<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
REGISTRATION NO. 333-61047
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
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:
SCOTT D. LESTER, ESQ.
BROBECK, PHLEGER & HARRISON LLP
ONE MARKET
SPEAR STREET TOWER
SAN FRANCISCO, CA 94105
(415) 442-0900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on the Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
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
PROSPECTUS
OFFER TO EXCHANGE
all outstanding
7 7/8% SENIOR NOTES DUE 2008
($400,000,000 principal amount outstanding)
for
7 7/8% SENIOR NOTES DUE 2008
of
LOGO
CALPINE CORPORATION
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
SEPTEMBER 25, 1998, UNLESS EXTENDED.
------------------------
CALPINE CORPORATION, A DELAWARE CORPORATION ("CALPINE" OR THE "COMPANY"), HEREBY
OFFERS, UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL (THE "LETTER OF
TRANSMITTAL"), TO EXCHANGE ITS 7 7/8% SENIOR NOTES DUE 2008 (THE "NEW NOTES"),
IN AN OFFERING WHICH HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), PURSUANT TO A REGISTRATION STATEMENT OF WHICH
THIS PROSPECTUS CONSTITUTES A PART, FOR AN EQUAL PRINCIPAL AMOUNT OF ITS
OUTSTANDING 7 7/8% SENIOR NOTES DUE 2008 (THE "OLD NOTES"), OF WHICH AN
AGGREGATE OF $400,000,000 IN PRINCIPAL AMOUNT IS OUTSTANDING AS OF THE DATE
HEREOF (THE "EXCHANGE OFFER"). THE NEW NOTES AND THE OLD NOTES ARE SOMETIMES
REFERRED TO HEREIN COLLECTIVELY AS THE "SENIOR NOTES." THE FORM AND TERMS OF THE
NEW NOTES WILL BE THE SAME AS THE FORM AND TERMS OF THE OLD NOTES EXCEPT THAT
THE NEW NOTES WILL NOT BEAR LEGENDS RESTRICTING THE TRANSFER THEREOF. THE NEW
NOTES WILL BE OBLIGATIONS OF THE COMPANY ENTITLED TO THE BENEFITS OF THE
INDENTURE, DATED AS OF MARCH 31, 1998 (THE "INDENTURE"), RELATING TO THE SENIOR
NOTES. SEE "DESCRIPTION OF THE NEW NOTES." FOLLOWING THE COMPLETION OF THE
EXCHANGE OFFER, NONE OF THE SENIOR NOTES WILL BE ENTITLED TO ANY RIGHTS UNDER
THE REGISTRATION RIGHTS AGREEMENT DATED MARCH 26, 1998 OR THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF JULY 21, 1998 (COLLECTIVELY, THE "REGISTRATION
RIGHTS AGREEMENT"), INCLUDING, BUT NOT LIMITED TO, THE CONTINGENT INCREASE IN
THE INTEREST RATE PROVIDED FOR PURSUANT THERETO. SEE "THE EXCHANGE OFFER."
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE SENIOR NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 15.
------------------------
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 ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is August 20, 1998.
<PAGE> 3
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be September 25, 1998 unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. The Company has not entered into any arrangement or
understanding with any person to distribute the New Notes to be received in the
Exchange Offer.
The Old Notes initially sold to Qualified Institutional Buyers (as defined
in Rule 144A) in reliance on Rule 144A under the Securities Act ("Rule 144A")
were initially represented by two, permanent global Notes in definitive, fully
registered form, registered in the name of a nominee of The Depositary Trust
Company ("DTC"), which were deposited with The Bank of New York, the Trustee
under the Indenture (the "Trustee"), as custodian. The New Notes exchanged for
the Old Notes that are represented by the global Old Notes will continue to be
represented by permanent global Old Notes (collectively, the "Global Notes," and
individually, a "Global Note") in definitive, fully registered form, registered
in the name of a nominee of DTC and deposited with the Trustee as custodian,
unless the beneficial holders thereof request otherwise. See "Description of the
New Notes -- Book Entry; Delivery and Form." Old Notes may be tendered only in
denominations of $1,000 and any integral multiple thereof.
Interest on the New Notes will be payable semi-annually in arrears on April
1 and October 1 of each year (each an "Interest Payment Date"), commencing on
the first such date following their date of issuance. Interest on the New Notes
will accrue from the last Interest Payment Date on which interest was paid on
the Old Notes that are accepted for exchange or, if no interest has been paid,
from March 31, 1998. Accordingly, interest which has accrued since the last
Interest Payment Date or March 31, 1998 on the Old Notes accepted for exchange
will cease to be payable upon issuance of the New Notes. Untendered Old Notes
that are not exchanged for New Notes pursuant to the Exchange Offer will remain
outstanding and bear interest at a rate of 7 7/8% per annum after the Expiration
Date.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who acquires such New Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an affiliate of the Company (within the meaning of Rule
405 under the Securities Act)) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the New Notes in the ordinary course of such holder's business and
is not participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders of Old Notes wishing
to accept the Exchange Offer must represent to the Company that such conditions
have been met. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale for a period of 180 days from the date of this Prospectus, or such
shorter period as will terminate when all Old Notes acquired by broker-dealers
for their own accounts as a result of market-making activities or other trading
activities have been exchanged for New Notes and resold by such broker-dealers.
See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the Senior
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. To the extent that a market for the New Notes develops, the market
value of the New Notes will depend on market conditions (such as yields on
alternative investments) general economic conditions, the Company's financial
condition and other conditions. Such conditions might cause the New Notes, to
the extent that they
2
<PAGE> 4
are actively traded, to trade at a significant discount from the face value. See
"Risk Factors -- Absence of Public Market."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including, without limitation,
such statements under "Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" and located
elsewhere herein, regarding the Company or any of the transactions described
herein, including the timing, financing, strategies and effects of such
transactions, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectation will prove to have been correct.
Important factors that could cause actual results to differ materially from
expectations ("Cautionary Statements") are disclosed in this Prospectus,
including, without limitation, in conjunction with the forward-looking
statements in this Prospectus and/or under "Risk Factors." All subsequent
written or oral forward-looking statements attributable to the Company or
persons acting on behalf of the Company are expressly qualified in their
entirety by the Cautionary Statements.
------------------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
CALPINE CORPORATION, 50 WEST SAN FERNANDO STREET, SAN JOSE, CALIFORNIA 95113,
ATTENTION: INVESTOR RELATIONS (TELEPHONE NUMBER: 408-995-5115). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER
15, 1998.
3
<PAGE> 5
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THIS PROSPECTUS, NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 5
Risk Factors................................................ 15
Use of Proceeds............................................. 23
The Exchange Offer.......................................... 24
Selected Consolidated Financial Data........................ 33
Pro Forma Consolidated Financial Data....................... 35
Description of New Notes.................................... 41
Certain Federal Income Tax Considerations................... 67
Plan of Distribution........................................ 69
Legal Matters............................................... 70
Experts..................................................... 70
Available Information....................................... 70
Incorporation By Reference.................................. 70
</TABLE>
4
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated by reference herein.
References in this Prospectus to the "Company" or "Calpine" shall, as the
context requires, include Calpine Corporation and its consolidated subsidiaries.
THE COMPANY
Calpine is engaged in the acquisition, development, ownership and operation
of power generation facilities and the sale of electricity and steam principally
in the United States. The Company currently has interests in 26 power plants and
steam fields having an aggregate capacity of 3,097 megawatts. The Company
currently sells electricity and steam to 16 utility and other customers,
principally under long-term power and steam sales agreements, generated by power
generation facilities located in six states and Mexico. In addition, Calpine has
a 169 megawatt gas-fired power plant currently under construction in Dighton,
Massachusetts. 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 in recent years as Calpine has
applied its extensive engineering, construction management, operations, fuel
management and financing capabilities to successfully implement its acquisition
and development program. Calpine's strategy is to capitalize on opportunities in
the power market through an ongoing program to acquire, develop, own and operate
power generation facilities, as well as marketing power and energy services to
utilities and other end users.
Calpine's net interest in power generation facilities has increased from
297 megawatts in 1992 to 2,434 megawatts, including the power plant currently
under construction. The Company's total assets have increased from $55.4 million
as of December 31, 1992 to $1.7 billion on a pro forma basis as of June 30,
1998. Calpine's revenue on a pro forma basis has increased to $606.8 million for
1997, representing a five-year compound annual growth rate of 73% since 1992.
The Company's EBITDA (as defined herein) on a pro forma basis increased to
$280.8 million in 1997 from $9.9 million in 1992, representing a five-year
compound annual growth rate of 95%. See "Pro Forma Consolidated Financial Data."
THE MARKET
The power generation industry represents the third largest industry in the
United States, with an estimated end-user market of over $200 billion of
electricity sales and 3,300 gigawatt hours of production in 1997. 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 forty-five states. 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") commenced deregulation and implementation of customer choice
of electricity supplier on April 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, having
old, inefficient, high-cost generating facilities, 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. Numerous utilities have announced their
intentions to sell their power generation facilities. In addition, 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.
5
<PAGE> 7
The Company believes that this consolidation will continue in the highly
fragmented independent power industry.
STRATEGY
Calpine's objective is to become a leading power company by capitalizing on
these emerging opportunities in the power market. 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.
Acquisition of power plants. The Company has significantly expanded
and diversified its project portfolio through the acquisition of power
generation facilities. Since 1993, the Company has completed transactions
involving thirteen gas-fired cogeneration facilities and two steam fields.
As a result of these transactions, the Company has more than quadrupled its
aggregate power generation capacity and substantially diversified its fuel
mix during this period. The Company intends to continue to pursue an active
acquisition program.
Development of merchant power plants. 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 through a portfolio of short-, medium- and
long-term power sales agreements. As part of Calpine's initial effort to
develop merchant plants, the Company has developed a 240 megawatt gas-fired
cogeneration power plant in Pasadena, Texas, which commenced operations in
July 1998, and has a 169 megawatt gas-fired power generation facility
currently under construction in Dighton, Massachusetts. The Company
currently plans to develop additional low-cost, gas-fired facilities in
California, Texas, New England and other high-priced power markets.
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. As of June 30, 1998, the Company's power generation facilities have
operated at an average availability of approximately 98%. The Company believes
that achieving and maintaining a low-cost of production will be increasingly
important to compete effectively in the power generation market.
RECENT DEVELOPMENTS
Texas City/Clear Lake Acquisition of Remaining Interests
On March 31, 1998, the Company entered into a Stock Purchase and Redemption
Agreement (the "Dominion Agreement") with Dominion Cogen, Inc., a Virginia
corporation ("Dominion"), and Dominion Energy, Inc., a Virginia corporation
("DEI"). Under the terms of the Dominion Agreement, the Company acquired the
remaining 50 percent of the capital stock of Texas Cogeneration Company ("TCC").
TCC is the owner of the 450 megawatt Texas City and 377 megawatt Clear Lake
Power Plants located in Texas City and Pasadena, Texas, respectively. As
consideration for the purchase of the stock, the Company paid to Dominion $52.8
million in cash and has certain contingent purchase payments beginning in the
year 2000 that could approximate 2.9% of project revenue. As part of the
acquisition, the Company now also owns a 7.5% interest in the Bayonne Power
Plant, a 165 megawatt natural gas-fired cogeneration power plant located in
Bayonne, New Jersey. Calpine Fuels Texas Corporation, a wholly-owned subsidiary
of Calpine, now purchases natural gas for the Texas power plants from Enron
Capital & Trade Corp ("ECT"). In a related transaction, Calpine
6
<PAGE> 8
Fuels Texas paid approximately $105.3 million to ECT to restructure its existing
gas contracts. The Company funded the transactions with a portion of the net
proceeds of the March 31, 1998 offering of $300.0 million of 7 7/8% Senior Notes
Due 2008. On June 23, 1997, the Company had previously acquired a 50 percent
interest in TCC for a cash payment of $35.4 million. In addition, the Company
purchased from the existing lenders the $155.6 million of outstanding
non-recourse project financing of the two power plants, as previously reported
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997. The Company now owns a 100 percent interest in the Texas City and Clear
Lake Power Plants. The Company has operated the plants since June 1997. The
Texas City and Clear Lake Power Plants are natural gas-fired, combined-cycle
cogeneration facilities. The plants provide electricity to Texas Utilities
Electric Company, Texas New Mexico Power Company and Houston Lighting & Power
Company. As cogenerators, the plants also provide electricity and steam to Union
Carbide Corporation's chemical facility and to Celanese Chemical Group, Inc.'s
organic chemical plant.
Magic Valley Power Plant
On May 26, 1998, the Company announced it had signed a 20-year Power Sales
Agreement to provide electricity to the Magic Valley Electric Cooperative, Inc.
of Mercedes, Texas beginning in 2001. The power will be supplied by Calpine's
Magic Valley Generating Station, a 700 megawatt natural gas-fired power plant
under development in Edinburg, Texas. Magic Valley, a 51,000 member non-profit
electric cooperative, initially will purchase from 250 to 400 megawatts of
capacity, with an option to purchase additional capacity. The electric
cooperative will be the "anchor tenant" for Calpine's new Magic Valley plant.
Calpine is marketing additional capacity to other wholesale customers, initially
targeting south Texas. Permitting for the Magic Valley plant is underway, with
construction expected to begin in late 1999. In conjunction with the Magic
Valley plant, Calpine entered into an agreement with the City of Edinburg to
purchase water from the City's waste-water treatment plant for use at the power
plant. Calpine has also entered into agreements with Houston, Texas-based CCNG,
Inc., an oil and gas exploration, development and marketing company, to provide
fuel management services for the Magic Valley plant. In addition, both companies
will jointly pursue a variety of other natural gas opportunities in the Texas
market. As part of this new fuels venture, Calpine has granted CCNG Investments,
L.P. ("CCNG"), an option to purchase 1.1 million shares of Calpine Common Stock.
Corporate Line of Credit
On May 15, 1998, the Company entered into a $100 million, three-year
revolving line of credit with a consortium of banks to replace its prior $50
million line of credit. The new line of credit will be used for working capital
and other general corporate purposes, including acquisition bridge financing.
Pasadena 1 Power Plant
On July 7, 1998, Calpine announced the successful completion and commercial
operation of its 240 megawatt Pasadena 1 Power Plant located in Pasadena, Texas.
The $131 million merchant power plant sells power under contract and into the
open market. Calpine has entered into an Energy Sales Agreement with Phillips
Petroleum Houston Chemical Complex to provide 90 megawatts of electricity and
200,000 lbs/hr of steam beginning in September 1998. West Texas Utilities is
purchasing 50 megawatts of capacity through the end of 1998. Texas Utilities
Electric Company is also under contract to purchase up to 150 megawatts of
electricity under a two-year agreement beginning December 1, 1999. The remaining
available electricity output is sold into the competitive market through
Calpine's power sales activities.
Sonoma Power Plant
On July 17, 1998, Calpine completed the purchase of a 72 megawatt
geothermal power plant located in Sonoma County, California from the Sacramento
Municipal Utility District ("SMUD") for $13 million. The Company is the owner
and operator of the geothermal steam fields that provide steam to this facility,
formerly referred to as the SMUDGEO #1 Power Plant. Under the agreement, Calpine
paid SMUD $10.6 million at closing, and agreed to pay an additional $2.4 million
over the next two years. In connection with the
7
<PAGE> 9
acquisition, SMUD agreed to purchase 50 megawatts of electricity from the plant
at current market prices plus a renewable power premium through 2001. In
addition, SMUD has the option to purchase 10 megawatts of peak power production
through 2005. Calpine will market the excess electricity into the California
power market.
Pittsburg Power Plant
On July 21, 1998, the Company completed the acquisition of a 70 megawatt
natural gas-fired power plant from The Dow Chemical Company for approximately
$12.7 million. The power plant is located at Dow's Pittsburg, California
chemical facility. Calpine will sell up to 18 megawatts of electricity to Dow
under a ten-year power sales agreement, with the balance sold to Pacific Gas &
Electric Company under an existing power sales agreement. In addition, Calpine
sells approximately 200,000 lbs/hr of steam to Dow and to USS-POSCO Industries'
nearby steel mill.
Bechtel Joint Venture
On July 28, 1998, the Company announced a joint venture with Bechtel
Enterprises located in San Francisco, California to develop, own and operate
approximately 2,000 megawatts of new natural gas-fired power plants in Northern
California. These plants will be constructed by Bechtel and operated by Calpine
and will primarily serve the San Francisco Bay Area.
Sonat Energy Services Joint Venture
On July 30, 1998, the Company announced a joint venture with Sonat Energy
Services Company located in Birmingham, Alabama to develop a 680 megawatt
natural gas-fired peaking power plant near Columbus, Georgia (the "Cataula Power
Plant"). The Cataula Power Plant is scheduled to begin commercial operation in
June 2000 and will provide energy to the Georgia and Southeast power markets
during peak power demand periods. The Cataula Power Plant will connect to the
Georgia Integrated Transmission System, providing direct access to Georgia Power
Company, the Municipal Electric Authority of Georgia, Oglethorpe Power
Corporation and the City of Dalton, Georgia. The joint venture will sell
approximately 215 megawatts of electricity to Georgia Power Company under a five
year contract. The remaining plant's output capacity will be sold to other
wholesale customers.
BACKGROUND
The Company was incorporated under the laws of the State of California in
1984 and reincorporated in Delaware in 1996. 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 all of the information set
forth in this Memorandum and, in particular, should evaluate the specific risk
factors set forth under "Risk Factors" for risks involved with an investment in
the Notes.
8
<PAGE> 10
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering to exchange $1,000 in
principal amount (and any integral multiple
thereof) of New Notes for each $1,000 in principal
amount (and any integral multiple thereof) of Old
Notes that are validly tendered pursuant to the
Exchange Offer. The Company will issue the New
Notes promptly after the Expiration Date. As of the
date of this Prospectus, $400,000,000 in aggregate
principal amount of Old Notes are outstanding. The
Company has not entered into any arrangement or
understanding with any person to distribute the New
Notes to be received in the Exchange Offer.
Resale..................... The Company believes that the New Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by the holders thereof without
registration or any prospectus delivery requirement
under the Securities Act, except that a "dealer" or
any of the Company's "affiliates," as such terms
are defined under the Securities Act, that
exchanges Old Notes held for its own account may be
required to deliver copies of this Prospectus in
connection with any resale of the New Notes issued
in exchange for such Old Notes. See "The Exchange
Offer -- General" and "Plan of Distribution."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on September 25, 1998, unless
extended, in which case the term Expiration Date
means the latest date and time to which the
Exchange Offer is extended. The Company will accept
for exchange any and all Old Notes that are validly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date.
Accrued Interest on the New
Notes and the Old
Notes.................... Each New Note will bear interest from the last
Interest Payment Date on which interest was paid on
the Old Notes, or, if interest has not yet been
paid on the Old Notes, from March 31, 1998, the
date of issuance. Such interest will be paid with
the first interest payment on the New Notes.
Accordingly, interest, which has accrued since the
last Interest Payment Date or March 31, 1998, on
the Old Notes accepted for exchange will cease to
be payable upon issuance of the New Notes.
Untendered Old Notes that are not exchanged for New
Notes pursuant to the Exchange Offer will bear
interest at a rate of 7 7/8% per annum after the
Expiration Date.
Termination................ The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
any legal or governmental action, any new law,
statute, rule or regulation or any interpretation
by the staff of the Commission of any existing law,
statute, rule or regulation. Holders of Old Notes
will have certain rights against the Company under
the Registration Rights Agreement should the
Company fail to consummate the Exchange Offer. See
"The Exchange Offer -- Termination." No federal or
state regulatory requirements must be complied with
or approvals obtained in connection with the
Exchange Offer, other than applicable requirements
under federal and state securities laws.
Procedures for Tendering
Old Notes.................. Each beneficial owner owning interests in Old Notes
("Beneficial Owner") through a DTC Participant (as
defined) must instruct such
9
<PAGE> 11
DTC Participant to cause Old Notes to be tendered
in accordance with the procedures set forth in this
Prospectus and in the applicable Letter of
Transmittal. See "The Exchange Offer -- Procedures
for Tendering -- Old Notes held through DTC."
Each participant (a "DTC Participant") in the
Depository Trust Company ("DTC") holding Old Notes
through DTC must (i) electronically transmit its
acceptance to DTC through the DTC Automated Tender
Offer Program ("ATOP"), for which the transaction
will be eligible, and DTC will then verify the
acceptance, execute a book-entry delivery to the
Exchange Agent's (as defined herein) account at DTC
and send an Agent's Message (as defined herein) to
the Exchange Agent for its acceptance, or (ii)
comply with the guaranteed delivery procedures set
forth in this Prospectus and in the Letter of
Transmittal. By tendering though ATOP, DTC
Participants will expressly acknowledge receipt of
the accompanying Letter of Transmittal and agree to
be bound by its terms and the Company will be able
to enforce such agreement against such DTC
Participants. See "The Exchange Offer -- Procedures
for Tendering -- Old Notes held through DTC" and
"-- Guaranteed Delivery Procedures -- Old Notes
held through DTC."
Each holder of Old Notes must (i) complete and sign
a Letter of Transmittal, and mail or deliver such
Letter of Transmittal, and all other documents
required by the Letter of Transmittal, together
with certificate(s) representing all tendered Old
Notes, to the Exchange Agent at its address set
forth in this Prospectus and in the Letter of
Transmittal, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus.
See "The Exchange Offer -- Procedures for
Tendering," "-- Exchange Agent" and "-- Guaranteed
Delivery Procedures -- Old Notes held by Holders."
By tendering, each holder of Old Notes will
represent to the Company that, among other things,
(i) it is not an affiliate of the Company, (ii) it
is not a broker-dealer tendering Old Notes acquired
directly from the Company for its own account,
(iii) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of such holder and (iv) it has
no arrangements or understandings with any person
to participate in the Exchange Offer for the
purpose of distributing the New Notes. See "The
Exchange Offer -- General."
Guaranteed Delivery
Procedures............... DTC Participants holding Old Notes through DTC who
wish to cause their Old Notes to be tendered, but
who cannot transmit their acceptances through ATOP
prior to the Expiration Date, may effect a tender
in accordance with the procedures set forth in this
Prospectus and in the Letter of Transmittal. See
"The Exchange Offer -- Guaranteed Delivery
Procedures." Holders who wish to tender their Old
Notes but (i) whose Old Notes are not immediately
available and will not be available for tendering
prior to the Expiration Date, or (ii) who cannot
deliver their Old Notes, the Letter of Transmittal
or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a
tender in accordance with the procedures set forth
in this Prospectus. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
10
<PAGE> 12
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date, in accordance with the procedures
set forth in "The Exchange Offer -- Withdrawal of
Tenders."
Acceptance of Old Notes and
Delivery of New Notes.... Subject to certain conditions (as summarized above
in "Termination" and described more fully in "The
Exchange Offer -- Termination"), the Company will
accept for exchange any and all Old Notes that are
validly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- General."
Certain Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal income
tax purposes. For a discussion of certain federal
income tax considerations relating to the exchange
of the Old Notes for the New Notes, see "Certain
Federal Income Tax Considerations."
Exchange Agent............. The Trustee is also the Exchange Agent. The mailing
address of the Exchange Agent is: The Bank of New
York, 101 Barclay Street, Floor 7E, New York, New
York 10286, Attention: Reorganization Section. The
address for deliveries by hand and by overnight
courier is: The Bank of New York, 101 Barclay
Street, Corporate Trust Services Window, Grand
Level, New York, New York 10286. For information
with respect to the Exchange Offer, the telephone
number for the Exchange Agent is (212) 815-2742 and
the facsimile number for the Exchange Agent is
(212) 815-6339.
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the New Notes pursuant
to the Exchange Offer. Of the net proceeds received
by the Company from the sale of $300 million of the
Old Notes in March 1998, approximately $293.5
million was used to repay outstanding indebtedness,
to acquire interests in and develop power
generation facilities, and the remainder was used
for general corporate purposes. Of the net proceeds
received from the sale of $100 million of the Old
Notes in July 1998, the Company used approximately
$52.1 million to repay in full the outstanding
non-recourse project financing from ING Capital
Corp. on the Pasadena 1 Power Plant and expects to
use approximately $13.6 million to pay the
remaining construction costs on the Pasadena 1
Power Plant. The remainder of the net proceeds will
be used for the acquisition and development of
power generation facilities and for general
corporate purposes. See "Use of Proceeds."
11
<PAGE> 13
SUMMARY OF THE TERMS OF THE NEW NOTES
The Exchange Offer applies to an aggregate principal amount of $400,000,000
of the Old Notes. The form and terms of the New Notes will be the same as the
form and terms of the Old Notes except that the New Notes will not bear legends
restricting the transfer thereof. The New Notes will be obligations of the
Company entitled to the benefits of the Indenture. See "Description of the New
Notes."
<TABLE>
<S> <C>
Securities Offered........................ $400,000,000 aggregate principal amount of 7 7/8%
Senior Notes Due 2008.
Maturity Date............................. April 1, 2008.
Interest Payment Dates.................... April 1 and October 1 of each year, commencing October
1, 1998.
Redemption................................ The New Notes are not subject to redemption prior to
maturity.
Ranking................................... The New Notes will be senior unsecured obligations of
the Company and will rank pari passu in right of
payment with all other existing and future Senior
Indebtedness (as defined herein) of the Company and
senior in right of payment to all Subordinated
Indebtedness (as defined herein) of the Company. The
New Notes will be effectively subordinated to all
liabilities of the Company's subsidiaries, including
trade payables. As of June 30, 1998, after giving
effect to the sale of the Old Notes and the
application of the net proceeds therefrom, the amount
of secured indebtedness, to which the New Notes would
be effectively subordinated, would have been
approximately $195.1 million and the Company would
have had $954.7 million of outstanding indebtedness
ranking pari passu with the New Notes. See "Risk
Factors -- Substantial Leverage," "Risk Fac-
tors -- Risks Related to Holding Company Structure"
and "Description of New Notes -- Ranking."
Change of Control......................... Upon a Change of Control Triggering event (as defined
herein), the Company will be required to make an offer
to purchase the New Notes then outstanding at a
purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. See "Description of New
Notes -- Covenants -- Change of Control."
Certain Covenants......................... The Indenture (as defined herein) under which the New
Notes will be issued will contain certain covenants
that, among other things, limit (i) the incurrence of
additional debt by the Company and its subsidiaries,
(ii) the payment of dividends on and redemptions of
capital stock by the Company and its subsidiaries,
(iii) the use of proceeds from the sale of assets and
subsidiary stock, (iv) transactions with affiliates,
(v) the creation of liens and (vi) sale leaseback
transactions. The Indenture will also restrict the
Company's ability to consolidate or merge with or
into, or to transfer all or substantially all of its
assets to, another person. However, these limitations
are subject to a number of important qualifications
and exceptions. See "Description of New
Notes -- Covenants."
</TABLE>
12
<PAGE> 14
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
INFORMATION
The following table sets forth summary consolidated historical and pro
forma financial and operating information of the Company for the periods
indicated. The Company's summary consolidated historical financial information
were derived from the Company's Consolidated Financial Statements. The summary
pro forma consolidated financial and operating information was derived from the
Pro Forma Consolidated Financial Data of the Company and give effect to certain
transactions as described under "Pro Forma Consolidated Financial Information,"
as if such transactions had occurred at the beginning of the period. The
information presented below should be read in conjunction with "Selected
Consolidated Historical Financial and Operating Information," "Pro Forma
Consolidated Financial Data" and the Company's Consolidated Financial
Statements, included elsewhere and incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- -----------------------
PRO
ACTUAL FORMA(1)
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenue...... $ 69,915 $ 94,762 $ 132,098 $ 214,554 $ 276,321 $ 606,836
Cost of revenue.... 42,501 52,845 77,388 129,200 153,308 414,224
Gross profit....... 27,414 41,917 54,710 85,354 123,013 192,612
Project development
expenses......... 1,280 1,784 3,087 3,867 7,537 7,537
General and
administrative
expenses......... 5,080 7,323 8,937 14,696 18,289 18,298
Income from
operations....... 21,054 31,772 42,686 66,791 97,187 166,777
Interest expense... 13,825 23,886 32,154 45,294 61,466 96,422
Other income,
net.............. (1,133) (1,988) (1,895) (6,259) (17,438) (19,135)
Extraordinary
charge........... -- -- -- -- -- --
Net income......... $ 3,754 $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 57,834
OTHER FINANCIAL DATA
AND RATIOS:
Depreciation and
amortization..... $ 12,540 $ 21,580 $ 26,896 $ 40,551 $ 48,935 $ 81,199
EBITDA(2).......... $ 42,370 $ 53,707 $ 69,515 $ 117,379 $ 172,616 $ 280,806
EBITDA to
Consolidated
Interest
Expense(3)....... 2.98x 2.23x 2.11x 2.41x 2.60x 2.77x
Total debt to
EBITDA........... 6.24x 6.23x 5.87x 5.12x 4.96x 4.10x
Ratio of earnings
to fixed
charges(4)....... 2.09x 1.52x 1.46x 1.45x 1.64x 1.83x
SELECTED OPERATING
INFORMATION:
Power plants:
Electricity
revenue(5):
Energy......... $ 37,088 $ 45,912 $ 54,886 $ 93,851 $ 110,879 $ 315,721
Capacity....... $ 7,834 $ 7,967 $ 30,485 $ 65,064 $ 84,296 $ 207,722
Megawatt hours
produced....... 378,035 447,177 1,033,566 1,985,404 2,158,008 8,413,811
Average energy
price per
kilowatt
hour(6)........ 9.811c 10.267c 5.310c 4.727c 5.138c 3.752c
Steam fields:
Steam revenue:
Calpine........ $ 31,066 $ 32,631 $ 39,669 $ 40,549 $ 42,102 $ 42,102
Other
interest..... $ 2,143 $ 2,051 -- -- -- --
Megawatt hours
produced....... 2,014,758 2,156,492 2,415,059 2,528,874 2,641,422 2,641,422
Average price per
kilowatt
hour........... 1.648c 1.608c 1.643c 1.603c 1.594c 1.594c
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------------------
1997 1998
---------- -----------------------
PRO
ACTUAL FORMA(1)
---------- ----------
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenue...... $ 106,975 $ 196,742 $ 264,965
Cost of revenue.... 67,795 136,125 191,503
Gross profit....... 39,180 60,617 73,462
Project development
expenses......... 3,947 3,119 3,119
General and
administrative
expenses......... 8,584 11,043 11,016
Income from
operations....... 26,649 46,455 59,327
Interest expense... 26,145 40,790 48,601
Other income,
net.............. (7,893) (6,599) (6,745)
Extraordinary
charge........... -- 302 302
Net income......... $ 5,360 $ 8,569 $ 12,019
OTHER FINANCIAL DATA
AND RATIOS:
Depreciation and
amortization..... $ 23,548 $ 32,104 $ 39,995
EBITDA(2).......... $ 62,697 $ 93,374 $ 116,118
EBITDA to
Consolidated
Interest
Expense(3)....... 2.19x 2.16x 2.28x
Total debt to
EBITDA........... -- -- --
Ratio of earnings
to fixed
charges(4)....... 1.30x 1.17x 1.27x
SELECTED OPERATING
INFORMATION:
Power plants:
Electricity
revenue(5):
Energy......... $ 44,270 $ 93,735 $ 135,488
Capacity....... $ 31,943 $ 67,103 $ 99,513
Megawatt hours
produced....... 820,666 2,217,659 3,623,384
Average energy
price per
kilowatt
hour(6)........ 5.394c 4.227c 3.739c
Steam fields:
Steam revenue:
Calpine........ $ 20,113 $ 17,960 $ 17,960
Other
interest..... -- -- --
Megawatt hours
produced....... 1,279,071 981,114 981,114
Average price per
kilowatt
hour........... 1.572c 1.831c 1.831c
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1998
-------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA(1)
-------- -------- -------- ---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 6,166 $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 100,359 $ 149,769
Total assets......................... 302,256 421,372 554,531 1,031,397 1,380,956 1,700,251 1,749,751
Short-term non-recourse debt......... 17,200 27,300 85,885 37,492 112,966 9,670 9,670
Long-term line of credit............. 52,595 -- 19,851 -- -- -- --
Long-term non-recourse debt.......... 194,746 196,806 190,642 278,640 182,893 237,456 185,382
Notes payable........................ -- 5,296 6,348 -- -- -- --
Senior Notes......................... -- 105,000 105,000 285,000 560,041 855,618 954,698
Total debt........................... 264,541 334,402 407,726 601,132 855,900 1,102,744 1,149,750
Stockholders' equity................. 13,429 18,649 25,227 203,127 239,956 249,120 249,120
</TABLE>
- ---------------
(1) For a description of the transactions reflected in the pro forma information
set forth in the table, see "Pro Forma Consolidated Financial Data."
(2) 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. See "Description of the New Notes -- Certain Definitions."
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).
(3) For purposes of calculating the EBITDA to Consolidated Interest Expense
ratio, Consolidated Interest Expense is defined as total interest expense
plus one-third of all operating lease obligations, dividends paid in respect
of preferred stock and cash contributions to any employee stock ownership
plan used to pay interest on loans incurred to purchase capital stock of the
Company. See "Description of the New Notes -- Certain Definitions." The pro
forma EBITDA to Consolidated Interest Expense ratio presented gives effect
to the sale of the Old Notes and the application of the net proceeds
therefrom as if such transaction had occurred on January 1, 1997.
(4) Earnings are defined as income before provision for taxes, extraordinary
item and cumulative effect of changes in accounting principle plus cash
received from investments in power projects and fixed charges reduced by the
equity in income from investments in power projects and capitalized
interest. Fixed charges consist of interest expense, capitalized interest,
amortization of debt issuance costs and the portion of rental expenses
representative of the interest expense component.
(5) Electricity revenue is comprised of fixed capacity payments, which are not
related to production, and variable energy payments, which are related to
production.
(6) Represents energy revenue divided by the megawatt hours produced.
14
<PAGE> 16
RISK FACTORS
Prospective purchasers of the New Notes should carefully consider the
factors set forth below, as well as the other information contained in this
Prospectus, in evaluating an investment in the New Notes.
SUBSTANTIAL LEVERAGE
The Company is substantially 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, 1998, the Company's total
consolidated indebtedness was $1.1 billion, its total consolidated assets were
$1.7 billion and its stockholders' equity was $249.1 million. At such date, on a
pro forma basis after giving effect to the Bethpage and Texas City/Clear Lake
Transactions (as defined herein) and the sale of $400 million of Old Notes, the
Company's total consolidated indebtedness would have been approximately $1.1
billion and its total consolidated assets would have been approximately $1.7
billion. 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 March 31, 1998, as supplemented by the Supplement
Indenture dated July 24, 1998 (together, the "Indenture"), relating to the
Senior Notes, and the Indentures relating to the Company's 8 3/4% Senior Notes
Due 2007 (the "8 3/4% Senior Notes"), 10 1/2% Senior Notes Due 2006 (the
"10 1/2% Senior Notes") and 9 1/4% Senior Notes Due 2004 (the "9 1/4% Senior
Notes") (collectively, the "Indentures") contain certain restrictive covenants.
Such restrictions affect, and in many respects 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
a Change of Control Triggering Event (as such term is defined in the
Indentures), to make an offer to purchase the Senior Notes, the 8 3/4% Senior
Notes, the 10 1/2% Senior Notes and the 9 1/4% Senior Notes. There can be no
assurance that the Company will have the financial resources necessary to
purchase the Senior Notes, the 8 3/4% Senior Notes, the 10 1/2% Senior Notes and
the 9 1/4% Senior Notes upon a Change of Control Triggering Event. Such
provisions contained in the Indentures may not be waived by the Board of
Directors of the Company. See "Description of New Notes."
On May 15, 1998, the Company entered into a $100.0 million three-year
revolving credit facility with a consortium of banks to replace its prior $50.0
million line of credit (the "Revolving Credit Facility"). The Revolving Credit
Facility contains certain restrictions that 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 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 Senior Notes, the 8 3/4% Senior
Notes, 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 Indentures and other 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 Indentures and other 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 Indentures and other 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
15
<PAGE> 17
obligations, which could cause defaults under other obligations of the Company.
See "-- Risks Related to Holding Company Structure," "-- Possible Unavailability
of Financing."
RISKS RELATED TO HOLDING COMPANY STRUCTURE
The Senior Notes will be exclusively the obligations of Calpine and not of
any of its subsidiaries or other affiliates. Because the operations of the
Company are conducted primarily by its subsidiaries and other affiliates, the
Company's cash flow and its ability to service its indebtedness, including its
ability to pay the interest on and principal of the Senior Notes, are almost
entirely dependent upon the earnings of its subsidiaries and other affiliates
and the distribution of those earnings to the Company. The non-recourse project
financing agreements of certain of the Company's subsidiaries and other
affiliates generally restrict their ability to pay dividends, make distributions
or otherwise transfer funds to the Company. The restrictions in such agreements
generally require that, prior to the payment of dividends, distributions or
other transfers, the subsidiary or other affiliate proposing to make the
distribution must provide for the payment of other obligations, including
operating expenses, debt service and reserves. Calpine's subsidiaries and other
affiliates are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due on the Senior Notes or to make
any funds available therefor, whether by dividends, loans or other payments, and
do not guarantee the payment of interest on or principal of the Senior Notes.
Any right of Calpine to receive any assets of any of its subsidiaries or other
affiliates upon any liquidation or reorganization of Calpine (and the consequent
right of the holders of the Senior Notes to participate in the distribution of,
or to realize proceeds from, those assets) will be effectively subordinated to
the claims of any such subsidiaries' or other affiliates' creditors (including
trade creditors and holders of debt issued by such subsidiaries or affiliates).
After giving pro forma effect to the sale of $400 million Old Notes and the
Bethpage and Texas City/Clear Lake Transactions, as of June 30, 1998,
approximately $195.1 million of indebtedness of certain of the Company's
subsidiaries would be effectively senior to the Senior Notes, all of which
represents non-recourse project financing secured by the assets of such
subsidiaries.
While the Indentures impose limitations on the ability of the Company and
its subsidiaries to incur additional indebtedness, the Indentures do not limit
the amount of non-recourse project financing that the Company's subsidiaries may
incur to finance new power generation facilities. See "Description of the New
Notes -- Covenants -- Limitation on Incurrence of Indebtedness."
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 and the Company, the continued
success of the Company's current power generation 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.
The Company's power generation facilities have been financed using a
variety of leveraged financing structures, primarily consisting of non-recourse
project financing and lease obligations. As of June 30, 1998, the Company had
approximately $1.1 billion of total consolidated indebtedness, of which
approximately 22% represented non-recourse project financing. After giving pro
forma effect to the sale of $400 million Old Notes and the Bethpage and Texas
City/Clear Lake Transactions, as of June 30, 1998, the Company would have had
approximately $1.1 billion of total consolidated indebtedness, of which
approximately 17% would represent non-recourse project financing. See "Pro Forma
Consolidated Financial Data." Each non-recourse project financing 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 debt collateralized
by the
16
<PAGE> 18
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
generation facilities on terms satisfactory to the Company. See "-- Power
Project Development and Acquisition Risks."
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 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.
IMPACT OF AVOIDED COST PRICING; ENERGY PRICE FLUCTUATIONS
PG&E pays a fixed price of $13.83 for each unit of electrical energy
according to schedules set forth in the long-term power sales agreements for the
Bear Canyon (20 megawatts) and West Ford Flat (27 megawatts) Power Plants. The
fixed price periods under these power sales agreements expire in September and
December 1998, respectively. 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 interim short-run
avoided cost ("SRAC"), which is calculated pursuant to the methodology approved
by the CPUC on December 9, 1996, and will continue at SRAC until the independent
power exchange, which commenced operations on April 1, 1998, is fully
implemented. Thereafter, SRAC will be replaced by the energy clearing price of
the independent power exchange. During 1997, SRAC averaged approximately 2.94c
per kilowatt hour and during the six months ended June 30, 1998, SRAC averaged
approximately 2.88c per kilowatt hour. As a result, while SRAC does not affect
capacity payments under the power sales agreements, the Company's energy revenue
under these power sales agreements is expected to be materially reduced at the
expiration of the fixed price period. Such reduction may have a material adverse
effect on the Company's results of operations. The Company expects the
forecasted decline in energy revenues will be mitigated by decreased royalty
expenses and planned operating cost reductions at the facilities. In addition,
the Company will continue its strategy of offsetting such reductions through its
acquisition and development program. In addition, 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.
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 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
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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.
There can be no assurance that the Company will be successful in the development
of power generation facilities in the future.
The Company has grown substantially in recent years as a result of
acquisitions of interests in power generation facilities and steam fields. 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 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 have typically been 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 18 of the 26 power plants and steam fields
in which it has an interest. The continued operation of power plants 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. As of
June 30, 1998, the Company's power plants have operated at an average
availability of approximately 98%. Although from time to time the Company's
power generation facilities 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
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from performing under applicable power and/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."
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.
DEPENDENCE ON THIRD PARTIES
The nature of the Company's power generation facilities is such that, in
general, each facility currently 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 facility. During 1997,
approximately 80% and 5% of the Company's total revenue was attributable to
revenue received pursuant to power and steam sales agreements with PG&E and
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. PG&E has recently announced its
intention to sell all of its power generating facilities in The Geysers that
purchase steam from Thermal Power Company and the PG&E Unit 13 and PG&E Unit 16
Steam Fields. The Company cannot predict the impact that any such sale would
have.
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.
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INTERNATIONAL INVESTMENTS
The Company has made an investment in the Cerro Prieto geothermal steam
fields located in Mexico and may pursue additional international investments, in
selected countries. 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.
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.
The Company's operations are subject to the provisions of various energy
laws and regulations, including the Public Utility Regulatory Policies Act of
1978, as amended ("PURPA"), the Public Utility Holding Company Act of 1955, as
amended ("PUCHA"), and state and local regulations. PUHCA provides for the
extensive regulation of public utility holding companies and their subsidiaries.
PURPA provides to qualifying facilities ("QFs") (as defined under PURPA) 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 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,
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there can be no assurance that the costs incurred in connection with the project
could be recovered through sales to other purchasers.
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. The CPUC issued decisions
providing for direct access for all customers effective April 1, 1998, and the
unbundling of all electric services. As part of its policy decision, the CPUC
indicated that power sales agreements of existing QFs would be honored. The
Company cannot predict the impact, if any, that such restructuring will 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 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 results of operations.
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 power sales agreements, and this competition has contributed
to a reduction in electricity prices. In addition, many states are implementing
or considering regulatory initiatives designed to increase competition in the
domestic power industry. In California, direct access for all customers began on
April 1, 1998. Regulatory initiatives are also being considered in other states,
including Texas, New York and states in New England. 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.
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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.
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, if any, 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.
ABSENCE OF PUBLIC MARKET
There has previously been no public market for the Senior Notes. The
Company does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active trading market will develop or be sustained in the
New Notes. To the extent that a market for the New Notes does develop, the
market value of the New Notes will depend on market conditions (such as yields
on alternative investments), general economic conditions, the Company's
financial condition and other conditions. Such conditions might cause the New
Notes, to the extent they are actively traded, to trade at a significant
discount from face value.
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain subject to the existing restrictions on transfer of
such Old Notes. Additionally, holders of any Old Notes not tendered in the
Exchange Offer will not have any rights under the Registration Rights Agreement
to cause the Company to register the Old Notes, and the interest rate on the Old
Notes will remain at its initial rate of 7 7/8% per annum.
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the terms of which are identical to the New Notes. The Old
Notes surrendered in exchange for the New Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
any increase in the indebtedness of the Company.
The net proceeds received by the Company from the sale of $300 million of
the Old Notes in March 1998 (after deducting the discounts and expenses in
connection with such sale) were used as follows: (i) $89.6 million to repay in
full the non-recourse project financing from a syndicate of banks with The Bank
of Nova Scotia, as agent, to Calpine Finance Company, a wholly owned subsidiary
of the Company; (ii) approximately $37.4 million to repay in full the
non-recourse project financing from Toronto Dominion Bank to TBG Cogen Partners,
a wholly owned subsidiary of the Company that owns the Bethpage Power Plant; and
(iii) the remainder for acquisitions and general corporate purposes. Of the net
proceeds received from the sale of $100 million of the Old Notes in July 1998,
the Company used approximately $52.1 million to repay in full the outstanding
non-recourse project financing from ING Capital Corp. on the Pasadena 1 Power
Plant and expects to use approximately $13.6 million to pay the remaining
construction costs on the Pasadena 1 Power Plant. The remainder of the net
proceeds will be used for the acquisition and development of power generation
facilities and for general corporate purposes.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information."
GENERAL
In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement, which requires the Company to file with the
Commission a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act with respect to an issue of senior notes of
the Company with terms identical to the Old Notes (except with respect to
restrictions on transfer) and to use its best efforts to cause such registration
statement to become effective under the Securities Act and, upon the
effectiveness of such registration statement, to offer to the holders of the Old
Notes the opportunity, for a period of 30 days from the date the notice of the
Exchange Offer is mailed to holders of the Old Notes, to exchange their Old
Notes for a like principal amount of New Notes. The Exchange Offer is being made
pursuant to the Registration Rights Agreement to satisfy the Company's
obligations thereunder. The Company has not entered into any arrangement or
understanding with any person to distribute the New Notes to be received in the
Exchange Offer.
For each Old Note properly tendered and accepted pursuant to the Exchange
Offer, the holder of such Old Note will receive a New Note having a principal
amount equal to that of the Old Note tendered. Interest on each New Note will
accrue from the last respective interest date on which interest was paid on the
Old Note tendered in exchange therefor or, if no interest has been paid on such
Old Note, from the Issue Date.
Each holder of the Old Notes who wishes to exchange the Old Note for New
Notes in the Exchange Offer will be required to represent in the Letter of
Transmittal that (i) it is not an affiliate of the Company, (ii) the New Notes
to be received by it were acquired in the ordinary course of business and (iii)
at the time of commencement of the Exchange Offer, it has no arrangement with
any person to participate in the distribution (within the meaning of the
Securities Act) of the New Notes.
In the event that applicable interpretations of the staff of the Commission
would not permit the Company to effect the Exchange Offer or, if for any other
reason the Exchange Offer is not consummated on or prior to September 27, 1998,
the Company has agreed to use its best efforts to cause to become effective a
shelf registration statement (the "Shelf Registration Statement") with respect
to the resale of the Old Notes and to keep the Shelf Registration Statement
effective until the earlier of two years after the date of the initial sale of
the Old Notes or until all the Old Notes covered by the Shelf Registration
Statement have been sold pursuant to such Shelf Registration Statement.
TERMS OF THE EXCHANGE OFFER
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to make certain representations, including
that (i) it is neither an affiliate of the Company nor a broker-dealer tendering
Old Notes acquired directly from the Company for its own account, (ii) any New
Notes to be received by it were acquired in the ordinary course of its business
and (iii) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes. In addition, in connection with
any resales of New Notes, any broker-dealer (a "Participating Broker-Dealer")
who acquired Old Notes for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the New
Notes. The Commission has taken the position that Participating Broker-Dealers
may fulfill their prospectus delivery requirements with respect to the New Notes
(other than a resale of an unsold allotment from the original sales of Old
Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow Participating Broker-Dealers (and other persons, if any, subject to
similar prospectus delivery requirements) to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the
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resale of such New Notes, provided, however, the Company shall not be required
to amend or supplement such prospectus for a period exceeding 180 days after the
consummation of the Exchange Offer. The Company has also agreed that in the
event that either the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective on or prior to September 27, 1998, the
interest rate borne by the Old Notes will be increased by one-half of one
percent per annum until the Exchange Offer is consummated or a Shelf
Registration Statement is declared effective.
The Exchange Offer shall be deemed to have been consummated upon the
Company's having exchanged, pursuant to the Exchange Offer, New Notes for all
Old Notes that have been properly tendered and not withdrawn by the Expiration
Date. In such event, holders of Old Notes not participating in the Exchange
Offer who are seeking liquidity in their investment would have to rely on
exemptions to registration requirements under the securities laws, including the
Securities Act.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. The Company will issue $1,000 in principal amount of New Notes (and any
integral multiple thereof) in exchange for an equal principal amount of
outstanding Old Notes tendered and accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer in any
denomination of $1,000 or in integral multiples thereof.
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Any holder of Old Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes cannot rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except that the New Notes will not bear legends restricting the
transfer thereof. The New Notes will evidence the same debt as the Old Notes.
The New Notes will be issued under and entitled to the benefits of the Note
Indenture.
As of the date of this Prospectus, $400,000,000 aggregate principal amount
of the Old Notes are outstanding and there are two registered holders thereof.
In connection with the issuance of the Old Notes, the Company arranged for the
Old Notes to be eligible for trading in the Private Offering, Resale and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screen based, automated market trading of securities
eligible for resale under Rule 144A and to be issued and transferable in
book-entry form through the facilities of DTC. The New Notes will also be
issuable and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of August 25, 1998 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "Exchange Agent." The Exchange Agent will act as agent for
the tendering holders of Old Notes for the purpose of receiving New Notes from
the Company and delivering New Notes to such holders.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"Fees and Expenses."
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Note Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights Agreement and the
applicable requirements of the Exchange Act and the rules and regulations of the
Commission thereunder. Old Notes that are not tendered for exchange in the
Exchange Offer will remain outstanding and continue to accrue interest, but will
not be entitled to any rights or benefits under the Registration Rights
Agreement.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
September 25, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "Termination" shall have occurred and shall not have been waived by
the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from the last Interest Payment Date on
which interest was paid on the Old Notes, or if interest has not yet been paid
on the Old Notes, from March 31, 1998. Such interest will be paid with the first
interest payment on the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes.
The New Notes will bear interest at a rate of 7 7/8% per annum. Interest on
the New Notes will be payable semi-annually, in arrears, on each Interest
Payment Date following the consummation of the Exchange Offer. Untendered Old
Notes that are not exchanged for New Notes pursuant to the Exchange Offer will
bear interest at a rate of 7 7/8% per annum after the Expiration Date.
26
<PAGE> 28
PROCEDURES FOR TENDERING
The tender of Old Notes pursuant to any of the procedures set forth in this
Prospectus and in the Letter of Transmittal will constitute a binding agreement
between the tendering holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal. The
tender of Old Notes will constitute an agreement to deliver good and marketable
title to all tendered Old Notes prior to the Expiration Date free and clear of
all liens, charges, claims, encumbrances, interests and restrictions of any
kind. Holders must follow the procedures set forth in this Prospectus in order
to properly and effectively tender Old Notes.
EXCEPT AS PROVIDED IN "-- GUARANTEED DELIVERY PROCEDURES," UNLESS THE OLD
NOTES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH THE EXCHANGE AGENT PRIOR
TO THE EXPIRATION DATE (ACCOMPANIED BY A PROPERLY COMPLETED AND DULY EXECUTED
LETTER OF TRANSMITTAL), THE COMPANY MAY, AT ITS OPTION, REJECT SUCH TENDER.
ISSUANCE OF EXCHANGE NOTES WILL BE MADE ONLY AGAINST DEPOSIT OF TENDERED OLD
NOTES AND DELIVERY OF ALL OTHER REQUIRED DOCUMENTS. NOTWITHSTANDING THE
FOREGOING, DTC PARTICIPANTS TENDERING THROUGH ATOP WILL BE DEEMED TO HAVE MADE
VALID DELIVERY WHERE THE EXCHANGE AGENT RECEIVES AN AGENT'S MESSAGE (DEFINED
BELOW) PRIOR TO THE EXPIRATION DATE.
Old Notes Held Through DTC
Each Beneficial Owner holding Old Notes through a DTC Participant must
instruct such DTC Participant to cause its Old Notes to be tendered in
accordance with the procedures set forth in this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants, each DTC
Participant holding Old Notes through DTC must (i) electronically transmit its
acceptance through ATOP, and DTC will then verify the acceptance, execute a
book-entry delivery to the Exchange Agent's account at DTC and send an Agent's
Message to the Exchange Agent for its acceptance, or (ii) comply with the
guaranteed delivery procedures set forth below and in the Note of Guaranteed
Delivery. See "-- Guaranteed Delivery Procedures."
The Exchange Agent will (promptly after the date of this Prospectus)
establish accounts at DTC for purposes of the Exchange Offer with respect to Old
Notes held through DTC, and any financial institution that is a DTC Participant
may make book-entry delivery of interests in Old Notes in the Exchange Agent's
account through ATOP. However, although delivery of interests in the Old Notes
may be effected through book-entry transfer into the Exchange Agent's account
through ATOP, an Agent's Message in connection with such book-entry transfer,
and any other required documents, must be transmitted to and received by the
Exchange Agent at its address set forth under "-- Exchange Agent," or the
guaranteed delivery procedures set forth below must be complied with, in each
case, prior to the Expiration Date. Delivery of documents to DTC does not
constitute delivery to the Exchange Agent. The confirmation of a book-entry
transfer into the Exchange Agent's account at DTC as described above is referred
to herein as a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each DTC Participant tendering through ATOP that such DTC Participants have
received a Letter of Transmittal and agree to be bound by the terms of the
Letter of Transmittal and that the Company may enforce such agreement against
such DTC Participants.
Cede & Co., as the holder of the global certificates representing the Old
Notes (a "Global Security"), will tender a portion of each Global Security equal
to the aggregate principal amount due at the stated maturity or number of shares
for which instructions to tender are given by DTC Participants.
27
<PAGE> 29
Old Notes Held by Holders
Each holder must (i) complete and sign and mail or deliver the accompanying
Letter of Transmittal, and any other documents required by the Letter of
Transmittal, together with certificate(s) representing all tendered Old Notes,
to the Exchange Agent at its address set under "-- Exchange Agent," or (ii)
comply with the guaranteed delivery procedures set forth below and in the Notice
of Guaranteed Delivery. See "-- Guaranteed Delivery Procedures."
All signatures on a Letter of Transmittal must be guaranteed by any member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor" institution
within the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution"); provided, however, that signatures on a Letter of Transmittal
need not be guaranteed if such Old Notes are tendered for the account of an
Eligible Institution including (as such terms are defined in Rule 17Ad-15): (i)
a bank; (ii) a broker, dealer, municipal securities dealer, municipal securities
broker, government securities dealer or government securities broker; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings institution that is a
participant in a Securities Transfer Association recognized program.
If a Letter of Transmittal or any Old Note is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
Holders should indicate in the applicable box in the Letter of Transmittal
the name and address to which substitute certificates evidencing Old Notes for
amounts not tendered are to be issued or sent, if different from the name and
address of the person signing the Letter of Transmittal. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. If no instructions are given, such Old
Notes not tendered, as the case may be, will be returned to the person signing
the Letter of Transmittal.
By tendering, each holder and each DTC Participant will make to the Company
the representations set forth in the third paragraph under the heading
"-- General."
No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a Letter of Transmittal or transmitting
an acceptance through ATOP, as the case may be, each tendering holder waives any
right to receive any notice of the acceptance for purchase of its Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be resolved by the Company,
whose determination will be final and binding. The Company reserves the absolute
right to reject any or all tenders that are not in proper form or the acceptance
of which may, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the absolute right to waive any condition to the Exchange
Offer and any irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders must be
cured within such time as the Company shall determine. The Company and the
Exchange Agent shall not be under any duty to give notification of defects in
such tenders and shall not incur liabilities for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the irregularities
have not been cured or waived will be returned by the Exchange Agent to the
tendering holder, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
LETTERS OF TRANSMITTAL AND OLD NOTES MUST BE SENT ONLY TO THE EXCHANGE
AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OLD NOTES TO THE COMPANY OR DTC.
28
<PAGE> 30
The method of delivery of Old Notes and Letters of Transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or Letters of
Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, it is suggested that the holder use
properly insured, registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Old Notes Held Through DTC
DTC Participants holding Old Notes through DTC who wish to cause their Old
Notes to be tendered, but who cannot transmit their acceptances through ATOP
prior to the Expiration Date, may cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by mail, hand delivery,
facsimile transmission or overnight courier) substantially in the form
provided by the Company herewith; and
(c) Book-Entry Confirmation and an Agent's Message in connection
therewith (as described above) are received by the Exchange Agent within
three New York Stock Exchange ("NYSE") trading days after the date of the
execution of the Notice of Guaranteed Delivery.
Old Notes Held by Holders
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent, or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three NYSE trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation or book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon three NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
29
<PAGE> 31
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
Old Notes Held Through DTC
DTC Participants holding Old Notes who have transmitted their acceptances
through ATOP may, prior to 5:00 p.m., New York City time, on the Expiration
Date, withdraw the instruction given thereby by delivering to the Exchange
Agent, at its address set forth under "-- Exchange Agent," a written,
telegraphic or facsimile notice of withdrawal of such instruction. Such notice
of withdrawal must contain the name and number of the DTC Participant, the
principal amount due at the Stated Maturity date of the Old Notes to which such
withdrawal related and the signature of the DTC Participant. Withdrawal of such
an instruction will be effective upon receipt of such written notice of
withdrawal by the Exchange Agent.
Old Notes Held by Holders
Holders may withdraw a tender of Old Notes in the Exchange Offer, by a
telegram, telex, letter or facsimile transmission notice of withdrawal received
by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount due at the Stated Maturity of such
Old Notes, or in the case of Old Notes transferred by book-entry transfer, the
name and number of the account at the Book-Entry Transfer Facility to be
credited), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for exchange will
be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at anytime prior
to the Expiration Date.
All signatures on a notice of withdrawal must be guaranteed by an Eligible
Institution; provided, however, that signatures on the notice of withdrawal need
not be guaranteed if the Old Notes being withdrawn are held for the account of
an Eligible Institution.
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC Participant or a holder, as the case may be, in the same manner as the
person's name appears on its transmission through ATOP or Letter of Transmittal,
as the case may be, to which such withdrawal relates. If a notice of withdrawal
is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when signing
and must submit with the revocation appropriate evidence of authority to execute
the notice of withdrawal. A DTC Participant or a holder may withdraw an
instruction or a tender, as the case may be, only if such withdrawal complies
with the provisions of this Prospectus.
A withdrawal of a tender of Old Notes by a DTC Participant or a holder, as
the case may be, may be rescinded only by a new transmission of an acceptance
through ATOP or execution and delivery of a new Letter of Transmittal, as the
case may be, in accordance with the procedures described herein.
30
<PAGE> 32
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer or (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission in a manner, which, in the Company's judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Denise Robertson Grand Level
New York, New York 10286
Attention: Denise Robertson
Telephone Number: (212) 815-2791
Facsimile Transmission: (212) 815-6339
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or by telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable customary fees for its services and will reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for exchange.
31
<PAGE> 33
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes not tendered or accepted for exchange are to
be delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered, or if tendered Old
Notes are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company upon the consummation of the Exchange Offer. The
expenses of the Exchange Offer will be amortized by the Company over the term of
the New Notes under generally accepted accounting principles.
32
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data set forth below for the five years ended
and as of December 31, 1997 have been derived from the audited consolidated
financial statements of the Company. The consolidated financial data for the six
months ended and as of June 30, 1997 and June 30, 1998 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, 1998 should not be
considered 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
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales.................. $53,000 $90,295 $127,799 $199,464 $237,277 $ 96,326 $178,798
Service contract revenue..................... 16,896 7,221 7,153 6,455 10,177 3,529 8,529
Income (loss) from unconsolidated investments
in power projects.......................... 19 (2,754) (2,854) 6,537 15,819 4,164 6,853
Interest income on loans to power projects... -- -- -- 2,098 13,048 2,956 2,562
------- ------- -------- -------- -------- -------- --------
Total revenue.......................... 69,915 94,762 132,098 214,554 276,321 106,975 196,742
Cost of revenue................................ 42,501 52,845 77,388 129,200 153,308 67,795 136,125
------- ------- -------- -------- -------- -------- --------
Gross profit................................... 27,414 41,917 54,710 85,354 123,013 39,180 60,617
Project development expenses................... 1,280 1,784 3,087 3,867 7,537 3,947 3,119
General and administrative expenses............ 5,080 7,323 8,937 14,696 18,289 8,584 11,043
Provision for write-off of project development
costs(1)..................................... -- 1,038 -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Income from operations......................... 21,054 31,772 42,686 66,791 97,187 26,649 46,455
Interest expense............................... 13,825 23,886 32,154 45,294 61,466 26,145 40,790
Other income, net.............................. (1,133) (1,988) (1,895) (6,259) (17,438) (7,893) (6,599)
------- ------- -------- -------- -------- -------- --------
Income before provision for income taxes,
cumulative effect of change in accounting
principle and extraordinary charge......... 8,362 9,874 12,427 27,756 53,159 8,397 12,264
Provision for income taxes..................... 4,195 3,853 5,049 9,064 18,460 3,037 3,393
------- ------- -------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle and extraordinary
charge..................................... 4,167 6,021 7,378 18,692 34,699 5,360 8,871
Cumulative effect of adoption of SFAS No.
109.......................................... (413) -- -- -- -- -- --
Extraordinary charge for retirement of debt,
net of tax benefit of $207................... -- -- -- -- -- -- 302
------- ------- -------- -------- -------- -------- --------
Net income................................... $ 3,754 $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 5,360 $ 8,569
======= ======= ======== ======== ======== ======== ========
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization.................. $12,540 $21,580 $ 26,896 $ 40,551 $ 48,935 $ 23,548 $ 32,104
EBITDA(2)...................................... $42,370 $53,707 $ 69,515 $117,379 $172,615 $ 62,697 $ 93,374
EBITDA to Consolidated Interest Expense(3)..... 2.98x 2.23x 2.11x 2.41x 2.60x 2.19x 2.16x
Total debt to EBITDA........................... 6.24x 6.23x 5.87x 5.12x 4.96x -- --
Ratio of earnings to fixed charges(4).......... 2.09x 1.52x 1.46x 1.45x 1.64x 1.30x 1.17x
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------ AS OF
1993 1994 1995 1996 1997 JUNE 30, 1998
-------- -------- -------- ---------- ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 6,166 $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 100,359
Property, plant and equipment, net............... 251,070 335,453 447,751 648,208 719,721 1,136,518
Investments in power projects.................... 13,894 11,114 8,218 13,936 239,160 140,470
Notes receivable................................. 1,716 16,882 25,785 36,143 117,357 12,024
Total assets..................................... 302,256 421,372 554,531 1,031,397 1,380,956 1,700,251
Short-term debt.................................. 17,200 27,300 85,885 37,492 112,966 9,670
Long-term line of credit......................... 52,595 -- 19,851 -- -- --
Non-recourse debt................................ 194,746 196,806 190,642 278,640 182,893 237,456
Notes payable.................................... -- 5,296 6,348 -- -- --
Senior Notes..................................... -- 105,000 105,000 285,000 560,041 855,618
Total debt....................................... 264,541 334,402 407,726 601,132 855,900 1,102,744
Stockholders' equity............................. 13,429 18,649 25,227 203,127 239,956 249,120
</TABLE>
- ---------------
(1) Represents a write-off of certain capitalized project costs.
(2) 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. See "Description of the New Notes -- Certain Definitions."
EBITDA is presented here 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).
(3) For purposes of calculating the EBITDA to Consolidated Interest Expense
ratio, Consolidated Interest Expense is defined as total interest expense
plus one-third of all operating lease obligations, dividends paid in respect
of preferred stock and cash contributions to any employee stock ownership
plan used to pay interest on loans incurred to purchase capital stock of the
Company. See "Description of the New Notes -- Certain Definitions."
(4) Earnings are defined as income before provision for taxes, extraordinary
item and cumulative effect of change in accounting principle plus cash
received from investments in power projects and fixed charges reduced by the
equity in income from investments in power projects and capitalized
interest. Fixed charges consist of interest expense, capitalized interest,
amortization of debt issuance costs and the portion of rental expenses
representative of the interest expense component.
34
<PAGE> 36
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1997, gives effect to the following transactions as
if such transactions had occurred on January 1, 1997: (i) the acquisition of the
Montis Niger Gas Fields on January 30, 1997 (the "Montis Niger Transaction");
(ii) the acquisition by the Company of a 50% interest in the Texas City Power
Plant and the Clear Lake Power Plant on June 23, 1997 (the "Texas City/Clear
Lake Transaction"); (iii) the acquisition by the Company of 50% interests in the
Gordonsville Power Plant and the Auburndale Power Plant on October 9, 1997 (the
"Gordonsville/Auburndale Transaction"); (iv) the sale of the $200,000,000 of
8 3/4% Senior Notes Due 2007 on July 8, 1997, and the application of the net
proceeds therefrom; (v) the sale of $75,000,000 of 8 3/4% Senior Notes Due 2007
on September 10, 1997, and the application of the net proceeds therefrom; (vi)
the acquisition by the Company of an 11.36% interest in the Lockport Power
Plant, 50% interests in the Kennedy International Airport and Stony Brook Power
Plants, a 45% interest in the Bethpage Power Plant and a 100% interest in three
fuel management contracts on December 19, 1997 (the "GEI Transaction"); (vii)
subsequent to the GEI Transaction, the acquisition of the remaining 55% interest
in the Bethpage Power Plant on February 5, 1998 (the "Bethpage Transaction");
(viii) the acquisition by the Company of the remaining 50% interest in the Texas
City Power Plant and the Clear Lake Power Plant on March 31, 1998 (the
"remaining interest in the Texas City/Clear Lake Transaction") (the Montis Niger
Transaction, the Texas City/Clear Lake Transaction, the Gordonsville/Auburndale
Transaction, the sale of the $200,000,000 of 8 3/4% Senior Notes Due 2007, the
sale of $75,000,000 of 8 3/4% Senior Notes Due 2007, the GEI Transaction, the
Bethpage Transaction and the remaining interest in the Texas City/Clear Lake
Transaction being collectively referred to as the "Transactions"); (ix) the sale
of $300,000,000 of Old Notes on March 31, 1998, and the application of the net
proceeds therefrom; and (x) the sale of $100,000,000 of Old Notes on July 24,
1998 and the application of the net proceeds therefrom.
The following unaudited pro forma consolidated statement of operations for
the six months ended June 30, 1998 gives effect to the following transactions as
if such transactions had occurred on January 1, 1998: (i) the Bethpage
Transaction; (ii) the remaining interest in the Texas City/Clear Lake
Transaction; (iii) the sale of $300,000,000 of Old Notes on March 31, 1998 and
the application of the net proceeds therefrom; and (iv) the sale of $100,000,000
of Old Notes on July 24, 1998 and the application of the net proceeds therefrom.
The following unaudited pro forma consolidated balance sheet as of June 30,
1998 gives effect to the sale of the Old Notes on July 24, 1998 and the
application of the net proceeds therefrom as if such transactions had occurred
on June 30, 1998.
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.
35
<PAGE> 37
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
ADJUSTMENTS FOR
THE SALE OF
ADJUSTMENTS FOR $300 MILLION
ACTUAL THE TRANSACTIONS(1) OF OLD NOTES
------ ------------------- ---------------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales...... $237,277 $328,268 $ --
Service contract revenue from
related parties................ 10,177 6,468 --
Income from unconsolidated
investments in power
projects....................... 15,819 1,914 --
Interest income on loans to power
projects....................... 13,048 (6,135) --
-------- -------- --------
Total revenue.............. 276,321 330,515 --
-------- -------- --------
Cost of revenue:
Plant operating expenses......... 72,366 230,868 --
Depreciation..................... 47,501 32,263 --
Production royalties............. 10,803 -- --
Operating lease expenses......... 14,031 -- --
Service contract expenses........ 8,607 (2,215) --
-------- -------- --------
Total cost of revenue...... 153,308 260,916 --
-------- -------- --------
Gross profit....................... 123,013 69,599 --
Project development expenses....... 7,537 -- --
General and administrative
expenses......................... 18,289 9 --
-------- -------- --------
Income from operations........... 97,187 69,590 --
Interest expense................... 61,466 11,038 15,942(2)
Other income, net.................. (17,438) (1,697) --
-------- -------- --------
Income before provision for
income taxes................... 53,159 60,249 (15,942)
Provision for income taxes......... 18,460 22,942 (6,496)
-------- -------- --------
Net income..................... $ 34,699 $ 37,307 $ (9,446)
======== ======== ========
Basic earnings per common share:
Weighted average shares of common
stock outstanding.............. 19,946
Basic earnings per common
share.......................... $ 1.74
Diluted earnings per common share:
Weighted average shares of common
stock outstanding.............. 21,016
Diluted earnings per common
share.......................... $ 1.65
OTHER OPERATING DATA AND FINANCIAL
RATIOS:
Depreciation and amortization...... $ 48,935
EBITDA............................. $172,615
EBITDA to Consolidated Interest
Expense.......................... 2.60x
Total debt to EBITDA............... 4.96x
Ratio of earnings to fixed
charges.......................... 1.64x
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------
PRO FORMA FOR PRO FORMA FOR THE
THE TRANSACTIONS ADJUSTMENTS FOR TRANSACTIONS AND
AND THE SALE OF THE SALE OF THE SALE OF $400
$300 MILLION $100 MILLION MILLION
OF OLD NOTES OF OLD NOTES OF OLD NOTES
---------------- --------------- -----------------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales...... $565,545 $ -- $565,545
Service contract revenue from
related parties................ 16,645 -- 16,645
Income from unconsolidated
investments in power
projects....................... 17,733 -- 17,733
Interest income on loans to power
projects....................... 6,913 -- 6,913
-------- ------- --------
Total revenue.............. 606,836 -- 606,836
-------- ------- --------
Cost of revenue:
Plant operating expenses......... 303,234 -- 303,234
Depreciation..................... 79,764 -- 79,764
Production royalties............. 10,803 -- 10,803
Operating lease expenses......... 14,031 -- 14,031
Service contract expenses........ 6,392 -- 6,392
-------- ------- --------
Total cost of revenue...... 414,224 -- 414,224
-------- ------- --------
Gross profit....................... 192,612 -- 192,612
Project development expenses....... 7,537 -- 7,537
General and administrative
expenses......................... 18,298 -- 18,298
-------- ------- --------
Income from operations........... 166,777 -- 166,777
Interest expense................... 88,446 7,976(3) 96,422
Other income, net.................. (19,135) -- (19,135)
-------- ------- --------
Income before provision for
income taxes................... 97,466 (7,976) 89,490
Provision for income taxes......... 34,906 (3,250) 31,656
-------- ------- --------
Net income..................... $ 62,560 $(4,726) $ 57,834
======== ======= ========
Basic earnings per common share:
Weighted average shares of common
stock outstanding.............. 19,946 19,946
Basic earnings per common
share.......................... $ 3.14 $ 2.90
Diluted earnings per common share:
Weighted average shares of common
stock outstanding.............. 21,016 21,016
Diluted earnings per common
share.......................... $ 2.98 $ 2.75
OTHER OPERATING DATA AND FINANCIAL
RATIOS:
Depreciation and amortization...... $ 81,199 $ 81,199
EBITDA............................. $280,806 $280,806
EBITDA to Consolidated Interest
Expense.......................... 3.00x 2.77x
Total debt to EBITDA............... 3.75x 4.10x
Ratio of earnings to fixed
charges.......................... 1.98x 1.83x
</TABLE>
See Notes to Pro Forma Consolidated Statement of Operations.
36
<PAGE> 38
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------------------------------------------------------------------
PRO FORMA FOR PRO FORMA FOR
THE BETHPAGE THE BETHPAGE
AND TEXAS CITY/ AND TEXAS CITY/
ADJUSTMENTS FOR CLEAR LAKE CLEAR LAKE
THE BETHPAGE ADJUSTMENTS FOR TRANSACTIONS ADJUSTMENTS FOR TRANSACTIONS
AND TEXAS CITY/ THE SALE OF AND THE SALE OF THE SALE OF AND THE SALE OF
CLEAR LAKE $300 MILLION $300 MILLION $100 MILLION $400 MILLION
ACTUAL TRANSACTIONS(4) OF OLD NOTES OF OLD NOTES OF OLD NOTES OF OLD NOTES
-------- --------------- --------------- --------------- --------------- ---------------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam
sales.................... $178,798 $74,163 $ -- $252,961 $ -- $252,961
Service contract revenue
from related parties..... 8,529 (1,613) -- 6,916 -- 6,916
Income (loss) from
unconsolidated
investments in power
projects................. 6,853 (1,765) -- 5,088 -- 5,088
Interest income on loans to
power projects........... 2,562 (2,562) -- -- -- --
-------- ------- ------- -------- -------- --------
Total revenue........ 196,742 68,223 -- 264,965 -- 264,965
-------- ------- ------- -------- -------- --------
Cost of revenue:
Plant operating expenses... 86,673 48,764 -- 135,437 -- 135,437
Depreciation............... 30,811 7,891 -- 38,702 -- 38,702
Production royalties....... 5,237 -- -- 5,237 -- 5,237
Operating lease expenses... 6,616 (1,277) -- 5,339 -- 5,339
Service contract
expenses................. 6,788 -- -- 6,788 -- 6,788
-------- ------- ------- -------- -------- --------
Total cost of
revenue............ 136,125 55,378 -- 191,503 -- 191,503
-------- ------- ------- -------- -------- --------
Gross profit................. 60,617 12,845 -- 73,462 -- 73,462
Project development
expenses................... 3,119 -- -- 3,119 -- 3,119
General and administrative
expenses................... 11,043 (27) -- 11,016 -- 11,016
-------- ------- ------- -------- -------- --------
Income from operations..... 46,455 12,872 -- 59,327 -- 59,327
Interest expense............. 40,790 304 3,518(5) 44,612 3,989(6) 48,601
Other income, net............ (6,599) (146) -- (6,745) -- (6,745)
-------- ------- ------- -------- -------- --------
Income before provision for
income taxes............. 12,264 12,714 (3,518) 21,460 (3,989) 17,471
Provision for income taxes... 3,393 4,817 (1,434) 6,776 (1,626) 5,150
-------- ------- ------- -------- -------- --------
Income before extraordinary
charge..................... 8,871 7,897 (2,084) 14,684 (2,363) 12,321
Extraordinary charge for
retirement of debt, net of
tax benefit of $207........ 302 -- -- 302 -- 302
-------- ------- ------- -------- -------- --------
Net income............... $ 8,569 $ 7,897 $(2,084) $ 14,382 $ (2,363) $ 12,019
======== ======= ======= ======== ======== ========
Basic earnings per common
share:
Weighted average shares of
common stock outstanding... 20,056 20,056 20,056
Income before extraordinary
charge................... $ 0.44 $ 0.73 $ 0.61
Extraordinary charge....... $ (0.01) $ (0.01) $ (0.01)
Net income................. $ 0.43 $ 0.72 $ 0.60
Diluted earnings per common
share:
Weighted average shares of
common stock outstanding... 21,050 21,050 21,050
Income before extraordinary
charge................... $ 0.42 $ 0.69 $ 0.58
Extraordinary charge....... $ (0.01) $ (0.01) $ (0.01)
Net income................. $ 0.41 $ 0.68 $ 0.57
OTHER OPERATING DATA AND
FINANCIAL RATIOS:
Depreciation and
amortization............. $ 32,104 $ 39,995 $ 39,995
EBITDA..................... $ 93,374 $116,118 $116,118
EBITDA to Consolidated
Interest Expense......... 2.16x 2.47x 2.28x
Ratio of earnings to fixed
charges.................. 1.17x 1.36x 1.27x
</TABLE>
See Notes to Pro Forma Consolidated Statement of Operations.
37
<PAGE> 39
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Represents the pro forma results of operations for the facilities involved
in the Transactions for the periods during which the facilities were not
owned by the Company during 1997, and for the 8 3/4% Senior Notes Due 2007,
as if the Transactions had been completed on January 1, 1997, including (i)
the Montis Niger Gas Fields through January 30, 1997; (ii) the 100% interest
in the Texas City and Clear Lake Power Plants through December 31, 1997;
(iii) the Gordonsville and Auburndale Power Plants through October 9, 1997;
(iv) the sale of the $200,000,000 of 8 3/4% Senior Notes Due 2007 through
July 9, 1997; (v) the sale of the $75,000,000 of 8 3/4% Senior Notes Due
2007 through September 10, 1997; (vi) the GEI Transaction through December
19, 1997; and (vii) the Bethpage Transaction through December 31, 1997.
(2) Reflects $23.6 million of interest expense related to the sale of the
$300,000,000 of Old Notes Due 2008, $650,000 of amortization expense for the
transaction costs and original issue discount, reduced by $3.0 million of
interest expense as a result of the expected repayment, with a portion of
the net proceeds of the sale of $300,000,000 of Old Notes, of the $37.4
million non-recourse project financing related to the Bethpage Power Plant
and $5.4 million of interest expense as a result of the expected repayment,
with a portion of the net proceeds of the sale of $300,000,000 of Old Notes,
of the $103.4 million of non-recourse project financing related to the Texas
City and Clear Lake Power Plants.
(3) Reflects $7.9 million of interest expense related to the sale of
$100,000,000 of Old Notes in July 1998 and $101,000 of amortization expense
for the transaction costs, original issue discount and the gain on interest
rate contracts.
(4) Represents the pro forma results of operations for the Bethpage Transaction
for the period of January 1, 1998 through February 5, 1998 and for the 100%
interest in the Texas City and Clear Lake Power Plants for the period of
January 1, 1998 through March 31, 1998.
(5) Reflects $5.9 million of interest expense related to the sale of the
$300,000,000 of Old Notes, $162,000 of amortization expense for the
transaction costs and original issue discount, reduced by $304,000 of
interest expense as a result of the repayment of the $37.4 million of
non-recourse project financing related to the Bethpage Power Plant and $2.2
million of interest expense as a result of the repayment of the $103.4
million of non-recourse project financing related to the Texas City and
Clear Lake Power Plants.
(6) Reflects $3.9 million of interest expense related to the sale of
$100,000,000 of Old Notes and $51,000 of amortization expense for the
transaction costs, original issue discount and the gain on interest rate
contracts.
38
<PAGE> 40
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------
ADJUSTMENTS FOR PRO FORMA FOR
THE SALE OF THE SALE OF
$100 MILLION $100 MILLION
ACTUAL OF OLD NOTES OF OLD NOTES
---------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 100,359 $ 49,410(1) $ 149,769
Accounts receivable from others........................... 97,211 -- 97,211
Accounts receivable from related parties.................. 3,305 -- 3,305
Collateral securities, current portion.................... 1,828 -- 1,828
Prepaid operating lease, current portion.................. 13,652 -- 13,652
Other current assets...................................... 25,445 -- 25,445
---------- -------- ----------
Total current assets............................... 241,800 49,410 291,210
Property, plant & equipment, net............................ 1,136,518 -- 1,136,518
Investments in power projects............................... 140,470 -- 140,470
Project development costs................................... 11,754 -- 11,754
Collateral securities, net of current portion............... 87,042 -- 87,042
Notes receivable from related parties....................... 12,024 -- 12,024
Restricted cash............................................. 15,775 -- 15,775
Deferred financing costs.................................... 23,494 -- 23,494
Other assets................................................ 31,374 90(2) 31,464
---------- -------- ----------
Total assets....................................... $1,700,251 $ 49,500 $1,749,751
========== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of non-recourse project financing......... $ 9,670 $ -- $ 9,670
Accounts payable.......................................... 33,022 -- 33,022
Accrued payroll and related expenses...................... 4,181 -- 4,181
Accrued interest payable.................................. 23,565 2,494(3) 26,059
Accrued maintenance reserve............................... 10,139 -- 10,139
Other current liabilities................................. 15,896 -- 15,896
---------- -------- ----------
Total current liabilities.......................... 96,473 2,494 98,967
Non-recourse project financing, net of current portion...... 237,456 (52,074)(4) 185,382
Senior Notes................................................ 855,618 99,080(5) 954,698
Deferred income taxes, net.................................. 169,191 -- 169,191
Deferred lease incentive.................................... 69,598 -- 69,598
Other liabilities........................................... 22,795 -- 22,795
---------- -------- ----------
Total liabilities.................................. 1,451,131 49,500 1,500,631
---------- -------- ----------
Stockholders' equity:
Common stock.............................................. 20 -- 20
Additional paid-in capital................................ 168,137 -- 168,137
Retained earnings......................................... 80,963 -- 80,963
---------- -------- ----------
Total stockholders' equity......................... 249,120 -- 249,120
---------- -------- ----------
Total liabilities and stockholders' equity......... $1,700,251 $ 49,500 $1,749,751
========== ======== ==========
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet.
39
<PAGE> 41
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Reflects the cash balance after the application of the net proceeds from
the sale of $100,000,000 of the Old Notes. See "Use of Proceeds."
(2) Represents the estimated transaction costs less the gain on the interest
rate contracts associated with the sale of $100,000,000 of Old Notes that
are capitalized and will be amortized over the ten-year life of the Old
Notes.
(3) Represents accrued interest related to the sale of $100,000,000 of Old
Notes.
(4) Represents the long-term portion of the non-recourse project financing
associated with the Pasadena 1 Power Plant that the Company currently
expects to repay in full with a portion of the net proceeds from the sale
of $100,000,000 of Old Notes.
(5) Reflects the sale of $100,000,000 of Old Notes less original issue
discount.
40
<PAGE> 42
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued under an Indenture (the "Indenture") dated as
of March 31, 1998, among the Company and The Bank of New York, as trustee (the
"Trustee"), in exchange for the Old Notes. No New Notes are currently
outstanding. The terms of the New Notes will include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Notes
will be subject to all such terms, and holders of Senior Notes are referred to
the Indenture and the Trust Indenture Act for a statement of such terms. A copy
of the proposed form of the Indenture is available upon request made to the
Company.
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein.
The Company has no sinking fund or mandatory redemption obligations with
respect to the Senior Notes.
The Company is subject to the informational reporting requirements of
Sections 13 and 15(d) under the Exchange Act and, in accordance therewith, will
file certain reports and other information with the Commission. See "Additional
Information." In addition, if Sections 13 and 15(d) cease to apply to the
Company, the Company will covenant in the Indenture to file such reports and
information with the Trustee and the Commission, and mail such reports and
information to holders of the Senior Notes at their registered addresses, for so
long as any Senior Notes remain outstanding.
The Company conducts substantially all of its operations through its
subsidiaries. Creditors of its subsidiaries, including trade creditors, would
have a claim on the subsidiaries' assets that would be prior to the claims of
the holders of the Senior Notes. See "Risk Factors -- Risks Related to Holding
Company Structure."
TERMS OF THE SENIOR NOTES
The Old Notes were issued under the Indenture. The Senior Notes will mature
on April 1, 2008. The Senior Notes are limited to $400,000,000 in aggregate
principal amount and are issued in fully registered form in denominations of
$1,000 and any amount which is an integral amount multiple of $1,000 in excess
thereof.
Interest at the annual rate of 7 7/8% is payable semi-annually on April 1
and October 2 of each year while the Senior Notes are outstanding, commencing on
October 1, 1998 (each, an "Interest Payment Date"), to holders of record at the
close of business on the preceding March 15 and September 15, respectively, and
unless other arrangements are made, will be paid by check mailed to such holders
at their registered addresses, as shown on the Senior Note register. Interest
will be computed on the basis of a 360-day year of twelve months of 30 days
each. Interest began to accrue on March 31, 1998. The interest rate on the
Senior Notes will be increased by one-half of one percent per annum if the
Exchange Offer is not consummated, or a registration statement with respect to
the resale of the Senior Notes is not declared effective, by September 27, 1998.
Payments of principal of, and premium (if any) on the Senior Notes will be
made against presentation of the Senior Notes at or after the due date for such
payments, at an office maintained by the Trustee for such purpose at The Bank of
New York, 101 Barclay Street, New York, New York 10286, and the Senior Notes may
be presented for registration of transfer and exchange without service charge,
at such office during normal business hours on any day on which banks in the
Borough of Manhattan, in the City of New York, are open for business.
REDEMPTION
The Notes are not subject to redemption prior to maturity.
41
<PAGE> 43
RANKING
The Indebtedness evidenced by the Senior Notes constitutes Senior
Indebtedness of the Company and will rank pari passu in right of payment with
all existing and future Senior Indebtedness of the Company, including, without
limitation, all obligations under the Bank Credit Agreement (as defined herein),
the Working Capital Credit Agreement (as defined herein), the 8 3/4% Senior
Notes, the 9 1/4% Senior Notes, and the 10 1/2% Senior Notes. At June 30, 1998,
on a pro forma basis after giving effect to the Bethpage and Texas City/Clear
Lake Transactions and the sale of the Old Notes and the application of the net
proceeds therefrom, the Company would have had outstanding approximately $954.7
million of Senior Indebtedness. The Company conducts substantially all of its
operations through its subsidiaries. Creditors of its subsidiaries, including
trade creditors, would have a claim on the subsidiaries' assets that would be
prior to the claims of the holders of the Notes. At June 30, 1998, on a pro
forma basis, after giving effect to the Bethpage and Texas City/Clear Lake
Transactions and the sale of the Old Notes and the application of the net
proceeds therefrom, the Company's subsidiaries would have had $195.1 million of
outstanding indebtedness. See "Risk Factors -- Risks Related to Holding Company
Structure."
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indentures.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
at which such Person became a Subsidiary and not incurred in connection with, or
in contemplation of, such Person becoming a Subsidiary. Acquired Indebtedness
shall be deemed to be Incurred on the date the acquired Person becomes a
Subsidiary.
"Additional Assets" means (i) any property or assets related to the Line of
Business which will be owned and used by the Company or a Restricted Subsidiary;
(ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in
any Person that at such time is a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Covenants -- Transactions with
Affiliates" and "-- Sales of Assets" only, "Affiliate" shall also mean any
beneficial owner of 5% or more of the total Voting Shares (on a Fully Diluted
Basis) of the Company or of rights or warrants to purchase such stock (whether
or not currently exercisable) and any Person who would be an Affiliate of any
such beneficial owner pursuant to the first sentence hereof. For purposes of the
provision described under "-- Covenants -- Limitation on Restricted Payments"
only, "Affiliate" shall also mean any Person of which the Company owns 5% or
more of any class of Capital Stock or rights to acquire 5% or more or any class
of Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale leaseback transactions, but excluding
(except as provided for in the provisions described in the last paragraph under
"-- Covenants -- Sales of Assets") those permitted by the provisions described
under "-- Covenants -- Merger and Consolidation" and "-- Covenants -- Limitation
on Sale/Leaseback Transactions") in one or a series of transactions by the
Company or any Restricted Subsidiary to any Person other than the Company or any
Wholly Owned Subsidiary, of (i) all or any of the Capital Stock of the Company
or any Restricted Subsidiary, (ii) all or substantially all of the assets of any
operating unit, Facility, division or line of business of the Company or any
Restricted Subsidiary or (iii) any other property or assets or rights to acquire
property or assets of the Company or any Restricted Subsidiary outside of the
ordinary course of business of the Company or such Restricted Subsidiary.
42
<PAGE> 44
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Senior Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of (A) the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption or similar payment with respect to such Indebtedness or
Preferred Stock multiplied by (B) the amount of such payment by (ii) the sum of
all such payments.
"Bank Credit Agreement" means the Credit Agreement dated September 25,
1996, between the Company and The Bank of Nova Scotia, as amended, refinanced,
replaced, renewed or extended from time to time.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee thereof.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation or any
and all equivalent ownership interests in a Person (other than a corporation).
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty; and "Capitalized Lease
Obligations" means the rental obligations, as aforesaid, under such lease.
"Change of Control" means 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
Exchange Act), other than an underwriter engaged in a firm commitment
underwriting on behalf of the Company, is or becomes the beneficial owner (as
such term is used in Rules 13d-3 and 13d-5 under the Exchange Act, except that
for purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 40% of the total Voting Shares of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by the
stockholders was approved by a vote of 66 2/3% of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then in
office; (iii) all or substantially all of the Company's and its Restricted
Subsidiaries' assets are sold, leased, exchanged or otherwise transferred to any
Person or group of Persons acting in concert; or (iv) the Company is liquidated
or dissolved or adopts a plan of liquidation.
"Change of Control Triggering Event" means (A) if a Rating Agency maintains
a rating of the Senior Notes at the time a Change of Control occurs, the
occurrence of a Change of Control and the occurrence of a Rating Decline or (B)
if no Rating Agency maintains a rating of the Notes at the time a Change of
Control occurs, the occurrence of a Change of Control.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in the Indenture until a successor
replaces it pursuant to the terms and conditions of the Indenture and thereafter
means the successor.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters to (ii) the Consolidated Interest Expense
(excluding interest capitalized in connection with the construction of a new
Facility which
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interest is capitalized during the construction of such Facility) for such four
fiscal quarters; provided, however, that if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, both
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to (x) such new Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and (y) the
repayment, redemption, repurchase, defeasance or discharge of any Indebtedness
repaid, redeemed, repurchased, defeased or discharged with the proceeds of such
new Indebtedness as if such repayment, redemption, repurchase, defeasance or
discharge had been made on the first day of such period; provided, further, that
if within the period during which EBITDA or Consolidated Interest Expense is
measured, the Company or any of its Restricted Subsidiaries shall have made any
Asset Sales, (x) the EBITDA for such period shall be reduced by an amount equal
to the EBITDA (if positive) directly attributable to the assets or Capital Stock
which are the subject of such Asset Sales for such period, or increased by an
amount equal to the EBITDA (if negative), directly attributable thereto for such
period and (y) the Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness for which neither Company nor any Restricted
Subsidiary shall continue to be liable as a result of any such Asset Sale or
repaid, redeemed, defeased, discharged or otherwise retired in connection with
or with the proceeds of the assets or Capital Stock which are the subject of
such Asset Sales for such period; and provided, further, that if the Company or
any Restricted Subsidiary shall have made any acquisition of assets or Capital
Stock (occurring by merger or otherwise) since the beginning of such period
(including any acquisition of assets or Capital Stock occurring in connection
with a transaction causing a calculation to be made hereunder) the EBITDA and
Consolidated Interest Expense for such period shall be calculated, after giving
pro forma effect thereto (and without regard to clause (iv) of the proviso to
the definition of "Consolidated Net Income"), as if such acquisition of assets
or Capital Stock took place on the first day of such period. For all purposes of
this definition, if the date of determination occurs prior to the completion of
the first four full fiscal quarters following the Issue Date, then "EBITDA" and
"Consolidated Interest Expense" shall be calculated after giving effect on a pro
forma basis to the Offering as if the Offering occurred on the first day of the
four full fiscal quarters that were completed preceding such date of
determination.
"Consolidated Current Liabilities," as of the date of determination, means
the aggregate amount of liabilities of the Company and its Consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating (i) all inter-company
items between the Company and any Consolidated Subsidiary and (ii) all current
maturities of long-term Indebtedness, all as determined in accordance with GAAP.
"Consolidated Income Tax Expense" means, for any period, as applied to the
Company, the provision for local, state, federal or foreign income taxes on a
Consolidated basis for such period determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, as applied to the
Company, the sum of (a) the total interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period as determined in accordance
with GAAP, including, without limitation, (i) amortization of debt issuance
costs or of original issue discount on any Indebtedness and the interest portion
of any deferred payment obligation, calculated in accordance with the effective
interest method of accounting, (ii) accrued interest, (iii) noncash interest
payments, (iv) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (v) interest
actually paid by the Company or any such Subsidiary under any guarantee of
Indebtedness or other obligation of any other Person and (vi) net costs
associated with Interest Rate Agreements (including amortization of discounts)
and Currency Agreements, plus (b) all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued, or scheduled to be paid
or accrued by the Company or its Consolidated Restricted Subsidiaries, plus (c)
one-third of all Operating Lease Obligations paid, accrued and/or scheduled to
be paid by the Company and its Consolidated Restricted Subsidiaries, plus (d)
capitalized interest, plus (e) dividends paid in respect of Preferred Stock of
the Company or any Restricted Subsidiary held by Persons other than the Company
or a Wholly Owned Subsidiary, plus (f) cash contributions to any employee stock
ownership plan to the extent such contributions
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<PAGE> 46
are used by such employee stock ownership plan to pay interest or fees to any
person (other than the Company or a Restricted Subsidiary) in connection with
loans incurred by such employee stock ownership plan to purchase Capital Stock
of the Company.
"Consolidated Net Income (Loss)" means, for any period, as applied to the
Company, the Consolidated net income (loss) of the Company and its Consolidated
Restricted Subsidiaries for such period, determined in accordance with GAAP,
adjusted by excluding (without duplication), to the extent included in such net
income (loss), the following: (i) all extraordinary gains or losses; (ii) any
net income of any Person if such Person is not a Domestic Subsidiary, except
that (A) the Company's equity in the net income of any such Person for such
period shall be included in Consolidated Net Income (Loss) up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution and (B)
the equity of the Company or a Restricted Subsidiary in a net loss of any such
Person for such period shall be included in determining Consolidated Net Income
(Loss); (iii) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such income is not at the time thereof permitted, directly or
indirectly, by operation of the terms of its charter or bylaws or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders; (iv) any net
income (or loss) of any Person combined with the Company or any of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of such combination; (v) any gain (but not loss)
realized upon the sale or other disposition of any property, plant or equipment
of the Company or its Restricted Subsidiaries (including pursuant to any
sale-and-leaseback arrangement) which is not sold or otherwise disposed of in
the ordinary course of business and any gain (but not loss) realized upon the
sale or other disposition by the Company or any Restricted Subsidiary of any
Capital Stock of any Person, provided that losses shall be included on an
after-tax basis; and (vi) the cumulative effect of a change in accounting
principles; and further adjusted by subtracting from such net income the tax
liability of any parent of the Company to the extent of payments made to such
parent by the Company pursuant to any tax sharing agreement or other arrangement
for such period.
"Consolidated Net Tangible Assets" means, as of any date of determination,
as applied to the Company, the total amount of assets (less accumulated
depreciation or amortization, allowances for doubtful receivables, other
applicable reserves and other properly deductible items) which would appear on a
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, and
after giving effect to purchase accounting and after deducting therefrom, to the
extent otherwise included, the amounts of: (i) Consolidated Current Liabilities;
(ii) minority interests in Consolidated Subsidiaries held by Persons other than
the Company or a Restricted Subsidiary; (iii) excess of cost over fair value of
assets of businesses acquired, as determined in good faith by the Board of
Directors; (iv) any revaluation or other write-up in value of assets subsequent
to December 31, 1993 as a result of a change in the method of valuation in
accordance with GAAP; (v) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items; (vi) treasury stock; and (vii) any cash set apart and
held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of Capital Stock to the extent such obligation is
not reflected in Consolidated Current Liabilities.
"Consolidated Net Worth" means, at any date of determination, as applied to
the Company, stockholders' equity as set forth on the most recently available
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries (which shall be as of a date no more than 60 days prior to the date
of such computation), less any amounts attributable to Redeemable Stock or
Exchangeable Stock, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of the Company or any
Subsidiary.
"Consolidation" means, with respect to any Person, the consolidation of
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and such subsidiaries are consolidated in accordance
with GAAP. The term "Consolidated" shall have a correlative meaning.
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<PAGE> 47
"Controlled Non-Subsidiary Investment" means any Investment of the type
specified in clause (iv) of the first sentence under
"-- Covenants -- Limitations on Restricted Payments" which is made by the
Company or its Restricted Subsidiaries in an Affiliate other than a Subsidiary;
provided that (i) at the time such Investment is made, no Default or Event of
Default shall have occurred and be continuing (or would result therefrom); (ii)
after giving effect to the Investment and to the Incurrence of any Indebtedness
in connection therewith on a pro forma basis, the Consolidated Coverage Ratio is
at least 1.75:1; (iii) after giving effect to the Investment, the aggregate
Investment made by the Company and its Subsidiaries in Controlled Non-
Subsidiary Investments does not exceed $100,000,000; (iv) the Person in which
the Investment is made is engaged only in the business described under
"-- Covenants -- Limitation on Changes in the Nature of Business" including
Unrelated Businesses to the extent permitted under "-- Covenants -- Limitations
on Changes in the Nature of the Business;" (v) the Company, directly or through
its Restricted Subsidiaries is entitled to (A) in the case of an Investment in
Capital Stock, receive dividends or other distributions on its Investment at the
same time as or prior to, and on a basis pro rata with, any other holder or
holders of Capital Stock of such Person and (B) in the case of an Investment
other than in Capital Stock, receive interest thereon at a rate per annum not
less than the rate on the Notes and, on the liquidation or dissolution of such
Person, receive repayment of the principal thereof prior to the payment of any
dividends or distributions on Capital Stock of such Person; (vi) the Company
directly or through its Restricted Subsidiaries, either (x) controls, under an
operating and management agreement or otherwise, the day to day management and
operation of such Person and any Facility of the Person in which the Investment
is made or (y) has significant influence over the management and operation of
such Person and any Facility of such Person in all material respects
(significant influence to include the right to control or veto any material act
or decision) in connection with such management or operation; and (vii) any
encumbrances or restrictions on the ability of the Person in which the
Investment is made to make the payments, distributions, losses, advances or
transfers referred to in clauses (i) through (iii) under
"-- Covenants -- Limitations on Payment Restrictions Affecting Subsidiaries" in
the written opinion of the President or Chief Financial Officer of the Company
(x) is required in order to obtain necessary financing, (y) is customary for
such financings and (z) applies only to the assets of or revenues of the Person
in whom the Investment is made.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values to
or under which the Company or any Restricted Subsidiary is a party or a
beneficiary on the Issue Date or becomes a party or beneficiary thereafter.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" means any interest on any Senior Note which is
payable, but is not punctually paid or duly provided for on any Interest Payment
Date.
"Domestic Subsidiary" means a Restricted Subsidiary that is not a Foreign
Subsidiary.
"EBITDA" means, for any period, as applied to the Company, the sum of
Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net Income
(Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense,
(c) depreciation expense, (d) amortization expense and (e) all other non-cash
items reducing Consolidated Net Income, less all non-cash items increasing
Consolidated Net Income, in each case for such period; provided that, if the
Company has any Subsidiary that is not a Wholly Owned Subsidiary, EBITDA shall
be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to
(A) the consolidated net income (loss) of such Subsidiary (to the extent
included in Consolidated Net Income (Loss)) multiplied by (B) the quotient of
(1) the number of shares of outstanding common stock of such Subsidiary not
owned on the last day of such period by the Company or any Wholly Owned
Subsidiary of the Company divided by (2) the total number of shares of
outstanding common stock of such Subsidiary on the last day of such period.
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<PAGE> 48
"Exchangeable Stock" means any Capital Stock which by its terms is
exchangeable or convertible at the option of any Person other than the Company
into another security (other than Capital Stock of the Company which is neither
Exchangeable Stock nor Redeemable Stock).
"Facility" means a power generation facility or energy producing facility,
including any related steam fields or gas reserves.
"Foreign Asset Sale" means an Asset Sale in respect of the Capital Stock or
assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described
in Section 936 of the Code to the extent that the proceeds of such Asset Sale
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States of America or any State thereof or
the District of Columbia.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States of America or a State thereof or the
District of Columbia.
"Fully Diluted Basis" means after giving effect to the exercise of any
outstanding options, warrants or rights to purchase Voting Shares and the
conversion or exchange of any securities convertible into or exchangeable for
Voting Shares.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect and, to the extent optional, adopted by the Company on
the Issue Date, consistently applied, including, without limitation, those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"Guarantee" means, as applied to any obligation, contingent or otherwise,
of any Person, (i) a guarantee, direct or indirect, in any manner, of any part
or all of such obligation (other than by endorsement of negotiable instruments
for collection in the ordinary course of business) and (ii) an agreement, direct
or indirect, contingent or otherwise, the practical effect of which is to insure
in any way the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including the payment of
amounts drawn down under letters of credit.
"Holder" or "Securityholder" means the Person in whose name a Senior Note
is registered on the Registrar's books.
"Incur" means, as applied to any obligation, to create, incur, issue,
assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "Incurred," "Incurrence" and
"Incurring" shall each have a correlative meaning; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary; and provided, further, that any amendment,
modification or waiver of any provision of any document pursuant to which
Indebtedness was previously Incurred shall not be deemed to be an Incurrence of
Indebtedness as long as (i) such amendment, modification or waiver does not (A)
increase the principal or premium thereof or interest rate thereon, (B) change
to an earlier date the Stated Maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances under which such
Indebtedness may or shall be redeemed, (C) if such Indebtedness is contractually
subordinated in right of payment to the Securities, modify or affect, in any
manner adverse to the Holders, such subordination, (D) if the Company is the
obligor thereon, provide that a Restricted Subsidiary shall be an obligor, (E)
if such Indebtedness is Non-Recourse Debt, cause such Indebtedness to no longer
constitute Non-Recourse Debt or (F) violate, or cause the Indebtedness to
violate, the provisions described under "-- Covenants -- Limitation on Payment
Restrictions Affecting Subsidiaries" and "-- Limitation on Liens" and (ii) such
Indebtedness would, after giving effect to such amendment, modification or
waiver as if it were an Incurrence, comply with clause (i) of the first proviso
to the definition of "Refinancing Indebtedness."
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any such premium is then due and owing) in respect of (A)
indebtedness of such Person for money borrowed and
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<PAGE> 49
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable; (ii)
all Capitalized Lease Obligations of such Person; (iii) all obligations of such
Person Incurred as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement; (iv) all obligations of such Person for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) Redeemable Stock of such Person and, in the case of any
Subsidiary, any other Preferred Stock, in either case valued at, in the case of
Redeemable Stock, the greater of its voluntary or involuntary maximum fixed
repurchase price exclusive of accrued and unpaid dividends or, in the case of
Preferred Stock that is not Redeemable Stock, its liquidation preference
exclusive of accrued and unpaid dividends; (vi) contractual obligations to
repurchase goods sold or distributed; (vii) all obligations of such Person in
respect of Interest Rate Agreements and Currency Agreements; (viii) all
obligations of the type referred to in clauses (i) through (vii) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any guarantee; and (ix) all
obligations of the type referred to in clauses (i) through (viii) of other
Persons secured by any Lien on any property or asset of such Person (whether or
not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured; provided, however, that Indebtedness shall
not include trade accounts payable arising in the ordinary course of business.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Stock as if such Redeemable Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Stock, such fair market
value to be determined in good faith by the Board of Directors. The amount of
Indebtedness of any Person at any date shall be, with respect to unconditional
obligations, the outstanding balance at such date of all such obligations as
described above and, with respect to any contingent obligations (other than
pursuant to clause (vi) above, which shall be included to the extent reflected
on the balance sheet of such Person in accordance with GAAP) at such date, the
maximum liability determined by such Person's board of directors, in good faith,
as, in light of the facts and circumstances existing at the time, reasonably
likely to be Incurred upon the occurrence of the contingency giving rise to such
obligation.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Senior Notes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect against fluctuations in interest rates to or under which the Company
or any of its Restricted Subsidiaries is a party or beneficiary on the Issue
Date or becomes a party or beneficiary thereunder.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any other investment in any
other Person, or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or assets issued or owned by
any other Person (whether by merger, consolidation, amalgamation, sale of assets
or otherwise). For purposes of the definition of "Unrestricted Subsidiary" and
the provisions set forth under "-- Covenants -- Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair
market value of the net assets of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as
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<PAGE> 50
determined by the Board of Directors in good faith. For purposes of determining
the aggregate amount of Investments in Controlled Non-Subsidiary Investments,
the amount of such Investments shall be reduced by an amount equal to the net
payments of interest on Indebtedness, dividends, repayments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary from any Person
in whom a Controlled Non-Subsidiary Investment has been made, not to exceed in
the case of any Controlled Non-Subsidiary Investment the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person.
"Investment Grade" means, with respect to the Senior Notes, a rating of
Baa3 or higher by Moody's together with a rating of BBB- or higher by S&P,
provided that neither of such entities shall have announced or informed the
Company that it is reviewing the rating of the Senior Notes in light of
downgrading the rating thereof.
"Issue Date" means the date on which the Senior Notes are originally issued
under the Indenture.
"Lien" means any mortgage, lien, pledge, charge, or other security interest
or encumbrance of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof).
"Line of Business" means the ownership, acquisition, development,
construction, improvement and operation of Facilities.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Cash" means, with respect to any Asset Sale, the cash or
cash equivalent payments received by the Company or a Subsidiary in connection
with such Asset Sale (including any cash received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
or when received and also including the proceeds of other property received when
converted to cash or cash equivalents) net of the sum of, without duplication,
(i) all reasonable legal, title and recording tax expenses, reasonable
commissions, and other reasonable fees and expenses incurred directly relating
to such Asset Sale, (ii) all local, state, federal and foreign taxes required to
be paid or accrued as a liability by the Company or any of its Restricted
Subsidiaries as a consequence of such Asset Sale, (iii) payments made to repay
Indebtedness which is secured by any assets subject to such Asset Sale in
accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or by applicable
law, be repaid out of the proceeds from such Asset Sale and (iv) all
distributions required by any contract entered into other than in contemplation
of such Asset Sale to be paid to any holder of a minority equity interest in
such Restricted Subsidiary as a result of such Asset Sale, so long as such
distributions do not exceed such minority holder's pro rata portion (based on
such minority holder's proportionate equity interest) of the cash or cash
equivalent payments described above, net of the amounts set forth in clauses
(i)-(iii) above.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock by any Person, the cash proceeds to such Person of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultancy and other fees
actually incurred by such Person in connection with such issuance or sale and
net of taxes paid or payable by such Person as a result thereof.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
Capital Stock of such corporation which is not convertible into another security
other than non-convertible common stock of such corporation; provided, however,
that Non-Convertible Capital Stock shall not include any Redeemable Stock or
Exchangeable Stock.
"Non-Recourse Debt" means Indebtedness of the Company or any Restricted
Subsidiary that is Incurred to acquire, construct or develop a Facility provided
that such Indebtedness is without recourse to the Company or any Restricted
Subsidiary or to any assets of the Company or any such Restricted Subsidiary
other than such Facility and the income from and proceeds of such Facility.
"Offering" means the public offering and sale of the Senior Notes.
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<PAGE> 51
"Officers' Certificate" means a certificate signed by two officers, one of
whom must be the President, the Treasurer or a Vice President of the Company.
Each Officers' Certificate (other than certificates provided pursuant to TIA
Section 314(a)(4)) shall include the statements provided for in TIA Section
314(e).
"Operating Lease Obligations" means any obligation of the Company and its
Restricted Subsidiaries on a Consolidated basis incurred or assumed under or in
connection with any lease of real or personal property which, in accordance with
GAAP, is not required to be classified and accounted for as a capital lease.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel, if so acceptable, may be an employee of
or counsel to the Company or the Trustee. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a Senior Note means the principal of the Senior Note plus,
if applicable, the premium on the Senior Note.
"Public Equity Offering" means an underwritten primary public offering of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act.
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended.
"Rating Agencies" is defined to mean S&P and Moody's.
"Rating Category" is defined to mean (i) with respect to S&P, any of the
following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent
successor categories) and (ii) with respect to Moody's, any of the following
categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor
categories). In determining whether the rating of the Notes has decreased by one
or more gradations, gradations within Rating Categories (+ and - for S&P; 1, 2
and 3 for Moody's) shall be taken into account (e.g., with respect to S&P, a
decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute a
decrease of one gradation).
"Rating Decline" is defined to mean the occurrence of (i) or (ii) below on,
or within 90 days after, the earliest of (A) the Company having become aware
that a Change of Control has occurred, (B) the date of public notice of the
occurrence of a Change of Control or (C) the date of public notice of the
intention by the Company to approve, recommend or enter into, any transaction
which, if consummated, would result in a Change of Control (which period shall
be extended so long as the rating of the Senior Notes is under publicly
announced consideration or possible downgrade by either of the Rating Agencies),
(i) a decrease of the rating of the Senior Notes by either Rating Agency by one
or more rating gradations or (ii) the Company shall fail to promptly advise the
Rating Agencies, in writing, of such occurrence or any subsequent material
developments or shall fail to use its best efforts to obtain, from at least one
Rating Agency, a written, publicly announced affirmation of its rating of the
Senior Notes, stating that it is not downgrading, and is not considering
downgrading, the Senior Notes.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that (a) by its terms, by the terms of any security into which it is convertible
or exchangeable or otherwise is, or upon the happening of an event or passage of
time would be, required to be redeemed (in whole or in part) on or prior to the
first anniversary of the Stated Maturity of the Senior Notes, (b) is redeemable
at the option of the holder thereof at any time on or prior to the first
anniversary of the Stated Maturity of the Senior Notes (other than on a Change
of Control or Asset Sale, provided that such Change of Control or Asset Sale
shall not yet have
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occurred) or (c) is convertible into or exchangeable for Capital Stock referred
to in clause (a) or clause (b) above or debt securities at any time prior to the
first anniversary of the Stated Maturity of the Senior Notes.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness of the Company or a Restricted Subsidiary
existing on the Issue Date or Incurred in compliance with the Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; provided, however, that (i) if the
Indebtedness being refinanced is contractually subordinated in right of payment
to the Senior Notes, the Refinancing Indebtedness shall be contractually
subordinated in right of payment to the Senior Notes to at least the same extent
as the Indebtedness being refinanced, (ii) if the Indebtedness being refinanced
is Non-Recourse Debt, such Refinancing Indebtedness shall be Non-Recourse Debt,
(iii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier
than the Indebtedness being refinanced or (b) after the Stated Maturity of the
Notes, (iv) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (v) such Refinancing
Indebtedness is in an aggregate principal amount (or if issued with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding (plus fees and expenses, including
any premium, swap breakage and defeasance costs) under the Indebtedness being
refinanced; and provided, further, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.
"Related Assets" means electric power plants that, on the Issue Date,
produce electricity solely by utilizing steam from steam fields owned and
operated by a Restricted Subsidiary that is a Wholly Owned Subsidiary on the
Issue Date.
"Related Asset Indebtedness" means Non-Recourse Debt of a Restricted
Subsidiary that is a Wholly Owned Subsidiary on the Issue Date, the proceeds of
which are used by such Restricted Subsidiary to finance the acquisition of
Related Assets by such Restricted Subsidiary; provided, however, that (i) such
Related Asset Indebtedness is Incurred contemporaneously with a Refinancing of
all of the Non-Recourse Debt of such Restricted Subsidiary then outstanding and
(ii) the principal amount of such Related Asset Indebtedness shall not exceed
the purchase price of the Related Assets plus reasonable out-of-pocket
transaction costs and expenses of the Company and its Restricted Subsidiaries
required to acquire, or finance the acquisition of, such Related Assets.
"Restricted Subsidiary" means any Subsidiary of the Company that is not
designated an Unrestricted Subsidiary by the Board of Directors.
"S&P" means Standard and Poor's Corporation and its successors.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and leases it back from such Person, other than leases for
a term of not more than 36 months or between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.
"Senior Indebtedness" means (i) all obligations consisting of the principal
of and premium, if any, and accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not post-filing interest is
allowed in such proceeding), whether existing on the Issue Date or thereafter
Incurred, in respect of (A) Indebtedness of the Company for money borrowed and
(B) Indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable; (ii)
all Capitalized Lease Obligations of the Company; (iii) all obligations of the
Company (A) for the reimbursement of any obligor on any letter of
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credit, banker's acceptance or similar credit transaction, (B) under Interest
Rate Agreements and Currency Agreements entered into in respect of any
obligations described in clauses (i) and (ii) or (C) issued or assumed as the
deferred purchase price of property, and all conditional sale obligations of the
Company and all obligations of the Company under any title retention agreement;
(iv) all guarantees of the Company with respect to obligations of other persons
of the type referred to in clauses (ii) and (iii) and with respect to the
payment of dividends of other Persons; and (v) all obligations of the Company
consisting of modifications, renewals, extensions, replacements and refundings
of any obligations described in clauses (i), (ii), (iii) or (iv); unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinated in right of
payment to the Notes, or any other Indebtedness or obligation of the Company;
provided, however, that Senior Indebtedness shall not be deemed to include (1)
any obligation of the Company to any Subsidiary, (2) any liability for Federal,
state, local or other taxes or (3) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities).
"Significant Subsidiary" means any Subsidiary (other than an Unrestricted
Subsidiary) that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulations S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the principal of such security is
due and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency).
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is contractually
subordinated or junior in right of payment to the Senior Notes or any other
Indebtedness of the Company.
"Subsidiary" means, as applied to any Person, any corporation, limited or
general partnership, trust, association or other business entity of which an
aggregate of at least a majority of the outstanding Voting Shares or an
equivalent controlling interest therein, of such Person is, at the time,
directly or indirectly, owned by such Person and/or one or more Subsidiaries of
such Person.
"Unrelated Business" means any business other than the Line of Business.
"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any other Subsidiary that is not a
Subsidiary of the Subsidiary to be so designated; provided, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted pursuant to the provisions under "Covenants -- Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness pursuant to the first paragraph of
"Covenants -- Limitation on Incurrence of Indebtedness" and (y) no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the board resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions; provided, however, that the failure to so file such
resolution and/or Officers' Certificate with the Trustee shall not impair or
affect the validity of such designation.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of
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which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case under clauses (i) or (ii) are
not callable or redeemable before the maturity thereof.
"Voting Shares," with respect to any corporation, means the Capital Stock
having the general voting power under ordinary circumstances to elect at least a
majority of the board of directors (irrespective of whether or not at the time
stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary (other than an Unrestricted
Subsidiary) all the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly Owned Subsidiary.
"Working Capital Credit Agreement" means the Line of Credit Note, dated as
of June 4, 1993, between the Company and The Bank of California, N.A. as
amended, refinanced, renewed or extended from time to time.
COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Restricted Payments. Under the terms of the Indenture, so
long as any of the Senior Notes are outstanding, the Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend on or make any distribution or similar payment of
any sort in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company) to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Non-Convertible Capital Stock or rights to acquire its
Non-Convertible Capital Stock and dividends or distributions payable solely to
the Company or a Restricted Subsidiary and other than pro rata dividends paid by
a Subsidiary with respect to a series or class of its Capital Stock the majority
of which is held by the Company or a Wholly Owned Subsidiary that is not a
Foreign Subsidiary), (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Capital Stock of the Company or of any direct or indirect
parent of the Company, or, with respect to the Company, exercise any option to
exchange any Capital Stock that by its terms is exchangeable solely at the
option of the Company (other than into Capital Stock of the Company which is
neither Exchangeable Stock nor Redeemable Stock), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity or scheduled repayment thereof or scheduled sinking fund payment
thereon, any Subordinated Indebtedness (other than the purchase, repurchase or
other acquisition of Subordinated Indebtedness purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment, other than a Controlled Non-Subsidiary Investment, or a payment
described in clause (vi) of the second sentence under
"-- Covenants -- Transactions with Affiliates," in any Unrestricted Subsidiary
or any Affiliate of the Company other than a Restricted Subsidiary or a Person
which will become a Restricted Subsidiary as a result of any such Investment
(each such payment described in clauses (i)-(iv) of this paragraph, a
"Restricted Payment"), unless at the time of and after giving effect to the
proposed Restricted Payment: (1) no Default or Event of Default shall have
occurred and be continuing (or would result therefrom); (2) the Company would be
permitted to Incur an additional $1 of Indebtedness pursuant to the provisions
described in the first paragraph under "-- Limitation on Incurrence of
Indebtedness," and (3) the aggregate amount of all such Restricted Payments
subsequent to the Issue Date shall not exceed the sum of (A) 50% of aggregate
Consolidated Net Income accrued during the period (treated as one accounting
period) from January 1, 1994 to the end of the most recent fiscal quarter for
which financial statements are available (or if such Consolidated Net Income is
a deficit, minus 100% of such deficit), and minus 100% of the amount of any
write-downs, write-offs, other negative reevaluations and other negative
extraordinary charges not otherwise reflected in Consolidated Net Income during
such period; (B) if the Senior Notes are Investment Grade immediately following
the Restricted Payment in connection with which this calculation is made, an
additional 25% of Consolidated Net Income for any period of one or more
consecutive completed fiscal quarters ending with the last fiscal quarter
completed prior to the date of such Restricted Payment during which the Senior
Notes were Investment Grade for the entire period; (C) the
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aggregate Net Cash Proceeds received by the Company after January 1, 1994 from
the sale of Capital Stock (other than Redeemable Stock or Exchangeable Stock) of
the Company to any person other than the Company, any of its Subsidiaries or an
employee stock ownership plan; (D) the amount by which the principal amount of,
and any accrued interest on, Indebtedness of the Company or its Restricted
Subsidiaries is reduced on the Company's Consolidated balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date
of any Indebtedness of the Company or any Restricted Subsidiary converted or
exchanged for Capital Stock (other than Redeemable Stock or Exchangeable Stock)
of the Company (less the amount of any cash, or the value of any other property,
distributed by the Company or any Restricted Subsidiary upon such conversion or
exchange); (E) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Unrestricted Subsidiary the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary; and (F) $15,000,000.
The failure to satisfy the conditions set forth in clauses (2) and (3) of
the first paragraph under "-- Limitation on Restricted Payments" shall not
prohibit any of the following as long as the condition set forth in clause (1)
of such paragraph is satisfied (except as set forth below): (i) dividends paid
within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with the provisions described in
the first paragraph under "-- Limitation on Restricted Payments;" provided,
however, that, notwithstanding clause (1) of the immediately preceding
paragraph, the occurrence or existence of a Default at the time of payment shall
not prohibit the payment of such dividends; (ii) any purchase, redemption,
defeasance, or other acquisition or retirement for value of Capital Stock or
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Redeemable Stock or Exchangeable Stock and other than stock issued
or sold to a Subsidiary or to an employee stock ownership plan), provided,
however, that notwithstanding clause (1) of the first paragraph under
"-- Limitation on Restricted Payments," the occurrence or existence of a Default
or Event of Default shall not prohibit, for purposes of this Section, the making
of such purchase, redemption, defeasance or other acquisition or retirement, and
provided, further, such purchase, redemption, defeasance or other acquisition or
retirement shall not be included in the calculation of Restricted Payments made
for purposes of clause (3) of the first paragraph under "-- Limitation on
Restricted Payments," and provided, further, that the Net Cash Proceeds from
such sale shall be excluded from sub-clause (C) of clause (3) of the first
paragraph under "-- Limitation on Restricted Payments;" (iii) any purchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent Incurrence of for cash (other than to a
Subsidiary), new Indebtedness of the Company, provided, however, that (A) such
new Indebtedness shall be contractually subordinated in right of payment to the
Securities at least to the same extent as the Indebtedness being so redeemed,
repurchased, defeased, acquired or retired, (B) if the Indebtedness being
purchased, redeemed, defeased or acquired or retired for value is Non-Recourse
Debt, such new Indebtedness shall be Non-Recourse Debt, (C) such new
Indebtedness has a Stated Maturity either (1) no earlier than the Stated
Maturity of the Indebtedness redeemed, repurchased, defeased, acquired or
retired or (2) after the Stated Maturity of the Senior Notes and (D) such
Indebtedness has an Average Life equal to or greater than the Average Life of
the Indebtedness redeemed, repurchased, defeased, acquired or retired, and
provided, further, that such purchase, redemption, defeasance or other
acquisition or retirement shall not be included in the calculation of Restricted
Payments made for purposes of clause (3) of the first paragraph under
"-- Limitation on Restricted Payments;" and (iv) any purchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Indebtedness upon a Change of Control or an Asset Sale to the extent required by
the indenture or other agreement pursuant to which such Subordinated
Indebtedness was issued, but only if the Company (A) in the case of a Change of
Control, has made an offer to repurchase the Senior Notes as described under
"-- Covenants -- Change of Control" or (B) in the case of an Asset Sale, has
applied the Net Available Cash from such Asset Sale in accordance with the
provisions described under "-- Covenants -- Sales of Assets."
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Limitation on Incurrence of Indebtedness. Under the terms of the Indenture,
the Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness, except that the Company may
Incur Indebtedness if, after giving effect thereto, the Consolidated Coverage
Ratio would be greater than 2:1.
The foregoing provision will not limit the ability of the Company or any
Restricted Subsidiary to Incur the following Indebtedness: (i) Refinancing
Indebtedness (except with respect to Indebtedness referred to in clause (ii),
(iii) or (iv) below); (ii) in addition to any Indebtedness otherwise permitted
to be Incurred hereunder, Indebtedness of the Company at any one time
outstanding in an aggregate principal amount not to exceed $25,000,000 and
provided that the proceeds of such Indebtedness shall not be used for the
purpose of making any Restricted Payments described in clause (i) or (ii) under
"-- Limitation on Restricted Payments;" (iii) Indebtedness of the Company which
is owed to and held by a Wholly Owned Subsidiary and Indebtedness of a Wholly
Owned Subsidiary which is owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any transfer of such Indebtedness (other than to the
Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the Company or by a Wholly
Owned Subsidiary, as the case may be; (iv) Indebtedness of the Company under the
Bank Credit Agreement which, when taken together with the aggregate amount of
Indebtedness Incurred pursuant to clause (viii) of this paragraph, is not in
excess of $50,000,000, and Indebtedness of the Company under the Working Capital
Credit Agreement not in excess of $25,000,000; (v) Acquired Indebtedness;
provided, however, that the Company would have been able to Incur such
Indebtedness at the time of the Incurrence thereof pursuant to the immediately
preceding paragraph; (vi) Indebtedness of the Company or a Restricted Subsidiary
outstanding on the Issue Date (other than Indebtedness referred to in clause
(iv) above and Indebtedness being repaid or retired with the proceeds of the
Offering); (vii) Non-Recourse Debt of a Restricted Subsidiary (other than a
Restricted Subsidiary existing on the Issue Date), the proceeds of which are
used to acquire, develop, improve or construct a new Facility of such Restricted
Subsidiary; (viii) guarantees by the Company of Indebtedness of Restricted
Subsidiaries which, but for such guarantees, would be permitted to be Incurred
pursuant to clause (vii) of this paragraph, provided that the aggregate
principal amount of Indebtedness Incurred pursuant to this clause (viii), when
taken together with outstanding Indebtedness Incurred under the Bank Credit
Agreement pursuant to clause (iv) of this paragraph, is not in excess of
$50,000,000; and (ix) Related Asset Indebtedness, provided that at the time of
the Incurrence thereof, giving pro forma effect to the Incurrence thereof,
Moody's and S&P shall have affirmed their respective ratings of the Senior Notes
in effect prior to the Incurrence of such Related Asset Indebtedness.
Notwithstanding the provisions of this covenant described in the first two
paragraphs above, the Indenture provides that the Company shall not Incur any
Indebtedness if the proceeds thereof are used, directly or indirectly, to repay,
prepay, redeem, defease, retire, refund or refinance any Subordinated
Indebtedness unless such repayment, prepayment, redemption, defeasance,
retirement, refunding or refinancing is not prohibited under "-- Limitation on
Restricted Payments" or unless such Indebtedness shall be contractually
subordinated to the Senior Notes at least to the same extent as such
Subordinated Indebtedness.
Limitation on Payment Restrictions Affecting Subsidiaries. Under the terms
of the Indenture, the Company shall not, and shall not permit any Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends to or make any other distributions on its Capital Stock, or pay
any Indebtedness or other obligations owed to the Company or any other
Restricted Subsidiary, (ii) make any Investments in the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary; provided, however, that the
foregoing shall not apply to (a) any encumbrance or restriction existing
pursuant to the Indenture or any other agreement or instrument as in effect or
entered into on the Issue Date; (b) any encumbrance or restriction with respect
to a Subsidiary pursuant to an agreement relating to any Acquired Indebtedness;
provided, however, that such encumbrance or restriction was not Incurred in
connection with or in contemplation of such Subsidiary becoming a Subsidiary;
(c) any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Indebtedness referred to in
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clause (a) or (b) above or contained in any amendment or modification with
respect to such Indebtedness; provided, however, that the encumbrances and
restrictions contained in any such agreement, amendment or modification are no
less favorable in any material respect with respect to the matters referred to
in clauses (i), (ii) and (iii) above than the encumbrances and restrictions with
respect to the Indebtedness being refinanced, amended or modified; (d) in the
case of clause (iii) above, customary non-assignment provisions of (a) any
leases governing a leasehold interest, (B) any supply, license or other
agreement entered into in the ordinary course of business of the Company or any
Subsidiary or (C) any security agreement relating to a Lien permitted by clause
(l) of the covenant described under "Limitation on Liens" below that, in the
reasonable determination of the President or Chief Financial Officer of the
Company (x) is required in order to obtain such financing and (v) is customary
for such financings; (e) any restrictions with respect to a Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary pending the
closing of such sale or disposition; (f) any encumbrance imposed pursuant to the
terms of Indebtedness incurred pursuant to clause (vii) of the proviso to the
covenant described under "-- Limitation on Incurrence of Indebtedness" above,
provided that such encumbrance in the written opinion of the President or Chief
Financial Officer of the Company, (x) is required in order to obtain such
financing, (y) is customary for such financings and (z) applies only to the
assets of or revenues of the applicable Facility or (g) any encumbrance or
restriction existing by reason of applicable law.
Limitation on Sale/Leaseback Transactions. Under the terms of the
Indenture, the Company shall not, and shall not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction unless (i) the Company or such
Subsidiary would be entitled to create a Lien on such property securing
Indebtedness in an amount equal to the Attributable Debt with respect to such
transaction without equally and ratably securing the Securities pursuant to the
covenant entitled "Limitation on Liens" or (ii) the net proceeds of such sale
are at least equal to the fair value (as determined by the Board of Directors)
of such property and the Company or such Subsidiary shall apply or cause to be
applied an amount in cash equal to the net proceeds of such sale to the
retirement, within 30 days of the effective date of any such arrangement, of
Senior Indebtedness or Indebtedness of a Restricted Subsidiary; provided,
however, that in addition to the transactions permitted pursuant to the
foregoing clauses (i) and (ii), the Company or any Restricted Subsidiary may
enter into a Sale/Leaseback Transaction as long as the sum of (x) the
Attributable Debt with respect to such Sale/Leaseback Transaction and all other
Sale/Leaseback Transactions entered into pursuant to this proviso, plus (y) the
amount of outstanding Indebtedness secured by Liens Incurred pursuant to the
final proviso to the covenant described under "-- Limitation on Liens" below,
does not exceed 10% of Consolidated Net Tangible Assets as determined based on
the consolidated balance sheet of the Company as of the end of the most recent
fiscal quarter for which financial statements are available; and provided,
further, that a Restricted Subsidiary that is not a Restricted Subsidiary on the
Issue Date may enter into a Sale/Leaseback Transaction with respect to property
owned by such Restricted Subsidiary, the proceeds of which are used to acquire,
develop, construct, or repay (within 365 days of the commencement of commercial
operation of such Facility) Indebtedness Incurred to acquire, develop or
construct, a new Facility of such Restricted Subsidiary, as long as neither the
Company nor any other Restricted Subsidiary shall have any obligation or
liability in connection therewith.
Limitation on Liens. Under the terms of the Indenture, the Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
incur or permit to exist any Lien of any nature whatsoever on any of its
properties (including, without limitation, Capital Stock), whether owned at the
date of such Indenture or thereafter acquired, other than (a) pledges or
deposits made by such Person under workers' compensation, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for payment of Indebtedness) or leases to which
such Person is a party, or deposits to secure statutory or regulatory
obligations of such Person or deposits of cash of United States Government bonds
to secure surety, appeal or performance bonds to which such Person is a party,
or deposits as security for contested taxes or import duties or for the payment
of rent, in each case Incurred in the ordinary course of business; (b) Liens
imposed by law such as carriers', warehousemen's and mechanics' Liens, in each
case, arising in the ordinary course of business and with respect to amounts not
yet due or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for
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which a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; or other Liens arising out of
judgments or awards against such Person with respect to which such Person shall
then be diligently prosecuting appeal or other proceedings for review; (c) Liens
for property taxes not yet subject to penalties for non-payment or which are
being contested in good faith and by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (d) Liens in favor of issuers or surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the ordinary
course of its business; provided, however, that such letters of credit may not
constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were not Incurred in connection with Indebtedness or other
extensions of credit and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such Person; (f) Liens securing Indebtedness
Incurred to finance the construction or purchase of, or repairs, improvements or
additions to, property, which shall include, without limitation, Liens on the
stock of the Restricted Subsidiary that has purchased or owns such property;
provided, however, that the Lien may not extend to any other property owned by
the Company or any Restricted Subsidiary at the time the Lien is incurred, and
the Indebtedness secured by the Lien may not be issued more than 270 days after
the later of the acquisition, completion of construction, repair, improvement,
addition or commencement of full operation of the property subject to the Lien;
(g) Liens existing on the Issue Date (other than Liens relating to Indebtedness
or other obligations being repaid or liens that are otherwise extinguished with
the proceeds of the Offering); (h) Liens on property or shares of stock of a
Person at the time such Person becomes a Subsidiary; provided, however, that any
such lien may not extend to any other property owned by the Company or any
Restricted Subsidiary; (i) Liens on property at the time the Company or a
Subsidiary acquires the property, including any acquisition by means of a merger
or consolidation with or into the Company or a Subsidiary; provided, however,
that such Liens are not incurred in connection with, or in contemplation of,
such merger or consolidation; and provided, further, that the Lien may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(j) Liens securing Indebtedness or other obligations of a Subsidiary owing to
the Company or a Wholly Owned Subsidiary; (k) Liens incurred by a Person other
than the Company or any Subsidiary on assets that are the subject of a
Capitalized Lease Obligation to which the Company or a Subsidiary is a party;
provided, however, that any such Lien may not secure Indebtedness of the Company
or any Subsidiary (except by virtue of clause (ix) of the definition of
"Indebtedness") and may not extend to any other property owned by the Company or
any Restricted Subsidiary; (l) Liens Incurred by a Restricted Subsidiary on its
assets to secure Non-Recourse Debt Incurred pursuant to clause (vii) of the
second paragraph under "-- Limitation on Incurrence of Indebtedness" above,
provided that such Lien (A) is incurred at the time of the initial Incurrence of
such Indebtedness and (B) does not extend to any assets or property of the
Company or any other Restricted Subsidiary; (m) Liens not in respect of
Indebtedness arising from Uniform Commercial Code financing statements for
informational purposes with respect to leases Incurred in the ordinary course of
business and not otherwise prohibited by this Indenture; (n) Liens not in
respect of Indebtedness consisting of the interest of the lessor under any lease
Incurred in the ordinary course of business and not otherwise prohibited by this
Indenture; (o) Liens which constitute banker's liens, rights of set-off or
similar rights and remedies as to deposit accounts or other funds maintained
with any bank or other financial institution, whether arising by operation of
law or pursuant to contract; (p) Liens to secure any refinancing, refunding,
extension, renewal or replacement (or successive refinancings, refundings,
extensions, renewals or replacements) as a whole, or in part, of any
Indebtedness secured by any Lien referred to in the foregoing clauses (f), (g),
(h) and (i), provided, however, that (x) such new Lien shall be limited to all
or part of the same property that secured the original Lien (plus improvements
on such property) and (y) the Indebtedness secured by such Lien at such time is
not increased (other than by an amount necessary to pay fees and expenses,
including premiums, related to the refinancing, refunding, extension, renewal or
replacement of such Indebtedness); and (q) Liens by which the Senior Notes are
secured equally and ratably with other Indebtedness of the Company pursuant to
the provisions described under "-- Covenants -- Limitations on Liens," without
effectively providing that the Senior Notes shall be secured equally and ratably
with (or prior to) the obligations so
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<PAGE> 59
secured for so long as such obligations are so secured; provided, however, that
the Company may incur other Liens to secure Indebtedness as long as the sum of
(x) the amount of outstanding Indebtedness secured by Liens incurred pursuant to
this proviso plus (y) the Attributable Debt with respect to all outstanding
leases in connection with Sale/Leaseback Transactions entered into pursuant to
the proviso under "-- Limitation on Sale/Leaseback Transactions," does not
exceed 10% of Consolidated Net Tangible Assets as determined with respect to the
Company as of the end of the most recent fiscal quarter for which financial
statements are available.
Change of Control. Under the terms of the Indenture, in the event of a
Change of Control Triggering Event, the Company shall make an offer to purchase
(the "Change of Control Offer") the Senior Notes then outstanding at a purchase
price equal to 101% of the principal amount (excluding any premium) thereof plus
accrued and unpaid interest to the Change of Control Purchase Date (as defined
below) on the terms set forth in this provision. The date on which the Company
shall purchase the Senior Notes pursuant to this provision (the "Change of
Control Purchase Date") shall be no earlier than 30 days, nor later than 60
days, after the notice referred to below is mailed, unless a longer period shall
be required by law. The Company shall notify the Trustee in writing promptly
after the occurrence of any Change of Control Triggering Event of the Company's
obligation to offer to purchase all of the Senior Notes.
Notice of a Change of Control Offer shall be mailed by the Company to the
Holders of the Senior Notes at their last registered address (with a copy to the
Trustee and the Paying Agent) within thirty (30) days after a Change in Control
Triggering Event has occurred. The Change of Control Offer shall remain open
from the time of mailing until a date not more than five (5) Business Days
before the Change of Control Purchase Date. The notice shall contain all
instructions and materials necessary to enable such Holders to tender (in whole
or in part) the Senior Notes pursuant to the Change of Control Offer. The
notice, which shall govern the terms of the Change of Control Offer, shall
state: (a) that the Change of Control Offer is being made pursuant to the
Indenture; (b) the purchase price and the Change of Control Purchase Date; (c)
that any Senior Note not surrendered or accepted for payment will continue to
accrue interest; (d) that any Senior Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; (e) that any Holder electing to have a Senior Note
purchased (in whole or in part) pursuant to a Change of Control Offer will be
required to surrender the Senior Note, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Senior Note completed, to the Paying
Agent at the address specified in the notice (or otherwise make effective
delivery of the Senior Note pursuant to book-entry procedures and the related
rules of the applicable depositories) at least five (5) Business Days before the
Change of Control Purchase Date; and (f) that any Holder will be entitled to
withdraw his or her election if the Paying Agent receives, not later than three
(3) Business Days prior to the Change of Control Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Senior Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his or her election to have the Senior
Note purchased.
On the Change of Control Purchase Date, the Company shall (i) accept for
payment the Senior Notes, or portions thereof, surrendered and properly tendered
and not withdrawn, pursuant to the Change of Control Offer, (ii) deposit with
the Paying Agent, no later than 11:00 a.m. eastern standard time, money, in
immediately available funds, sufficient to pay the purchase price of all the
Senior Notes or portions thereof so accepted and (iii) deliver to the Trustee,
no later than 11:00 a.m. eastern standard time, the Senior Notes so accepted
together with an Officers' Certificate stating that such Senior Notes have been
accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to Holders of Senior Notes so accepted payment in an amount equal to the
purchase price. Holders whose Securities are purchased only in part will be
issued new Senior Notes equal in principal amount to the unpurchased portion of
the Senior Notes surrendered.
Transactions with Affiliates. Under the terms of the Indenture, the Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, enter into, permit to exist, renew or extend any transaction or
series of transactions (including, without limitation, the sale, purchase,
exchange or lease of any assets or property or the rendering of any services)
with any Affiliate of the Company unless (i) the terms of such transaction or
series of transactions are (A) no less favorable to the Company or such
Restricted
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<PAGE> 60
Subsidiary, as the case may be, than would be obtainable in a comparable
transaction or series of related transactions in arm's-length dealings with an
unrelated third-party and (B) set forth in writing, if such transaction or
series of transactions involve aggregate payments or consideration in excess of
$1,000,000, and (ii) with respect to a transaction or series of transactions
involving the sale, purchase, lease or exchange of property or assets having a
value in excess of $5,000,000, such transaction or series of transactions has
been approved by a majority of the disinterested members of the Board of
Directors or, if there are no disinterested members of the Board of Directors,
the Board of Directors of the Company shall have received a written opinion of a
nationally recognized investment banking firm stating that such transaction or
series of transactions is fair to the Company or such Restricted Subsidiary from
a financial point of view. The foregoing provisions do not prohibit (i) the
payment of reasonable fees to directors of the Company and its subsidiaries who
are not employees of the Company or its subsidiaries; (ii) any transaction
between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries otherwise permitted by the terms of the Indenture; (iii) the
payment of any Restricted Payment which is expressly permitted to be paid
pursuant to the second paragraph under "-- Covenants -- Limitation on Restricted
Payments;" (iv) any issuance of securities or other reasonable payments, awards
or grants, in cash or otherwise, pursuant to, or the funding of, employment
arrangements approved by the Board of Directors; (v) the grant of stock options
or similar rights to employees and directors of the Company pursuant to plans
approved by the Board of Directors; (vi) loans or advances to employees in the
ordinary course of business; (vii) any repurchase, redemption or other
retirement of Capital Stock of the Company held by employees of the Company or
any of its Subsidiaries upon death, disability or termination of employment at a
price not in excess of the fair market value thereof approved by the Board of
Directors; (viii) any transaction between or among the Company and any
Subsidiary in the ordinary course of business and consistent with past practices
of the Company and its Subsidiaries; (ix) payments of principal, interest and
commitment fees under the Bank Credit Agreement; and (x) any agreement to do any
of the foregoing. Any transaction which has been determined, in the written
opinion of an independent nationally recognized investment banking firm, to be
fair, from a financial point of view, to the Company or the applicable
Restricted Subsidiary shall be deemed to be in compliance with this provision.
Sales of Assets. Under the terms of the Indenture, neither the Company nor
any Restricted Subsidiary shall consummate any Asset Sale unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Sale at least equal to the fair market value, as determined in good faith by the
Board of Directors, of the shares or assets subject to such Asset Sale, (ii) at
least 60% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents which are
promptly converted into cash by the Person receiving such payment and (iii) an
amount equal to 100% of the Net Available Cash is applied by the Company (or
such Subsidiary, as the case may be) as set forth herein. Under the terms of the
Indenture, the Company shall not permit any Unrestricted Subsidiary to make any
Asset Sale unless such Unrestricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of the shares or
assets so disposed of as determined in good faith by the Board of Directors.
Under the terms of the Indenture, within 365 days (such period being the
"Application Period") following the consummation of an Asset Sale, the Company
or such Restricted Subsidiary shall apply the Net Available Cash from such Asset
Sale as follows: (i) first, to the extent the Company or such Restricted
Subsidiary elects, to reinvest in Additional Assets (including by means of an
investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary); (ii) second, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (i), and to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness or any
Indebtedness of such Restricted Subsidiary), to prepay, repay or purchase Senior
Indebtedness (other than Senior Notes) or Indebtedness (other than any Preferred
Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed to
the Company or an Affiliate of the Company); (iii) third, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(i) and (ii), and to the extent the Company or such Restricted Subsidiary
elects, to purchase Senior Notes; and (iv) fourth, to the extent of the balance
of such Net Available Cash after application in accordance with clauses (i),
(ii) and (iii), to make an offer to purchase the Senior Notes at not less than
their principal amount plus accrued interest (if any) pursuant to and subject to
the conditions set forth in the
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<PAGE> 61
Indenture; provided, however, that in connection with any prepayment, repayment
or purchase of Indebtedness pursuant to clause (ii), (iii) or (iv) above, the
Company or such Restricted Subsidiary shall retire such Indebtedness and cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased. To the extent
that any Net Available Cash from any Asset Sale remains after the application of
such Net Available Cash in accordance with this paragraph, the Company or such
Restricted Subsidiary may utilize such remaining Net Available Cash in any
manner not otherwise prohibited by the Indenture.
To the extent that any or all of the Net Available Cash of any Foreign
Asset Sale is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Available Cash so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Restricted Subsidiary so long, but only so long,
as the applicable local law will not permit repatriation to the United States
(the Company hereby agreeing to promptly take or cause the applicable Restricted
Subsidiary to promptly take all actions required by the applicable local law to
permit such repatriation). Once such repatriation of any of such affected Net
Available Cash is permitted under the applicable local law, such repatriation
shall be immediately effected and such repatriated Net Available Cash will be
applied in the manner set forth in this provision as if such Asset Sale had
occurred on the date of such repatriation.
Notwithstanding the foregoing, to the extent that the Board of Directors
determines, in good faith, that repatriation of any or all of the Net Available
Cash of any Foreign Asset Sale would have a material adverse tax consequence to
the Company, the Net Available Cash so affected may be retained outside of the
United States by the applicable Restricted Subsidiary for so long as such
material adverse tax consequence would continue.
Under the Indenture, the Company shall not be required to make an offer to
purchase the Senior Notes if the Net Available Cash available from an Asset Sale
(after application of the proceeds as provided in clauses (i) and (ii) of the
second paragraph above) is less than $1,000,000 for any particular Asset Sale
(which lesser amounts shall not be carried forward for purposes of determining
whether an offer is required with respect to the Net Available Cash from any
subsequent Asset Sale).
Notwithstanding the foregoing, this provision shall not apply to, or
prevent any sale of assets, property, or Capital Stock of Subsidiaries to the
extent that the fair market value (as determined in good faith by the Board of
Directors) of such asset, property or Capital Stock, together with the fair
market value of all other assets, property, or Capital Stock of Subsidiaries
sold, transferred or otherwise disposed of in Asset Sales during the twelve
month period preceding the date of such sale, does not exceed 5% of Consolidated
Net Tangible Assets as determined as of the end of the most recent fiscal
quarter for which financial statements are available (it being understood that
this provision shall only apply with respect to the fair market value of such
asset, property or Capital Stock in excess of 5% of consolidated Net Tangible
Assets), and no violation of this provision shall be deemed to have occurred as
a consequence thereof.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under the covenant described under "-- Merger and Consolidation," the
Successor Corporation shall be deemed to have sold the properties and assets of
the Company not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale.
Limitation on the Issuance of Capital Stock and the Incurrence of
Indebtedness of Restricted Subsidiaries. Pursuant to the terms of the Indenture,
the Company shall not permit any Restricted Subsidiary, directly or indirectly,
to issue or sell, and shall not permit any Person other than the Company or a
Wholly Owned Subsidiary to own (except to the extent that any such Person may
own on the Issue Date), any shares of such Restricted Subsidiary's Capital Stock
(including options, warrants or other rights to purchase shares of Capital
Stock) except, to the extent otherwise permitted by the Indenture, (i) to the
Company or another Restricted Subsidiary that is a Wholly Owned Subsidiary of
the Company, or (ii) if, immediately after giving effect to such issuance and
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary for purposes of the Indenture; provided, however, that a Restricted
Subsidiary that has an interest in a Facility may sell shares of Non-Convertible
Stock that is not Preferred Stock if, after giving effect to such sale, the
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<PAGE> 62
Company or a Wholly Owned Subsidiary continues to hold at least a majority of
each class of Capital Stock of such Restricted Subsidiary. The Company shall not
permit any Restricted Subsidiary, directly or indirectly, to Incur Indebtedness
other than pursuant to the second paragraph under "-- Limitation on Incurrence
of Indebtedness."
Limitation on Changes in the Nature of the Business. The Indenture provides
that the Company and its Subsidiaries shall engage only in the business of
acquiring, constructing, managing, developing, improving, owning and operating
Facilities, as well as any other activities reasonably related to the foregoing
activities (including acquiring and holding reserves), including but not limited
to investing in Facilities; provided that up to 10% of the Company's
Consolidated total assets may be used in Unrelated Businesses without
constituting a violation of this covenant. In addition, the Company will, and
will cause its Subsidiaries, to conduct their respective businesses in a manner
so as to maintain the exemption of the Company and its Subsidiaries from
treatment as a public utility holding company under PUHCA or an electric utility
or public utility under any federal, state or local law; provided, however, to
the extent that any such law is amended following the Issue Date in such a
manner that would (absent application of this proviso) make compliance with this
paragraph result in a material adverse effect on the Company's results of
operations or financial condition, then the Company shall not be required to
comply with this paragraph, but only to the extent of actions or failures to act
that would (absent application of this proviso) constitute violations of this
Covenant solely as a result of such amendment.
Limitation on Subsidiary Investments. The Indenture provides that the
Company will not permit any Subsidiary with an interest in a Facility to make
any investment in or merge with any other person with an interest in a power
generation facility or, except in connection with the acquisition of Related
Assets by such Subsidiary, in an Unrelated Business.
Merger and Consolidation. Under the terms of each of the Indentures, the
Company shall not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other corporation or
sell, assign, convey, transfer or lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any Person or
group of affiliated Persons unless: (i) either (A) the Company shall be the
continuing Person, or (B) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which the properties and
assets of the Company as an entirety are transferred (the "Successor
Corporation") shall be a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental to the Indenture, executed and
delivered to the Trustee, in form and substance reasonably satisfactory to the
Trustee, all the obligations of the Company under the Indenture and the Senior
Notes; (ii) immediately before and immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the Company (or the Successor Corporation if the Company is not
the continuing obligor under the Indenture) or any Restricted Subsidiary as a
result of such transaction as having been Incurred by such Person at the time of
such transaction), no Default shall have occurred and be continuing; (iii) the
Company shall have delivered, or caused to be delivered, to the Trustee an
Officers' Certificate and, as to legal matters, an Opinion of Counsel, each in
form and substance reasonably satisfactory to the Trustee, each stating that
such consolidation, merger or transfer and such supplemental indenture comply
with the Indenture and that all conditions precedent herein provided for
relating to such transaction have been complied with; (iv) immediately after
giving effect to such transaction on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the Company (or the Successor
Corporation if the Company is not the continuing obligor under the Indenture) or
a Restricted Subsidiary in connection with or as a result of such transaction as
having been Incurred by such Person at the time of such transaction), the
Company (or the Successor Corporation if the Company is not the continuing
obligor under the Indenture) shall have a Consolidated Net Worth in an amount
which is not less than the Consolidated Net Worth of the Company immediately
prior to such transaction; and (v) immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the Company (or the Successor Corporation if the Company is not
the continuing obligor under the Indenture) or a Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred by
such Person at the time of such transaction), the Consolidated Coverage Ratio of
the Company
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<PAGE> 63
(or the Successor Corporation if the Company is not the continuing obligor under
the Indenture) is at least 1.10:1, or, if less, equal to the Consolidated
Coverage Ratio of the Company immediately prior to such transaction; provided
that, if the Consolidated Coverage Ratio of the Company before giving effect to
such transaction is within the range set forth in column (A) below, then the pro
forma Consolidated Coverage Ratio of the Company (or the Successor Corporation
if the Company is not the continuing obligor under the Indenture) shall be at
least equal to the lesser of (1) the ratio determined by multiplying the
percentage set forth in column (B) below by the Consolidated Coverage Ratio of
the Company prior to such transaction and (2) the ratio set forth in column (C)
below:
<TABLE>
<CAPTION>
(A) (B) (C)
--- ---- -----
<S> <C> <C>
1.11:1 to 1.99:1............................. 100% 1.6:1
2.00:1 to 2.99:1............................. 90% 2.1:1
3.00:1 to 3.99:1............................. 80% 2.4:1
4.00:1 or more............................... 70% 2.5:1
</TABLE>
Notwithstanding the foregoing clauses (ii), (iv) and (v), any Restricted
Subsidiary (other than a Subsidiary having an interest in a Facility) may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company or any Wholly Owned Subsidiary or Wholly Owned
Subsidiaries (other than a Subsidiary or Subsidiaries which have an interest in
a Facility) and no violation of this provision will be deemed to have occurred
as a consequence thereof, as long as the requirements of clauses (i) and (iii)
are satisfied in connection therewith.
Upon any such assumption by the Successor Corporation, except in the case
of a lease, the Successor Corporation shall succeed to and be substituted for
the Company under the Indenture and the Senior Notes and the Company shall
thereupon be released from all obligations under the Indenture and under the
Senior Notes and the Company as the predecessor corporation may thereupon or at
any time thereafter be dissolved, wound up or liquidated. The Successor
Corporation thereupon may cause to be signed, and may issue either in its own
name or in the name of the Company, all or any of the Senior Notes issuable
under the Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of the Successor Corporation
instead of the Company and subject to all the terms, conditions and limitations
prescribed in the Indenture, the Trustee shall authenticate and shall deliver
any Senior Notes which the Successor Corporation thereafter shall cause to be
signed and delivered to the Trustee for that purpose. All the Senior Notes so
issued shall in all respects have the same legal rank and benefit under the
Indenture as the Senior Notes theretofore or thereafter issued in accordance
with the terms of the Indenture as though all such Senior Notes had been issued
at the date of the execution of the Indenture.
In the case of any such consolidation, merger or transfer, such changes in
form (but not in substance) may be made in the Senior Notes thereafter to be
issued as may be appropriate.
EVENTS OF DEFAULT
"Events of Default" are defined in the Indenture as (a) default for 30 days
in payment of any interest installment due and payable on the Senior Notes, (b)
default in payment of the principal when due on any Senior Note, or failure to
redeem or purchase Senior Notes when required pursuant to the Indenture or the
Senior Notes, (c) default in performance of any other covenants or agreements in
the Indenture or in the Notes Senior for 30 days after written notice to the
Company by the Trustee or to the Company and the Trustee by the holders of at
least 25% in principal amount of the Senior Notes then outstanding, (d) there
shall have occurred either (i) a default by the Company or any Subsidiary under
any instrument or instruments under which there is or may be secured or
evidenced any Indebtedness of the Company or any Subsidiary of the Company
(other than the Senior Notes) having an outstanding principal amount of
$2,000,000 (or its foreign currency equivalent) or more individually or
$5,000,000 (or its foreign currency equivalent) or more in the aggregate that
has caused the holders thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity or (ii) a default by the Company or any
Subsidiary in the payment when due of any portion of the principal under any
such instrument, and such unpaid portion exceeds $2,000,000 (or its foreign
currency equivalent) individually or $5,000,000 (or its foreign currency
equivalent)
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<PAGE> 64
in the aggregate and is not paid, or such default is not cured or waived, within
any grace period applicable thereto, unless such Indebtedness is discharged
within 20 days of the Company or a Restricted Subsidiary becoming aware of such
default; provided, however, that the foregoing shall not apply to any default on
Non-Recourse Indebtedness; (e) any final judgment or order (not covered by
insurance) for the payment of money shall be rendered against the Company or any
Significant Subsidiary in an amount in excess of $2,000,000 (or its foreign
currency equivalent) individually or $5,000,000 (or its foreign currency
equivalent) in the aggregate for all such final judgments or orders against all
such Persons (treating any deductibles, self-insurance or retention as not so
covered) and shall not be discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order in excess of
$2,000,000 (or its foreign currency equivalent) individually or that causes the
aggregate amount for all such final judgments or orders outstanding against all
such Persons to exceed $5,000,000 (or its foreign currency equivalent) during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; and (f) certain events of
bankruptcy, insolvency and reorganization of the Company.
If any Event of Default (other than an Event of Default described in clause
(f) with respect to the Company) occurs and is continuing, the Indenture
provides that the Trustee by notice to the Company, or the Holders of at least
25% in principal amount of the Senior Notes by notice to the Company and the
Trustee, may declare the principal amount of the Senior Notes and any accrued
and unpaid interest to be due and payable immediately. If an Event of Default
described in clause (f) with respect to the Company occurs, the principal of and
interest on all the Senior Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holders of Senior Notes. The Holders of a majority in principal amount of
the Senior Notes by notice to the Trustee may rescind any such declaration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived other
than the non-payment of principal of or interest on the Senior Notes which shall
have become due by such declaration.
The Company must file annually with the Trustee a certificate describing
any Default by the Company in the performance of any conditions or covenants
that has occurred under the Indenture and its status. The Company must give the
Trustee written notice within 30 days of any Default under the Indenture that
could mature into an Event of Default described in clause (c), (d), (e) or (f)
of the second preceding paragraph.
The Trustee is entitled, subject to the duty of the Trustee during a
Default to act with the required standard of care, to be indemnified before
proceeding to exercise any right or power under the Indenture at the direction
of the Holders of the Senior Notes or which requires the Trustee to expend or
risk its own funds or otherwise incur any financial liability. The Indenture
also provides that the Holders of a majority in principal amount of the Senior
Notes issued under the Indenture may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; however, the Trustee may refuse to
follow any such direction that conflicts with law or the Indenture, is unduly
prejudicial to the rights of other Holders of the Senior Notes, or would involve
the Trustee in personal liability.
The Indenture provides that while the Trustee generally must mail notice of
a Default or Event of Default to the holders of the Senior Notes within 90 days
of occurrence, the Trustee may withhold notice to the Holders of the Senior
Notes of any Default or Event of Default (except in payment on the Senior Notes)
if the Trustee in good faith determines that the withholding of such notice is
in the interest of the Holders of the Senior Notes.
MODIFICATION OF THE INDENTURE
Under the terms of the Indenture, the Company and the Trustee may, with the
consent of the Holders of a majority in principal amount of the outstanding
Senior Notes, amend or supplement the Indenture or the Senior Notes except that
no amendment or supplement may, without the consent of each affected Holder, (i)
reduce the principal of or change the Stated Maturity of any Senior Note, (ii)
reduce the rate of or change the time of payment of interest on any Senior Note,
(iii) change the currency of payment of the Senior Notes, (iv) reduce the
premium payable upon the redemption of any Senior Note, or change the time at
which any
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such Senior Note may or shall be redeemed, (v) reduce the amount of Senior
Notes, the holders of which must consent to an amendment or supplement or (vi)
change the provisions of the Indenture relating to waiver of past defaults,
rights of Holders of the Senior Notes to receive payments or the provisions
relating to amendments of the Indenture that require the consent of Holders of
each affected Senior Note.
ACTIONS BY NOTEHOLDERS
Under the terms of the Indenture, a Holder of Senior Notes may not pursue
any remedy with respect to the Indenture or the Senior Notes (except actions for
payment of overdue principal or interest), unless (i) the Holder has given
notice to the Trustee of a continuing Event of Default, (ii) Holders of at least
25% in principal amount of the Senior Notes have made a written request to the
Trustee to pursue such remedy, (iii) such Holder or Holders have offered the
Trustee security or indemnity reasonably satisfactory to it against any loss,
liability or expense, (iv) the Trustee has not complied with such request within
60 days of such request and offer and (v) the Holders of a majority in principal
amount of the Senior Notes have not given the Trustee an inconsistent direction
during such 60-day period.
DEFEASANCE, DISCHARGE AND TERMINATION
Defeasance and Discharge. The Indenture provides that the Company will be
discharged from any and all obligations in respect of the Senior Notes, and the
provisions of the Indenture will no longer be in effect with respect to such
Senior Notes (except for, among other matters, certain obligations to register
the transfer or exchange of such Senior Notes, to replace stolen, lost or
mutilated Senior Notes, to maintain paying agencies and to hold monies for
payment in trust, and the rights of holders to receive payments of principal and
interest thereon), on the 123rd day after the date of the deposit with the
Trustee, in trust, of money or U.S. Government Obligations that, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money, or a combination thereof, in an amount sufficient to
pay the principal of and interest on such Senior Notes, when due in accordance
with the terms of the Indenture and such Senior Notes. Such a trust may only be
established if, among other things, (i) the Company has delivered to the Trustee
either (a) an Opinion of Counsel (who may not be employed by the Company) to the
effect that Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must refer to and be based
upon a ruling of the Internal Revenue Service or a change in applicable federal
income tax law occurring after the date of the Indenture or (b) a ruling of the
Internal Revenue Service to such effect and (ii) no Default under the Indenture
shall have occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after such date of deposit and such deposit shall
not result in or constitute a Default or result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company is a party or by which the Company is bound.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to the provisions described in clauses (iv) and (v)
under "-- Merger and Consolidation" and all the covenants described herein under
"-- Covenants," clause (c) under "-- Events of Default" with respect to such
covenants and clauses (iv) and (v) under "-- Merger and Consolidation," and
clauses (d) and (e) under "-- Events of Default" shall be deemed not to be
Events of Default under the Indenture, and the provisions described herein under
"-- Ranking" shall not apply, upon the deposit with the Trustee, in trust, of
money or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of and interest on the Senior Notes
issued thereunder when due in accordance with the terms of the Indenture. Such a
trust may only be established if, among other things, the provisions described
in clause (ii) of the immediately preceding paragraph have been satisfied and
the Company has delivered to the Trustee an Opinion of Counsel (who may not be
an employee of the Company) to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of
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Default and will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such deposit
and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Senior Notes, as described in the immediately
preceding paragraph and such Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
or U.S. Government Obligations on deposit with the Trustee will be sufficient to
pay principal of and interest on Senior Notes on the respective dates on which
such amounts are due but may not be sufficient to pay amounts due on such Senior
Notes, at the time of the acceleration resulting from such Event of Default.
However, the Company shall remain liable for such payments.
Termination of Company's Obligations in Certain Circumstances. The
Indenture further provides that the Company will be discharged from any and all
obligations in respect of the Senior Notes and the provisions of such Indenture
will no longer be in effect with respect to the Senior Notes (except to the
extent provided under "-- Defeasance and Discharge") if such Senior Notes mature
within one year or all of them are to be called for redemption within one year
under arrangements satisfactory to the Trustee for giving the notice of
redemption, and the Company deposits with the Trustee, in trust, money or U.S.
Government Obligations that, through the payment of interest and principal in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
such Senior Notes when due in accordance with the terms of the Indenture and
such Senior Notes. Such a trust may only be established if, among other things,
(i) no Default under the Indenture shall have occurred and be continuing on the
date of such deposit, (ii) such deposit will not result in or constitute a
Default or result in a breach or violation of, or constitute a Default under,
any other agreement or instrument to which the Company is a party or by which it
is bound and (iii) the Company has delivered to the Trustee an Opinion of
Counsel stating that such conditions have been complied with. Pursuant to this
provision, the Company is not required to deliver an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such deposit and termination, and there is no
assurance that Holders would not recognize income, gain or loss for U.S. federal
income tax purposes as a result thereof or that Holders would be subject to U.S.
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and termination had not
occurred.
UNCLAIMED MONEY
Under the terms of the Indenture, subject to any applicable abandoned
property law, the Trustee will pay to the Company upon request any money held by
it for the payment of principal or interest that remains unclaimed for two
years. After payment to the Company, Holders of Senior Notes entitled to such
money must look to the Company for payment as general creditors.
CONCERNING THE TRUSTEE AND PAYING AGENT
The Bank of New York will act as Trustee under the Indenture and will
initially be Paying Agent and Registrar for the Senior Notes. The Company may
have in the future other relationships with such bank. Notices to the Trustee,
Paying Agent and Registrar under the Indenture should be directed to The Bank of
New York, 101 Barclay Street, 21st Floor, New York, New York 10286, Attention:
Corporate Trust Trustee Administration.
GOVERNING LAW
Under the terms of the Indenture, the laws of the State of New York govern
the Indenture and the Senior Notes.
BOOK ENTRY; DELIVERY AND FORM
The Old Notes were and the New Notes will be issued in fully registered
form without interest coupons. No Senior Notes will be issuable in bearer form.
Old Notes sold in reliance on Rule 144A are represented by
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two, permanent global Notes in definitive, fully registered form without
interest coupons (the "Restricted Global Notes") and have been deposited with
the Trustee as custodian for DTC and registered in the name of a nominee of DTC.
Old Notes sold in reliance on Regulation S are represented by a single,
permanent global Note in definitive, fully registered form without interest
coupons (the "Regulation S Global Note") and has been deposited with the Trustee
as custodian for DTC and registered in the name of a nominee of DTC for the
accounts of Euroclear and Cedel.
THE GLOBAL NOTES
Upon the issuance of the Regulation S Note and the Restricted Global Notes
(each a "Global Note" and together the "Global Notes"), DTC or its custodian
credited, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Notes to the accounts
of persons who have accounts with such depositary. Ownership of beneficial
interests in a Global Notes are limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in the Global Notes will be shown on, and the transfer
of that ownership will be effected only through, records maintained by DTC or
its nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified Institutional Buyers may hold their interests in the Global Notes
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
Investors may hold their interests in the Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such system, or
indirectly through organizations that are participants in such systems.
Beginning 40 days after the sale of the Old Notes, investors may also hold such
interests through organizations other than Cedel or Euroclear that are
participants in the DTC system. Cedel and Euroclear will hold interests in the
Regulation S Global Note on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Senior Notes represented by such Global Note for all
purposes under the Indenture and the Senior Notes. No beneficial owner of an
interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and interest on, the Global Notes will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficiary ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Senior Notes (including the presentation of Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Notes is credited and only in
respect of such portion of the aggregate principal amount of Senior Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC will exchange
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the Global Notes for Certificated Senior Notes which it will distribute to its
participants and which will be legended as set forth under the heading "Transfer
Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC was
created to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interest in the Global Notes among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their respective operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Senior Notes in exchange for
the Global Notes which will bear the legend referred to under the heading
"Transfer Restrictions."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion set forth in this summary is based on the provisions of the
Internal Revenue Code of 1986, as amended, final, temporary and proposed
Treasury regulations thereunder ("Treasury Regulations"), and administrative and
judicial interpretations thereof, all as in effect on the date hereof and all of
which are subject to change (possibly on a retroactive basis). Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could affect the tax consequences to holders of Senior Notes.
This summary is for general information only and does not purport to
address all of the federal income tax consequences that may be applicable to a
holder of Senior Notes. The tax treatment of a holder of Senior Notes may vary
depending on its particular situation. For example, certain holders, including
individual retirement and other tax-deferred accounts, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and individuals who are not citizens or residents of the United
States, may be subject to special rules not discussed below. In addition, this
discussion addresses the tax consequences to the initial holders of the Senior
Notes and not the tax consequences to subsequent transfers of the Senior Notes.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES SET FORTH BELOW AND ANY OTHER FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR NEW NOTES AND OF HOLDING
AND DISPOSING OF THE NEW NOTES.
EXCHANGE OFFER
Under Section 1001 of the Code modifications in debt instruments may in
certain cases be deemed to constitute a taxable exchange of the existing debt
instrument for a new debt instrument. The Internal Revenue Service (the "IRS")
has issued Regulations providing rules for determining when a modification of a
debt
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instrument constitutes a taxable exchange. Because the terms of the New Notes do
not modify significantly the terms of the Old Notes, each New Note will be
viewed as a continuation of the corresponding Old Note, the issuance of the New
Note will be disregarded for federal income tax purposes, and a holder
exchanging an Old Note for a New Note (as well as a non-exchanging holder) will
not recognize any gain or loss as a result of the Exchange (or the Exchange
Offer).
STATED INTEREST
A holder of a New Note will be required to report as income for federal
income tax purposes interest earned on a New Note in accordance with the
holder's method of tax accounting. A holder of a New Note using the accrual
method of accounting for tax purposes is, as a general rule, required to include
interest in ordinary income as such interest accrues, while a cash basis holder
must include interest income when cash payments are received (or made available
for receipt) by such holder.
ORIGINAL ISSUE DISCOUNT
If the New Notes are issued with original issue discount ("OID") within the
meaning of Sections 1272 and 1273 of the Code and the pertinent Treasury
Regulations, holders of the New Notes generally will be required to include such
OID in gross income as it accrues in advance of the receipt of the cash
attributable to such income. The total amount of OID with respect to each New
Note will be any excess of its "stated redemption price at maturity" over its
"issue price"; provided that a New Note will not be deemed to have OID if such
excess is less than 1/4 of 1% of the New Note's stated redemption price at
maturity multiplied by the number of complete years to its maturity from its
issue date. The "issue price" of a New Note will be equal to its fair market
value when issued. The "stated redemption price at maturity" of a New Note is
the sum of all payments provided by the New Note other than "qualified stated
interest" payments. The term "qualified stated interest" generally means stated
interest that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate.
A holder of a New Note must include OID in income for federal income tax
purposes as it accrues under a "constant yield method" in advance of receipt of
cash payments attributable to such income, regardless of such holder's method of
accounting for tax purposes. The Company will furnish to the IRS and to record
holders of the New Notes information with respect to the OID, if any, accruing
during the calendar year (as well as interest paid during that year).
SALE, EXCHANGE, OR REDEMPTION OF A NOTE
Upon the sale, exchange (other than pursuant to the Exchange as discussed
above), or redemption of a Senior Note, a holder will recognize taxable gain or
loss equal to the difference between (i) the amount of cash and the fair market
value of property received (other than amounts received attributable to interest
not previously taken into account, which amount will be treated as interest
received), and (ii) the holder's adjusted tax basis in the Senior Note. A
holder's adjusted tax basis in a Senior Note generally will equal the cost of
the Senior Note to the holder, increased by the amount of any OID previously
included in income by the holder with respect to the Senior Note and reduced by
any payments previously received by the holder with respect to the Senior Note,
other than qualified stated interest payments, and by any premium amortization
deductions previously claimed by the holder. Provided the Senior Note is a
capital asset in the hands of the holder and has been held for more than one
year, any gain or loss recognized by the holder will generally be a long-term
capital gain or loss.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of a Senior Note may be
subject to a backup withholding at the rate of 31% on interest paid on the
Senior Note or on any other cash payment with respect to the sale or redemption
of the Senior Note, unless (i) such holder is a corporation or comes under
certain other exempt categories and when required demonstrates this fact or (ii)
such holder provides a correct taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies
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with applicable requirements of the backup withholding rules in the Treasury
Regulations. Prospective holders of the Senior Notes (who have not previously
furnished a Form W-9 with respect to the Old Notes) will be required to complete
a Form W-9 in order to provide the required information to the Company. A holder
of a Senior Note who does not provide the Company with the holder's correct
taxpayer identification number may be subject to penalties imposed by the IRS.
The Company will report to the holders of the Senior Notes and to the IRS
the amount of any "reportable payments" for each calendar year and the amount of
tax withheld, if any, with respect to payments on the Senior Notes.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the holder's federal income tax liability, provided
that the required information is furnished to the IRS.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
EXCHANGE, OWNERSHIP, AND DISPOSITION OF THE SENIOR NOTES (INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS).
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period of 180 days from the date of this Prospectus,
or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities have been exchanged for New Notes and resold by such
broker-dealers.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market or, in negotiated transactions or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"Underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date of this Prospectus, or such shorter
period as will terminate when all Old Notes acquired by broker-dealers for their
own accounts as a result of market-making activities or other trading activities
have been exchanged for New Notes and resold by such broker-dealers, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the years ended December 31, 1997, 1996 and 1995
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 11, 1998 and incorporated by reference in this
Prospectus 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 the 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, 1997 and 1996 and for each of the years ended
December 31, 1997, 1996 and 1995 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 11, 1998 and
incorporated by reference 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.
AVAILABLE INFORMATION
Calpine is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained by mail from the Commission's Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants, such as
the Company, that file electronically with the Commission. The address of the
site is http://www.sec.gov. In addition, the Common Stock of the Company is
listed on the New York Stock Exchange and other information concerning the
Company may be inspected at the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INCORPORATION BY REFERENCE
The following reports have been filed by the Company with the Commission
and are specifically incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, (ii) the Company's
Proxy Statement dated April 15, 1997, (iii) the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1998, and the six months ended
June 30, 1998 and (iv) the Company's Current Reports on Form 8-K filed on April
1, 1998, April 3, 1998, April 14, 1998 (as amended by the Form 8-K filed on May
15, 1998) and June 9, 1998.
All documents filed by Calpine with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Offering shall be deemed to be incorporated by reference in this Offering
Circular and to be a part of this Offering Circular from the date of the filing
of such document. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Offering Circular to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by
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reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Offering circular.
Calpine hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon written or oral request of such person, a copy of any or all of the
information that has been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference herein
unless such exhibits are specifically incorporated by reference into the
information that this Prospectus incorporates). Requests for such information
should be directed to Calpine Corporation, 50 West San Fernando Street, San
Jose, California 95113, Attention: Investor Relations (telephone number:
408-995-5115).
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LOGO
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the state of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
In accordance with Delaware Law, the certificate of incorporation of the
Company contains a provision to limit the personal liability of the directors of
the Registrant for violations of their fiduciary duty. This provision eliminates
each director's liability to the Registrant or its stockholders for monetary
damages except (i) for any breach of the director's duty of loyalty to the
Registrant 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 Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.
Article Ten of the Bylaws of the Registrant provides for indemnification of
the officers and directors of the Registrant to the fullest extent permitted by
applicable law.
The Company has entered into indemnification agreements with its directors
and officers. These agreements provide substantially broader indemnity rights
than those provided under the Delaware Law and the Company's Bylaws. The
indemnification agreements are not intended to deny or otherwise limit third-
party or derivative suits against the Company or its directors or officers, but
if a director or officer were entitled to indemnity or contribution under the
indemnification agreement, the financial burden of a third-party suit would be
borne by the Company, and the Company would not benefit from derivative
recoveries against the director or officer. Such recoveries would accrue to the
benefit of the Company but would be offset by the Company's obligations to the
director or officer under the indemnification agreement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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.(b)
</TABLE>
II-1
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.3* Indenture dated as of July 8, 1997 between the Company and
The Bank of New York, as Trustee, including form of
Notes.(c)
4.4* Indenture dated as of March 31, 1998 between the Company and
The Bank of New York, as Trustee, including form of Senior
Notes.
4.5* Registration Rights Agreement dated as of March 26, 1998
between the Company and Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation, CIBC Oppenheimer,
Scotia Capital Markets (USA) Inc. and ING Baring (U.S.)
Securities, Inc.
4.6* Supplemental Indenture dated as of July 24, 1998 between the
Company and The Bank of New York, as Trustee, including form
of Senior Notes.
4.7* Registration Rights Agreement dated as of July 21, 1998
between the Company and Morgan Stanley & Co. Incorporated.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
23.1* Consent of Brobeck, Phleger & Harrison LLP (contained in the
opinion filed as Exhibit 5.1).
23.2 Independent Public Accountants' Consent of Arthur Andersen
LLP.
23.3 Independent Public Accountants' Consent of Moss Adams LLP.
24* Power of Attorney (contained on the signature page of this
Prospectus).
25* Form T-1 Statement of Eligibility of The Bank of New York.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* 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
August 29, 1996 and filed on September 13, 1996.
(c) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated June 30, 1997 and filed on August 14, 1997.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (i) and (ii) do not apply
if the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by (i)
and (ii) is contained in periodic reports filed by the Registrant pursuant
to Section 13 or Section 15 of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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-2
<PAGE> 76
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(g) The undersigned registrant hereby undertakes to file an application for
the purpose of determining eligibility of the Trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE> 77
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN JOSE,
CALIFORNIA, ON THE 20TH DAY OF AUGUST, 1998.
CALPINE CORPORATION
By: /s/ ANN B. CURTIS
------------------------------------
Ann B. Curtis
Senior Vice President
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 TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Peter Cartwright* Chairman of the Board, August 20, 1998
- ------------------------------------------------ President,
Peter Cartwright Chief Executive Officer,
and Director (Principal
Executive Officer)
/s/ Ann B. Curtis Senior Vice President and August 20, 1998
- ------------------------------------------------ Director (Principal Financial
Ann B. Curtis Officer)
/s/ Jeffrey E. Garten* Director August 20, 1998
- ------------------------------------------------
Jeffrey E. Garten
/s/ Susan C. Schwab* Director August 20, 1998
- ------------------------------------------------
Susan C. Schwab
/s/ George J. Stathakis* Director August 20, 1998
- ------------------------------------------------
George J. Stathakis
/s/ John O. Wilson* Director August 20, 1998
- ------------------------------------------------
John O. Wilson
/s/ V. Orville Wright* Director August 20, 1998
- ------------------------------------------------
V. Orville Wright
/s/ Gloria S. Gee* Controller (Principal August 20, 1998
- ------------------------------------------------ Accounting Officer)
Gloria S. Gee
*By: /s/ ANN B. CURTIS
------------------------------------------
Ann B. Curtis
Attorney-in-fact
(Signing under the authority of a
Power of Attorney previously
filed with the Securities and
Exchange Commission)
</TABLE>
II-4
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
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.(b)
4.3* Indenture dated as of July 8, 1997 between the Company and
The Bank of New York, as Trustee, including form of
Notes.(c)
4.4* Indenture dated as of March 31, 1998 between the Company and
The Bank of New York, as Trustee, including form of Senior
Notes
4.5* Registration Rights Agreement dated as of March 26, 1998
between the Company and Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation, CIBC Oppenheimer
Corp., Scotia Capital Markets (USA) Inc. and ING Baring
(U.S.) Securities, Inc.
4.6* Supplemental Indenture dated as of July 24, 1998 between the
Company and The Bank of New York, as Trustee, including form
of Senior Notes.
4.7* Registration Rights Agreement dated as of July 21, 1998
between the Company and Morgan Stanley & Co. Incorporated.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
23.1* Consent of Brobeck, Phleger & Harrison LLP (contained in the
opinion filed as Exhibit 5.1).
23.2 Independent Public Accountants' Consent of Arthur Andersen
LLP.
23.3 Independent Public Accountants' Consent of Moss Adams LLP.
24* Power of Attorney (contained on the signature page of this
Prospectus).
25* Form T-1 Statement of Eligibility of The Bank of New York.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* 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
August 29, 1996 and filed on September 13, 1996.
(c) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated June 30, 1997 and filed on August 14, 1997.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 10,
1998 (except for Note 16 as to which the date is February 17, 1998) included in
Calpine Corporation's Form 10-K for the year ended December 31, 1997 and to all
references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
August 20, 1998
<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 22, 1998, on our audits of the consolidated
financial statements of Sumas Cogeneration Company, L.P. and Subsidiary in the
Calpine Corporation Registration Statement (Form S-4) for the Registration of
the 7 7/8% Senior Notes Due 2008 of Calpine Corporation.
Moss Adams LLP
Everett, Washington
August 20, 1998
