreement continues in effect shall constitute the "Employment Period".
3. Positions and Responsibilities.
(a) Position. During the Employment Period, Executive shall serve as
the Company's President and Chief Executive Officer ("CEO") and shall be
responsible for the general management of the affairs of the Company, reporting
directly to the Board of Directors of the Company (the "Board").
<PAGE> 2
(b) Duties. During the Employment Period, and subject to the control
of the Board, Executive shall have general executive powers and active
management and supervision over the property, business and affairs of the
Company and shall perform such other executive and/or administrative duties
consistent with the office of President and CEO as from time to time may be
assigned to Executive by the Board, but subject to the conditions in this
Agreement. Executive shall devote substantially Executive's full business time
and attention to, and exert Executive's best efforts in, the performance of
Executive's duties hereunder, so as to promote the business of the Company.
Executive's principal place of business shall be at the Company's corporate
offices in San Jose, California.
(c) Board Membership. Executive shall serve as a member of the Board
during the Employment Period, and the Company shall take all actions that are
necessary or appropriate to cause Executive to be nominated and elected to the
Board during the Employment Period.
4. Compensation. For all services rendered by Executive pursuant to this
Agreement, the Company shall pay Executive, and Executive agrees to accept, the
salary, bonuses and other benefits described below in this Section 4.
(a) Salary. The Company shall pay Executive an annual base salary
("Base Salary") as determined by the Board in accordance with this Section 4,
payable at periodic intervals in accordance with the Company's payroll practices
for salaried employees. Executive's Base Salary for the calendar year ending
December 31, 1994 is currently Three Hundred Thousand Dollars ($300,000.00). In
accordance with Section 4(c) hereof, the amount of the Base Salary shall be
reviewed by the Board on at least an annual basis for the year ending December
31, 1995 and all future years, and any increases will be effective as of the
date determined appropriate by the Board. Executive's Base Salary may be
increased for any reason, including to reflect inflation or such other
adjustments as the Board may deem appropriate; provided, however, that
Executive's Base Salary, as currently in effect as stated above or as so
increased, may not be subsequently decreased, except with the prior written
consent of Executive.
(b) Bonuses. In addition to Base Salary, Executive shall be entitled
to receive, for each fiscal year of the Company ending with or within the
Employment Period, an annual bonus ("Bonus"), whether pursuant to a formal bonus
or incentive plan or program of the Company or otherwise. Subject to this
Section 4(b) and Section 4(c) hereof, such Bonus shall be based on such criteria
as are in good faith deemed appropriate by the Board. Any Bonus earned by
Executive for service or performance rendered in any fiscal year within the
Employment Period shall be paid to Executive in accordance with the applicable
plan or program and the Company's policies governing such matters. For the year
ending December 31, 1994, Executive is entitled to participate in and receive a
Bonus in accordance with the terms and conditions set forth in the Company's
Annual Management Incentive Plan, a copy of which is attached hereto as Exhibit
A; provided, however, that the target bonus for Executive as set forth in the
current Annual Management Incentive Plan has been increased to seventy-five
percent (75%). For the year ending December 31, 1995 and for all future years
hereunder, Executive shall be entitled to participate in and receive a Bonus in
accordance with
2.
<PAGE> 3
the terms and conditions set forth in the Company's Annual Management Incentive
Plan; provided, however, that the target bonus for Executive as set forth in the
current Annual Management Incentive Plan shall similarly be increased to
seventy-five percent (75%). In the event of Executive's death or Disability
during the Employment Period, the Company shall pay to Executive or Executive's
estate the pro rata portion of the Bonus that Executive would have earned in
respect of the portion of the year prior to Executive's death or Disability.
(c) Annual Compensation Review. Notwithstanding anything herein to
the contrary, Executive's compensation, consisting of salary, bonus and stock
option grants, shall be reviewed not less than annually by the Board of
Directors. In order to assist the Board in accomplishing such review, the
Company shall retain an independent executive compensation consultant to prepare
a survey of the compensation of senior executives in positions similar to
Executive.
(d) Life Insurance. During the Employment Period, the Company shall
provide to Executive a life insurance policy in accordance with the terms of the
current policy maintained by the Company for Executive.
(e) Health Care. During the Employment Period, Executive shall be
eligible to participate in any health insurance programs and medical plans
available to officers or employees of the Company.
(f) Participation in Benefit and Equity Compensation Plans. During
the Employment Period, Executive shall be eligible to receive all benefits,
including those under equity participation and bonus programs, to which key
employees are or become eligible under such plans or programs as may be
established by the Board. In addition to any other plans or programs established
by the Company, Executive shall be entitled to participate in the Company's
Stock Option Program and any similar or replacement plan or program (the "Stock
Option Program").
(g) 401(k) Plan Benefits. In addition to the other benefits to which
Executive shall be entitled to under this Agreement, Executive shall be entitled
to participate in the Company's 401(k) Plan and shall be entitled to receive the
full benefit of contributions to be made by the Company for the benefit of
Executive under the terms of the 401(k) Plan.
5. Vacation. During the Employment Period, Executive shall be entitled to
vacation of twenty-five (25) business days in each year, with full salary, and
Executive shall accrue paid vacation benefits during the Employment Period in
accordance with the Company policy in effect for executive officers.
6. Indemnification. The Company shall maintain indemnification of
Executive pursuant to the provisions of the Company's Articles of Incorporation
and Bylaws to the fullest extent of California law and all other applicable law,
and shall provide Executive with indemnification pursuant
3.
<PAGE> 4
to the Company's standard indemnification agreement and any director's and
officer's liability insurance policy maintained by the Company.
7. Benefits Payable Upon Disability or Death.
(a) Disability Benefits. In the event of the Disability of
Executive, the Company shall continue to pay Executive the salary payable to
Executive in accordance with Section 4 hereof during the period of Executive's
Disability; provided, however, that, in the event that Executive is disabled for
a continuous period exceeding six (6) calendar months, the Company may elect at
the expiration of this six (6) month period to terminate this Agreement and pay
Executive the greater of (i) Executive's available monthly benefits from any
existing Company-sponsored long-term disability plan; or (ii) sixty-six and
two-thirds percent (66-2/3%) of the salary provided in Section 4(a) for the
duration of the Employment Period.
(b) Death Benefits. In the event of Executive's death during
Executive's Disability or otherwise during the Employment Period, the Company
shall cause payment to be made to Executive's most recently designated
beneficiary (which, absent specific designation of a beneficiary for purposes of
this provision, shall be Executive's most recently designated beneficiary under
the Company's group life insurance program) a sum equal to three (3) times
Executive's Base Salary. This obligation of the Company shall be discharged to
the extent benefits are actually paid pursuant to the Company's group life
insurance program, with the balance of said obligation to be discharged either
by a cash payment from the Company, or, if the Company so elects, by
supplementary life insurance policies to be obtained and maintained by the
Company.
8. Severance Benefits.
(a) Termination of Employment. In the event Executive's employment
terminates for any reason, except as provided in Section 8(b) in connection with
a Change of Control, then Executive shall be entitled to receive severance
benefits as follows:
(i) Voluntary Resignation. If Executive's employment
terminates by reason of Executive's voluntary resignation (and such termination
is not an Involuntary Termination or a termination for Cause), then Executive
shall not be entitled to receive severance or other benefits except for those
(if any) to which Executive may be entitled under this Agreement or any separate
agreement with the Company or as may then be established under the Company's
then existing severance and benefit plans and policies at the time of such
termination.
(ii) Involuntary Termination Other Than For Cause. If
Executive's employment is terminated as a result of an Involuntary Termination
other than for Cause, then the following severance benefits shall be paid or
otherwise provided to Executive: (A) the Company shall pay to Executive in the
form of a lump sum payment, in cash, a severance payment equal to the lesser of
(I) three (3) times Executive's Current Compensation or (II) Executive's Current
Compensation multiplied by the sum of (x) the number of years (or any portion
thereof, calculated on a daily basis)
4.
<PAGE> 5
remaining under this Agreement had Executive's employment not been terminated,
plus (y) an additional one-half year, which shall be paid to Executive within
ten (10) days after the date of termination; (B) until the earlier of (I) the
date this Agreement would otherwise have terminated had Executive's employment
not been terminated (the "Remaining Term") or (II) the expiration of the three
(3) year period measured from the date of Executive's termination of employment,
the Company shall at its sole cost and expense provide Executive (and
Executive's eligible dependents, if any) with life, disability, accident and
group health insurance benefits substantially similar to those benefits that
Executive (and Executive's dependents) were receiving immediately prior to
Executive's termination of employment; provided, however, that the benefits
otherwise receivable by Executive pursuant to this Section 8(a)(ii)(B) shall be
reduced to the extent comparable benefits are concurrently received by Executive
(or Executive's dependents) pursuant to a similar plan or program of another
employer, and any such other benefits actually received by Executive (or
Executive's dependents) must be reported to the Company; and provided further,
however, that the health care coverage provided by the Company pursuant to this
Section 8(a)(ii)(B) shall be in lieu of any other continued health care coverage
to which Executive or Executive's dependents would otherwise, at Executive's own
expense, be entitled in accordance with the requirements of Internal Revenue
Code of 1986, as amended ("Code"), Section 4980B ("COBRA"), by reason of
Executive's termination of employment; (C) all stock options, warrants, rights
and other Company stock-related awards granted to Executive by the Company that
would otherwise have vested or become exercisable at any time in the future
shall become fully vested and nonforfeitable upon the date of Executive's
termination of employment, the Company's repurchase rights, if any, with respect
to those vested shares shall immediately lapse, and each such stock option, to
the extent vested, shall remain exercisable for the vested option shares until
the expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option; and (D) the Company shall
pay or reimburse Executive for any and all expenses incurred by Executive for
outplacement services selected by Executive until the earlier of (I) the first
anniversary of the date of termination of employment or (II) the date on which
Executive commences employment with another employer.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other severance benefits under this Section 8. Executive's
benefits will be continued under the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination.
(b) Termination Following a Change of Control. If Executive's
employment with the Company is terminated at any time within twelve (12) months
after a Change of Control, then Executive shall be entitled to receive severance
benefits as follows:
(i) Voluntary Resignation. If Executive's employment
terminates by reason of Executive's voluntary resignation (and such termination
is not an Involuntary Termination or a termination for Cause), then the
following severance benefits shall be paid or otherwise provided to Executive:
(A) the Company shall pay to Executive in the form of a lump sum payment, in
cash, a severance payment equal to the lesser of (I) two (2) times Executive's
Current Compensation or
5.
<PAGE> 6
(II) Executive's Current Compensation multiplied by the sum of (x) the number of
years (or any portion thereof, calculated on a daily basis) remaining under this
Agreement had Executive's employment not been terminated, plus (y) an additional
one-half year, which shall be paid to Executive within ten (10) days after the
date of termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise receivable by
Executive pursuant to this subsection 8(b)(i)(B) shall be reduced to the extent
comparable benefits are concurrently received by Executive (or Executive's
dependents) pursuant to a similar plan or program of another employer, and any
such other benefits actually received by Executive (or Executive's dependents)
must be reported to the Company; and provided further, however, that the health
care coverage provided by the Company pursuant to this Section 8(b)(i)(B) shall
be in lieu of any other continued health care coverage to which Executive or
Executive's dependents would otherwise, at Executive's own expense, be entitled
in accordance with the requirements of COBRA by reason of Executive's
termination of employment; and (C) all stock options, warrants, rights and other
Company stock-related awards granted to Executive by the Company that would
otherwise have vested or become exercisable at any time in the future shall
become fully vested and nonforfeitable upon the date of Executive's termination
of employment, the Company's repurchase rights, if any, with respect to those
vested shares shall immediately lapse, and each such stock option, to the extent
vested, shall remain exercisable for the vested option shares until the
expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option.
(ii) Involuntary Termination Other Than For Cause. If
Executive's employment is terminated as a result of an Involuntary Termination
other than for Cause, then the Company shall pay or otherwise provide to
Executive the severance benefits described in Section 8(a)(ii) hereof.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other severance benefits under this Section 8. Executive's
benefits will be continued under the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination.
(c) Benefit Reduction. Should any of Executive's severance benefits
under this Section 8 (including any lump sum severance payment and any
accelerated vesting of outstanding options or shares of stock) be deemed to be
parachute payments under Code Section 280G, then, first, the dollar amount of
any severance payment and, secondly, the accelerated vesting of any options or
shares of stock, will be reduced to the extent (and only to the extent)
necessary to provide Executive with the maximum after-tax benefit available,
after taking into account any parachute
6.
<PAGE> 7
excise tax which might otherwise be payable by Executive under Code Section 4999
and any analogous State income tax provision.
9. Noncompetition and Confidential Information. While employed by the
Company, Executive will not directly or indirectly manage, operate, participate
in, be employed by, perform consulting services for, or otherwise be connected
in any manner with, any firm, person, corporation, or enterprise which would be
competitive with the business of the Company. Executive will not at any time
disclose to others any confidential information relating to the Company or to
the business of the Company and confirms that such information constitutes the
exclusive property of the Company. The foregoing shall not preclude Executive's
investment in any such firm, corporation or enterprise provided that at any one
time Executive and members of Executive's immediate family do not own more than
one percent (1%) of any voting securities of any such entity.
10. Consulting. Executive and the Company may, but are not required to,
enter into an agreement pursuant to which Executive will provide consulting
services to the Company after the date of Executive's retirement or termination.
Any consulting fees paid to Executive will be in addition to any retirement or
severance payments.
11. Failure to Comply. If, for any reason other than Executive's death,
Disability or Involuntary Termination, Executive shall cease to render services
as required by this Agreement without the written consent of the Company, or if
Executive shall breach the provisions of Section 9 hereof, then, except as
provided in Section 8 hereof, Executive will thereby relinquish all rights to
any benefits hereunder, including future salary payments and death benefits, and
the Company shall reserve whatever rights, if any, it may have against Executive
under this Agreement or otherwise.
12. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
or to all or substantially all of the Company's business and/or assets shall
assume the obligations under this Agreement and shall perform the obligations
under this Agreement in the same manner and to the same extent as the Company
would be required to perform such obligations in the absence of a succession.
The terms of this Agreement and all of Executive's rights hereunder shall inure
to the benefit of, and be enforceable by, Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
13. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Executive shall be
addressed to Executive at the home address from which Executive most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notice shall
be directed to the attention of its Secretary.
7.
<PAGE> 8
14. Miscellaneous Provisions.
(a) Definition of Terms. The capitalized terms in this Agreement
shall have the meanings set forth in this Agreement or in Appendix A hereto.
(b) No Duty to Mitigate. Executive shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by
earnings that Executive may receive from any other source.
(c) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer or representative
of the Company (other than Executive). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision of another time.
(d) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity of unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(g) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled by arbitration in the County of
San Francisco, California, in accordance with the rules of the American
Arbitration Association then in effect. Such arbitration proceedings shall be
nonbinding and any claim with respect to this Agreement, whether or not
previously the subject of an arbitration proceeding, may be brought in any court
of competent jurisdiction.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
8.
<PAGE> 9
(i) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company; provided, however, that if
there is any such assignment, the Company will guarantee all payments and the
performance of all obligations under this Agreement. In the case of any such
assignment, the term "Company" when used in a section of this Agreement shall
mean the corporation or other entity that actually employs Executive.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
15. Previous Agreement. This Agreement replaces the Fourth Employment
Contract with Executive which covered the period from July 1, 1991 through
December 31, 1995.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
day and year first above written.
CALPINE CORPORATION: EXECUTIVE:
By: /s/ PIERRE KRAFFT By: /s/ PETER CARTWRIGHT
-------------------------------- ----------------------------------
Pierre Krafft, Chairman of the Peter Cartwright, President and
Board of Directors Chief Executive Officer
9.
<PAGE> 10
APPENDIX A
DEFINITIONS
Cause. "Cause" shall mean (i) material breach of any material terms
of this Agreement, (ii) conviction of a felony, (iii) repeated unexplained or
unjustified absence, (iv) willful breach of fiduciary duty under this Agreement
or (v) gross negligence or willful misconduct where such gross negligence or
willful misconduct has resulted or is likely to result in substantial and
material damage to the Company or its subsidiaries.
Change of Control. "Change of Control" shall mean the occurrence of
any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company's current stockholder or a trustee or other
fiduciary holding securities under an employee benefit plan of the Company
or any corporation owned, directly or indirectly, by the Company's
stockholders in substantially the same proportions as their ownership of
the Company's stock, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the total combined
voting power of the Company's then outstanding securities; or
(ii) the majority of the members of the Board ceases to be
comprised of individuals who are Continuing Members; for such purpose, a
"Continuing Member" shall mean an individual who is a member of the Board
on the date of this Agreement and any successor of a Continuing Member who
is elected to the Board or nominated for such election by action of a
majority of Continuing Members then serving on the Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the
total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the
Company's assets.
1.
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Current Compensation. "Current Compensation" shall mean (i) an
amount equal to the greater of (A) Executive's highest annual base salary for
the year preceding the year in which a termination of employment occurs, (B)
Executive's annual base salary at any time during the year in which a
termination of employment occurs or (C) Executive's annual base salary on the
date of termination of employment, plus (ii) an amount equal to the greater of
the bonus payments Executive received in the preceding calendar year or the
target bonus payment for the year in which a termination of employment occurs.
Disability. "Disability" shall mean the inability of Executive to
perform all the material duties of Executive's position as determined by an
independent physician selected with the approval of the Company and Executive.
Involuntary Termination. "Involuntary Termination" shall mean
termination by the Company of Executive's employment for any reason other than
for Cause, and shall include Executive's voluntary resignation following (i) the
material breach by the Company of one or more of its obligations under this
Agreement which are not otherwise corrected within ten (10) days following
Executive's written notice to the Company of such breach, or (ii) the occurrence
of any of the following events without Executive's express prior written
consent: (A) a change in Executive's position with the Company which materially
reduces Executive's level of responsibilities, (B) a reduction in Executive's
level of compensation (including base salary, benefits and any non-discretionary
and objective-standard incentive payment or bonus award), (C) a relocation of
Executive's place of employment by more than twenty (20) miles from Executive's
current place of employment, (D) the assignment of additional material job
responsibilities or a reduction in job responsibilities inconsistent with
Executive's position with the Company and Executive's prior responsibilities, or
(E) in the event Executive is no longer the Company's President and CEO
reporting to the Board.
2.
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EXHIBIT 10.10.2
CALPINE CORPORATION
SENIOR VICE PRESIDENT EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") has been entered into,
effective as of August 1, 1996, between CALPINE CORPORATION, a California
corporation (the "Company"), and Ann B. Curtis ("Executive") to provide for the
employment of Executive on the terms and conditions set forth herein.
WHEREAS, Executive has served as Senior Vice President of the Company
since January, 1993; and
WHEREAS, the Company wishes to assure itself of the continued
employment efforts of Executive for the period provided in this Agreement, and
Executive is willing to continue to serve in the employ of the Company on a
full-time basis for said period upon the terms and conditions hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, intending to be legally bound, the Company and Executive agree as
follows:
1. Employment. The Company hereby employs Executive, and Executive
hereby accepts such employment by the Company, upon the terms and conditions
herein provided.
2. Term of Employment. Executive's employment with the Company pursuant
to this Agreement shall commence on August 1, 1996 and shall continue through
July 31, 1999, unless such employment is sooner terminated or subsequently
extended as hereinafter provided. Unless earlier terminated, this Agreement
shall automatically continue in effect for two (2) additional successive
calendar year periods after July 31, 1999, unless either the Company or
Executive elects to terminate this Agreement as of the start of any subsequent
calendar year by providing not less than one hundred eighty (180) days prior
written notice to the other party. The Company and Executive may agree to extend
the Employment Period beyond such two (2) additional calendar year periods upon
the terms and conditions of this Agreement or upon other terms, but neither the
Company nor Executive is under any obligation to do so. The period during which
this Agreement continues in effect shall constitute the "Employment Period".
3. Positions and Responsibilities.
(a) Position. During the Employment Period, Executive shall serve as
the Company's Senior Vice President ("SVP") and shall be responsible for leading
the Company's business management affairs, reporting to the President and Chief
Executive Officer ("CEO") of the Company.
(b) Duties. During the Employment Period, and subject to the control
of the CEO, Executive shall have general executive powers and active management
and supervision over the business management affairs of the Company and shall
perform such other executive and/or administrative duties consistent with the
office of SVP as from time to time may be assigned to Executive by the CEO, but
subject to the conditions in this Agreement. Executive shall devote
substantially Executive's full business time and attention to, and exert
Executive's best efforts in,
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the performance of Executive's duties hereunder, so as to promote the business
of the Company. Executive's principal place of business shall be at the
Company's corporate offices in San Jose, California.
4. Compensation. For all services rendered by Executive pursuant to
this Agreement, the Company shall pay Executive, and Executive agrees to accept,
the salary, bonuses and other benefits described below in this Section 4.
(a) Salary. The Company shall pay Executive an annual base salary
("Base Salary") as determined by the CEO in accordance with this Section 4,
payable at periodic intervals in accordance with the Company's payroll practices
for salaried employees. Executive's Base Salary as of the effective date hereof
is one hundred eighty thousand dollars ($180,000) per annum. In accordance with
Section 4(c) hereof, the amount of the Base Salary shall be reviewed by the CEO
on at least an annual basis, and any increases will be effective as of the date
determined appropriate by the CEO. Executive's Base Salary may be increased for
any reason, including to reflect inflation or such other adjustments as the CEO
may deem appropriate; provided, however, that Executive's Base Salary, as
currently in effect as stated above or as so increased, may not be subsequently
decreased, except with the prior written consent of Executive.
(b) Bonuses. In addition to Base Salary, Executive shall be entitled
to receive, for each fiscal year of the Company ending with or within the
Employment Period, an annual bonus ("Bonus"), whether pursuant to a formal bonus
or incentive plan or program of the Company or otherwise. Subject to this
Section 4(b) and Section 4(c) hereof, such Bonus shall be based on such criteria
as are in good faith deemed appropriate by the CEO. Any Bonus earned by
Executive for service or performance rendered in any fiscal year within the
Employment Period shall be paid to Executive in accordance with the applicable
plan or program and the Company's policies governing such matters. For the year
ending December 31, 1996 and for all future years hereunder, Executive shall be
entitled to participate in and receive a Bonus in accordance with the terms and
conditions set forth in the Company's Annual Management Incentive Plan a copy of
which is attached hereto as Appendix B; provided, however, that the target bonus
for Executive as set forth in the current Annual Management Incentive Plan shall
be forty percent (40%). In the event of Executive's death or Disability during
the Employment Period, the Company shall pay to Executive or Executive's estate
the pro rata portion of the Bonus that Executive would have earned in respect of
the portion of the year prior to Executive's death or Disability.
(c) Annual Compensation Review. Notwithstanding anything herein to
the contrary, Executive's compensation, consisting of salary, bonus and stock
option grants, shall be reviewed not less than annually by the CEO.
(d) Life Insurance. During the Employment Period, the Company shall
provide to Executive a life insurance policy in accordance with the terms of the
current policy maintained by the Company for Executive.
(e) Health Care. During the Employment Period, Executive shall be
eligible to participate in any health insurance programs and medical plans
available to officers or employees of the Company.
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(f) Participation in Benefit and Equity Compensation Plans. During
the Employment Period, Executive shall be eligible to receive all benefits,
including those under equity participation and bonus programs, to which key
employees are or become eligible under such plans or programs as may be
established by the Company. In addition to any other plans or programs
established by the Company, Executive shall be entitled to participate in the
Company's Stock Option Program and any similar or replacement plan or program
(the "Stock Option Program").
(g) 401(k) Plan Benefits. In addition to the other benefits to which
Executive shall be entitled to under this Agreement, Executive shall be entitled
to participate in the Company's 401(k) Plan and shall be entitled to receive the
full benefit of contributions to be made by the Company for the benefit of
Executive under the terms of the 401(k) Plan.
5. Vacation. During the Employment Period, Executive shall be entitled
to vacation of twenty (20) business days in each year, with full salary, and
Executive shall accrue paid vacation benefits during the Employment Period in
accordance with the Company policy in effect for executive officers.
6. Indemnification. The Company shall maintain indemnification of
Executive pursuant to the provisions of the Company's Articles of Incorporation
and Bylaws to the fullest extent of California law and all other applicable law,
and shall provide Executive with indemnification pursuant to the Company's
standard indemnification agreement and any director's and officer's liability
insurance policy maintained by the Company.
7. Benefits Payable Upon Disability or Death.
(a) Disability Benefits. In the event of the Disability of
Executive, the Company shall continue to pay Executive the salary payable to
Executive in accordance with Section 4 hereof during the period of Executive's
Disability; provided, however, that, in the event that Executive is disabled for
a continuous period exceeding six (6) calendar months, the Company may elect at
the expiration of this six (6) month period to terminate this Agreement and pay
Executive the greater of (i) Executive's available monthly benefits from any
existing Company-sponsored long-term disability plan; or (ii) sixty seven
percent (67%) of the salary provided in Section 4(a) for the duration of the
Employment Period.
(b) Death Benefits. In the event of Executive's death during
Executive's Disability or otherwise during the Employment Period, the Company
shall cause payment to be made to Executive's most recently designated
beneficiary (which, absent specific designation of a beneficiary for purposes of
this provision, shall be Executive's most recently designated beneficiary under
the Company's group life insurance program) a sum equal to three (3) times
Executive's Base Salary. This obligation of the Company shall be discharged to
the extent benefits are actually paid pursuant to the Company's group life
insurance program, with the balance of said obligation to be discharged either
by a cash payment from the Company, or, if the Company so elects, by
supplementary life insurance policies to be obtained and maintained by the
Company.
8. Severance Benefits.
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(a) Termination of Employment. In the event Executive's employment
terminates for any reason, except as provided in Section 8(b) in connection with
a Change of Control, then Executive shall be entitled to receive severance
benefits as follows:
(i) Voluntary Resignation. If Executive's employment terminates
by reason of Executive's voluntary resignation (and such termination is not an
Involuntary Termination or a termination for Cause), then Executive shall not be
entitled to receive severance or other benefits except for those (if any) to
which Executive may be entitled under this Agreement or any separate agreement
with the Company or as may then be established under the Company's then existing
severance and benefit plans and policies at the time of such termination.
(ii) Involuntary Termination Other Than For Cause. If
Executive's employment is terminated as a result of an Involuntary Termination
other than for Cause, then the following severance benefits shall be paid or
otherwise provided to Executive: (A) the Company shall pay to Executive in the
form of a lump sum payment, in cash, a severance payment equal to the lesser of
(I) three (3) times Executive's Current Compensation or (II) Executive's Current
Compensation multiplied by the sum of (x) the number of years (or any portion
thereof, calculated on a daily basis) remaining under this Agreement had
Executive's employment not been terminated, plus (y) an additional one-half
year, which shall be paid to Executive within ten (10) days after the date of
termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise receivable by
Executive pursuant to this Section 8(a)(ii)(B) shall be reduced to the extent
comparable benefits are concurrently received by Executive (or Executive's
dependents) pursuant to a similar plan or program of another employer, and any
such other benefits actually received by Executive (or Executive's dependents)
must be reported to the Company; and provided further, however, that the health
care coverage provided by the Company pursuant to this Section 8(a)(ii)(B) shall
be in lieu of any other continued health care coverage to which Executive or
Executive's dependents would otherwise, at Executive's own expense, be entitled
in accordance with the requirements of Internal Revenue Code of 1986, as amended
("Code"), Section 4980B ("COBRA"), by reason of Executive's termination of
employment; (C) all stock options, warrants, rights and other Company
stock-related awards granted to Executive by the Company that would otherwise
have vested or become exercisable at any time in the future shall become fully
vested and nonforfeitable upon the date of Executive's termination of
employment, the Company's repurchase rights, if any, with respect to those
vested shares shall immediately lapse, and each such stock option, to the extent
vested, shall remain exercisable for the vested option shares until the
expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option; and (D) the Company shall
pay or reimburse Executive for any and all expenses incurred by Executive for
outplacement services selected by Executive until the earlier of (I) the first
anniversary of the date of termination of employment or (II) the date on which
Executive commences employment with another employer.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other
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severance benefits under this Section 8. Executive's benefits will be continued
under the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of termination.
(b) Termination As a Result of a Change of Control. If Executive's
employment with the Company is terminated as a result of a Change of Control
(Change of Control for the purpose of Sections 8(b)(i)(ii) excludes an Initial
Public Offering), then Executive shall be entitled to receive severance benefits
as follows:
(i) Voluntary Resignation. If as a result of a Change of
Control, material detrimental changes are made to Executive's position within
twelve (12) months of the Change of Control and, or, Executive's position is
relocated to a place more than sixty (60) miles from the Company's present
office within six (6) months of the Change of Control, and as a result of these
changes Executive's employment terminates by reason of voluntary resignation
(and such termination is not an Involuntary Termination or a Termination for
Cause), then the following severance benefits shall be paid or otherwise
provided to Executive: (A) the Company shall pay to Executive in the form of a
lump sum payment, in cash, a severance payment equal to the lesser of (I) two
(2) times Executive's Current Compensation or (II) Executive's Current
Compensation multiplied by the sum of (x) the number of years (or any portion
thereof, calculated on a daily basis) remaining under this Agreement had
Executive's employment not been terminated, plus (y) an additional one-half
year, which shall be paid to Executive within ten (10) days after the date of
termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise receivable by
Executive pursuant to this subsection 8(b)(i)(B) shall be reduced to the extent
comparable benefits are concurrently received by Executive (or Executive's
dependents) pursuant to a similar plan or program of another employer, and any
such other benefits actually received by Executive (or Executive's dependents)
must be reported to the Company; and provided further, however, that the health
care coverage provided by the Company pursuant to this Section 8(b)(i)(B) shall
be in lieu of any other continued health care coverage to which Executive or
Executive's dependents would otherwise, at Executive's own expense, be entitled
in accordance with the requirements of COBRA by reason of Executive's
termination of employment; and (C) all stock options, warrants, rights and other
Company stock-related awards granted to Executive by the Company that would
otherwise have vested or become exercisable at any time in the future shall
become fully vested and nonforfeitable upon the date of Executive's termination
of employment, the Company's repurchase rights, if any, with respect to those
vested shares shall immediately lapse, and each such stock option, to the extent
vested, shall remain exercisable for the vested option shares until the
expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option.
(ii) Involuntary Termination Other Than For Cause. If as a
result of a Change of Control and within twelve (12) months of a Change of
Control Executive's employment is terminated as a result of an Involuntary
Termination other than for Cause, then the Company
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shall pay or otherwise provide to Executive the severance benefits described in
Section 8(a)(ii) hereof.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other severance benefits under this Section 8. Executive's
benefits will be continued under the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination.
(c) Benefit Reduction. Should any of Executive's severance benefits
under this Section 8 (including any lump sum severance payment and any
accelerated vesting of outstanding options or shares of stock) be deemed to be
parachute payments under Code Section 280G, then, first, the dollar amount of
any severance payment and, secondly, the accelerated vesting of any options or
shares of stock, will be reduced to the extent (and only to the extent)
necessary to provide Executive with the maximum after-tax benefit available,
after taking into account any parachute excise tax which might otherwise be
payable by Executive under Code Section 4999 and any analogous State income tax
provision.
9. Noncompetition and Confidential Information. While employed by the
Company, Executive will not directly or indirectly manage, operate, participate
in, be employed by, perform consulting services for, or otherwise be connected
in any manner with, any firm, person, corporation, or enterprise which would be
competitive with the business of the Company. Executive will not at any time
disclose to others any confidential information relating to the Company or to
the business of the Company and confirms that such information constitutes the
exclusive property of the Company. The foregoing shall not preclude Executive's
investment in any such firm, corporation or enterprise provided that at any one
time Executive and members of Executive's immediate family do not own more than
one percent (1%) of any voting securities of any such entity.
10. Consulting. Executive and the Company may, but are not required to,
enter into an agreement pursuant to which Executive will provide consulting
services to the Company after the date of Executive's retirement or termination.
Any consulting fees paid to Executive will be in addition to any retirement or
severance payments.
11. Failure to Comply. If, for any reason other than Executive's death,
Disability or Involuntary Termination, Executive shall cease to render services
as required by this Agreement without the written consent of the Company, or if
Executive shall breach the provisions of Section 9 hereof, then, except as
provided in Section 8 hereof, Executive will thereby relinquish all rights to
any benefits hereunder, including future salary payments and death benefits, and
the Company shall reserve whatever rights, if any, it may have against Executive
under this Agreement or otherwise.
12. Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) or to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and shall perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Executive's rights hereunder
shall inure to the benefit of, and
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be enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
13. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Executive shall be
addressed to Executive at the home address from which Executive most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notice shall
be directed to the attention of its Secretary.
14. Miscellaneous Provisions.
(a) Definition of Terms. The capitalized terms in this Agreement
shall have the meanings set forth in this Agreement or in Appendix A hereto.
(b) No Duty to Mitigate. Executive shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by earnings that Executive may receive from any other source.
(c) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by Executive and by an authorized officer or
representative of the Company (other than Executive). No waiver by either party
of any breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other condition
or provision or of the same condition or provision of another time.
(d) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity of unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(g) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled by arbitration in the County of
San Francisco, California, in accordance with the rules of the American
Arbitration Association then in effect. Such arbitration
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proceedings shall be nonbinding and any claim with respect to this Agreement,
whether or not previously the subject of an arbitration proceeding, may be
brought in any court of competent jurisdiction.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(i) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company; provided, however, that if
there is any such assignment, the Company will guarantee all payments and the
performance of all obligations under this Agreement. In the case of any such
assignment, the term "Company" when used in a section of this Agreement shall
mean the corporation or other entity that actually employs Executive.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
15. Prior Agreements. This Agreement replaces any other agreements
between the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this day and year first above written.
CALPINE CORPORATION: EXECUTIVE:
By: /s/ PETER CARTWRIGHT By: /s/ ANN B. CURTIS
------------------------------- --------------------------------
Peter Cartwright, President and Ann B. Curtis, Senior Vice President
Chief Executive Officer
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APPENDIX A
DEFINITIONS
Cause. "Cause" shall mean (i) material breach of any material terms
of this Agreement, (ii) conviction of a felony, (iii) repeated unexplained or
unjustified absence, (iv) willful breach of fiduciary duty under this Agreement
or (v) gross negligence or willful misconduct where such gross negligence or
willful misconduct has resulted or is likely to result in substantial and
material damage to the Company or its subsidiaries.
Change of Control. "Change of Control" shall mean the occurrence of
any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company's current stockholder or a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or any corporation owned, directly or indirectly, by the
Company's stockholders in substantially the same proportions as their
ownership of the Company's stock, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing fifty percent (50%) or more
of the total combined voting power of the Company's then outstanding
securities; or
(ii) the majority of the members of the Board ceases to be
comprised of individuals who are Continuing Members; for such purpose,
a "Continuing Member" shall mean an individual who is a member of the
Board on the date of this Agreement and any successor of a Continuing
Member who is elected to the Board or nominated for such election by
action of a majority of Continuing Members then serving on the Board;
or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%)
of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
Current Compensation. "Current Compensation" shall mean (i) an
amount equal to the greater of (A) Executive's highest annual base salary for
the year preceding the year in which a termination of employment occurs, (B)
Executive's annual base salary at any time during the year in which a
termination of employment occurs or (C) Executive's annual base salary on the
date of termination of employment, plus (ii) an amount equal to the greater of
the bonus payments Executive received in the preceding calendar year or the
target bonus payment for the year in which a termination of employment occurs.
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Disability. "Disability" shall mean the inability of Executive to
perform all the material duties of Executive's position as determined by an
independent physician selected with the approval of the Company and Executive.
Involuntary Termination. "Involuntary Termination" shall mean
termination by the Company of Executive's employment for any reason other than
for Cause, and shall include Executive's voluntary resignation following (i) the
material breach by the Company of one or more of its obligations under this
Agreement which are not otherwise corrected within ten (10) days following
Executive's written notice to the Company of such breach, or (ii) the occurrence
of any of the following events without Executive's express prior written
consent: (A) a change in Executive's position with the Company which materially
reduces Executive's level of responsibilities, (B) a reduction in Executive's
level of compensation (including base salary, benefits and any non-discretionary
and objective-standard incentive payment or bonus award), (C) a relocation of
Executive's place of employment by more than twenty (20) miles from Executive's
current place of employment, (D) the assignment of additional material job
responsibilities or a reduction in job responsibilities inconsistent with
Executive's position with the Company and Executive's prior responsibilities, or
(E) in the event Executive is no longer the Company's Senior Vice President
reporting to the CEO.
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APPENDIX B
CALPINE CORPORATION
ANNUAL MANAGEMENT
INCENTIVE PLAN
I. Purpose
The purpose of the Calpine Corporation (the "Company") Annual
Management Incentive Plan ("the Plan") is to assist the Company in
attracting and retaining the desired management talent, building team
effort, recognizing achievement of predetermined business objectives
and providing increased performance motivation through established
bonus opportunities associated with achieving or exceeding these
objectives.
II. Participation
All full time regular non-operations and maintenance hourly employees
of the Company are eligible to participate in the Plan.
III. Administration
The Plan shall be administered by the President of the Company. The
President shall have broad authority to interpret the Plan, subject to
the following decisions reserved for the Board of Directors of the
Company (the "Board"):
1. The approval of the funding formula discussed in Section IV of
this document.
2. The approval of the amount of aggregate incentive payments
made under the Plan in any one year.
3. Interpretation of the Plan on any matters in which the
President is not a disinterested party.
Any decisions of the President in the interpretation of the Plan may be
appealed in writing to the Board. However, all participants agree that
any decision of the majority of the Board is final and binding on all
parties.
IV. Funding
The building block for establishing the bonus funding is target
bonuses. A target bonus amount will be communicated to each participant
when first hired, expressed as a percentage of his/her base salary. The
target bonus amount is that which the Company will be willing to pay if
the participant and the Company achieve planned performance objectives.
The target bonus pool for each bonus year will be equal to the base
salaries of all eligible employees times the target bonus percentage
established in Section V of this document for each employee level.
The target performance for the Company will be established by the Board
or a committee thereof in December of the year preceding the bonus
year. The target performance will consist of two elements:
<PAGE> 12
Annual Management
Incentive Plan
Page 2
- Target profits before taxes for the bonus year, and
- Other targets including new business booked and such
other non-objective targets as the Board may
establish.
The maximum bonus pool will be:
Actual Performance Before Taxes
-------------------------------
Target Bonus Pool x Target Performance Before Taxes
(Up to a maximum of 2X target bonus pool)
The bonus pool will be:
Actual Performance
------------------
Maximum Bonus Pool x Target Performance
The actual performance will be determined by the Board in the first
quarter after the end of the bonus year based on its judgment of the
overall achievement of the Company in meeting/exceeding the target
performance. The Board's judgment will be final.
V. Allocation
The allocation of the bonus pool to individual participants is based on
three factors.
1. The individual's target bonus amount.
2. The level of funding of the pool, as described above.
3. A measure of individual performance.
A portion of each participant's bonus will be paid at the same level as
the funding level. For example, if the funding level is 125 percent of
target, a designated portion of each participant's bonus will be paid
at 125 percent of target bonus amount. For the President, 100 percent
of the target bonus amount will be paid at the same level as the
funding level. The balance of each participant's bonus will be based on
achievement of individual objectives. The levels of target bonuses and
the allocation of the bonus fund for each level is as follows:
INDIVIDUAL BONUS ALLOCATION FORMULA
<TABLE>
<CAPTION>
TARGET COMPANY INDIVIDUAL
CLASSIFICATION BONUS PERFORMANCE PERFORMANCE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
President 75% 100% 0%
</TABLE>
<PAGE> 13
Annual Management
Incentive Plan
Page 3
Sr. Management
<TABLE>
<S> <C> <C> <C>
Sr. VP - Bus. Mgmt. 40% 50% 50%
Sr. VP - Operations 40% 50% 50%
VP - Bus. Development 30% 50% 50%
VP - Finance 30% 50% 50%
VP - Asset Management 30% 50% 50%
Management 20% 50% 50%
Professional 15% 50% 50%
Administrative/Technical 10% 50% 50%
Clerical 5% 50% 50%
</TABLE>
VII. Employment Rights
The selection of an employee of the Company as a participant will in no
way enhance the employee's right to continued employment with Calpine
nor limit the Company in its right to terminate or otherwise change the
employment relationship with the employee.
VIII. Governing Law
The Plan shall be administered in accordance with California law,
unless a superseding Federal law is applicable.
<PAGE> 1
Exhibit 10.10.3
CALPINE CORPORATION
SENIOR VICE PRESIDENT EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") has been entered into,
effective as of August 1, 1996, between CALPINE CORPORATION, a California
corporation (the "Company"), and Lynn A. Kerby ("Executive") to provide for the
employment of Executive on the terms and conditions set forth herein.
WHEREAS, Executive has served as Senior Vice President of the Company
since April, 1993; and
WHEREAS, the Company wishes to assure itself of the continued
employment efforts of Executive for the period provided in this Agreement, and
Executive is willing to continue to serve in the employ of the Company on a
full-time basis for said period upon the terms and conditions hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, intending to be legally bound, the Company and Executive agree as
follows:
1. Employment. The Company hereby employs Executive, and Executive
hereby accepts such employment by the Company, upon the terms and conditions
herein provided.
2. Term of Employment. Executive's employment with the Company pursuant
to this Agreement shall commence on August 1, 1996 and shall continue through
July 31, 1999, unless such employment is sooner terminated or subsequently
extended as hereinafter provided. Unless earlier terminated, this Agreement
shall automatically continue in effect for two (2) additional successive
calendar year periods after July 31, 1999, unless either the Company or
Executive elects to terminate this Agreement as of the start of any subsequent
calendar year by providing not less than one hundred eighty (180) days prior
written notice to the other party. The Company and Executive may agree to extend
the Employment Period beyond such two (2) additional calendar year periods upon
the terms and conditions of this Agreement or upon other terms, but neither the
Company nor Executive is under any obligation to do so. The period during which
this Agreement continues in effect shall constitute the "Employment Period".
3. Positions and Responsibilities.
(a) Position. During the Employment Period, Executive shall serve as
the Company's Senior Vice President ("SVP") and shall be responsible for leading
the Company's operations and maintenance affairs, reporting to the President and
Chief Executive Officer ("CEO") of the Company.
(b) Duties. During the Employment Period, and subject to the control
of the CEO, Executive shall have general executive powers and active management
and supervision over the operations and maintenance affairs of the Company and
shall perform such other executive and/or administrative duties consistent with
the office of SVP as from time to time may be assigned to Executive by the CEO,
but subject to the conditions in this Agreement. Executive shall devote
substantially Executive's full business time and attention to, and exert
Executive's
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<PAGE> 2
best efforts in, the performance of Executive's duties hereunder, so as to
promote the business of the Company. Executive's principal place of business
shall be at the Company's corporate offices in San Jose, California.
4. Compensation. For all services rendered by Executive pursuant to
this Agreement, the Company shall pay Executive, and Executive agrees to accept,
the salary, bonuses and other benefits described below in this Section 4.
(a) Salary. The Company shall pay Executive an annual base salary
("Base Salary") as determined by the CEO in accordance with this Section 4,
payable at periodic intervals in accordance with the Company's payroll practices
for salaried employees. Executive's Base Salary as of the effective date hereof
is two hundred ten thousand dollars ($210,000) per annum. In accordance with
Section 4(c) hereof, the amount of the Base Salary shall be reviewed by the CEO
on at least an annual basis, and any increases will be effective as of the date
determined appropriate by the CEO. Executive's Base Salary may be increased for
any reason, including to reflect inflation or such other adjustments as the CEO
may deem appropriate; provided, however, that Executive's Base Salary, as
currently in effect as stated above or as so increased, may not be subsequently
decreased, except with the prior written consent of Executive.
(b) Bonuses. In addition to Base Salary, Executive shall be entitled
to receive, for each fiscal year of the Company ending with or within the
Employment Period, an annual bonus ("Bonus"), whether pursuant to a formal bonus
or incentive plan or program of the Company or otherwise. Subject to this
Section 4(b) and Section 4(c) hereof, such Bonus shall be based on such criteria
as are in good faith deemed appropriate by the CEO. Any Bonus earned by
Executive for service or performance rendered in any fiscal year within the
Employment Period shall be paid to Executive in accordance with the applicable
plan or program and the Company's policies governing such matters. For the year
ending December 31, 1996 and for all future years hereunder, Executive shall be
entitled to participate in and receive a Bonus in accordance with the terms and
conditions set forth in the Company's Annual Management Incentive Plan a copy of
which is attached hereto as Appendix B; provided, however, that the target bonus
for Executive as set forth in the current Annual Management Incentive Plan shall
be forty percent (40%). In the event of Executive's death or Disability during
the Employment Period, the Company shall pay to Executive or Executive's estate
the pro rata portion of the Bonus that Executive would have earned in respect of
the portion of the year prior to Executive's death or Disability.
(c) Annual Compensation Review. Notwithstanding anything herein to
the contrary, Executive's compensation, consisting of salary, bonus and stock
option grants, shall be reviewed not less than annually by the CEO.
(d) Life Insurance. During the Employment Period, the Company shall
provide to Executive a life insurance policy in accordance with the terms of the
current policy maintained by the Company for Executive.
(e) Health Care. During the Employment Period, Executive shall be
eligible to participate in any health insurance programs and medical plans
available to officers or employees of the Company.
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<PAGE> 3
(f) Participation in Benefit and Equity Compensation Plans. During
the Employment Period, Executive shall be eligible to receive all benefits,
including those under equity participation and bonus programs, to which key
employees are or become eligible under such plans or programs as may be
established by the Company. In addition to any other plans or programs
established by the Company, Executive shall be entitled to participate in the
Company's Stock Option Program and any similar or replacement plan or program
(the "Stock Option Program").
(g) 401(k) Plan Benefits. In addition to the other benefits to which
Executive shall be entitled to under this Agreement, Executive shall be entitled
to participate in the Company's 401(k) Plan and shall be entitled to receive the
full benefit of contributions to be made by the Company for the benefit of
Executive under the terms of the 401(k) Plan.
5. Vacation. During the Employment Period, Executive shall be entitled
to vacation of twenty (20) business days in each year, with full salary, and
Executive shall accrue paid vacation benefits during the Employment Period in
accordance with the Company policy in effect for executive officers.
6. Indemnification. The Company shall maintain indemnification of
Executive pursuant to the provisions of the Company's Articles of Incorporation
and Bylaws to the fullest extent of California law and all other applicable law,
and shall provide Executive with indemnification pursuant to the Company's
standard indemnification agreement and any director's and officer's liability
insurance policy maintained by the Company.
7. Benefits Payable Upon Disability or Death.
(a) Disability Benefits. In the event of the Disability of
Executive, the Company shall continue to pay Executive the salary payable to
Executive in accordance with Section 4 hereof during the period of Executive's
Disability; provided, however, that, in the event that Executive is disabled for
a continuous period exceeding six (6) calendar months, the Company may elect at
the expiration of this six (6) month period to terminate this Agreement and pay
Executive the greater of (i) Executive's available monthly benefits from any
existing Company- sponsored long-term disability plan; or (ii) sixty seven
percent (67%) of the salary provided in Section 4(a) for the duration of the
Employment Period.
(b) Death Benefits. In the event of Executive's death during
Executive's Disability or otherwise during the Employment Period, the Company
shall cause payment to be made to Executive's most recently designated
beneficiary (which, absent specific designation of a beneficiary for purposes of
this provision, shall be Executive's most recently designated beneficiary under
the Company's group life insurance program) a sum equal to three (3) times
Executive's Base Salary. This obligation of the Company shall be discharged to
the extent benefits are actually paid pursuant to the Company's group life
insurance program, with the balance of said obligation to be discharged either
by a cash payment from the Company, or, if the Company so elects, by
supplementary life insurance policies to be obtained and maintained by the
Company.
8. Severance Benefits.
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<PAGE> 4
(a) Termination of Employment. In the event Executive's
employment terminates for any reason, except as provided in Section 8(b) in
connection with a Change of Control, then Executive shall be entitled to receive
severance benefits as follows:
(i) Voluntary Resignation. If Executive's employment
terminates by reason of Executive's voluntary resignation (and such termination
is not an Involuntary Termination or a termination for Cause), then Executive
shall not be entitled to receive severance or other benefits except for those
(if any) to which Executive may be entitled under this Agreement or any separate
agreement with the Company or as may then be established under the Company's
then existing severance and benefit plans and policies at the time of such
termination.
(ii) Involuntary Termination Other Than For Cause. If
Executive's employment is terminated as a result of an Involuntary Termination
other than for Cause, then the following severance benefits shall be paid or
otherwise provided to Executive: (A) the Company shall pay to Executive in the
form of a lump sum payment, in cash, a severance payment equal to the lesser of
(I) three (3) times Executive's Current Compensation or (II) Executive's Current
Compensation multiplied by the sum of (x) the number of years (or any portion
thereof, calculated on a daily basis) remaining under this Agreement had
Executive's employment not been terminated, plus (y) an additional one-half
year, which shall be paid to Executive within ten (10) days after the date of
termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise receivable by
Executive pursuant to this Section 8(a)(ii)(B) shall be reduced to the extent
comparable benefits are concurrently received by Executive (or Executive's
dependents) pursuant to a similar plan or program of another employer, and any
such other benefits actually received by Executive (or Executive's dependents)
must be reported to the Company; and provided further, however, that the health
care coverage provided by the Company pursuant to this Section 8(a)(ii)(B) shall
be in lieu of any other continued health care coverage to which Executive or
Executive's dependents would otherwise, at Executive's own expense, be entitled
in accordance with the requirements of Internal Revenue Code of 1986, as amended
("Code"), Section 4980B ("COBRA"), by reason of Executive's termination of
employment; (C) all stock options, warrants, rights and other Company
stock-related awards granted to Executive by the Company that would otherwise
have vested or become exercisable at any time in the future shall become fully
vested and nonforfeitable upon the date of Executive's termination of
employment, the Company's repurchase rights, if any, with respect to those
vested shares shall immediately lapse, and each such stock option, to the extent
vested, shall remain exercisable for the vested option shares until the
expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option; and (D) the Company shall
pay or reimburse Executive for any and all expenses incurred by Executive for
outplacement services selected by Executive until the earlier of (I) the first
anniversary of the date of termination of employment or (II) the date on which
Executive commences employment with another employer.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other
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<PAGE> 5
severance benefits under this Section 8. Executive's benefits will be continued
under the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of termination.
(b) Termination As a Result of a Change of Control. If
Executive's employment with the Company is terminated as a result of a Change of
Control (Change of Control for the purpose of Sections 8(b)(i)(ii) excludes an
Initial Public Offering), then Executive shall be entitled to receive severance
benefits as follows:
(i) Voluntary Resignation. If as a result of a Change of
Control, material detrimental changes are made to Executive's position within
twelve (12) months of the Change of Control and, or, Executive's position is
relocated to a place more than sixty (60) miles from the Company's present
office within six (6) months of the Change of Control, and as a result of these
changes Executive's employment terminates by reason of voluntary resignation
(and such termination is not an Involuntary Termination or a Termination for
Cause), then the following severance benefits shall be paid or otherwise
provided to Executive: (A) the Company shall pay to Executive in the form of a
lump sum payment, in cash, a severance payment equal to the lesser of (I) two
(2) times Executive's Current Compensation or (II) Executive's Current
Compensation multiplied by the sum of (x) the number of years (or any portion
thereof, calculated on a daily basis) remaining under this Agreement had
Executive's employment not been terminated, plus (y) an additional one-half
year, which shall be paid to Executive within ten (10) days after the date of
termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise receivable by
Executive pursuant to this subsection 8(b)(i)(B) shall be reduced to the extent
comparable benefits are concurrently received by Executive (or Executive's
dependents) pursuant to a similar plan or program of another employer, and any
such other benefits actually received by Executive (or Executive's dependents)
must be reported to the Company; and provided further, however, that the health
care coverage provided by the Company pursuant to this Section 8(b)(i)(B) shall
be in lieu of any other continued health care coverage to which Executive or
Executive's dependents would otherwise, at Executive's own expense, be entitled
in accordance with the requirements of COBRA by reason of Executive's
termination of employment; and (C) all stock options, warrants, rights and other
Company stock-related awards granted to Executive by the Company that would
otherwise have vested or become exercisable at any time in the future shall
become fully vested and nonforfeitable upon the date of Executive's termination
of employment, the Company's repurchase rights, if any, with respect to those
vested shares shall immediately lapse, and each such stock option, to the extent
vested, shall remain exercisable for the vested option shares until the
expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option.
(ii) Involuntary Termination Other Than For Cause. If as a
result of a Change of Control and within twelve (12) months of a Change of
Control Executive's employment is terminated as a result of an Involuntary
Termination other than for Cause, then the Company
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<PAGE> 6
shall pay or otherwise provide to Executive the severance benefits described in
Section 8(a)(ii) hereof.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other severance benefits under this Section 8. Executive's
benefits will be continued under the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination.
(c) Benefit Reduction. Should any of Executive's severance benefits
under this Section 8 (including any lump sum severance payment and any
accelerated vesting of outstanding options or shares of stock) be deemed to be
parachute payments under Code Section 280G, then, first, the dollar amount of
any severance payment and, secondly, the accelerated vesting of any options or
shares of stock, will be reduced to the extent (and only to the extent)
necessary to provide Executive with the maximum after-tax benefit available,
after taking into account any parachute excise tax which might otherwise be
payable by Executive under Code Section 4999 and any analogous State income tax
provision.
9. Noncompetition and Confidential Information. While employed by the
Company, Executive will not directly or indirectly manage, operate, participate
in, be employed by, perform consulting services for, or otherwise be connected
in any manner with, any firm, person, corporation, or enterprise which would be
competitive with the business of the Company. Executive will not at any time
disclose to others any confidential information relating to the Company or to
the business of the Company and confirms that such information constitutes the
exclusive property of the Company. The foregoing shall not preclude Executive's
investment in any such firm, corporation or enterprise provided that at any one
time Executive and members of Executive's immediate family do not own more than
one percent (1%) of any voting securities of any such entity.
10. Consulting. Executive and the Company may, but are not required to,
enter into an agreement pursuant to which Executive will provide consulting
services to the Company after the date of Executive's retirement or termination.
Any consulting fees paid to Executive will be in addition to any retirement or
severance payments.
11. Failure to Comply. If, for any reason other than Executive's death,
Disability or Involuntary Termination, Executive shall cease to render services
as required by this Agreement without the written consent of the Company, or if
Executive shall breach the provisions of Section 9 hereof, then, except as
provided in Section 8 hereof, Executive will thereby relinquish all rights to
any benefits hereunder, including future salary payments and death benefits, and
the Company shall reserve whatever rights, if any, it may have against Executive
under this Agreement or otherwise.
12. Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) or to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and shall perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Executive's rights hereunder
shall inure to the benefit of, and
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<PAGE> 7
be enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
13. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Executive shall be
addressed to Executive at the home address from which Executive most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notice shall
be directed to the attention of its Secretary.
14. Miscellaneous Provisions.
(a) Definition of Terms. The capitalized terms in this Agreement
shall have the meanings set forth in this Agreement or in Appendix A hereto.
(b) No Duty to Mitigate. Executive shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by
earnings that Executive may receive from any other source.
(c) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer or representative
of the Company (other than Executive). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision of another time.
(d) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity of unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(g) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled by arbitration in the County of
San Francisco, California, in accordance with the rules of the American
Arbitration Association then in effect. Such arbitration
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<PAGE> 8
proceedings shall be nonbinding and any claim with respect to this Agreement,
whether or not previously the subject of an arbitration proceeding, may be
brought in any court of competent jurisdiction.
(h) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(i) Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company; provided, however, that if
there is any such assignment, the Company will guarantee all payments and the
performance of all obligations under this Agreement. In the case of any such
assignment, the term "Company" when used in a section of this Agreement shall
mean the corporation or other entity that actually employs Executive.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
15. Prior Agreements. This Agreement replaces any other agreements
between the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this day and year first above written.
CALPINE CORPORATION: EXECUTIVE:
By: /s/ PETER CARTWRIGHT By: /s/ LYNN A. KERBY
------------------------------- --------------------------------
Peter Cartwright, President and Lynn A. Kerby
Chief Executive Officer Senior Vice President
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<PAGE> 9
APPENDIX A
DEFINITIONS
Cause. "Cause" shall mean (i) material breach of any material
terms of this Agreement, (ii) conviction of a felony, (iii) repeated unexplained
or unjustified absence, (iv) willful breach of fiduciary duty under this
Agreement or (v) gross negligence or willful misconduct where such gross
negligence or willful misconduct has resulted or is likely to result in
substantial and material damage to the Company or its subsidiaries.
Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company's current stockholder or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any corporation owned, directly or indirectly,
by the Company's stockholders in substantially the same proportions as
their ownership of the Company's stock, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent
(50%) or more of the total combined voting power of the Company's then
outstanding securities; or
(ii) the majority of the members of the Board ceases to
be comprised of individuals who are Continuing Members; for such
purpose, a "Continuing Member" shall mean an individual who is a member
of the Board on the date of this Agreement and any successor of a
Continuing Member who is elected to the Board or nominated for such
election by action of a majority of Continuing Members then serving on
the Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%)
of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
Current Compensation. "Current Compensation" shall mean (i) an
amount equal to the greater of (A) Executive's highest annual base salary for
the year preceding the year in which a termination of employment occurs, (B)
Executive's annual base salary at any time during the year in which a
termination of employment occurs or (C) Executive's annual base salary on the
date of termination of employment, plus (ii) an amount equal to the greater of
the bonus payments Executive received in the preceding calendar year or the
target bonus payment for the year in which a termination of employment occurs.
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Disability. "Disability" shall mean the inability of Executive to
perform all the material duties of Executive's position as determined by an
independent physician selected with the approval of the Company and Executive.
Involuntary Termination. "Involuntary Termination" shall mean
termination by the Company of Executive's employment for any reason other than
for Cause, and shall include Executive's voluntary resignation following (i) the
material breach by the Company of one or more of its obligations under this
Agreement which are not otherwise corrected within ten (10) days following
Executive's written notice to the Company of such breach, or (ii) the occurrence
of any of the following events without Executive's express prior written
consent: (A) a change in Executive's position with the Company which materially
reduces Executive's level of responsibilities, (B) a reduction in Executive's
level of compensation (including base salary, benefits and any non-discretionary
and objective-standard incentive payment or bonus award), (C) a relocation of
Executive's place of employment by more than twenty (20) miles from Executive's
current place of employment, (D) the assignment of additional material job
responsibilities or a reduction in job responsibilities inconsistent with
Executive's position with the Company and Executive's prior responsibilities, or
(E) in the event Executive is no longer the Company's Senior Vice President
reporting to the CEO.
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APPENDIX B
CALPINE CORPORATION
ANNUAL MANAGEMENT
INCENTIVE PLAN
I. Purpose
The purpose of the Calpine Corporation (the "Company") Annual
Management Incentive Plan ("the Plan") is to assist the Company in
attracting and retaining the desired management talent, building team
effort, recognizing achievement of predetermined business objectives
and providing increased performance motivation through established
bonus opportunities associated with achieving or exceeding these
objectives.
II. Participation
All full time regular non-operations and maintenance hourly employees
of the Company are eligible to participate in the Plan.
III. Administration
The Plan shall be administered by the President of the Company. The
President shall have broad authority to interpret the Plan, subject to
the following decisions reserved for the Board of Directors of the
Company (the "Board"):
1. The approval of the funding formula discussed in Section IV of
this document.
2. The approval of the amount of aggregate incentive payments
made under the Plan in any one year.
3. Interpretation of the Plan on any matters in which the
President is not a disinterested party.
Any decisions of the President in the interpretation of the Plan may be
appealed in writing to the Board. However, all participants agree that
any decision of the majority of the Board is final and binding on all
parties.
IV. Funding
The building block for establishing the bonus funding is target
bonuses. A target bonus amount will be communicated to each participant
when first hired, expressed as a percentage of his/her base salary. The
target bonus amount is that which the Company will be willing to pay if
the participant and the Company achieve planned performance objectives.
The target bonus pool for each bonus year will be equal to the base
salaries of all eligible employees times the target bonus percentage
established in Section V of this document for each employee level.
The target performance for the Company will be established by the Board
or a committee thereof in December of the year preceding the bonus
year. The target performance will consist of two elements:
<PAGE> 12
Annual Management
Incentive Plan
Page 2
- Target profits before taxes for the bonus year, and
- Other targets including new business booked and such
other non-objective targets as the Board may
establish.
The maximum bonus pool will be:
Actual Performance Before Taxes
-------------------------------
Target Bonus Pool x Target Performance Before Taxes
(Up to a maximum of 2X target bonus pool)
The bonus pool will be:
Actual Performance
------------------
Maximum Bonus Pool x Target Performance
The actual performance will be determined by the Board in the first
quarter after the end of the bonus year based on its judgment of the
overall achievement of the Company in meeting/exceeding the target
performance. The Board's judgment will be final.
V. Allocation
The allocation of the bonus pool to individual participants is based on
three factors.
1. The individual's target bonus amount.
2. The level of funding of the pool, as described above.
3. A measure of individual performance.
A portion of each participant's bonus will be paid at the same level as
the funding level. For example, if the funding level is 125 percent of
target, a designated portion of each participant's bonus will be paid
at 125 percent of target bonus amount. For the President, 100 percent
of the target bonus amount will be paid at the same level as the
funding level. The balance of each participant's bonus will be based on
achievement of individual objectives. The levels of target bonuses and
the allocation of the bonus fund for each level is as follows:
INDIVIDUAL BONUS ALLOCATION FORMULA
<TABLE>
<CAPTION>
TARGET COMPANY INDIVIDUAL
CLASSIFICATION BONUS PERFORMANCE PERFORMANCE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
President 75% 100% 0%
</TABLE>
<PAGE> 13
Annual Management
Incentive Plan
Page 3
Sr. Management
<TABLE>
<S> <C> <C> <C>
Sr. VP - Bus. Mgmt. 40% 50% 50%
Sr. VP - Operations 40% 50% 50%
VP - Bus. Development 30% 50% 50%
VP - Finance 30% 50% 50%
VP - Asset Management 30% 50% 50%
Management 20% 50% 50%
Professional 15% 50% 50%
Administrative/Technical 10% 50% 50%
Clerical 5% 50% 50%
</TABLE>
VII. Employment Rights
The selection of an employee of the Company as a participant will in no
way enhance the employee's right to continued employment with Calpine
nor limit the Company in its right to terminate or otherwise change the
employment relationship with the employee.
VIII. Governing Law
The Plan shall be administered in accordance with California law,
unless a superseding Federal law is applicable.
<PAGE> 1
Exhibit 10.10.4
CALPINE CORPORATION
VICE PRESIDENT EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") has been entered into,
effective as of August 1, 1996, between CALPINE CORPORATION, a California
corporation (the "Company"), and Ronald A. Walter ("Executive") to provide for
the employment of Executive on the terms and conditions set forth herein.
WHEREAS, Executive has served as the Vice President of the Company
since August, 1990; and
WHEREAS, the Company wishes to assure itself of the continued
employment efforts of Executive for the period provided in this Agreement, and
Executive is willing to continue to serve in the employ of the Company on a
full-time basis for said period upon the terms and conditions hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, intending to be legally bound, the Company and Executive agree as
follows:
1. Employment. The Company hereby employs Executive, and Executive
hereby accepts such employment by the Company, upon the terms and conditions
herein provided.
2. Term of Employment. Executive's employment with the Company pursuant
to this Agreement shall commence on August 1, 1996 and shall continue through
July 31, 1999, unless such employment is sooner terminated or subsequently
extended as hereinafter provided. Unless earlier terminated, this Agreement
shall automatically continue in effect for two (2) additional successive
calendar year periods after July 31, 1999, unless either the Company or
Executive elects to terminate this Agreement as of the start of any subsequent
calendar year by providing not less than one hundred eighty (180) days prior
written notice to the other party. The Company and Executive may agree to extend
the Employment Period beyond such two (2) additional calendar year periods upon
the terms and conditions of this Agreement or upon other terms, but neither the
Company nor Executive is under any obligation to do so. The period during which
this Agreement continues in effect shall constitute the "Employment Period".
3. Positions and Responsibilities. During the Employment Period,
Executive shall serve as the Company's Vice President ("VP") and shall be
responsible for business development for the Company, reporting directly to the
President and Chief Executive Officer ("CEO") of the Company.
4. Compensation. For all services rendered by Executive pursuant to
this Agreement, the Company shall pay Executive, and Executive agrees to accept,
the salary, bonuses and other benefits described below in this Section 4.
(a) Salary. The Company shall pay Executive an annual base salary
("Base Salary") as determined by the CEO in accordance with this Section 4,
payable at periodic intervals in accordance with the Company's payroll practices
for salaried employees. Executive's Base Salary as of the effective date hereof
is one hundred forty eight thousand dollars ($148,000) per
1
<PAGE> 2
annum. In accordance with Section 4(c) hereof, the amount of the Base Salary
shall be reviewed by the CEO on at least an annual basis, and any increases will
be effective as of the date determined appropriate by the CEO. Executive's Base
Salary may be increased for any reason, including to reflect inflation or such
other adjustments as the CEO may deem appropriate; provided, however, that
Executive's Base Salary, as currently in effect as stated above or as so
increased, may not be subsequently decreased, except with the prior written
consent of Executive.
(b) Bonuses. In addition to Base Salary, Executive shall be entitled
to receive, for each fiscal year of the Company ending with or within the
Employment Period, an annual bonus ("Bonus"), whether pursuant to a formal bonus
or incentive plan or program of the Company or otherwise. The Company's Annual
Management Incentive Plan, in place as of the effective date hereof, is attached
as Appendix B.
(c) Annual Compensation Review. Notwithstanding anything herein to
the contrary, Executive's compensation, consisting of salary, bonus and stock
option grants, shall be reviewed not less than annually by the CEO.
(d) Life Insurance. During the Employment Period, the Company shall
provide to Executive a life insurance policy in accordance with the terms of the
current policy maintained by the Company for Executive.
(e) Health Care. During the Employment Period, Executive shall be
eligible to participate in any health insurance programs and medical plans
available to officers or employees of the Company.
(f) Participation in Benefit and Equity Compensation Plans. During
the Employment Period, Executive shall be eligible to receive all benefits,
including those under equity participation and bonus programs, to which key
employees are or become eligible under such plans or programs as may be
established by the Company. In addition to any other plans or programs
established by the Company, Executive shall be entitled to participate in the
Company's Stock Option Program and any similar or replacement plan or program
(the "Stock Option Program").
(g) 401(k) Plan Benefits. In addition to the other benefits to which
Executive shall be entitled to under this Agreement, Executive shall be entitled
to participate in the Company's 401(k) Plan and shall be entitled to receive the
full benefit of contributions to be made by the Company for the benefit of
Executive under the terms of the 401(k) Plan.
5. Severance Benefits.
(a) Termination of Employment As a Result of a Change of Control. If
Executive's employment with the Company is terminated as a result of a Change of
Control (Change of Control for the purpose of Sections 5(a)(i)(ii) excludes an
Initial Public Offering), then Executive shall be entitled to receive severance
benefits as follows:
(i) Voluntary Resignation. If following a Change of Control,
material detrimental changes are made to Executive's position within twelve (12)
months of the Change of Control and, or, Executive's position is relocated to a
place more than sixty (60) miles from
2
<PAGE> 3
the Company's present office within six (6) months of the Change of Control, and
as a result of these changes Executive's employment terminates by reason of
voluntary resignation (and such termination is not an Involuntary Termination or
a Termination for Cause), then the following severance benefits shall be paid or
otherwise provided to Executive: (A) the Company shall pay to Executive in the
form of a lump sum payment, in cash, a severance payment equal to the lesser of
(I) two (2) times Executive's Current Compensation or (II) Executive's Current
Compensation multiplied by the sum of (x) the number of years (or any portion
thereof, calculated on a daily basis) remaining under this Agreement had
Executive's employment not been terminated, plus (y) an additional one-half
year, which shall be paid to Executive within ten (10) days after the date of
termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise receivable by
Executive pursuant to this subsection 5(a)(i)(B) shall be reduced to the extent
comparable benefits are concurrently received by Executive (or Executive's
dependents) pursuant to a similar plan or program of another employer, and any
such other benefits actually received by Executive (or Executive's dependents)
must be reported to the Company; and provided further, however, that the health
care coverage provided by the Company pursuant to this Section 5(a)(i)(B) shall
be in lieu of any other continued health care coverage to which Executive or
Executive's dependents would otherwise, at Executive's own expense, be entitled
in accordance with the requirements of COBRA by reason of Executive's
termination of employment; and (C) all stock options, warrants, rights and other
Company stock-related awards granted to Executive by the Company that would
otherwise have vested or become exercisable at any time in the future shall
become fully vested and nonforfeitable upon the date of Executive's termination
of employment, the Company's repurchase rights, if any, with respect to those
vested shares shall immediately lapse, and each such stock option, to the extent
vested, shall remain exercisable for the vested option shares until the
expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option.
(ii) Involuntary Termination Other Than For Cause. If as a
result of a Change of Control and within twelve (12) months of a Change of
Control Executive's employment is terminated as a result of an Involuntary
Termination other than for Cause, then the following severance benefits shall be
paid or otherwise provided to Executive: (A) the Company shall pay to Executive
in the form of a lump sum payment, in cash, a severance payment equal to the
lesser of (I) three (3) times Executive's Current Compensation or (II)
Executive's Current Compensation multiplied by the sum of (x) the number of
years (or any portion thereof, calculated on a daily basis) remaining under this
Agreement had Executive's employment not been terminated, plus (y) an additional
one-half year, which shall be paid to Executive within ten (10) days after the
date of termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise
3
<PAGE> 4
receivable by Executive pursuant to this Section 5(a)(ii)(B) shall be reduced to
the extent comparable benefits are concurrently received by Executive (or
Executive's dependents) pursuant to a similar plan or program of another
employer, and any such other benefits actually received by Executive (or
Executive's dependents) must be reported to the Company; and provided further,
however, that the health care coverage provided by the Company pursuant to this
Section 5(a)(ii)(B) shall be in lieu of any other continued health care coverage
to which Executive or Executive's dependents would otherwise, at Executive's own
expense, be entitled in accordance with the requirements of Internal Revenue
Code of 1986, as amended ("Code"), Section 4980B ("COBRA"), by reason of
Executive's termination of employment; (C) all stock options, warrants, rights
and other Company stock-related awards granted to Executive by the Company that
would otherwise have vested or become exercisable at any time in the future
shall become fully vested and nonforfeitable upon the date of Executive's
termination of employment, the Company's repurchase rights, if any, with respect
to those vested shares shall immediately lapse, and each such stock option, to
the extent vested, shall remain exercisable for the vested option shares until
the expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option; and (D) the Company shall
pay or reimburse Executive for any and all expenses incurred by Executive for
outplacement services selected by Executive until the earlier of (I) the first
anniversary of the date of termination of employment or (II) the date on which
Executive commences employment with another employer.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other severance benefits under this Section 5. Executive's
benefits will be continued under the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination.
(b) Benefit Reduction. Should any of Executive's severance benefits
under this Section 5 (including any lump sum severance payment and any
accelerated vesting of outstanding options or shares of stock) be deemed to be
parachute payments under Code Section 280G, then, first, the dollar amount of
any severance payment and, secondly, the accelerated vesting of any options or
shares of stock, will be reduced to the extent (and only to the extent)
necessary to provide Executive with the maximum after-tax benefit available,
after taking into account any parachute excise tax which might otherwise be
payable by Executive under Code Section 4999 and any analogous State income tax
provision.
6. Noncompetition and Confidential Information. While employed by the
Company, Executive will not directly or indirectly manage, operate, participate
in, be employed by, perform consulting services for, or otherwise be connected
in any manner with, any firm, person, corporation, or enterprise which would be
competitive with the business of the Company. Executive will not at any time
disclose to others any confidential information relating to the Company or to
the business of the Company and confirms that such information constitutes the
exclusive property of the Company. The foregoing shall not preclude Executive's
investment in any such firm, corporation or enterprise provided that at any one
time Executive and members of Executive's immediate family do not own more than
one percent (1%) of any voting securities of any such entity.
7. Successors. Any successor to the Company or to all or substantially
all of the Company's business or assets shall assume the obligations under this
Agreement.
4
<PAGE> 5
8. Miscellaneous Provisions.
(a) Definition of Terms. The capitalized terms in this Agreement
shall have the meanings set forth in this Agreement or in Appendix A hereto.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer or representative
of the Company (other than Executive).
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this day and year first above written.
CALPINE CORPORATION: EXECUTIVE:
By: /s/ PETER CARTWRIGHT /s/ RONALD A. WALTER
--------------------------------- ----------------------------------
Peter Cartwright, President and Ronald A. Walter, Vice President
Chief Executive Officer
5
<PAGE> 6
APPENDIX A
DEFINITIONS
Cause. "Cause" shall mean (i) material breach of any material
terms of this Agreement, (ii) conviction of a felony, (iii) repeated unexplained
or unjustified absence, (iv) willful breach of fiduciary duty under this
Agreement or (v) gross negligence or willful misconduct where such gross
negligence or willful misconduct has resulted or is likely to result in
substantial and material damage to the Company or its subsidiaries.
Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company's current stockholder or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any corporation owned, directly or indirectly,
by the Company's stockholders in substantially the same proportions as
their ownership of the Company's stock, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent
(50%) or more of the total combined voting power of the Company's then
outstanding securities; or
(ii) the majority of the members of the Board ceases to
be comprised of individuals who are Continuing Members; for such
purpose, a "Continuing Member" shall mean an individual who is a member
of the Board on the date of this Agreement and any successor of a
Continuing Member who is elected to the Board or nominated for such
election by action of a majority of Continuing Members then serving on
the Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%)
of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
Current Compensation. "Current Compensation" shall mean (i) an
amount equal to the greater of (A) Executive's highest annual base salary for
the year preceding the year in which a termination of employment occurs, (B)
Executive's annual base salary at any time during the year in which a
termination of employment occurs or (C) Executive's annual base salary on the
date of termination of employment, plus (ii) an amount equal to the greater of
the bonus payments Executive received in the preceding calendar year or the
target bonus payment for the year in which a termination of employment occurs.
1
<PAGE> 7
Involuntary Termination. "Involuntary Termination" shall mean
termination by the Company of Executive's employment for any reason other than
for Cause, and shall include Executive's voluntary resignation following (i) the
material breach by the Company of one or more of its obligations under this
Agreement which are not otherwise corrected within ten (10) days following
Executive's written notice to the Company of such breach, or (ii) the occurrence
of any of the following events without Executive's express prior written
consent: (A) a change in Executive's position with the Company which materially
reduces Executive's level of responsibilities, (B) a reduction in Executive's
level of compensation (including base salary, benefits and any non-discretionary
and objective-standard incentive payment or bonus award), (C) a relocation of
Executive's place of employment by more than twenty (20) miles from Executive's
current place of employment, (D) the assignment of additional material job
responsibilities or a reduction in job responsibilities inconsistent with
Executive's position with the Company and Executive's prior responsibilities, or
(E) in the event Executive is no longer the Company's Vice President.
2
<PAGE> 8
APPENDIX B
CALPINE CORPORATION
ANNUAL MANAGEMENT
INCENTIVE PLAN
I. Purpose
The purpose of the Calpine Corporation (the "Company") Annual
Management Incentive Plan ("the Plan") is to assist the Company in
attracting and retaining the desired management talent, building team
effort, recognizing achievement of predetermined business objectives
and providing increased performance motivation through established
bonus opportunities associated with achieving or exceeding these
objectives.
II. Participation
All full time regular non-operations and maintenance hourly employees
of the Company are eligible to participate in the Plan.
III. Administration
The Plan shall be administered by the President of the Company. The
President shall have broad authority to interpret the Plan, subject to
the following decisions reserved for the Board of Directors of the
Company (the "Board"):
1. The approval of the funding formula discussed in Section IV of
this document.
2. The approval of the amount of aggregate incentive payments
made under the Plan in any one year.
3. Interpretation of the Plan on any matters in which the
President is not a disinterested party.
Any decisions of the President in the interpretation of the Plan may be
appealed in writing to the Board. However, all participants agree that
any decision of the majority of the Board is final and binding on all
parties.
IV. Funding
The building block for establishing the bonus funding is target
bonuses. A target bonus amount will be communicated to each participant
when first hired, expressed as a percentage of his/her base salary. The
target bonus amount is that which the Company will be willing to pay if
the participant and the Company achieve planned performance objectives.
The target bonus pool for each bonus year will be equal to the base
salaries of all eligible employees times the target bonus percentage
established in Section V of this document for each employee level.
The target performance for the Company will be established by the Board
or a committee thereof in December of the year preceding the bonus
year. The target performance will consist of two elements:
<PAGE> 9
Annual Management
Incentive Plan
Page 2
- Target profits before taxes for the bonus year, and
- Other targets including new business booked and such
other non-objective targets as the Board may
establish.
The maximum bonus pool will be:
Actual Performance Before Taxes
-------------------------------
Target Bonus Pool x Target Performance Before Taxes
(Up to a maximum of 2X target bonus pool)
The bonus pool will be:
Actual Performance
------------------
Maximum Bonus Pool x Target Performance
The actual performance will be determined by the Board in the first
quarter after the end of the bonus year based on its judgment of the
overall achievement of the Company in meeting/exceeding the target
performance. The Board's judgment will be final.
V. Allocation
The allocation of the bonus pool to individual participants is based on
three factors.
1. The individual's target bonus amount.
2. The level of funding of the pool, as described above.
3. A measure of individual performance.
A portion of each participant's bonus will be paid at the same level as
the funding level. For example, if the funding level is 125 percent of
target, a designated portion of each participant's bonus will be paid
at 125 percent of target bonus amount. For the President, 100 percent
of the target bonus amount will be paid at the same level as the
funding level. The balance of each participant's bonus will be based on
achievement of individual objectives. The levels of target bonuses and
the allocation of the bonus fund for each level is as follows:
INDIVIDUAL BONUS ALLOCATION FORMULA
<TABLE>
<CAPTION>
TARGET COMPANY INDIVIDUAL
CLASSIFICATION BONUS PERFORMANCE PERFORMANCE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
President 75% 100% 0%
</TABLE>
<PAGE> 10
Annual Management
Incentive Plan
Page 3
Sr. Management
<TABLE>
<S> <C> <C> <C>
Sr. VP - Bus. Mgmt. 40% 50% 50%
Sr. VP - Operations 40% 50% 50%
VP - Bus. Development 30% 50% 50%
VP - Finance 30% 50% 50%
VP - Asset Management 30% 50% 50%
Management 20% 50% 50%
Professional 15% 50% 50%
Administrative/Technical 10% 50% 50%
Clerical 5% 50% 50%
</TABLE>
VII. Employment Rights
The selection of an employee of the Company as a participant will in no
way enhance the employee's right to continued employment with Calpine
nor limit the Company in its right to terminate or otherwise change the
employment relationship with the employee.
VIII. Governing Law
The Plan shall be administered in accordance with California law,
unless a superseding Federal law is applicable.
<PAGE> 1
Exhibit 10.10.5
CALPINE CORPORATION
VICE PRESIDENT EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") has been entered into,
effective as of August 1, 1996, between CALPINE CORPORATION, a California
corporation (the "Company"), and Robert D. Kelly ("Executive") to provide for
the employment of Executive on the terms and conditions set forth herein.
WHEREAS, Executive has served as the Vice President of the Company
since April, 1994; and
WHEREAS, the Company wishes to assure itself of the continued
employment efforts of Executive for the period provided in this Agreement, and
Executive is willing to continue to serve in the employ of the Company on a
full-time basis for said period upon the terms and conditions hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, intending to be legally bound, the Company and Executive agree as
follows:
1. Employment. The Company hereby employs Executive, and Executive
hereby accepts such employment by the Company, upon the terms and conditions
herein provided.
2. Term of Employment. Executive's employment with the Company pursuant
to this Agreement shall commence on August 1, 1996 and shall continue through
July 31, 1999, unless such employment is sooner terminated or subsequently
extended as hereinafter provided. Unless earlier terminated, this Agreement
shall automatically continue in effect for two (2) additional successive
calendar year periods after July 31, 1999, unless either the Company or
Executive elects to terminate this Agreement as of the start of any subsequent
calendar year by providing not less than one hundred eighty (180) days prior
written notice to the other party. The Company and Executive may agree to extend
the Employment Period beyond such two (2) additional calendar year periods upon
the terms and conditions of this Agreement or upon other terms, but neither the
Company nor Executive is under any obligation to do so. The period during which
this Agreement continues in effect shall constitute the "Employment Period".
3. Positions and Responsibilities. During the Employment Period,
Executive shall serve as the Company's Vice President ("VP") and shall be
responsible for the project finance affairs of the Company, reporting directly
to the Senior Vice President, Business Management of the Company.
4. Compensation. For all services rendered by Executive pursuant to
this Agreement, the Company shall pay Executive, and Executive agrees to accept,
the salary, bonuses and other benefits described below in this Section 4.
(a) Salary. The Company shall pay Executive an annual base salary
("Base Salary") as determined by the Chief Executive Officer ("CEO") in
accordance with this Section 4, payable at periodic intervals in accordance with
the Company's payroll practices for salaried employees. Executive's Base Salary
as of the effective date hereof is one hundred fifty five
1
<PAGE> 2
thousand dollars ($155,000) per annum. In accordance with Section 4(c) hereof,
the amount of the Base Salary shall be reviewed by the CEO on at least an annual
basis, and any increases will be effective as of the date determined appropriate
by the CEO. Executive's Base Salary may be increased for any reason, including
to reflect inflation or such other adjustments as the CEO may deem appropriate;
provided, however, that Executive's Base Salary, as currently in effect as
stated above or as so increased, may not be subsequently decreased, except with
the prior written consent of Executive.
(b) Bonuses. In addition to Base Salary, Executive shall be entitled
to receive, for each fiscal year of the Company ending with or within the
Employment Period, an annual bonus ("Bonus"), whether pursuant to a formal bonus
or incentive plan or program of the Company or otherwise. The Company's Annual
Management Incentive Plan, in place as of the effective date hereof, is attached
as Appendix B.
(c) Annual Compensation Review. Notwithstanding anything herein to
the contrary, Executive's compensation, consisting of salary, bonus and stock
option grants, shall be reviewed not less than annually by the CEO.
(d) Life Insurance. During the Employment Period, the Company shall
provide to Executive a life insurance policy in accordance with the terms of the
current policy maintained by the Company for Executive.
(e) Health Care. During the Employment Period, Executive shall be
eligible to participate in any health insurance programs and medical plans
available to officers or employees of the Company.
(f) Participation in Benefit and Equity Compensation Plans. During
the Employment Period, Executive shall be eligible to receive all benefits,
including those under equity participation and bonus programs, to which key
employees are or become eligible under such plans or programs as may be
established by the Company. In addition to any other plans or programs
established by the Company, Executive shall be entitled to participate in the
Company's Stock Option Program and any similar or replacement plan or program
(the "Stock Option Program").
(g) 401(k) Plan Benefits. In addition to the other benefits to which
Executive shall be entitled to under this Agreement, Executive shall be entitled
to participate in the Company's 401(k) Plan and shall be entitled to receive the
full benefit of contributions to be made by the Company for the benefit of
Executive under the terms of the 401(k) Plan.
5. Severance Benefits.
(a) Termination of Employment As a Result of a Change of Control. If
Executive's employment with the Company is terminated as a result of a Change of
Control (Change of Control for the purpose of Sections 5(a)(i)(ii) excludes an
Initial Public Offering), then Executive shall be entitled to receive severance
benefits as follows:
(i) Voluntary Resignation. If following a Change of Control,
material detrimental changes are made to Executive's position within twelve (12)
months of the Change
2
<PAGE> 3
of Control and, or, Executive's position is relocated to a place more than sixty
(60) miles from the Company's present office within six (6) months of the Change
of Control, and as a result of these changes Executive's employment terminates
by reason of voluntary resignation (and such termination is not an Involuntary
Termination or a Termination for Cause), then the following severance benefits
shall be paid or otherwise provided to Executive: (A) the Company shall pay to
Executive in the form of a lump sum payment, in cash, a severance payment equal
to the lesser of (I) two (2) times Executive's Current Compensation or (II)
Executive's Current Compensation multiplied by the sum of (x) the number of
years (or any portion thereof, calculated on a daily basis) remaining under this
Agreement had Executive's employment not been terminated, plus (y) an additional
one-half year, which shall be paid to Executive within ten (10) days after the
date of termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately prior to Executive's termination of
employment; provided, however, that the benefits otherwise receivable by
Executive pursuant to this subsection 5(a)(i)(B) shall be reduced to the extent
comparable benefits are concurrently received by Executive (or Executive's
dependents) pursuant to a similar plan or program of another employer, and any
such other benefits actually received by Executive (or Executive's dependents)
must be reported to the Company; and provided further, however, that the health
care coverage provided by the Company pursuant to this Section 5(a)(i)(B) shall
be in lieu of any other continued health care coverage to which Executive or
Executive's dependents would otherwise, at Executive's own expense, be entitled
in accordance with the requirements of COBRA by reason of Executive's
termination of employment; and (C) all stock options, warrants, rights and other
Company stock-related awards granted to Executive by the Company that would
otherwise have vested or become exercisable at any time in the future shall
become fully vested and nonforfeitable upon the date of Executive's termination
of employment, the Company's repurchase rights, if any, with respect to those
vested shares shall immediately lapse, and each such stock option, to the extent
vested, shall remain exercisable for the vested option shares until the
expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option.
(ii) Involuntary Termination Other Than For Cause. If as a
result of a Change of Control and within twelve (12) months of a Change of
Control Executive's employment is terminated as a result of an Involuntary
Termination other than for Cause, then the following severance benefits shall be
paid or otherwise provided to Executive: (A) the Company shall pay to Executive
in the form of a lump sum payment, in cash, a severance payment equal to the
lesser of (I) three (3) times Executive's Current Compensation or (II)
Executive's Current Compensation multiplied by the sum of (x) the number of
years (or any portion thereof, calculated on a daily basis) remaining under this
Agreement had Executive's employment not been terminated, plus (y) an additional
one-half year, which shall be paid to Executive within ten (10) days after the
date of termination; (B) until the earlier of (I) the date this Agreement would
otherwise have terminated had Executive's employment not been terminated (the
"Remaining Term") or (II) the expiration of the three (3) year period measured
from the date of Executive's termination of employment, the Company shall at its
sole cost and expense provide Executive (and Executive's eligible dependents, if
any) with life, disability, accident and group health insurance benefits
substantially similar to those benefits that Executive (and Executive's
dependents) were receiving immediately
3
<PAGE> 4
prior to Executive's termination of employment; provided, however, that the
benefits otherwise receivable by Executive pursuant to this Section 5(a)(ii)(B)
shall be reduced to the extent comparable benefits are concurrently received by
Executive (or Executive's dependents) pursuant to a similar plan or program of
another employer, and any such other benefits actually received by Executive (or
Executive's dependents) must be reported to the Company; and provided further,
however, that the health care coverage provided by the Company pursuant to this
Section 5(a)(ii)(B) shall be in lieu of any other continued health care coverage
to which Executive or Executive's dependents would otherwise, at Executive's own
expense, be entitled in accordance with the requirements of Internal Revenue
Code of 1986, as amended ("Code"), Section 4980B ("COBRA"), by reason of
Executive's termination of employment; (C) all stock options, warrants, rights
and other Company stock-related awards granted to Executive by the Company that
would otherwise have vested or become exercisable at any time in the future
shall become fully vested and nonforfeitable upon the date of Executive's
termination of employment, the Company's repurchase rights, if any, with respect
to those vested shares shall immediately lapse, and each such stock option, to
the extent vested, shall remain exercisable for the vested option shares until
the expiration or sooner termination of the option term in accordance with the
provisions of the agreement evidencing such option; and (D) the Company shall
pay or reimburse Executive for any and all expenses incurred by Executive for
outplacement services selected by Executive until the earlier of (I) the first
anniversary of the date of termination of employment or (II) the date on which
Executive commences employment with another employer.
(iii) Termination for Cause. If Executive's employment is
terminated for Cause, then Executive shall not be entitled to receive any
severance payments or other severance benefits under this Section 5. Executive's
benefits will be continued under the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination.
(b) Benefit Reduction. Should any of Executive's severance benefits
under this Section 5 (including any lump sum severance payment and any
accelerated vesting of outstanding options or shares of stock) be deemed to be
parachute payments under Code Section 280G, then, first, the dollar amount of
any severance payment and, secondly, the accelerated vesting of any options or
shares of stock, will be reduced to the extent (and only to the extent)
necessary to provide Executive with the maximum after-tax benefit available,
after taking into account any parachute excise tax which might otherwise be
payable by Executive under Code Section 4999 and any analogous State income tax
provision.
6. Noncompetition and Confidential Information. While employed by the
Company, Executive will not directly or indirectly manage, operate, participate
in, be employed by, perform consulting services for, or otherwise be connected
in any manner with, any firm, person, corporation, or enterprise which would be
competitive with the business of the Company. Executive will not at any time
disclose to others any confidential information relating to the Company or to
the business of the Company and confirms that such information constitutes the
exclusive property of the Company. The foregoing shall not preclude Executive's
investment in any such firm, corporation or enterprise provided that at any one
time Executive and members of Executive's immediate family do not own more than
one percent (1%) of any voting securities of any such entity.
4
<PAGE> 5
7. Successors. Any successor to the Company or to all or substantially
all of the Company's business or assets shall assume the obligations under this
Agreement.
8. Miscellaneous Provisions.
(a) Definition of Terms. The capitalized terms in this Agreement
shall have the meanings set forth in this Agreement or in Appendix A hereto.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer or representative
of the Company (other than Executive).
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this day and year first above written.
CALPINE CORPORATION: EXECUTIVE:
By: /s/ PETER CARTWRIGHT /s/ ROBERT D. KELLY
-------------------------------- -------------------------------
Peter Cartwright, President and Robert D. Kelly, Vice President
Chief Executive Officer
5
<PAGE> 6
APPENDIX A
DEFINITIONS
Cause. "Cause" shall mean (i) material breach of any material
terms of this Agreement, (ii) conviction of a felony, (iii) repeated unexplained
or unjustified absence, (iv) willful breach of fiduciary duty under this
Agreement or (v) gross negligence or willful misconduct where such gross
negligence or willful misconduct has resulted or is likely to result in
substantial and material damage to the Company or its subsidiaries.
Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company's current stockholder or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any corporation owned, directly or indirectly,
by the Company's stockholders in substantially the same proportions as
their ownership of the Company's stock, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent
(50%) or more of the total combined voting power of the Company's then
outstanding securities; or
(ii) the majority of the members of the Board ceases to
be comprised of individuals who are Continuing Members; for such
purpose, a "Continuing Member" shall mean an individual who is a member
of the Board on the date of this Agreement and any successor of a
Continuing Member who is elected to the Board or nominated for such
election by action of a majority of Continuing Members then serving on
the Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%)
of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
Current Compensation. "Current Compensation" shall mean (i) an
amount equal to the greater of (A) Executive's highest annual base salary for
the year preceding the year in which a termination of employment occurs, (B)
Executive's annual base salary at any time during the year in which a
termination of employment occurs or (C) Executive's annual base salary on the
date of termination of employment, plus (ii) an amount equal to the greater of
the bonus payments Executive received in the preceding calendar year or the
target bonus payment for the year in which a termination of employment occurs.
1
<PAGE> 7
Involuntary Termination. "Involuntary Termination" shall mean
termination by the Company of Executive's employment for any reason other than
for Cause, and shall include Executive's voluntary resignation following (i) the
material breach by the Company of one or more of its obligations under this
Agreement which are not otherwise corrected within ten (10) days following
Executive's written notice to the Company of such breach, or (ii) the occurrence
of any of the following events without Executive's express prior written
consent: (A) a change in Executive's position with the Company which materially
reduces Executive's level of responsibilities, (B) a reduction in Executive's
level of compensation (including base salary, benefits and any non-discretionary
and objective-standard incentive payment or bonus award), (C) a relocation of
Executive's place of employment by more than twenty (20) miles from Executive's
current place of employment, (D) the assignment of additional material job
responsibilities or a reduction in job responsibilities inconsistent with
Executive's position with the Company and Executive's prior responsibilities, or
(E) in the event Executive is no longer the Company's Vice President.
2
<PAGE> 8
APPENDIX B
CALPINE CORPORATION
ANNUAL MANAGEMENT
INCENTIVE PLAN
I. Purpose
The purpose of the Calpine Corporation (the "Company") Annual
Management Incentive Plan ("the Plan") is to assist the Company in
attracting and retaining the desired management talent, building team
effort, recognizing achievement of predetermined business objectives
and providing increased performance motivation through established
bonus opportunities associated with achieving or exceeding these
objectives.
II. Participation
All full time regular non-operations and maintenance hourly employees
of the Company are eligible to participate in the Plan.
III. Administration
The Plan shall be administered by the President of the Company. The
President shall have broad authority to interpret the Plan, subject to
the following decisions reserved for the Board of Directors of the
Company (the "Board"):
1. The approval of the funding formula discussed in Section IV of
this document.
2. The approval of the amount of aggregate incentive payments
made under the Plan in any one year.
3. Interpretation of the Plan on any matters in which the
President is not a disinterested party.
Any decisions of the President in the interpretation of the Plan may be
appealed in writing to the Board. However, all participants agree that
any decision of the majority of the Board is final and binding on all
parties.
IV. Funding
The building block for establishing the bonus funding is target
bonuses. A target bonus amount will be communicated to each participant
when first hired, expressed as a percentage of his/her base salary. The
target bonus amount is that which the Company will be willing to pay if
the participant and the Company achieve planned performance objectives.
The target bonus pool for each bonus year will be equal to the base
salaries of all eligible employees times the target bonus percentage
established in Section V of this document for each employee level.
The target performance for the Company will be established by the Board
or a committee thereof in December of the year preceding the bonus
year. The target performance will consist of two elements:
<PAGE> 9
Annual Management
Incentive Plan
Page 2
- Target profits before taxes for the bonus year, and
- Other targets including new business booked and such
other non-objective targets as the Board may
establish.
The maximum bonus pool will be:
Actual Performance Before Taxes
-------------------------------
Target Bonus Pool x Target Performance Before Taxes
(Up to a maximum of 2X target bonus pool)
The bonus pool will be:
Actual Performance
------------------
Maximum Bonus Pool x Target Performance
The actual performance will be determined by the Board in the first
quarter after the end of the bonus year based on its judgment of the
overall achievement of the Company in meeting/exceeding the target
performance. The Board's judgment will be final.
V. Allocation
The allocation of the bonus pool to individual participants is based on
three factors.
1. The individual's target bonus amount.
2. The level of funding of the pool, as described above.
3. A measure of individual performance.
A portion of each participant's bonus will be paid at the same level as
the funding level. For example, if the funding level is 125 percent of
target, a designated portion of each participant's bonus will be paid
at 125 percent of target bonus amount. For the President, 100 percent
of the target bonus amount will be paid at the same level as the
funding level. The balance of each participant's bonus will be based on
achievement of individual objectives. The levels of target bonuses and
the allocation of the bonus fund for each level is as follows:
INDIVIDUAL BONUS ALLOCATION FORMULA
<TABLE>
<CAPTION>
TARGET COMPANY INDIVIDUAL
CLASSIFICATION BONUS PERFORMANCE PERFORMANCE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
President 75% 100% 0%
</TABLE>
<PAGE> 10
Annual Management
Incentive Plan
Page 3
Sr. Management
<TABLE>
<S> <C> <C> <C>
Sr. VP - Bus. Mgmt. 40% 50% 50%
Sr. VP - Operations 40% 50% 50%
VP - Bus. Development 30% 50% 50%
VP - Finance 30% 50% 50%
VP - Asset Management 30% 50% 50%
Management 20% 50% 50%
Professional 15% 50% 50%
Administrative/Technical 10% 50% 50%
Clerical 5% 50% 50%
</TABLE>
VII. Employment Rights
The selection of an employee of the Company as a participant will in no
way enhance the employee's right to continued employment with Calpine
nor limit the Company in its right to terminate or otherwise change the
employment relationship with the employee.
VIII. Governing Law
The Plan shall be administered in accordance with California law,
unless a superseding Federal law is applicable.
<PAGE> 1
EXHIBIT 10.10.6
FIRST AMENDED AND RESTATED
CONSULTING CONTRACT
BETWEEN
CALPINE CORPORATION
AND
GEORGE J. STATHAKIS
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. SCOPE OF SERVICES 1
2. TERM 1
3. COMPENSATION 1
4. WARRANTY 2
5. INDEPENDENT CONTRACTOR 2
6. INSURANCE 2
7. INDEMNITY 2
8. ASSIGNMENT AND SUBCONTRACTING 3
9. CONFIDENTIALITY 3
10. JURISDICTION 3
11. PUBLICATION 3
12. SURVIVAL 3
13. ENTIRE CONTRACT AND AMENDMENTS 3
14. BINDING EFFECT 4
i
<PAGE> 3
AMENDED AND RESTATED
CONSULTING CONTRACT
THIS AMENDED AND RESTATED CONSULTING CONTRACT originally dated as of
January 1, 1996, ("Contract") is made and entered into effective as of the 3rd
day of June, 1996, between Calpine Corporation, a California corporation, of 50
West San Fernando Street, San Jose, California 95113 ("CALPINE") and GEORGE J.
STATHAKIS, One Bush Street, 15th Floor, San Francisco, California 94104
("CONSULTANT"), with reference to the following:
In consideration of the mutual agreements herein contained, the parties
wish to amend and restate the Contract in its entirety as follows:
1. SCOPE OF SERVICES
1.1 CONSULTANT agrees to perform the following services:
(a) Amend biweekly combined Corporate and Business
Development staff meetings to become more familiar
with CALPINE's operations and to provide advice and
guidance to CALPINE management.
(b) Provide advice and guidance to CALPINE's Business
Development staff with regard to domestic and
international business, with a more in-depth emphasis
on international business.
(c) In addition, but outside of the Retainer, Consultant
will identify project investment opportunities for the
Corporation and develop projects through to financing.
1.2 In addition to the foregoing, CONSULTANT agrees to provide
advisory support to CALPINE's management in identifying
potential buyers, private and/or public, and negotiating the
sale of Electrowatt Ltd.'s stock in CALPINE. Hereinafter,
the above-referenced sale shall be referred to as the
"Transaction". The Transaction will be deemed a "Successful
Transaction" if the cash payment to Electrowatt Ltd. is
$200 million or more, and if the funds are transferred from
the buyer to Electrowatt Ltd. before October 1, 1996 Zurich
time.
2. TERM
2.1 This Contract shall be for a term lasting one year from the date
first specified above, unless earlier terminated pursuant to
this Contract or extended by mutual agreement of the parties.
2.2 Notwithstanding the above, either party may terminate this
Contract at any time by giving thirty (30) days written notice
to the other party, provided, however, that any payments due
and payable upon termination shall be paid.
3. COMPENSATION
3.1 Compensation to CONSULTANT for services rendered other than in
relation to the Transaction shall be as follows:
(a) CALPINE will pay to CONSULTANT a monthly retainer ("the
Retainer") of Five Thousand Dollars ($5,000.00),
commencing January 1, 1996 and payable at the beginning
of each month under the Term hereof.
(b) A fee will be negotiated between the parties for those
project investment opportunities identified and
completed through closure by CONSULTANT.
(c) In addition to the above, CALPINE agrees to reimburse
CONSULTANT for all travel and other actual out-of-
pocket expenses incurred in support of this Contract.
Such expenses will not be incurred by CONSULTANT
without prior approval of CALPINE. CONSULTANT shall
furnish copier of all receipts with invoices for
expenses incurred in support of this Contract.
3.2 For services rendered in relation to the Transaction,
CONSULTANT shall be compensated as follows:
(a) Upon the closing of a Successful Transaction involving
Mitsul and/or General Electric Capital Corporation, or
such other company proposed to CALPINE in writing by
CONSULTANT and
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<PAGE> 4
approved by CALPINE, CALPINE shall pay CONSULTANT
$500,000 plus 1/2% of all payments made to
Electrowatt Ltd. at closing in excess of $200 million.
(b) Upon the closing of a Successful Transaction involving
a European domiciled company initially identified by
Electrowatt Ltd. for which CONSULTANT provided advisory
support services to CALPINE, CALPINE will pay
CONSULTANT $100,000.
(c) Upon the closing of a Successful Transaction not
involving a company included under paragraph (a) or
(b) above for which CONSULTANT provided advisory support
services to CALPINE, CALPINE will pay CONSULTANT
$250,000 plus 1/4% of all payments received by
Electrowatt Ltd. at closing in excess of $200 million.
4. WARRANTY
CONSULTANT assumes professional and technical responsibility for
performance of Services to be provided hereunder in accordance with
recognized professional standards. If within one year following
completion of the Services, the Services fail to meet the aforesaid
standards, and CALPINE promptly advises CONSULTANT in writing,
CONSULTANT agrees to reperform deficient Services without charge to
CALPINE up to a maximum amount equivalent to the compensation received
for the deficient Services rendered.
5. INDEPENDENT CONTRACTOR
5.1 CONSULTANT acknowledges and agrees that it enters into this
Contract as an independent contractor. Under no circumstances
shall CONSULTANT look to CALPINE as its employer, nor as a
partner, agent or principal. CONSULTANT shall not be entitled
to any benefits accorded to CALPINE's employees including,
without limitation, workers compensation, disability insurance,
and vacation or sick pay. CONSULTANT shall be responsible for
providing, at its expense and in its name, disability, workers'
compensation or other insurance as well as licenses and permits
usual or necessary for conducting the Services hereunder.
5.2 CONSULTANT shall pay, when and as due, any and all taxes
incurred as a result of CONSULTANT's compensation hereunder,
including estimated taxes. CONSULTANT hereby indemnifies
CALPINE for any claims, losses costs, fees, liabilities,
damages or injuries suffered by CALPINE arising out of
CONSULTANT's breach of this section.
5.3 CONSULTANT represents that he or she has the qualifications and
ability to perform the Services in a professional manner,
without the advice, control or supervision of CALPINE.
CONSULTANT shall be solely responsible for the professional
performance of the Services, and shall receive no assistance,
direction or control from CALPINE. CONSULTANT shall have sole
discretion and control of its work and the manner in which
it is performed.
6. INSURANCE
6.1 CONSULTANT shall maintain in full force and effect during the
term of this Contract, the insurance described below, as well
as such other insurance as deemed reasonably necessary by
CALPINE to insure the services performed hereunder.
6.1.1 Automobile liability insurance covering owned, non-owned
and hired automobiles for a combined single limit of
$100,000/$300,000 for bodily injury and property damage.
6.2 CONSULTANT shall, upon request, furnish certificates showing
that the above insurance will be in effect during the term of
this Contract and shall specify that CALPINE must be given,
in writing, thirty (30) days notice of cancellation,
termination, or alternation of the policies evidenced by
certificates. It is acknowledged, understood and agreed that
no payment shall be due from CALPINE under this Contract at
any time when CONSULTANT is not in full compliance with this
provision dealing with insurance.
7. INDEMNITY
7.1 CALPINE agrees to indemnify CONSULTANT and hold him harmless
against any claim by any person that CONSULTANT's performance
arising from or in connection with CONSULTANT's relationship
with CALPINE renders CONSULTANT liable to such person, and
against any losses or damages suffered by CALPINE and its
affiliates as a result of any such claim (including legal fees
and expenses); provided, however, that such indemnity
2
<PAGE> 5
will not extend to any action taken or omitted by CONSULTANT
as a result of gross negligence or wilful misconduct.
7.2 CONSULTANT shall not be liable for any consequential or
indirect damages occurring as a result of any recommendation,
opinion or advice given by CONSULTANT, or from any
implementation of CONSULTANT's recommendations by CALPINE, or
from any other services performed hereunder by CONSULTANT
for CALPINE.
8. ASSIGNMENT AND SUBCONTRACTING
CONSULTANT shall not have the right to assign this Contract or
subcontract any of the work without the prior written consent of
CALPINE. CONSULTANT shall supervise all work subcontracted by
CONSULTANT in performing the Services and shall be responsible for all
work performed by a subcontractor as if CONSULTANT itself had performed
such work. The assignment or subcontracting of any work to
subcontractors shall not relieve CONSULTANT from any of its obligations
under this Contract with respect to the Services.
9. CONFIDENTIALITY
All data, information, work papers, technology and reports furnished
or disclosed by CALPINE to CONSULTANT or its personnel in the course of
performing the Services ("Information") are and shall remain the sole
property of CALPINE and shall be kept confidential by CONSULTANT, and
shall be delivered over to CALPINE at CALPINE's request. CONSULTANT
agrees not to divulge all or any part of the Information to third
parties, without the prior written consent of CALPINE, unless:
(a) The Information is known to CONSULTANT prior to obtaining the
same from CALPINE;
(b) The Information is, at the time of disclosure by CONSULTANT,
then in the public domain; or
(c) The Information is obtained by CONSULTANT from a third party
who did not receive same, directly or indirectly, from CALPINE
and who has no obligation of secrecy with respect thereto.
CONSULTANT further agrees that it will not, without the prior written
consent of CALPINE, disclose to any third party any of such Information
developed or obtained by CONSULTANT in the performance of this Contract.
If so requested by CALPINE, CONSULTANT further agrees to require its
employees to execute a nondisclosure agreement prior to performing
Services under this Contract.
10. JURISDICTION
This Contract shall be governed by and be construed in accordance with
the laws of the State of California.
11. PUBLICATION
CONSULTANT shall not use CALPINE's name or trademarks, photographs or
otherwise claim any affiliation with CALPINE in any publication or
public forum without obtaining prior written approval from CALPINE.
12. SURVIVAL
The rights and obligations of the parties, which, by their nature, are
normally intended to survive the termination or completion of this
Contract shall remain in full force and effect following termination
of this Contract for any reason.
13. ENTIRE CONTRACT AND AMENDMENTS
This Contract, together with Exhibits and Schedules, if any, attached
hereto, all of which are incorporated herein as part of this Contract
by this reference, and together with all purchase orders, contain the
entire agreement between the parties hereto with respect to the
subject matter hereof. No amendment to this Contract or to any purchase
order shall be binding upon either party hereto, unless it is in writing
and executed on behalf of each party hereto by a duly authorized
representative and expressly specified as such.
3
<PAGE> 6
14. BINDING EFFECT
This First Amended and Restated Contract shall be binding upon and
inure to the benefit of the parties hereto, and to their successors
and permitted assigns.
IN WITNESS WHEREOF, this Contract is executed effective as of the day
and year first above written.
CALPINE: CONSULTANT:
CALPINE CORPORATION GEORGE J. STATHAKIS
By: /s/ Ann B. Curtis By: /s/ George J. Stathakis
----------------------- ------------------------
Title: Sr. Vice President Title: Owner
-------------------- ---------------------
Date: 6-20-96 Date: 6-20-96
-------------------- ---------------------
4
<PAGE> 1
Exhibit 10.11
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ____
day of ____________, 1996 between Calpine Corporation, a Delaware corporation
("the Company") and ____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws
(the "Bylaws") providing for the indemnification of the directors and executive
officers of the Company to the maximum extent authorized by Section 145 of the
Delaware General Corporation Law, as amended (the "DGCL"); and
WHEREAS, the Bylaws and the DGCL by their nonexclusive nature,
permit contracts between the Company and the directors and executive officers of
the Company with respect to indemnification of such directors; and
WHEREAS, in accordance with the authorization as provided by the
DGCL, the Company may purchase and maintain a policy or policies of director's
and officer's liability insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors\officers in the performance
of their obligations as directors\officers of the Company; and
WHEREAS, as a result of recent developments affecting the terms,
scope and availability of D & O Insurance there exists general uncertainty as to
the extent of protection afforded Company directors by such D & O Insurance and
said uncertainty also exists under statutory and bylaw indemnification
provisions; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as a director\officer of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service
as a [director\officer] after the date hereof, the parties hereto agree as
follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the DGCL, as such may be amended from time to time, and
Article 5 of the Bylaws, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 1(a)
<PAGE> 2
if, by reason of his Corporate Status (as hereinafter defined), he is, or is
threatened to be made, a party to or participant in any Proceeding (as
hereinafter defined) other than a Proceeding by or in the right of the Company.
Pursuant to this Section 1(a), Indemnitee shall be indemnified against all
Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 1(b),
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. ADDITIONAL INDEMNITY.
(a) Subject only to the exclusions set forth in Section 2(b)
hereof, the Company hereby further agrees to hold harmless and indemnify
Indemnitee against any and all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with any
Proceeding (including an action by or on behalf of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of his Corporate Status; provided, however, that with respect
to actions by or on behalf of the Company, indemnification of Indemnitee against
any judgments shall be made by the Company only
2.
<PAGE> 3
as authorized in the specific case upon a determination that Indemnitee acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company; and
(b) No indemnity pursuant to this Section 2 shall be paid by
the Company:
(i) In respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(ii) On account of any suit in which judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(iii) On account of Indemnitee's conduct which is
finally adjudged to have been knowingly fraudulent or deliberately dishonest, or
to constitute willful misconduct; or
(iv) If a final decision by a court having jurisdiction
in the matter shall determine that such indemnification is not lawful.
3. CONTRIBUTION. If the indemnification provided in Sections 1 and 2
is unavailable and may not be paid to Indemnitee for any reason other than those
set forth in paragraphs (i), (ii), (iii) and (iv) of Section 2(b), then in
respect to any Proceeding in which the Company is jointly liable with Indemnitee
(or would be if joined in such Proceeding), the Company shall contribute to the
amount of Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and by the Indemnitee on the other hand from the transaction from which
such Proceeding arose, and (ii) the relative fault of the Company on the one
hand and of the Indemnitee on the other hand in connection with the events which
resulted in such Expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 3 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
3.
<PAGE> 4
5. ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding by reason of Indemnitee's Corporate Status within 10 days after the
receipt by the Company of a statement or statements from Indemnitee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall include or be preceded or
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses. Any advances and undertakings
to repay pursuant to this Section 5 shall be unsecured and interest free.
Notwithstanding the foregoing, the obligation of the Company to advance Expenses
pursuant to this Section 5 shall be subject to the condition that, if, when and
to the extent that the Company determines that Indemnitee would not be permitted
to be indemnified under applicable law, the Company shall be entitled to be
reimbursed, within 30 days of such determination, by Indemnitee (who hereby
agrees to reimburse the Company) for all such amounts theretofore paid;
provided, however, that if Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee should be indemnified under applicable law, any determination
made by the Company that Indemnitee would not be permitted to be indemnified
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any advance of Expenses until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed).
6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined) in
a written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee (unless Indemnitee shall request that such determination be made
by the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided in Clause (ii) below), or (ii) if a Change
in Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
or (B) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, said Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee, or (C) if so
directed by said
4.
<PAGE> 5
Disinterested Directors, by the stockholders of the Company; and, if it is
determined that Indemnitee is entitled to indemnification, payment to Indemnitee
shall be made within 10 days after such determination. Indemnitee shall
cooperate with the person, persons or entity making such determination with
respect to Indemnitee's entitlement to indemnification, including providing to
such person, persons or entity upon reasonable advance request any documentation
or information which is not privileged or otherwise protected from disclosure
and which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any Independent Counsel, member of the Board of Directors, or
stockholder of the Company shall act reasonably and in good faith in making a
determination under the Agreement of the Indemnitee's entitlement to
indemnification. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 6(b) hereof, the
Independent Counsel shall be selected as provided in this Section 6(c). If a
Change in Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected.
If a Change in Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either event, Indemnitee
or the Company, as the case may be, may, within 10 days after such written
notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection; provided,
however, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of "Independent
Counsel" as defined in Section 14 of this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. Absent a proper
and timely objection, the person so selected shall act as Independent Counsel.
If a written objection is made and substantiated, the Independent Counsel
selected may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the
5.
<PAGE> 6
due commencement of any judicial proceeding or arbitration pursuant to Section
8(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent of
the Indemnitee to the settlement of any Proceeding which the Company has
undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability.
7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected
under Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 30 days after receipt
by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 30-day period may be extended for a
reasonable time, not to exceed an additional fifteen (15) days, if the person,
persons or entity making the determination with respect to entitlement to
indemnification in good faith requires such additional time for the obtaining or
evaluating documentation and/or information relating thereto; and provided,
further, that the foregoing provisions of this Section 7(b) shall not apply (i)
if the determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim, issue
or matter therein, by judgment, order, settlement (with or without court
approval), conviction, or upon a plea
6.
<PAGE> 7
of nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) For purposes of any determination of good faith,
Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is
based on the records or books of account of the Enterprise, including financial
statements, or on information supplied to Indemnitee by the officers of the
Enterprise in the course of their duties, or on the advice of legal counsel for
the Enterprise or on information or records given or reports made to the
Enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Enterprise. In addition, the
knowledge and/or actions, or failure to act, of any director, officer, agent or
employee of the Enterprise shall not be imputed to Indemnitee for purposes of
determining the right to indemnification under this Agreement. The provisions of
this Section 7(d) shall not be deemed to be exclusive or to limit in any way the
other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
8. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within 10 days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within 10 days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 or 7 of
this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of competent
jurisdiction, of his entitlement to such indemnification. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. Indemnitee shall commence such proceeding seeking an
adjudication or an award in arbitration within 180 days following the date on
which Indemnitee first has the right to commence such proceeding pursuant to
this Section 8(a). The Company shall not oppose Indemnitee's right to seek any
such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
7.
<PAGE> 8
(c) If a determination shall have been made pursuant to
Section 6(b) of this Agreement that Indemnitee is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 8, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 8,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 16 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated. The Company shall
indemnify Indemnitee against any and all expenses and, if requested by
Indemnitee, shall (within 10 days after receipt by the Company of a written
request therefor) advance such expenses to Indemnitee, which are incurred by
Indemnitee in connection with any action brought by Indemnitee to recover under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advancement of expenses or insurance recovery,
as the case may be.
(e) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
9. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification as provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may at any time be entitled under applicable law, the certificate of
incorporation of the Company, the Bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise. No amendment, alteration or repeal
of this Agreement or of any provision hereof shall limit or restrict any right
of Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal. To the extent that a change in the DGCL, whether by statute or judicial
decision, permits greater indemnification than would be afforded currently under
the Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy
8.
<PAGE> 9
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, or agents or fiduciaries of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
10. EXCEPTION TO RIGHT OF INDEMNIFICATION AND EXPENSE ADVANCEMENT.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of expenses under this Agreement with
respect to any Proceeding brought by Indemnitee, or any claim therein, unless
(a) the bringing of such Proceeding or making of such claim shall have been
approved by the Board of Directors or (b) such Proceeding is being brought by
the Indemnitee to assert his rights under this Agreement.
11. DURATION OF AGREEMENT. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director or officer of the Company (or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 8 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director or officer of the Company or any
other enterprise at the Company's request.
12. SECURITY. To the extent requested by the Indemnitee and approved
by the Board of Directors, the Company may at any time and from time to time
provide security to the
9.
<PAGE> 10
Indemnitee for the Company's obligations hereunder through an irrevocable bank
line of credit, funded trust or other collateral. Any such security, once
provided to the Indemnitee, may not be revoked or released without the prior
written consent of the Indemnitee.
13. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as a director or officer of the Company, and
the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as a director or officer of the Company.
(b) This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
Company occurring after the date of this Agreement of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the date of this Agreement (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Act, as amended) other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities (other than any such person or any affiliate thereof that is such a
20% beneficial owner as of the date hereof) without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) there occurs a
proxy contest, or the Company is a party to a merger, consolidation, sale of
assets, plan of liquidation or other reorganization, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or (iii) during any period of two consecutive years, other than as a
result of an event described in clause (a)(ii) of this Section 16, individuals
who at the beginning of such period constituted the Board of Directors
(including for this purpose any new director whose election or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a majority
of the Board of Directors. A Change in Control shall not be deemed to have
occurred under item (i) above if the "person" described under item (i)
10.
<PAGE> 11
is entitled to report its ownership on Schedule 13G promulgated under the Act
and such person is able to represent that it acquired such securities in the
ordinary course of its business and not with the purpose nor with the effect of
changing or influencing the control of the Company, nor in connection with or as
a participant in any transaction having such purpose or effect. If the "person"
referred to in the previous sentence would at any time not be entitled to
continue to report such ownership on Schedule 13G pursuant to Rule
13d-1(b)(3)(i)(B) of the Act, then a Change in Control shall be deemed to have
occurred at such time.
(b) "Corporate Status" describes the status of a person who is
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(c) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company or Indemnitee in any matter material to either such party (other
than with respect to matters concerning the Indemnitee under this Agreement, or
of other indemnitees under similar indemnification agreements), or (ii) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement. The Company agrees to pay the reasonable fees of the
Independent Counsel referred to above and to fully indemnify such counsel
against any and all Expenses, claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing
11.
<PAGE> 12
or any other actual, threatened or completed proceeding, whether brought by or
in the right of the Company or otherwise and whether civil, criminal,
administrative or investigative, in which Indemnitee was, is or will be involved
as a party or otherwise, by reason of the fact that Indemnitee is or was a
director or officer of the Company, by reason of any action taken by him or of
any inaction on his part while acting as a director or officer of the Company,
or by reason of the fact that he is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in each case whether or not he is
acting or serving in any such capacity at the time any liability or expense is
incurred for which indemnification can be provided under this Agreement;
including one pending on or before the date of this Agreement and excluding one
initiated by an Indemnitee pursuant to Section 8 of this Agreement to enforce
his rights under this Agreement.
15. SEVERABILITY. If any provision or provisions of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
16. MODIFICATION AND WAIVER. No supplement, modification,
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
12.
<PAGE> 13
(a) If to Indemnitee, to:
______________________________________
______________________________________
______________________________________
______________________________________
(b) If to the Company, to:
Calpine Corporation
50 San Fernando Street
San Jose, California 95113
Attention: President and Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
20. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
21. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware, without application of the conflict of laws principles
thereof.
13.
<PAGE> 14
22. GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
CALPINE CORPORATION
By:_________________________________________
INDEMNITEE
By:_________________________________________
_______________________, Indemnitee
14.
<PAGE> 1
Exhibit 21.1
CALPINE CORPORATION
LIST OF SUBSIDIARIES
Anderson Springs Energy Company
Bellingham Cogen, Inc.
Biogas Assets, Inc.
Biogas Development, Inc.
Calpine Power Services Company
Calpine Power Company
Calpine Project Investments, Inc.
Calpine Parlin Cogen, Inc.
Calpine Operating Plant Services, Inc.
Calpine Puma, Inc.
Calpine Philadelphia Cogen, Inc.
Calpine Agnews, Inc.
Calpine Thermal Power, Inc.
Calpine Vapor, Inc.
Calpine Sumas, Inc.
Calpine Sonoma, Inc.
Calpine Siskiyou Geothermal Partners, L.P.
Calpine Newark Cogen, Inc.
Calpine Securities Company, L.P.
Calpine Geysers Company, L.P.
Calpine Grays Ferry Cogen, Inc.
Calpine Fuels Corporation
Calpine Coso Development Company, Inc.
Calpine Monterey Cogeneraion, Inc.
Calpine Canadian Gas, Ltd.
Calpine Greenleaf Corporation
Calpine Artesia Cogen, Inc.
Calpine King City Cogen, Inc.
Calpine Hunters Point, L.P.
Calpine King City 2, Inc.
Calpine Jersey Cogen, Inc.
Calpine King City 1, Inc.
Calpine King City, LLC
Calpine Gilroy Cogen, L.P.
Calpine Gilroy 1, Inc.
Calpine Gilroy 2, Inc.
CGL Two Corporation
CGL One Corporation
Cloverdale Geothermal Partners, L.P.
1
<PAGE> 2
Geothermal Energy Partners, L.P.
Greenleaf Unit One Associates, Inc.
Greenleaf Unit One Associates, a California Limited Partnership
Greenleaf Unit Two Associates, Inc.
Healdsburg Energy Company, L.P.
Modoc Power, Inc.
Mount Hoffman Geothermal Company, L.P.
Northwest Cogeneration, Inc.
OES, Inc.
Portsmouth Leasing Corporation
Santa Rosa Energy Company
Sonoma Geothermal Partners, L.P.
Sutter Dryers, Inc.
Thermal Power Company
Whatcom Cogeneration Partners L.P.
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
San Jose, California
August 20, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 19, 1996, on our audits of the consolidated
financial statements of Sumas Cogeneration Company, L.P. and Subsidiary in the
Calpine Corporation Registration Statement (Form S-1) for the Registration of
Common Stock.
Moss Adams LLP
Everett, Washington
August 20, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
the following:
- our report dated February 3, 1995, except as to the information presented
in Note 7 for which the date is March 30, 1995, on our audits of the
combined financial statements of LFC No. 38 Corp. and Portsmouth Leasing
Corporation and Subsidiaries as of and for the years ended December 31,
1994 and 1993.
- our report dated February 3, 1995, except as to the information presented
in Note 6 for which the date is March 30, 1995, on our audits of the
consolidated financial statements of LFC No. 60 Corp. and Subsidiary as
of and for the years ended December 31, 1994 and 1993.
We also consent to the reference to our firm under the caption "EXPERTS".
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
August 20, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report, dated July 18, 1996, with respect to the financial
statements of Gilroy Energy Company, a wholly owned subsidiary of Gilroy Foods,
Inc., which in turn is a wholly owned subsidiary of McCormick & Company, Inc.,
as of and for the years ended November 30, 1995 and 1994 included in the
Registration Statement (Form S-1 No. 333-07497) and related Prospectus of
Calpine Corporation for the registration of 20,751,750 shares of its common
stock.
ERNST & YOUNG LLP
Baltimore, Maryland
August 21, 1996
