<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 1999
REGISTRATION NO. 333-72583
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CALPINE CORPORATION
[EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER]
<TABLE>
<S> <C>
DELAWARE 4911
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
</TABLE>
50 WEST SAN FERNANDO STREET
SAN JOSE, CA 95113
(408) 995-5115
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER CARTWRIGHT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CALPINE CORPORATION
50 WEST SAN FERNANDO STREET
SAN JOSE, CA 95113
(408) 995-5115
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT D. LESTER, ESQ. JOSEPH A. COCO, ESQ.
BROBECK, PHLEGER & HARRISON LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ONE MARKET 919 THIRD AVENUE
SPEAR STREET TOWER NEW YORK, NY 10022-3897
SAN FRANCISCO, CA 94105 (212) 735-3000
(415) 442-0900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 THAT 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 SECURITIES EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be
used in connection with the offering of % Senior Notes due 2004, %
Senior Notes Due 2006, % Senior Notes Due 2009 and % Senior Notes Due
2011 (the "Debt Prospectus") and the other to be used in connection with a
concurrent offering of common stock (the "Equity Prospectus").
<PAGE> 3
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 5, 1999
6,000,000 Shares
LOGO CALPINE CORPORATION
Common Stock
------------------
Our common stock is listed on the New York Stock Exchange under the symbol
"CPN." On
March 4, 1999, the last sale price of the common stock was $35.313.
The underwriters have an option to purchase a maximum of 900,000 additional
shares to cover
over-allotments of shares.
Concurrently with this offering of common stock, we are offering $500.0 million
of % Senior
Notes Due 2004, % Senior Notes Due 2006, % Senior Notes
Due 2009 and % Senior Notes Due 2011.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE
7.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND CALPINE
PUBLIC COMMISSIONS CORPORATION
--------- -------------- --------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total........................................... $ $ $
</TABLE>
Delivery of the shares will be made on or about March , 1999, against
payment in
immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission
has approved or disapproved of these securities or determined if this prospectus
is truthful or
complete. Any representation to the contrary is a criminal offense.
CREDIT SUISSE FIRST BOSTON
CIBC OPPENHEIMER
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
Prospectus dated March , 1999.
<PAGE> 4
[Depiction of Delta Energy Center.]
"Delta Energy Center, a proposed 880 megawatt gas-fired facility located in
Pittsburg, California."
[Depiction of Pasadena Power Plant.]
"Pasadena Power Plant, a 240 megawatt gas-fired facility located in Pasadena,
Texas."
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 7
WHERE YOU CAN FIND MORE
INFORMATION....................... 16
FORWARD-LOOKING STATEMENTS.......... 17
USE OF PROCEEDS..................... 18
PRICE RANGE OF COMMON STOCK......... 19
DIVIDEND POLICY..................... 19
CAPITALIZATION...................... 20
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 21
PRO FORMA CONSOLIDATED FINANCIAL
DATA.............................. 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATION...................... 25
BUSINESS............................ 36
MANAGEMENT.......................... 60
PRINCIPAL STOCKHOLDERS.............. 63
DESCRIPTION OF CAPITAL STOCK........ 65
DESCRIPTION OF THE SENIOR NOTES..... 67
DESCRIPTION OF CERTAIN OTHER
INDEBTEDNESS...................... 67
UNDERWRITING........................ 71
NOTICE TO CANADIAN RESIDENTS........ 72
LEGAL MATTERS....................... 73
EXPERTS............................. 74
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION CONTAINED IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
i
<PAGE> 6
[Intentionally Left Blank]
<PAGE> 7
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the common stock. You should carefully
read the entire prospectus, including the risk factors, the financial statements
and the documents incorporated by reference into it. The terms "Calpine," "our
company," "our" and "we," as used in this prospectus, refer to Calpine
Corporation and its consolidated subsidiaries.
THE COMPANY
Calpine is a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity predominantly in the United States. We have experienced
significant growth in all aspects of our business over the last five years.
Currently, we own interests in 22 power plants having an aggregate capacity of
2,729 megawatts and have three acquisition transactions pending in which we will
acquire 14 geothermal power plants with an aggregate capacity of 694 megawatts
and certain related steam fields. We also have six gas-fired projects under
construction having an aggregate capacity of 1,784 megawatts and have announced
plans to develop five gas-fired power plants with a total capacity of 3,180
megawatts. Upon completion of pending acquisitions and projects under
construction, we will have interests in 40 power plants having an aggregate
capacity of 5,207 megawatts, of which we will have a net interest in 4,271
megawatts. This represents significant growth from the 342 megawatts of capacity
we had at the end of 1993. Of this total generating capacity, 81% will be
attributable to gas-fired facilities and 19% will be attributable to geothermal
facilities.
As a result of our expansion program, our revenues, cash flow, earnings and
assets have grown significantly over the last five years, as shown in the table
below.
<TABLE>
<CAPTION>
COMPOUND ANNUAL
1993 1998 GROWTH RATE
-------- ---------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total Revenue....................... $ 69.9 $ 555.9 51%
EBITDA.............................. 42.4 255.3 43%
Net Income.......................... 3.8 45.7 64%
Total Assets........................ 302.3 1,728.9 42%
</TABLE>
Since our inception in 1984, we have developed substantial expertise in all
aspects of the development, acquisition and operation of power generation
facilities. We believe that the vertical integration of our extensive
engineering, construction management, operations, fuel management and financing
capabilities provides us with a competitive advantage to successfully implement
our acquisition and development program and has contributed to our significant
growth over the past five years.
THE MARKET
The power industry represents the third largest industry in the United
States, with an estimated end-user market of over $250 billion of electricity
sales in 1998 produced by an aggregate base of power generation facilities with
a capacity of approximately 750,000 megawatts. In response to increasing
customer demand for access to low-cost electricity
1
<PAGE> 8
and enhanced services, new regulatory initiatives have been and are continuing
to be adopted at both the state and federal level to increase competition in the
domestic power generation industry. The power generation industry historically
has been largely characterized by electric utility monopolies producing
electricity from old, inefficient, high-cost generating facilities selling to a
captive customer base. Industry trends and regulatory initiatives have
transformed the existing market into a more competitive market where end users
purchase electricity from a variety of suppliers, including non-utility
generators, power marketers, public utilities and others.
There is a significant need for additional power generating capacity
throughout the United States, both to satisfy increasing demand, as well as to
replace old and inefficient generating facilities. Due to environmental and
economic considerations, we believe this new capacity will be provided
predominantly by gas-fired facilities. We believe that these market trends will
create substantial opportunities for efficient, low-cost power producers that
can produce and sell energy to customers at competitive rates.
In addition, as a result of a variety of factors, including deregulation of
the power generation market, utilities, independent power producers and
industrial companies are disposing of power generation facilities. To date,
numerous utilities have sold or announced their intentions to sell their power
generation facilities and have focused their resources on the transmission and
distribution business segments. Many independent producers operating a limited
number of power plants are also seeking to dispose of their plants in response
to competitive pressures, and industrial companies are selling their power
plants to redeploy capital in their core businesses.
STRATEGY
Our strategy is to continue our rapid growth by capitalizing on the
significant opportunities in the power market, primarily through our active
development and acquisition programs. In pursuing our proven growth strategy, we
utilize our extensive management and technical expertise to implement a fully
integrated approach to the acquisition, development and operation of power
generation facilities. This approach uses our expertise in design, engineering,
procurement, finance, construction management, fuel and resource acquisition,
operations and power marketing, which we believe provides us with a competitive
advantage. The key elements of our strategy are as follows:
- Development and expansion of power plants. We are actively pursuing the
development and expansion of highly efficient, low-cost, gas-fired power
plants to replace old and inefficient generating facilities and meet the
demand for new generation.
- Acquisition of power plants. Our strategy is to acquire power generating
facilities that meet our stringent criteria, provide significant
potential for revenue, cash flow and earnings growth and provide the
opportunity to enhance the operating efficiencies of the plants.
- Enhancement of the performance and efficiency of existing power
projects. We continually seek to maximize the power generation potential
of our operating assets and minimize our operating and maintenance
expenses and fuel costs.
2
<PAGE> 9
RECENT DEVELOPMENTS
Project Development and Construction. In July 1998, we achieved a key
milestone in our development program by completing the development of our 240
megawatt gas-fired power plant in Pasadena, Texas. The Pasadena Power Plant
serves as a prototype for future development projects. We currently have six
gas-fired projects under construction, representing an additional 1,784
megawatts of capacity. Of these new projects, we are expanding our Pasadena and
Clear Lake facilities by an aggregate of 545 megawatts. In addition, four new
gas-fired power plants, with a total capacity of 1,239 megawatts, are currently
under construction in Dighton, Massachusetts; Tiverton, Rhode Island; Rumford,
Maine; and Westbrook, Maine. We have also announced plans to develop five
additional power generation facilities, totaling an estimated 3,180 megawatts of
electricity, in California, Texas and Arizona.
Pending Acquisitions. We are currently in the process of completing three
acquisitions comprising 14 geothermal power plants with an aggregate capacity of
694 megawatts and certain related steam fields, located in The Geysers,
California. Historically, we have served as the steam supplier for these
facilities, which have been owned and operated by PG&E. We anticipate that these
acquisitions will enable us to consolidate our operations in The Geysers into a
single ownership structure and to integrate the power plant and steam field
operations, allowing us to optimize the efficiency and performance of the
facilities. We believe that these acquisitions will provide us with significant
synergies that utilize our expertise in geothermal power generation and position
us to benefit from the demand for "green" energy in the competitive market.
3
<PAGE> 10
THE OFFERING
Common stock offered by
Calpine......................... 6,000,000 shares
Common stock to be outstanding
after the offering............ 26,267,297 shares(1)
Senior note offering............ Concurrently with the common stock offering,
we are offering (by a separate prospectus)
$500.0 million aggregate principal amount of
% Senior Notes Due 2004, % Senior
Notes Due 2006, % Senior Notes Due 2009
and % Senior Notes Due 2011.
Use of proceeds................. We expect to utilize a portion of the net
proceeds from the offerings as follows: (1)
$119.6 million to refinance indebtedness
relating to the Gilroy Power Plant, (2)
$101.0 million to acquire the steam fields
that service the Sonoma County Power Plants,
(3) $25.0 million to complete the expansion
of the Clear Lake Power Plant and (4)
approximately $400.0 million to finance a
portion of the power generation facilities
currently under construction and the
projects currently under development,
including, but not limited to, the
Westbrook, Sutter, South Point and Magic
Valley power plants. The remaining net
proceeds, if any, will be used for working
capital and general corporate purposes. See
"Use of Proceeds."
New York Stock Exchange
symbol.......................... CPN
- ---------------
(1) Does not include 2,884,440 shares of common stock subject to issuance upon
exercise of options previously granted and outstanding as of December 31,
1998, under our 1996 Stock Incentive Plan.
4
<PAGE> 11
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING INFORMATION
The following table sets forth a summary of our consolidated historical
financial and operating information for the periods indicated. Our summary
consolidated historical financial information was derived from our consolidated
financial statements. The information presented below should be read in
conjunction with "Selected Consolidated Financial Data" and our consolidated
financial statements, included elsewhere and incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
-------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue....................... $ 94,762 $ 132,098 $ 214,554 $ 276,321 $ 555,948
Cost of revenue..................... 52,845 77,388 129,200 153,308 375,327
Gross profit........................ 41,917 54,710 85,354 123,013 180,621
Project development expenses........ 1,784 3,087 3,867 7,537 7,165
General and administrative
expenses.......................... 7,323 8,937 14,696 18,289 26,780
Income from operations.............. 31,772 42,686 66,791 97,187 146,676
Interest expense.................... 23,886 32,154 45,294 61,466 86,726
Other (income) expense.............. (1,988) (1,895) (6,259) (17,438) (13,423)
Extraordinary charge................ -- -- -- -- 641
Net income.......................... $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 45,678
Diluted earnings per common share:
Weighted average shares of common
stock outstanding............... 10,921 10,957 14,879 21,016 21,164
Income before extraordinary
charge.......................... $ 0.55 $ 0.67 $ 1.26 $ 1.65 $ 2.19
Extraordinary charge.............. $ -- $ -- $ -- $ -- $ (0.03)
Net income........................ $ 0.55 $ 0.67 $ 1.26 $ 1.65 $ 2.16
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization....... $ 21,580 $ 26,896 $ 40,551 $ 48,935 $ 82,913
EBITDA(1)........................... $ 53,707 $ 69,515 $ 117,379 $ 172,616 $ 255,306
EBITDA to Consolidated Interest
Expense(2)........................ 2.23x 2.11x 2.41x 2.60x 2.74x
Total debt to EBITDA................ 6.23x 5.87x 5.12x 4.96x 4.20x
Ratio of earnings to fixed
charges(3)........................ 1.52x 1.46x 1.45x 1.64x 1.68x
SELECTED OPERATING INFORMATION:
Power plants:
Electricity revenue(4):
Energy.......................... $ 45,912 $ 54,886 $ 93,851 $ 110,879 $ 252,178
Capacity........................ $ 7,967 $ 30,485 $ 65,064 $ 84,296 $ 193,535
Megawatt hours produced........... 447,177 1,033,566 1,985,404 2,158,008 9,864,080
Average energy price per kilowatt
hour(5)......................... 10.267c 5.310c 4.727c 5.138c 2.557c
</TABLE>
Footnotes appear on the next page.
5
<PAGE> 12
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
-------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 96,532
Total assets........................ 421,372 554,531 1,031,397 1,380,915 1,728,946
Short-term debt..................... 27,300 85,885 37,492 112,966 5,450
Long-term line of credit............ -- 19,851 -- -- --
Long-term non-recourse debt......... 196,806 190,642 278,640 182,893 114,190
Notes payable....................... 5,296 6,348 -- -- --
Senior notes........................ 105,000 105,000 285,000 560,000 951,750
Total debt.......................... 334,402 407,726 601,132 855,859 1,071,390
Stockholders' equity................ 18,649 25,227 203,127 239,956 286,966
</TABLE>
- ---------------
(1) EBITDA is defined as income from operations plus depreciation, capitalized
interest, other income, non-cash charges and cash received from investments
in power projects, reduced by the income from unconsolidated investments in
power projects. EBITDA is presented not as a measure of operating results
but rather as a measure of our ability to service debt. EBITDA should not be
construed as an alternative either (a) to income from operations (determined
in accordance with generally accepted accounting principles) or (b) to cash
flows from operating activities (determined in accordance with generally
accepted accounting principles).
(2) 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 our capital stock.
(3) 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.
(4) Electricity revenue is comprised of fixed capacity payments, which are not
related to production, and variable energy payments, which are related to
production.
(5) Represents energy revenue divided by the megawatt hours produced.
6
<PAGE> 13
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
Each of the following factors could have a material adverse effect on our
business, financial condition or results of operations, causing the trading
price of our common stock to decline and the loss of all or part of your
investment.
WE HAVE SUBSTANTIAL INDEBTEDNESS THAT WE MAY BE UNABLE TO SERVICE AND THAT
RESTRICTS OUR ACTIVITIES
We have substantial debt that we incurred to finance the acquisition and
development of power generation facilities. As of December 31, 1998, our total
consolidated indebtedness was $1.1 billion, our total consolidated assets were
$1.7 billion and our stockholders' equity was $287.0 million. On December 31,
1998, on a pro forma basis after giving effect to the sale of $500.0 million of
the senior notes in the senior notes offering, the sale of common stock in the
common stock offering and the application of the proceeds from the offerings,
our total consolidated indebtedness would have been approximately $1.5 billion,
our total consolidated assets would have been approximately $2.3 billion and our
pro forma cash balances would have been approximately $670.6 million. Whether we
will be able to meet our debt service obligations and to repay our outstanding
indebtedness will be dependent primarily upon the performance of our power
generation facilities.
This high level of indebtedness has important consequences, including:
- limiting our ability to borrow additional amounts for working capital,
capital expenditures, debt service requirements, execution of our growth
strategy, or other purposes,
- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
service the debt,
- increasing our vulnerability to general adverse economic and industry
conditions, and
- limiting our ability to capitalize on business opportunities and to react
to competitive pressures and adverse changes in government regulation.
The operating and financial restrictions and covenants in our existing debt
agreements, including the indentures relating to our senior notes and our $100.0
million revolving credit facility, contain restrictive covenants. Among other
things, these restrictions limit or prohibit our ability to:
- incur indebtedness,
- make prepayments of indebtedness in whole or in part,
- pay dividends,
- make investments,
- engage in transactions with affiliates,
7
<PAGE> 14
- create liens,
- sell assets, and
- acquire facilities or other businesses.
Also, if our management or ownership changes, our indentures may require us
to make an offer to purchase our senior notes. We cannot assure you that we will
have the financial resources necessary to purchase our senior notes in this
event. See "Description of the Senior Notes."
We believe that our cash flow from operations, together with other
available sources of funds, including borrowings under our existing borrowing
arrangements, will be adequate to pay principal and interest on our senior notes
and other debt and to enable us to comply with the terms of our indentures and
other debt agreements. If we are unable to comply with the terms of our
indentures and other debt agreements and fail to generate sufficient cash flow
from operations in the future, we may be required to refinance all or a portion
of our senior notes and other debt or to obtain additional financing. However,
we may be unable to refinance or obtain additional financing because of our high
levels of debt and the debt incurrence restrictions under our indentures and
other debt agreements. If cash flow is insufficient and refinancing or
additional financing is unavailable, we may be forced to default on our senior
notes and other debt obligations. In the event of a default under the terms of
any of our indebtedness, the debt holders may accelerate the maturity of our
obligations, which could cause defaults under our other obligations.
OUR ABILITY TO REPAY OUR DEBT DEPENDS UPON THE PERFORMANCE OF OUR SUBSIDIARIES
Almost all of our operations are conducted through our subsidiaries and
other affiliates. As a result, we depend almost entirely upon their earnings and
cash flow to service our indebtedness, including our ability to pay the interest
on and principal of our senior notes. The non-recourse project financing
agreements of certain of our subsidiaries and other affiliates generally
restrict their ability to pay dividends, make distributions or otherwise
transfer funds to us prior to the payment of other obligations, including
operating expenses, debt service and reserves.
Our subsidiaries and other affiliates are separate and distinct legal
entities and have no obligation to pay any amounts due on our senior notes, and
do not guarantee the payment of interest on or principal of these notes. The
right of our senior note holders to receive any assets of any of our
subsidiaries or other affiliates upon our liquidation or reorganization will be
subordinated to the claims of any subsidiaries' or other affiliates' creditors
(including trade creditors and holders of debt issued by our subsidiaries or
affiliates). After giving pro forma effect to the sale of $500.0 million of the
senior notes in the senior notes offering, the sale of common stock in the
common stock offering and the application of the proceeds from both offerings,
as of December 31, 1998, none of our subsidiaries would have had any
non-recourse project financing. However, we intend to utilize non-recourse
project financing in the future that will be effectively senior to our senior
notes.
While the indentures impose limitations on our ability and the ability of
our subsidiaries to incur additional indebtedness, the indentures do not limit
the amount of non-recourse project financing that our subsidiaries may incur to
finance the acquisition and development of new power generation facilities. See
"Description of the Senior Notes -- Covenants -- Limitation on Incurrence of
Indebtedness."
8
<PAGE> 15
WE MAY BE UNABLE TO SECURE ADDITIONAL FINANCING IN THE FUTURE
Each power generation facility that we acquire or develop will require
substantial capital investment. Our ability to arrange financing and the cost of
the financing are dependent upon numerous factors. These factors include:
- 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 in us,
- the continued success of our current power generation facilities, and
- provisions of tax and securities laws that are conducive to raising
capital.
Financing for new facilities may not be available to us on acceptable terms
in the future.
We have financed our existing power generation facilities using a variety
of leveraged financing structures, primarily consisting of non-recourse project
financing and lease obligations. As of December 31, 1998, we had approximately
$1.1 billion of total consolidated indebtedness, of which approximately 11%
represented non-recourse project financing. After giving effect to the sale of
$500.0 million of senior notes and the application of the proceeds received from
the sale, as of December 31, 1998, we would have had approximately $1.5 billion
of total consolidated indebtedness, none of which would represent non-recourse
project financing. Each non-recourse project financing and lease obligation is
structured to be fully paid out of cash flow provided by the facility or
facilities. In the event of a default under a financing agreement which we do
not cure, the lenders or lessors would generally have rights to the facility and
any related assets. In the event of foreclosure after a default, we might not
retain any interest in the facility. While we intend to utilize non-recourse or
lease financing when appropriate, market conditions and other factors may
prevent similar financing for future facilities. We do not believe the existence
of non-recourse or lease financing will significantly affect our ability to
continue to borrow funds in the future in order to finance new facilities.
However, it is possible that we may be unable to obtain the financing required
to develop our power generation facilities on terms satisfactory to us.
We have from time to time guaranteed certain obligations of our
subsidiaries and other affiliates. Our lenders or lessors may also require us to
guarantee the indebtedness for future facilities. This would render our general
corporate funds vulnerable in the event of a default by the facility or related
subsidiary. Additionally, our indentures may restrict our ability to guarantee
future debt, which could adversely affect our ability to fund new facilities.
Our indentures do not limit the ability of our subsidiaries to incur
non-recourse or lease financing for investment in new facilities.
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<PAGE> 16
REVENUE UNDER SOME OF OUR POWER SALES AGREEMENTS MAY BE REDUCED SIGNIFICANTLY
UPON THEIR EXPIRATION OR TERMINATION
Most of the electricity we generate from our existing portfolio is sold
under long-term power sales agreements that expire at various times. When the
terms of each of these power sales agreements expire, it is possible that the
price paid to us for the generation of electricity may be reduced significantly,
which would substantially reduce our revenue under such agreements. The fixed
price periods in some of our long-term power sales agreements have recently
expired, and the electricity under those agreements is now sold at a fluctuating
market price. For example, the price for electricity for two of our power
plants, the Bear Canyon (20 megawatts) and West Ford Flat (27 megawatts) power
plants, was approximately 13.83 cents per kilowatt hour under the fixed price
periods that recently expired for these facilities, and is now set at the energy
clearing price, which averaged 2.66 cents per kilowatt hour during 1998. As a
result, our energy revenue under these power sales agreements has been
materially reduced. We expect the decline in energy revenues will be partially
mitigated by decreased royalties and planned operating cost reductions at these
facilities. In addition, we will continue our strategy of offsetting these
reductions through our acquisition and development program.
OUR POWER PROJECT DEVELOPMENT AND ACQUISITION ACTIVITIES MAY NOT BE SUCCESSFUL
The development of power generation facilities is subject to substantial
risks. In connection with the development of a power generation facility, we
must generally obtain:
- necessary power generation equipment,
- governmental permits and approvals,
- fuel supply and transportation agreements,
- sufficient equity capital and debt financing,
- electrical transmission agreements, and
- site agreements and construction contracts.
We may be unsuccessful in accomplishing any of these matters or in doing so on a
timely basis. In addition, project development is subject to various
environmental, engineering and construction risks relating to cost-overruns,
delays and performance. Although we may attempt to minimize the financial risks
in the development of a project by securing a favorable power sales agreement,
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 us to expend significant sums for preliminary engineering,
permitting and legal and other expenses before we can determine whether a
project is feasible, economically attractive or financeable. If we were unable
to complete the development of a facility, we would generally not be able to
recover our investment in the project. 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. We cannot assure you that we will be successful in
the development of power generation facilities in the future.
We have grown substantially in recent years as a result of acquisitions of
interests in power generation facilities and steam fields. We believe that
although the domestic power
10
<PAGE> 17
industry is undergoing consolidation and that significant acquisition
opportunities are available, we are likely to confront significant competition
for acquisition opportunities. In addition, we may be unable to continue to
identify attractive acquisition opportunities at favorable prices or, to the
extent that any opportunities are identified, we may be unable to complete the
acquisitions.
OUR PROJECTS UNDER CONSTRUCTION MAY NOT COMMENCE OPERATION AS SCHEDULED
The commencement of operation of a newly constructed power generation
facility 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 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. The insurance, warranties or performance guarantees, however, may not be
adequate to cover lost revenues or increased expenses. 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 losing our interest in a power generation facility.
In addition, power sales agreements entered into with a utility early in
the development phase of a project may enable the utility to terminate the
agreement, or to retain security posted as liquidated damages, if a project
fails to achieve commercial operation or certain operating levels by specified
dates or fails to make specified payments. In the event a termination right is
exercised the default provisions in a financing agreement may be triggered
(rendering such debt immediately due and payable). As a result, the project may
be rendered insolvent and we may lose our interest in the project.
OUR POWER GENERATION FACILITIES MAY NOT OPERATE AS PLANNED
Upon completion of our pending acquisitions and projects currently under
construction, we will operate 31 of the 40 power plants in which we will have an
interest. The continued operation of power generation facilities 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. Although from time to time our
power generation facilities have experienced equipment breakdowns or failures,
these breakdowns or failures have not had a significant effect on the operation
of the facilities or on our results of operations. As of December 31, 1998, our
power generation facilities have operated at an average availability of
approximately 96.5%. Although our facilities contain various redundancies and
back-up mechanisms, a breakdown or failure may prevent the affected facility
from performing under applicable power sales agreements. In addition, although
insurance is maintained to protect against operating risks, the proceeds of
insurance may not be adequate to cover lost revenues or increased expenses. As a
result, we could be unable to service principal and interest
11
<PAGE> 18
payments under our financing obligations which could result in losing our
interest in the power generation facility.
OUR GEOTHERMAL ENERGY RESERVES MAY BE INADEQUATE FOR OUR OPERATIONS
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,
- operating expenses relating to the extraction of fluids,
- price levels relating to the extraction of fluids, and
- capital expenditure requirements relating primarily to the drilling of
new wells.
In connection with each geothermal power plant, we estimate the
productivity of the geothermal resource and the expected decline in
productivity. The productivity of a geothermal resource may decline more than
anticipated, resulting in insufficient reserves being available for sustained
generation of the electrical power capacity desired. An incorrect estimate by us
or an unexpected decline in productivity could lower our results of operations.
Geothermal reservoirs are highly complex. 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 ours. 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 we have
extensive experience in the operation and development of geothermal energy
resources and in preparing such estimates, we cannot assure you that we will be
able to successfully manage the development and operation of our geothermal
reservoirs or that we will accurately estimate the quantity or productivity of
our steam reserves.
WE DEPEND ON OUR ELECTRICITY AND THERMAL ENERGY CUSTOMERS
Each of our power generation facilities currently relies on one or more
power sales agreements with one or more utility or other customers for all or
substantially all of such facility's revenue. In addition, the sales of
electricity to two utility customers during 1998 comprised approximately 64% of
our total revenue during that year. The loss of any one power sales agreement
with any of these customers could have a negative effect on our results of
operations. In addition, any material failure by any customer to fulfill its
obligations under a power sales agreement could have a negative effect on the
cash flow available to us and on our results of operations.
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<PAGE> 19
WE ARE SUBJECT TO COMPLEX GOVERNMENT REGULATION WHICH COULD ADVERSELY AFFECT OUR
OPERATIONS
Our 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 we believe that we have obtained the requisite approvals for our existing
operations and that our business is operated in accordance with applicable laws,
we remain subject to a varied and complex body of laws and regulations that both
public officials and private individuals may seek to enforce. Existing laws and
regulations may be revised or new laws and regulations may become applicable to
us that may have a negative effect on our business and results of operations. We
may be unable to obtain all necessary licenses, permits, approvals and
certificates for proposed projects, and completed facilities may not 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. Intricate and changing environmental and other
regulatory requirements may necessitate substantial expenditures to obtain
permits. If a project is unable to function as planned due to changing
requirements or local opposition, it may create expensive delays or significant
loss of value in a project.
Our operations are potentially 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 ("PUHCA"), 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, we are not subject to regulation as a holding
company under PUHCA, and will not be subject to such regulation as long as the
plants in which we have an interest (1) qualify as QFs, (2) are subject to
another exemption or waiver or (3) qualify as exempt wholesale generators
("EWG") under the Energy Policy Act of 1992. In order to be a QF, a facility
must be not more than 50% owned by an electric utility company or electric
utility holding company. In addition, a QF that is a cogeneration facility, such
as the plants in which we currently have interests, must produce electricity as
well as thermal energy for use in an industrial or commercial process in
specified minimum proportions. The QF also must meet certain minimum energy
efficiency standards. Any geothermal power facility which produces up to 80
megawatts of electricity and meets PURPA ownership requirements is considered a
QF.
If any of the plants in which we have an interest lose their QF status or
if amendments to PURPA are enacted that substantially reduce the benefits
currently afforded QFs, we could become a public utility holding company, which
could subject us to significant federal, state and local regulation, including
rate regulation. If we become a holding company, which could be deemed to occur
prospectively or retroactively to the date that any of our plants loses its QF
status, all our other power plants could 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
particular power purchase 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
13
<PAGE> 20
of some or all contract revenues or otherwise impair the value of a project. If
a power purchaser were to cease taking and paying for electricity or seek to
obtain refunds of past amounts paid, there can be no assurance that the costs
incurred in connection with the project could be recovered through sales to
other purchasers. Such events could adversely affect our ability to service our
indebtedness, including our senior notes. See "Business -- Government
Regulation -- Federal Energy Regulation."
Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at prices based on avoided costs of energy. We do not know whether this
legislation will be passed or, if passed, what form it may take. We cannot
provide assurance that any legislation passed would not adversely affect our
existing domestic projects.
In addition, many states are implementing or considering regulatory
initiatives designed to increase competition in the domestic power generation
industry and increase access to electric utilities' transmission and
distribution systems for independent power producers and electricity consumers.
In particular, the state of California has restructured its electric industry by
providing for a phased-in competitive power generation industry, with a power
pool and an independent system operator, and for direct access to generation for
all power purchasers outside the power exchange under certain circumstances.
Although existing QF power sales contracts are to be honored under such
restructuring, and all of our California operating projects are QFs, until the
new system is fully implemented, it is impossible to predict what impact, if
any, it may have on the operations of those projects.
WE MAY BE UNABLE TO OBTAIN AN ADEQUATE SUPPLY OF NATURAL GAS IN THE FUTURE
To date, our fuel acquisition strategy has included various combinations of
our own gas reserves, gas prepayment contracts and short-, medium- and long-term
supply contracts. In our gas supply arrangements, we attempt 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. We believe that
there will be adequate supplies of natural gas available at reasonable prices
for each of our facilities when current gas supply agreements expire. However,
gas supplies may not be available for the full term of the facilities' power
sales agreements, and gas prices may 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 negative impact on our results of
operations.
COMPETITION COULD ADVERSELY AFFECT OUR PERFORMANCE
The power generation industry is characterized by intense competition. We
encounter 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. This competition has contributed to a
reduction in electricity prices. In addition, many states have implemented or
are considering regulatory initiatives designed to increase competition in the
domestic power industry. This competition has put pressure on electric utilities
to lower their costs, including the cost of purchased electricity.
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<PAGE> 21
OUR INTERNATIONAL INVESTMENTS MAY FACE UNCERTAINTIES
We have one investment in geothermal steam fields located in Mexico and may
pursue additional international investments. International investments are
subject to unique risks and uncertainties relating to the political, social and
economic structures of the countries in which we invest. 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.
WE DEPEND ON OUR SENIOR MANAGEMENT
Our success is largely dependent on the skills, experience and efforts of
our senior management. The loss of the services of one or more members of our
senior management could have a negative effect on our business, financial
results and future growth.
SEISMIC DISTURBANCES COULD DAMAGE OUR PROJECTS
Areas where we operate and are developing many of our geothermal and
gas-fired projects are subject to frequent low-level seismic disturbances. More
significant seismic disturbances are possible. Our existing power generation
facilities are built to withstand relatively significant levels of seismic
disturbances, and we believe we maintain adequate insurance protection. However,
earthquake, property damage or business interruption insurance may be inadequate
to cover all potential losses sustained in the event of serious seismic
disturbances. Additionally, insurance may not continue to be available to us on
commercially reasonable terms.
OUR RESULTS ARE SUBJECT TO QUARTERLY AND SEASONAL FLUCTUATIONS
Our 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:
- the timing and size of acquisitions,
- the completion of development projects, and
- variations in levels of production.
Additionally, because we receive the majority of capacity payments under
some of our power sales agreements during the months of May through October, our
revenues and results of operations are, to some extent, seasonal.
THE PRICE OF OUR COMMON STOCK IS VOLATILE
The market price for our common stock has been volatile in the past, and
several factors could cause the price to fluctuate substantially in the future.
These factors include:
- announcements of developments related to our business,
- fluctuations in our results of operations,
- sales of substantial amounts of our securities into the marketplace,
15
<PAGE> 22
- general conditions in our industry or the worldwide economy,
- an outbreak of war or hostilities,
- a shortfall in revenues or earnings compared to securities analysts'
expectations,
- changes in analysts' recommendations or projections, and
- announcements of new acquisitions or development projects by us.
The market price of our common stock may fluctuate significantly in the
future, and these fluctuations may be unrelated to our performance. General
market price declines or market volatility in the future could adversely affect
the price of our common stock, and the current market price may not be
indicative of future market prices.
WE COULD BE ADVERSELY AFFECTED IF OUR COMPUTER SYSTEMS ARE NOT YEAR 2000
COMPLIANT
The "Year 2000 problem" refers to the fact that some computer hardware,
software and embedded systems were designed to read and store dates using only
the last two digits of the year.
We are coordinating our efforts to address the impact of Year 2000 on our
business through an analysis of four separate technology domains:
- corporate applications, which include core business systems,
- non-information technology, which includes all operating and control
systems,
- end-user computing systems (that is, systems that are not considered core
business systems but may contain date calculations), and
- business partner and vendor systems.
We currently expect to complete our Year 2000 efforts with respect to
critical systems by mid-1999. This schedule and our cost estimates may be
affected by, among other things, the availability of Year 2000 personnel, the
readiness of third parties, the timing for testing our embedded systems, the
availability of vendor resources to complete embedded system assessments and
produce required component upgrades and our ability to implement appropriate
contingency plans.
We produce revenues by selling power we produce to customers. We depend on
transmission and distribution facilities that are owned and operated by
investor-owned utilities to deliver power to our customers. If either our
customers or the providers of transmission and distribution facilities
experience significant disruptions as a result of the Year 2000 problem, our
ability to sell and deliver power may be hindered, which could result in a loss
of revenue.
The cost or consequences of a materially incomplete or untimely resolution
of the Year 2000 problem could adversely affect our future operations, financial
results or our financial condition.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file at the public reference facilities of the SEC
located at 450 Fifth Street N.W., Washington D.C. 20549. You may obtain
information on the operation of the SEC's public reference facilities by calling
the SEC at 1-800-SEC-0330. You can also access copies
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<PAGE> 23
of such material electronically on the SEC's home page on the World Wide Web at
http://www.sec.gov.
This prospectus is part of a registration statement (Registration No.
333-72583) we filed with the SEC. The SEC permits us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file with the SEC after the date of this
prospectus will automatically update and supersede this information. We
incorporate by reference our Annual Report on Form 10-K for the year ended
December 31, 1998, as amended, filed by us with the SEC. We also incorporate by
reference any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, until we sell all
of the shares of common stock and senior notes being registered or until this
offering is otherwise terminated.
If you request a copy of any or all of the documents incorporated by
reference, then we will send to you the copies you requested at no charge.
However, we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct
requests for such copies to Investor Relations, Calpine Corporation, 50 West San
Fernando Street, San Jose, California 95113. Our telephone number is (408)
995-5115.
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and incorporated by reference are
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results.
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<PAGE> 24
USE OF PROCEEDS
The aggregate net proceeds to us from the sale of the 6,000,000 shares of
common stock offered by us in the common stock offering and $500.0 million of
senior notes in the senior note offering (after deducting underwriting discounts
and commissions and estimated offering expenses) will be approximately $693.7
million ($724.2 million if the underwriters' over-allotment option in the common
stock offering is exercised in full). We expect to utilize a portion of the net
proceeds from the offerings as follows: (1) $119.6 million to refinance
indebtedness relating to the Gilroy Power Plant, (2) $101.0 million to acquire
the steam fields that service the Sonoma County Power Plants, (3) $25.0 million
to complete the expansion of the Clear Lake Power Plant and (4) approximately
$400.0 million to finance a portion of the power generation facilities currently
under construction and the projects currently under development, including, but
not limited to, the Westbrook, Sutter, South Point and Magic Valley power
plants. The outstanding balance on the Gilroy Power Plant debt is approximately
$119.6 million as of the date of this prospectus and bears interest at 6.8% per
annum and matures in August 2014. The remaining net proceeds, if any, will be
used for working capital and general corporate purposes, and for the development
and acquisition of additional power generation facilities. See
"Business -- Project Development and Acquisitions." Pending such uses, we expect
to invest the net proceeds in short-term, interest-bearing securities.
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<PAGE> 25
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the symbol
"CPN." Public trading of the common stock commenced on September 20, 1996. Prior
to that, there was no public market for the common stock. The following table
sets forth, for the periods indicated, the high and low sale price per share of
the common stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997
First Quarter.............................................. $22.750 $17.125
Second Quarter............................................. 20.875 15.750
Third Quarter.............................................. 22.938 16.500
Fourth Quarter............................................. 21.250 12.375
1998
First Quarter.............................................. $18.500 $12.750
Second Quarter............................................. 21.250 17.250
Third Quarter.............................................. 21.500 17.125
Fourth Quarter............................................. 27.625 17.813
1999
First Quarter (through March 4, 1999)...................... $37.375 $25.250
</TABLE>
As of March 4, 1999, there were approximately 51 holders of record of our
common stock. On March 4, 1999, the last sale price reported on the New York
Stock Exchange for our common stock was $35.313 per share.
DIVIDEND POLICY
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future because we intend to retain our earnings to finance the
expansion of our business and for general corporate purposes. In addition, our
ability to pay cash dividends is restricted under our indentures and our other
debt agreements. Future cash dividends, if any, will be at the discretion of our
board of directors and will depend upon, among other things, our future
operations and earnings, capital requirements, general financial condition,
contractual restrictions and such other factors as the board of directors may
deem relevant.
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<PAGE> 26
CAPITALIZATION
The following table sets forth, as of December 31, 1998 (1) the actual
consolidated capitalization of the Company; and (2) the consolidated
capitalization of our Company as adjusted for the sale of senior notes, the sale
of the shares of our common stock in this offering (at an assumed offering price
of $35.313 per share) and the application of the estimated net proceeds to
refinance indebtedness relating to the Gilroy Power Plant, as described in "Use
of Proceeds." This table should be read in conjunction with the consolidated
financial statements and related notes thereto incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
CASH:
Cash and cash equivalents.......................... $ 96,532 $ 670,640
========== ===========
SHORT-TERM DEBT:
Current portion of non-recourse project
financing....................................... $ 5,450 $ --
Notes payable and short-term borrowings............ -- --
---------- -----------
Total short-term debt...................... $ 5,450 $ --
========== ===========
LONG-TERM DEBT:
Non-recourse project financing, net of current
portion......................................... 114,190 --
Senior notes....................................... 951,750 1,451,750
---------- -----------
Total long-term debt....................... 1,065,940 1,451,750
---------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value:
10,000,000 shares authorized; no shares
outstanding, actual and as adjusted............. -- --
Common stock, $0.001 par value:
100,000,000 shares authorized; 20,267,297 shares
outstanding, actual; and 26,267,297 shares
outstanding, as adjusted(1)..................... 20 26
Additional paid-in capital......................... 168,874 370,941
Retained earnings.................................. 118,072 118,072
---------- -----------
Total stockholders' equity................. 286,966 489,039
---------- -----------
Total capitalization.................... $1,352,906 $ 1,940,789
========== ===========
</TABLE>
- ---------------
(1) Does not include 2,884,440 shares of common stock subject to issuance upon
exercise of options previously granted and outstanding as of December 31,
1998, under our 1996 Stock Incentive Plan.
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<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data set forth below for the five years ended
and as of December 31, 1998 have been derived from the audited consolidated
financial statements of our company. 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales.......... $ 90,295 $127,799 $ 199,464 $ 237,277 $ 507,897
Service contract revenue from related
parties............................ 7,221 7,153 6,455 10,177 20,249
Income (loss) from unconsolidated
investments in power projects...... (2,754) (2,854) 6,537 15,819 25,240
Interest income on loans to power
projects........................... -- -- 2,098 13,048 2,562
-------- -------- ---------- ---------- ----------
Total revenue................. 94,762 132,098 214,554 276,321 555,948
Cost of revenue........................ 52,845 77,388 129,200 153,308 375,327
-------- -------- ---------- ---------- ----------
Gross profit........................... 41,917 54,710 85,354 123,013 180,621
Project development expenses........... 1,784 3,087 3,867 7,537 7,165
General and administrative expenses.... 7,323 8,937 14,696 18,289 26,780
Provision for write-off of project
development costs.................... 1,038 -- -- -- --
-------- -------- ---------- ---------- ----------
Income from operations................. 31,772 42,686 66,791 97,187 146,676
Interest expense....................... 23,886 32,154 45,294 61,466 86,726
Other (income) expense................. (1,988) (1,895) (6,259) (17,438) (13,423)
-------- -------- ---------- ---------- ----------
Income before provision for income
taxes.............................. 9,874 12,427 27,756 53,159 73,373
Provision for income taxes............. 3,853 5,049 9,064 18,460 27,054
-------- -------- ---------- ---------- ----------
Income before extraordinary charge... 6,021 7,378 18,692 34,699 46,319
Extraordinary charge for retirement of
debt, net of tax benefit of $441..... -- -- -- -- 641
-------- -------- ---------- ---------- ----------
Net income........................... $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 45,678
======== ======== ========== ========== ==========
Basic earnings per common share:
Weighted average shares of common
stock outstanding.................. 10,388 10,388 12,903 19,946 20,121
Income before extraordinary charge... $ 0.58 $ 0.71 $ 1.45 $ 1.74 $ 2.30
Extraordinary charge................. $ -- $ -- $ -- $ -- $ (0.03)
Net income........................... $ 0.58 $ 0.71 $ 1.45 $ 1.74 $ 2.27
Diluted earnings per common share:
Weighted average shares of common
stock outstanding.................. 10,921 10,957 14,879 21,016 21,164
Income before extraordinary charge... $ 0.55 $ 0.67 $ 1.26 $ 1.65 $ 2.19
Extraordinary charge................. $ -- $ -- $ -- $ -- $ (0.03)
Net income........................... $ 0.55 $ 0.67 $ 1.26 $ 1.65 $ 2.16
</TABLE>
21
<PAGE> 28
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization.......... $ 21,580 $ 26,896 $ 40,551 $ 48,935 $ 82,913
EBITDA(1).............................. $ 53,707 $ 69,515 $ 117,379 $ 172,616 $ 255,306
EBITDA to Consolidated Interest
Expense(2)........................... 2.23x 2.11x 2.41x 2.60x 2.74x
Total debt to EBITDA................... 6.23x 5.87x 5.12x 4.96x 4.20x
Ratio of earnings to fixed
charges(3)........................... 1.52x 1.46x 1.45x 1.64x 1.68x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 96,532
Property, plant and equipment, net..... 335,453 447,751 648,208 736,339 1,094,303
Investments in power projects.......... 11,114 8,218 13,936 222,542 221,509
Notes receivable....................... 16,882 25,785 36,143 117,357 10,899
Total assets........................... 421,372 554,531 1,031,397 1,380,915 1,728,946
Short-term debt........................ 27,300 85,885 37,492 112,966 5,450
Long-term line of credit............... -- 19,851 -- -- --
Non-recourse debt...................... 196,806 190,642 278,640 182,893 114,190
Notes payable.......................... 5,296 6,348 -- -- --
Senior notes........................... 105,000 105,000 285,000 560,000 951,750
Total debt............................. 334,402 407,726 601,132 855,859 1,071,390
Stockholders' equity................... 18,649 25,227 203,127 239,956 286,966
</TABLE>
- ---------------
(1) EBITDA is defined as income from operations plus depreciation, capitalized
interest, other income, non-cash charges and cash received from investments
in power projects, reduced by the income from unconsolidated investments in
power projects. EBITDA is presented here not as a measure of operating
results but rather as a measure of our ability to service debt. EBITDA
should not be construed as an alternative either (a) to income from
operations (determined in accordance with generally accepted accounting
principles) or (b) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles).
(2) 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 our capital stock.
(3) 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.
22
<PAGE> 29
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1998 gives effect to the following transactions as
if such transactions had occurred on January 1, 1998: (1) our acquisition of the
remaining 55% interest in the Bethpage Power Plant on February 5, 1998 (the
"Bethpage Transaction"); (2) our acquisition of the remaining 50% interest in
the Texas City Power Plant and the Clear Lake Power Plant on April 1, 1998 (the
"Texas City/Clear Lake Transaction"); (3) our sale of $300 million of 7 7/8%
Senior Notes Due 2008 on March 31, 1998, and the application of the net proceeds
therefrom; and (4) our sale of $100 million of 7 7/8% Senior Notes Due 2008 on
July 24, 1998 and the application of the net proceeds therefrom (the Bethpage
Transaction, the Texas City/Clear Lake Transaction, the sale of $300 million of
7 7/8% Senior Notes Due 2008 and the sale of $100 million of 7 7/8% Senior Notes
Due 2008 being collectively referred to as the "Transactions").
The pro forma consolidated financial data and accompanying notes should be
read in conjunction with the consolidated financial statements and related notes
thereto incorporated by reference 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
our results of operations would actually have been had such transactions in fact
occurred at such dates, or to project our results of operations for any future
period. In the opinion of management, all adjustments necessary to present
fairly such pro forma consolidated financial data have been made.
23
<PAGE> 30
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
ACTUAL TRANSACTIONS TRANSACTIONS
--------- ---------------- ------------------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales..................... $507,897 $ 74,163 $582,060
Service contract revenue from related parties... 20,249 (1,613) 18,636
Income from unconsolidated investments in power
projects...................................... 25,240 (1,765) 23,475
Interest income on loans to power projects...... 2,562 (2,520) 42
-------- --------- --------
Total revenue............................ 555,948 68,265 624,213
-------- --------- --------
Cost of revenue:
Plant operating expenses........................ 256,079 48,764 304,843
Depreciation.................................... 73,988 7,612 81,600
Production royalties............................ 10,714 -- 10,714
Operating lease expenses........................ 17,129 (1,277) 15,852
Service contract expenses....................... 17,417 -- 17,417
-------- --------- --------
Total cost of revenue.................... 375,327 55,099 430,426
-------- --------- --------
Gross profit...................................... 180,621 13,166 193,787
Project development expenses...................... 7,165 -- 7,165
General and administrative expenses............... 26,780 (27) 26,753
-------- --------- --------
Income from operations.......................... 146,676 13,193 159,869
Interest expense.................................. 86,726 8,302 95,028
Interest income................................... (12,348) -- (12,348)
Other (income) expense............................ (1,075) (146) (1,221)
-------- --------- --------
Income before provision for income taxes........ 73,373 5,037 78,410
Provision for income taxes........................ 27,054 1,689 28,743
-------- --------- --------
Income before extraordinary charge................ 46,319 3,348 49,667
Extraordinary charge for retirement of debt, net
of tax benefit of $441.......................... 641 -- 641
-------- --------- --------
Net income.................................... $ 45,678 $ 3,348 $ 49,026
======== ========= ========
Basic earnings per common share:
Weighted average shares of common stock
outstanding................................... 20,121 20,121
Income before extraordinary charge.............. $ 2.30 $ 2.47
Extraordinary charge............................ $ (0.03) $ (0.03)
Net income...................................... $ 2.27 $ 2.44
Diluted earnings per common share:
Weighted average shares of common stock
outstanding................................... 21,164 21,164
Income before extraordinary charge.............. $ 2.19 $ 2.35
Extraordinary charge............................ $ (0.03) $ (0.03)
Net income...................................... $ 2.16 $ 2.32
OTHER OPERATING DATA AND RATIOS:
Depreciation and amortization................... $ 82,913 $ 90,525
EBITDA.......................................... $255,306 $278,091
EBITDA to Consolidated Interest Expense......... 2.74x 2.74x
Total debt to EBITDA............................ 4.20x 3.85x
Ratio of earnings to fixed charges.............. 1.68x 1.69x
</TABLE>
24
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Calpine is engaged in the development, acquisition, ownership and operation
of power generation facilities and the sale of electricity and steam principally
in the United States. At December 31, 1998, we had interests in 22 power plants
and three steam fields predominantly in the United States, having an aggregate
capacity of 3,018 megawatts.
On February 5, 1998, we acquired the remaining 55% interest in, and assumed
operations and maintenance of, the Bethpage Power Plant. We purchased the
remaining interests for approximately $5.0 million. Additionally, on March 31,
1998 we repaid all outstanding project debt of $37.4 million related to the
Bethpage Power Plant.
On March 31, 1998, we completed the acquisition of the remaining 50%
interest in the Texas Cogeneration Company ("TCC"), which is the owner of the
Texas City and Clear Lake Power Plants. We paid $52.8 million in cash and agreed
to make certain contingent purchase payments that could approximate 2.2% of
project revenue beginning in the year 2000, increasing to 2.9% in 2002. As part
of this acquisition, we own a 7.5% interest in the Bayonne Power Plant, a 165
megawatt gas-fired cogeneration power plant located in Bayonne, New Jersey. In
addition, we paid $105.3 million to restructure certain gas contracts related to
this acquisition.
On July 13, 1998, we signed a letter of intent to enter into a joint
venture to develop, own and operate approximately 2,000 megawatts of gas-fired
power plants in northern California primarily to serve the San Francisco Bay
Area. The gas-fired plants are to be constructed by Bechtel and operated by us.
We have announced that the first plant to be developed under the joint venture
will be the Delta Energy Center, an 880 megawatt gas-fired plant located at the
Dow Chemical facility in Pittsburg, California.
On July 17, 1998, we completed the purchase of a 60 megawatt geothermal
power plant located in Sonoma County, California, from the Sacramento Municipal
Utility District ("SMUD") for $13.0 million. We are the owner and operator of
the geothermal steam fields that provide steam to this facility. Under the
agreement, we 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
acquisition, SMUD agreed to purchase up to 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 off-peak power
production through 2005. We currently market the excess electricity into the
California power market.
On July 21, 1998, we completed the acquisition of a 70 megawatt gas-fired
power plant from The Dow Chemical Company for approximately $13.1 million. The
power plant is located at Dow's Pittsburg, California chemical facility. We 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 ("PG&E")
under an existing power sales agreement. In addition, we will sell approximately
200,000 lbs./hr of steam to Dow and to USS-POSCO Industries' nearby steel mill.
25
<PAGE> 32
In August 1998, we entered into a sale and leaseback transaction for
certain plant and equipment of our Greenleaf 1 & 2 Power Plants, two 49.5
megawatt gas-fired cogeneration facilities located in Sutter County, California,
for a net book value of $108.6 million. Under the terms of the agreement, we
received approximately $559,000 for the sale of all our rights, title and
interest in the stock of Calpine Greenleaf Corporation, and transferred all
non-recourse project financing of $71.6 million and deferred taxes of $21.4
million. A loss of $15.6 million was recorded on the balance sheet and is being
amortized over the term of the lease through June 2014. Additionally, we have an
early purchase option expiring September 30, 2003.
On September 28, 1998, we entered into a partnership agreement with Energy
Management, Inc. ("EMI") to acquire an ownership interest in a 265 megawatt
gas-fired plant under construction in Tiverton, Rhode Island. EMI and Calpine
will be co-general partners for this project, with EMI acting as the managing
general partner. We invested $40.0 million of equity in the power project, which
is scheduled to commence commercial operation in May 2000. We will receive 62.8%
of all cash and income distributions from the Tiverton project until we receive
a 10.5% pre-tax rate of return. Thereafter, we will receive 50% of all
distributions.
On November 18, 1998, we entered into a partnership agreement with EMI to
acquire an ownership interest in a 265 megawatt gas-fired plant under
construction in Rumford, Maine. EMI and Calpine will be co-general partners for
this project, with EMI acting as the managing general partner. We invested $40.0
million of equity in the power project, which is scheduled to commence
commercial operation in July 2000. We will receive 66 2/3% of all cash and
income distributions from the Rumford project until we receive a 10.5% pre-tax
rate of return. Thereafter, we will receive 50% of all distributions.
SELECTED OPERATING INFORMATION
Set forth below is certain selected operating information for the power
plants and steam fields for which results are consolidated in our consolidated
statements of operations. The information set forth under power plants consists
of the results for the West Ford Flat Power Plant, Bear Canyon Power Plant,
Greenleaf 1 & 2 Power Plants, Watsonville Power Plant, King City Power Plant,
Gilroy Power Plant, the Bethpage Power Plant since its acquisition on February
5, 1998, the Texas City and Clear Lake Power Plants since their acquisition on
March 31, 1998, the Pasadena Power Plant since it began commercial operation on
July 7, 1998, the Sonoma Power Plant since its acquisition on July 17, 1998 and
the Pittsburg Power Plant since its acquisition on July 21, 1998. The
information set
26
<PAGE> 33
forth under steam fields consists of the results for the PG&E Unit 13 and Unit
16 Steam Fields, the SMUDGEO #1 Steam Fields and the Thermal Power Company Steam
Fields.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
POWER PLANTS:
Electricity revenue (1):
Energy.................... $ 45,912 $ 54,886 $ 93,851 $ 110,879 $ 252,178
Capacity.................. $ 7,967 $ 30,485 $ 65,064 $ 84,296 $ 193,535
Megawatt hours produced... 447,177 1,033,566 1,985,404 2,158,008 9,864,080
Average energy price per
kilowatt hour (2)....... 10.267c 5.310c 4.727c 5.138c 2.557c
STEAM FIELDS:
Steam revenue (3):
Calpine................... $ 32,631 $ 39,669 $ 40,549 $ 42,102 $ 36,130
Other interest............ $ 2,051 $ -- $ -- $ -- $ --
Megawatt hours produced... 2,156,492 2,415,059 2,528,874 2,641,422 2,323,623
Average price per kilowatt
hour.................... 1.608c 1.643c 1.603c 1.594c 1.555c
</TABLE>
- ---------------
(1) Electricity revenue is composed of fixed capacity payments, which are not
related to production, and variable energy payments, which are related to
production.
(2) Represents variable energy revenue divided by the kilowatt-hours produced.
The significant increase in capacity revenue and the accompanying decline in
average energy price per kilowatt-hour since 1994 primarily reflects the
increase in our megawatt hour production as a result of additional gas-fired
power plants.
(3) The decline in steam revenue between 1998 and 1997 reflects the acquisition
and consolidation of the Sonoma Power Plant and the related steam fields. We
recently announced several acquisitions which we expect to be completed
during the first part of 1999. Once these acquisitions are completed we will
only record electricity revenue.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue -- Total revenue increased 101% to $555.9 million in 1998 compared to
$276.3 million in 1997.
Electricity and steam sales revenue increased 114% to $507.9 million in
1998 compared to $237.3 million in 1997. The increase is primarily attributable
to the acquisition of the remaining interest in the Texas City, Clear Lake and
Bethpage Power Plants and the acquisition of the Pittsburg Power Plant. These
power plants accounted for $245.2 million in additional electricity revenues in
1998. We benefited from the startup of our power plant in Pasadena, Texas, which
became operational in July 1998. This power plant contributed $30.5 million in
revenue during 1998. During 1998, we produced 9,864,080 total electricity
megawatt hours, which was 7,706,072 megawatt hours higher than the same period
in 1997, as a result of the factors described above. We recently announced three
acquisitions, which we expect to complete during 1999, upon government approval.
These acquisitions when completed will eliminate steam revenue for The Geysers,
reflecting the consolidation of the acquired power plants and related steam
fields.
27
<PAGE> 34
Service contract revenue increased 98% to $20.2 million in 1998 compared to
$10.2 million in 1997. The $10.0 million increase was primarily due to $3.3
million for fuel management fees, and $7.5 million for third party excess gas
sales.
Income from unconsolidated investments in power projects increased 59% to
$25.2 million in 1998 compared to $15.8 million in 1997. The increase of $9.4
million is primarily attributable to our investments in the Lockport, Stony
Brook and Kennedy International Airport Power Plants, which contributed $5.2
million of equity income during 1998, as well as $2.5 million of equity income
from the Bayonne Power Plant. For the year ended December 31, 1998, we also
recorded $11.7 million of equity income from the Sumas Power Plant compared to
$8.5 million for the same period in 1997. These increases in equity income were
partially offset by a $1.1 million decrease from the Auburndale Power Plant.
Interest income on loans to power projects decreased 80% to $2.6 million in
1998 compared to $13.0 million in 1997. This decrease was attributable to the
acquisition of the remaining 50% interest in TCC on March 31, 1998 and the sale
of a note receivable in December 1997.
Cost of revenue -- Cost of revenue increased to $375.3 million in 1998 compared
to $153.3 million in 1997. The increase of $222.0 million in 1998 was primarily
attributable to increased plant operating, fuel and depreciation expenses as a
result of the acquisition of the remaining interest in the Texas City, Clear
Lake and Bethpage Power Plants, the acquisition of the Pittsburg Power Plant and
the startup of the Pasadena Power Plant. Additionally, service contract expenses
increased $8.8 million for the year ended December 31, 1998, of which $6.6
million was related to costs associated with the sale of third party excess gas
and a $1.8 million increase for fuel management contracts.
General and administrative expenses -- General and administrative expenses
increased 46% to $26.8 million in 1998 compared to $18.3 million in 1997. The
increase was attributable to the continued growth in personnel and overhead
costs necessary to support the overall growth in our operations.
Interest expense -- Interest expense increased 41% to $86.7 million in 1998
compared to $61.5 million in 1997. The increase was primarily attributable to
interest expense of $35.0 million related to the senior notes issued in 1998 and
1997. This increase was partially offset by $3.5 million for the repayment of
non-recourse project financing for our Geysers facilities, $2.9 million for
reduction of the TCC debt, $2.0 million for reduction of the indebtedness of the
Greenleaf 1 & 2 Power Plants and $1.7 million of interest capitalized on the
development and construction of power projects.
Interest income -- Interest income decreased 14% to $12.3 million in 1998
compared to $14.3 million in 1997. The decrease was primarily attributable to
less interest earned on restricted cash in 1998.
Other income, net -- Other income decreased 66% to $1.1 million in 1998 compared
to $3.2 million in 1997. The decrease was primarily attributable to gas refunds
received in 1997.
Provision for income taxes -- The effective income tax rate was approximately
37% in 1998 compared to 35% in 1997. The effective rates were lower than the
statutory rate (federal and state) primarily due to depletion in excess of tax
basis benefits at our
28
<PAGE> 35
geothermal facilities, and a decrease in the California tax liability due to our
expansion into states other than California.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
Revenue -- Total revenue increased 29% to $276.3 million in 1997 compared to
$214.6 million in 1996.
Electricity and steam sales revenue increased 19% to $237.3 million in 1997
compared to $199.5 million in 1996. Electricity and steam sales revenue for 1997
reflected a full year of operation at the Gilroy and King City Power Plants,
which contributed to increases in electricity and steam sales revenue in 1997
compared to 1996 of $25.4 million, and $4.3 million, respectively. Electricity
and steam sales revenue for 1997 compared to 1996 was also $6.0 million higher
at the Bear Canyon and West Ford Flat Power Plants as a result of increased
production and an increase in fixed energy prices to 13.83c per kilowatt-hour.
During 1996, the Bear Canyon and West Ford Flat Power Plants experienced the
maximum curtailment allowed under their power sales agreements with PG&E. In May
1997, the power sales agreements for the Bear Canyon and West Ford Flat Power
Plants were modified to remove curtailment. Without such curtailment, these
plants generated an additional $4.2 million in revenues in 1997 as compared to
1996. In addition, Thermal Power Company ("TPC") also contributed $2.7 million
more revenue for 1997 than 1996, primarily due to increased steam sales under
the alternative pricing agreement entered into with PG&E in March 1996.
Service contract revenue increased to $10.2 million in 1997 compared to
$6.5 million in 1996. Service contract revenue during 1996 reflected a $2.8
million loss from our electricity trading operations. The increase in service
contract revenue for 1997 was also attributable to $2.8 million of revenue from
the Texas City and Clear Lake Power Plants, which were acquired in June 1997.
Income from unconsolidated investments in power projects increased to $15.8
million in 1997 compared to $6.5 million during 1996. The increase in 1997
compared to 1996 was primarily due to equity income of $6.3 million from our
June 1997 investment in the Texas City and Clear Lake Power Plants and an
increase in equity income of $2.2 million from our investment in Sumas
Cogeneration Company ("Sumas"). In accordance with a power sales agreement with
Puget Sound Power and Light Company, operations at Sumas were significantly
displaced from February to July 1997, and, in exchange, the Sumas Power Plant
received a higher price for energy sold and certain other payments. In addition,
the partnership agreement governing Sumas was amended in September 1997 to
increase our percentage of distributions.
Interest income on loans to power projects increased to $13.0 million in
1997 compared to $2.1 million in 1996. The increase was primarily related to
interest income on the loans made by Calpine Finance Company, a wholly-owned
subsidiary of our company, to the Texas City and Clear Lake Power Plants, and to
interest income on the loans to the sole shareholder of Sumas Energy, Inc., our
partner in Sumas.
Cost of revenue -- Cost of revenue increased 19% to $153.3 million in 1997
compared to $129.2 million in 1996. Plant operating, depreciation, and operating
lease expenses at the Gilroy and King City Power Plants for 1997 reflected a
full year of operations, which
29
<PAGE> 36
contributed to increases in cost of revenue in 1997 compared to 1996 of $13.0
million and $8.3 million, respectively.
Project development expenses -- Project development expenses increased 92% to
$7.5 million in 1997 compared to $3.9 million in 1996, due primarily to expanded
acquisition and development activities.
General and administrative expenses -- General and administrative expenses
increased 24% to $18.3 million in 1997 compared to $14.7 million in 1996. The
increases were primarily due to additional personnel and related expenses
necessary to support our expanding operations.
Interest expense -- Interest expense increased 36% to $61.5 million in 1997 from
$45.3 million in 1996. The increase was attributable to: (1) $10.8 million of
interest expense related to the 8 3/4% Senior Notes Due 2007 issued in July and
September 1997, (2) a $7.3 million increase in interest expense related to the
10 1/2% Senior Notes Due 2006 issued May 1996, (3) a $6.4 million increase in
interest expense on debt related to the Gilroy Power Plant acquired in August
1996 and (4) $5.4 million of interest expense on debt related to the acquisition
of the Texas City and Clear Lake Power Plants. These increases were offset by
$6.2 million of interest capitalized for the development and construction of
power plants, and a $7.6 million decrease in interest expense at Calpine Geysers
Company and TPC due to repayment of debt.
Interest income -- Interest income increased 66% to $14.3 million for 1997
compared with $8.6 million for 1996. Interest income earned on collateral
securities purchased in April 1996 in connection with the King City Power Plant
contributed to an increase in interest income of $1.2 million in 1997 as
compared to 1996. In addition, higher cash and cash equivalent balances
resulting from the issuance of the 8 3/4% Senior Notes Due 2007 during 1997
resulted in higher interest income for 1997 as compared to 1996.
Other income, net -- Other income, net, increased to $3.2 million for 1997
compared with expense of $2.3 million for 1996. In 1997, we recorded a $1.1
million gain on the sale of a note receivable and received a refund of $961,000
from PG&E. In 1996, we recorded a $3.7 million loss for uncollectible amounts
related to an acquisition project.
Provision for income taxes -- The effective rate for the income tax provision
was approximately 35% in 1997 and 33% in 1996. The effective rates were lower
than the statutory tax rate (federal and state) primarily due to depletion in
excess of tax basis benefits at our geothermal facilities, a decrease in the
California taxes paid due to our expansion into states other than California,
and a revision of prior years' tax estimates.
30
<PAGE> 37
LIQUIDITY AND CAPITAL RESOURCES
To date, we have obtained cash from our operations, borrowings under our
credit facilities and other working capital lines, sale of debt and equity, and
proceeds from non-recourse project financing. We utilized this cash to fund our
operations, service debt obligations, fund the acquisition, development and
construction of power generation facilities, finance capital expenditures and
meet our other cash and liquidity needs. The following table summarizes our cash
flow activities for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from:
Operating activities..... $ 59,944 $ 108,461 $ 171,233
Investing activities..... (330,937) (402,158) (406,657)
Financing activities..... 345,153 246,240 283,443
--------- --------- ---------
Total............ $ 74,160 $ (47,457) $ 48,019
========= ========= =========
</TABLE>
Operating activities for 1998 provided $171.2 million, consisting of
approximately $74.3 million of depreciation and amortization, $45.7 million of
net income, $34.4 million of distributions from unconsolidated investments in
power projects, $13.6 million of deferred income taxes, $5.2 million net
decrease in operating assets, and a $23.4 million net increase in operating
liabilities. This was offset by $25.2 million of income from unconsolidated
investments.
Investing activities for 1998 used $406.7 million, primarily due to $158.1
million for the acquisition of the remaining 50% interest in the Texas City and
Clear Lake Power Plants, $42.4 million for the acquisition of the remaining 55%
interest in the Bethpage Power Plant, $24.0 million of capital expenditures
related to the construction of the Pasadena Power Plant, $13.1 million for the
acquisition of the Pittsburg Power Plant, $11.9 million for the acquisition of
the Sonoma Power Plant, $74.2 million of other capital expenditures, $16.2
million of capitalized project development costs, $40.0 million for the
acquisition of an equity interest in the Tiverton Power Plant, $40.0 million for
the acquisition of an equity interest in the Rumford Power Plant, $7.0 million
of interest capitalized on construction projects, offset by $559,000 related to
the sale and leaseback transaction of the Greenleaf 1 & 2 Power Plants, the
receipt of $13.8 million of loan payments, $6.0 million of maturities of
collateral securities in connection with the King City Power Plant, and $1.1
million of restricted cash.
Financing activities for 1998 provided $283.4 million of cash consisting of
$52.1 million of borrowings for the construction of the Pasadena Power Plant,
$5.8 million of borrowings for contingent consideration in connection with the
acquisition of the Gilroy Power Plant, $394.9 million of net proceeds from
additional financings, and $1.1 million for the issuance of common stock,
partially offset by $162.1 million in repayment of non-recourse project
financing, $8.3 million of repurchase of Senior Notes Due 2006 which includes a
premium paid and accrued interest to the date of repurchase.
At December 31, 1998, cash and cash equivalents were $96.5 million and
working capital was $86.9 million. For 1998, cash and cash equivalents increased
by $48.0 million and working capital increased by $112.6 million as compared to
December 31, 1997.
31
<PAGE> 38
As a developer, owner and operator of power generation facilities, we are
required to make long-term commitments and investments of substantial capital
for our projects. We historically have financed these capital requirements with
cash from operations, borrowings under our credit facilities, other lines of
credit, non-recourse project financing or long-term debt, and the sale of
equity. We expect to commit significant capital in the near future as a result
of development projects and pending acquisitions which have been announced,
including the Westbrook, Sutter, South Point and Magic Valley Power Plants. We
are also in the process of completing three acquisitions comprising of 14
geothermal power plants located in The Geysers and certain related steam fields.
We continue to evaluate current and forecasted cash flow as a basis for
financing operating requirements and capital expenditures. We believe that we
will have sufficient liquidity from cash flow from operations, borrowings
available under the lines of credit and working capital to satisfy all
obligations under outstanding indebtedness, to finance anticipated capital
expenditures and to fund working capital requirements for the next twelve
months.
On March 31, 1998, we sold $300.0 million of 7 7/8% Senior Notes Due 2008
which mature on April 1, 2008, with interest payable semi-annually on April 1
and October 1 of each year commencing October 1, 1998 (See note 7 to the notes
to our consolidated financial statements). On July 24, 1998, we sold an
additional $100.0 million of 7 7/8% Senior Notes Due 2008. After deducting
discounts to initial purchasers and expenses of the offerings, the net proceeds
from the sale of the Senior Notes Due 2008 were approximately $392.3 million.
(See note 7 to the notes to our consolidated financial statements).
At December 31, 1998, we had a $100.0 million revolving credit facility
available with a consortium of commercial lending institutions. We had no
borrowings and $26.4 million of letters of credit outstanding under the credit
facility (See note 8 to the notes to our consolidated financial statements). The
credit facility contains certain restrictions that limit or prohibit, among
other things, the ability of Calpine or its subsidiaries to incur indebtedness,
make payments of certain indebtedness, pay dividends, make investments, engage
in transactions with affiliates, create liens, sell assets and engage in mergers
and consolidations.
At December 31, 1998, we also had $105.0 million of outstanding 9 1/4%
Senior Notes Due 2004, which mature on February 1, 2004, with interest payable
semi-annually on February 1 and August 1 of each year. In addition, we had
$171.8 million of outstanding 10 1/2% Senior Notes Due 2006, which mature on May
15, 2006, with interest payable semi-annually on May 15 and November 15 of each
year. During 1997, we issued $275.0 million of 8 3/4% Senior Notes Due 2007,
which mature on July 15, 2007, with interest payable semi-annually on January 15
and July 15 of each year.
At December 31, 1998, we had a $12.0 million letter of credit outstanding
with The Bank of Nova Scotia to secure performance of the Clear Lake Power
Plant.
We have a $1.1 million working capital line with a commercial lender that
may be used to fund short-term working capital commitments and letters of
credit. At December 31, 1998, we had no borrowings under this working capital
line and $74,000 of letters of credit outstanding. Borrowings accrue interest at
prime plus 1%.
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<PAGE> 39
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs
of Start-Up Activities," which is effective for financial statements for fiscal
years beginning after December 15, 1998. For purposes of this SOP, start-up
activities are defined broadly as those one-time activities related to opening a
new facility, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. Start-up activities include
activities related to organizing a new entity (commonly referred to as
organization costs). We have assessed the impact and adopted SOP 98-5 as of
December 31, 1998, and determined it to be immaterial to our consolidated
financial statements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This Statement establishes
the reporting of information about operating segments in annual financial
statements and requires that enterprises report selected information about
operating segments in interim financial reports to shareholders. SFAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. During 1998, we started the process of
decentralization of our operations and will complete this process during 1999.
This Statement will become effective upon completion of this process. We do not
believe that this pronouncement will have a material impact on our consolidated
financial statements.
In June 1998, FASB also issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards, requiring every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and require
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
The Statement must be applied to derivative instruments and to certain
derivative instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997.
We have not yet analyzed the impact of adopting SFAS No. 133 on the
financial statements and have not determined the timing of or method of the
adoption of SFAS No. 133. However the Statement could increase the volatility of
our earnings.
YEAR 2000 COMPLIANCE
Year 2000 Compliance -- The "Year 2000 problem" refers to the fact that
some computer hardware, software and embedded systems were designed to read and
store dates using only the last two digits of the year.
We are coordinating our efforts to address the impact of Year 2000 on our
business through a Year 2000 Project Team comprised of representatives from each
business unit and our Year 2000 Project Office. The Year 2000 Project Office is
charged with addressing
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<PAGE> 40
additional Year 2000 related issues including, but not limited to, business
continuation and other contingency planning. The Year 2000 Project Team meets
regularly to monitor the efforts of assigned staff and contractors to identify,
remediate and test our technology.
The Year 2000 Project Team is focusing on four separate technology domains:
- corporate applications, which include core business systems,
- non-information technology, which includes all operating and control
systems,
- end-user computing systems (that is, systems that are not considered core
business systems but may contain date calculations), and
- business partner and vendor systems.
Corporate Applications -- Corporate applications are those major core
systems, such as customer information, human resources and general ledger, for
which our Management Information Systems department has responsibility. We
utilize PeopleSoft for our major core systems. The PeopleSoft applications we
utilize are in operation and have been determined to be Year 2000 compliant.
Non-Information Technology/Embedded Systems -- Non-information technology
includes such items as power plant operating and control systems,
telecommunications and facilities-based equipment (e.g. telephones and two-way
radios) and other embedded systems. Each business unit is responsible for the
inventory and remediation of its embedded systems. In addition, we are working
with the Electric Power Research Institute, a consortium of power companies,
including investor-owned utilities, to coordinate vendor contacts and product
evaluation. Because many embedded systems are similar across utilities, this
concentrated effort should help to reduce total time expended in this area and
help to ensure that our efforts are consistent with the efforts and practices of
other power companies and utilities.
An Inventory phase for non-information technology/embedded systems was
completed in October 1998. An Initial Assessment phase was completed in December
1998. We plan to complete remediation of non-compliant systems by the second
quarter of 1999. To date, all embedded systems that we have identified can be
upgraded or modified within our current schedule. The schedule for addressing
Year 2000 issues with respect to mission critical embedded systems is as
follows:
<TABLE>
<CAPTION>
PERCENTAGE
PHASE COMPLETED STATUS ESTIMATED COMPLETION DATE
- ----- ---------- ----------- --------------------------
<S> <C> <C> <C>
Inventory............. 100% Complete September 1998
Initial Assessment.... 100% Complete November 1998
Detail Assessment..... 70% In Progress February 1999 - March 1999
Remediation........... 40% In Progress May 1999 - June 1999
Contingency 5%
Planning............ In Progress June 1999 - Sept 1999
</TABLE>
Testing of embedded systems is complex because some of the testing must be
completed during power plant scheduled maintenance outages. Much of the testing
will be accomplished in the spring of 1999 during regularly scheduled
maintenance outage periods. At that time, at least one typical unit of each
critical type will be tested by us or in cooperation with other power companies,
and the requirement for further testing will be determined.
End-User Computing Systems -- Some of our business units have developed
systems, databases, spreadsheets, etc. that contain date calculations.
Compliance of individual
34
<PAGE> 41
workstations is also included in this domain. These systems comprise a
relatively small percentage of the required modification in terms of both number
and criticality.
Our end-user computing systems are being inventoried by each business unit
and evaluated and remediated by our MIS staff. We have completed approximately
10% of remediation and testing of the end-user computing systems, and we expect
to complete this process by mid-1999.
Business Partner and Vendor Systems -- We have contracts with business
partners and vendors who provide products and services to us. We are vigorously
seeking to obtain Year 2000 assurances from these third parties. The Year 2000
Project Team and appropriate business units are jointly undertaking this effort.
We have sent letters and accompanying Year 2000 surveys to about 800 vendors and
suppliers. Over 400 responses have been received as of January 31, 1999. These
responses outline to varying degrees the approaches vendors are undertaking to
resolve Year 2000 issues within their own systems. Follow-up letters will be
sent to those vendors who have not responded or whose responses were inadequate.
Contingency Planning -- Contingency and business continuation planning are
in various stages of development for critical and high-priority systems. Our
existing disaster response plan and other contingency plans are currently being
evaluated and will be adopted for use in case of any Year 2000-related
disruption. We expect to complete our contingency planning by September 1999.
Costs -- The costs of expected modifications are currently estimated to be
approximately $1.7 million which will be charged to expense as incurred. From
January 1, 1998 through December 31, 1998, $158,000 has been charged to expense.
Approximately 9% of the estimated total cost was incurred in 1998, and the
remainder will be incurred in 1999 and 2000. These costs have been and will be
funded through operating cash flow. These estimates may change as additional
evaluations are completed and remediation and testing progress.
Risks -- We currently expect to complete our Year 2000 efforts with respect
to critical systems by mid-1999. This schedule and our cost estimates may be
affected by, among other things, the availability of Year 2000 personnel, the
readiness of third parties, the timing for testing our embedded systems, the
availability of vendor resources to complete embedded system assessments and
produce required component upgrades and our ability to implement appropriate
contingency plans.
We produce revenues by selling power we produce to customers. We depend on
transmission and distribution facilities that are owned and operated by
investor-owned utilities to deliver power to our customers. If either our
customers or the providers of transmission and distribution facilities
experience significant disruptions as a result of the Year 2000 problem, our
ability to sell and deliver power may be hindered, which could result in a loss
of revenue.
The cost or consequences of a materially incomplete or untimely resolution
of the Year 2000 problem could adversely affect our future operations, financial
results or our financial condition.
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<PAGE> 42
BUSINESS
OVERVIEW
Calpine is a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity predominantly in the United States. We have experienced
significant growth in all aspects of our business over the last five years.
Currently, we own interests in 22 power plants having an aggregate capacity of
2,729 megawatts and have three acquisition transactions pending in which we will
acquire 14 geothermal power plants with an aggregate capacity of 694 megawatts
and certain related steam fields. We also have six gas-fired projects under
construction having an aggregate capacity of 1,784 megawatts and have announced
plans to develop five gas-fired power plants with a total capacity of 3,180
megawatts. Upon completion of pending acquisitions and projects under
construction, we will have interests in 40 power plants having an aggregate
capacity of 5,207 megawatts, of which we will have a net interest in 4,271
megawatts. This represents significant growth from the 342 megawatts of capacity
we had at the end of 1993. Of this total generating capacity, 81% will be
attributable to gas-fired facilities and 19% will be attributable to geothermal
facilities.
As a result of our expansion program, our revenues, cash flow, earnings and
assets have grown significantly over the last five years, as shown in the table
below.
<TABLE>
<CAPTION>
COMPOUND ANNUAL
1993 1998 GROWTH RATE
-------- ---------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total Revenue..................... $ 69.9 $ 555.9 51%
EBITDA............................ 42.4 255.3 43%
Net Income........................ 3.8 45.7 64%
Total Assets...................... 302.3 1,728.9 42%
</TABLE>
Since our inception in 1984, we have developed substantial expertise in all
aspects of the development, acquisition and operation of power generation
facilities. We believe that the vertical integration of our extensive
engineering, construction management, operations, fuel management and financing
capabilities provides us with a competitive advantage to successfully implement
our acquisition and development program and has contributed to our significant
growth over the past five years.
THE MARKET
The power industry represents the third largest industry in the United
States, with an estimated end-user market of over $250 billion of electricity
sales in 1998 produced by an aggregate base of power generation facilities with
a capacity of approximately 750,000 megawatts. In response to increasing
customer demand for access to low-cost electricity and enhanced services, new
regulatory initiatives have been and are continuing to be adopted at both the
state and federal level to increase competition in the domestic power generation
industry. The power generation industry historically has been largely
characterized by electric utility monopolies producing electricity from old,
inefficient, high-cost generating facilities selling to a captive customer base.
Industry trends and regulatory initiatives have transformed the existing market
into a more competitive market where end users purchase electricity from a
variety of suppliers, including non-utility generators, power marketers, public
utilities and others.
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<PAGE> 43
There is a significant need for additional power generating capacity
throughout the United States, both to satisfy increasing demand, as well as to
replace old and inefficient generating facilities. Due to environmental and
economic considerations, we believe this new capacity will be provided
predominantly by gas-fired facilities. We believe that these market trends will
create substantial opportunities for efficient, low-cost power producers that
can produce and sell energy to customers at competitive rates.
In addition, as a result of a variety of factors, including deregulation of
the power generation market, utilities, independent power producers and
industrial companies are disposing of power generation facilities. To date,
numerous utilities have sold or announced their intentions to sell their power
generation facilities and have focused their resources on the transmission and
distribution segments. Many independent producers operating a limited number of
power plants are also seeking to dispose of their plants in response to
competitive pressures, and industrial companies are selling their power plants
to redeploy capital in their core businesses.
STRATEGY
Our strategy is to continue our rapid growth by capitalizing on the
significant opportunities in the power market, primarily through our active
development and acquisition programs. In pursuing our proven growth strategy, we
utilize our extensive management and technical expertise to implement a fully
integrated approach to the acquisition, development and operation of power
generation facilities. This approach uses our expertise in design, engineering,
procurement, finance, construction management, fuel and resource acquisition,
operations and power marketing, which we believe provides us with a competitive
advantage. The key elements of our strategy are as follows:
- Development and expansion of power plants. We are actively pursuing the
development and expansion of highly efficient, low-cost, gas-fired power
plants to replace old and inefficient generating facilities and meet the
demand for new generation. Our strategy is to develop power plants in
strategic geographic locations that enable us to utilize existing power
generation assets and operate the power plants as integrated electric
generation systems. This allows us to achieve significant operating
synergies and efficiencies in fuel procurement, power marketing and
operations and maintenance.
In July 1998, we achieved a key milestone in our development program by
completing the development of our 240 megawatt gas-fired power plant in
Pasadena, Texas. The Pasadena Power Plant serves as a prototype for
future development projects. We currently have six gas-fired projects
under construction, representing an additional 1,784 megawatts of
capacity. Of these new projects, we are expanding our Pasadena and Clear
Lake facilities by an aggregate of 545 megawatts. In addition, four new
gas-fired power plants, with a total capacity of 1,239 megawatts, are
currently under construction in Dighton, Massachusetts; Tiverton, Rhode
Island; Rumford, Maine; and Westbrook, Maine. We have also announced
plans to develop five additional power generation facilities, totaling an
estimated 3,180 megawatts of electricity, in California, Texas and
Arizona.
- Acquisition of power plants. Our strategy is to acquire power generating
facilities that meet our stringent criteria, provide significant
potential for revenue, cash flow and earnings growth and provide the
opportunity to enhance the operating efficiencies of the plants. We have
significantly expanded and diversified our project
37
<PAGE> 44
portfolio through the acquisition of power generation facilities through
the completion of 23 acquisitions to date.
We are currently in the process of completing three acquisitions
comprising 14 geothermal power plants with an aggregate capacity of 694
megawatts and certain related steam fields located in The Geysers,
California. Historically, we have served as the steam supplier for these
facilities, which have been owned and operated by PG&E. We anticipate
that these acquisitions will enable us to consolidate our operations in
The Geysers into a single ownership structure and to integrate the power
plant and steam field operations, allowing us to optimize the efficiency
and performance of the facilities. We believe that these acquisitions
will provide us with significant synergies that utilize our expertise in
geothermal power generation and position us to benefit from the demand
for "green" energy in the competitive market.
- Enhancement of the performance and efficiency of existing power
projects. We continually seek to maximize the power generation potential
of our operating assets and minimize our operating and maintenance
expenses and fuel costs. This will become even more significant as our
portfolio of power generation facilities expands to an aggregate of 40
power plants with an aggregate capacity of 5,207 megawatts, after
completion of our pending acquisitions and projects currently under
construction. We focus on operating our plants as an integrated system of
power generation, which enables us to minimize costs and maximize
operating efficiencies. As of December 31, 1998, our power generation
facilities have operated at an average availability of approximately
96.5%. We believe that achieving and maintaining a low-cost of production
will be increasingly important to compete effectively in the power
generation market.
DESCRIPTION OF FACILITIES
We currently have interests in 22 power generation facilities and three
steam fields with a current aggregate capacity of approximately 3,018 megawatts,
consisting of 18 gas-fired power plants with a total capacity of 2,602
megawatts, four geothermal power generation facilities with a total capacity of
127 megawatts, and three steam fields with a total capacity of 289 megawatts. We
also have three pending acquisitions comprising 14 geothermal power plants with
an aggregate capacity of 694 megawatts and certain related steam fields, six
gas-fired projects currently under construction with an aggregate capacity of
1,784 megawatts, and have announced the development of five additional power
plants with an aggregate capacity of 3,180 megawatts. Each of the power
generation facilities currently in operation produces electricity for sale to a
utility or other third-party end user. Thermal energy produced by the gas-fired
cogeneration facilities is sold to governmental and industrial users.
The gas-fired and geothermal power generation projects in which we have an
interest produce electricity and thermal energy that are typically sold pursuant
to long-term power sales agreements. Revenue from a power sales agreement
usually consists of two components: energy payments and capacity payments.
Energy payments are based on a power plant's net electrical output where payment
rates may be determined by a schedule of prices covering a fixed number of years
under the power sales agreement, after which payment rates are usually indexed
to the fuel costs of the contracting utility or to general inflation indices.
Capacity payments are based on a power plant's net electrical output
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<PAGE> 45
and/or its available capacity. Energy payments are made for each kilowatt hour
of energy delivered, while capacity payments, under certain circumstances, are
made whether or not any electricity is delivered.
Upon completion of the pending acquisitions and projects under
construction, we will provide operating and maintenance services for 31 of the
40 power plants and steam fields in which we have an interest. Such services
include the operation of power plants, geothermal steam fields, wells and well
pumps, gathering systems and gas pipelines. We also supervise maintenance,
materials purchasing and inventory control, manage cash flow, train staff and
prepare operating and maintenance manuals for each power generation facility
that we operate. As a facility develops an operating history, we analyze its
operation and may modify or upgrade equipment or adjust operating procedures or
maintenance measures to enhance the facility's reliability or profitability.
These services are performed under the terms of an operating and maintenance
agreement pursuant to which we are generally reimbursed for certain costs, paid
an annual operating fee and may also be paid an incentive fee based on the
performance of the facility. The fees payable to us are generally subordinated
to any lease payments or debt service obligations of non-recourse financing for
the project.
In order to provide fuel for the gas-fired power generation facilities in
which we have an interest, natural gas reserves are acquired or natural gas is
purchased from third parties under supply agreements. We attempt to structure a
gas-fired power facility's fuel supply agreement so that gas costs have a direct
relationship to the fuel component of revenue energy payments. We currently hold
interests in geothermal leaseholds in The Geysers that produce steam that is
supplied to the power generation facilities owned by us for use in producing
electricity.
Certain power generation facilities in which we have an interest have been
financed primarily with non-recourse project financing that is structured to be
serviced out of the cash flows derived from the sale of electricity, thermal
energy and/or steam produced by such facilities and provides that the
obligations to pay interest and principal on the loans are secured almost solely
by the capital stock or partnership interests, physical assets, contracts and/or
cash flow attributable to the entities that own the facilities. The lenders
under non-recourse project financing generally have no recourse for repayment
against us or any of our assets or the assets of any other entity other than
foreclosure on pledges of stock or partnership interests and the assets
attributable to the entities that own the facilities.
Substantially all of the power generation facilities in which we have an
interest are located on sites which are leased on a long-term basis. See
"-- Properties."
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<PAGE> 46
Set forth below is a map showing the locations of our power plants in
operation, pending acquisitions, power plants under construction and announced
development projects.
[MAP]
<TABLE>
<CAPTION>
MEGAWATTS
-----------------------
# OF PLANT CALPINE NET
PLANTS CAPACITY INTEREST
------ -------- -----------
<S> <C> <C> <C>
In operation.................................... 22 2,729 2,065
Pending acquisitions............................ 14 694 694
Under construction
-- New facilities............................. 4 1,239 967
-- Expansion projects......................... -- 545 545
Announced development........................... 5 3,180 2,440
-- ----- -----
45 8,387 6,711
== ===== =====
</TABLE>
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<PAGE> 47
Set forth below is certain information regarding our operating power
plants, plants under construction, pending power plant acquisitions and
development projects.
<TABLE>
<CAPTION>
POWER NAMEPLATE CALPINE CALPINE NET
GENERATION CAPACITY INTEREST INTEREST
POWER PLANT TECHNOLOGY LOCATION (MEGAWATTS)(1) PERCENTAGE (MEGAWATTS)
----------- ---------- ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING POWER PLANTS
Texas City.............. Gas-Fired Texas 450.0 100% 450.0
Clear Lake.............. Gas-Fired Texas 377.0 100% 377.0
Pasadena................ Gas-Fired Texas 240.0 100% 240.0
Gordonsville............ Gas-Fired Virginia 240.0 50% 120.0
Lockport................ Gas-Fired New York 184.0 11.4% 20.9
Bayonne................. Gas-Fired New Jersey 165.0 7.5% 12.4
Auburndale.............. Gas-Fired Florida 150.0 50% 75.0
Sumas(2)................ Gas-Fired Washington 125.0 70% 87.5
King City............... Gas-Fired California 120.0 100% 120.0
Gilroy.................. Gas-Fired California 120.0 100% 120.0
Kennedy International
Airport............... Gas-Fired New York 107.0 50% 53.5
Pittsburg............... Gas-Fired California 70.0 100% 70.0
Sonoma(3)............... Geothermal California 60.0 100% 60.0
Bethpage................ Gas-Fired New York 57.0 100% 57.0
Greenleaf 1............. Gas-Fired California 49.5 100% 49.5
Greenleaf 2............. Gas-Fired California 49.5 100% 49.5
Stony Brook............. Gas-Fired New York 40.0 50% 20.0
Agnews.................. Gas-Fired California 29.0 20% 5.8
Watsonville............. Gas-Fired California 28.5 100% 28.5
West Ford Flat.......... Geothermal California 27.0 100% 27.0
Bear Canyon............. Geothermal California 20.0 100% 20.0
Aidlin.................. Geothermal California 20.0 5% 1.0
PENDING ACQUISITIONS
Sonoma County (12 power
plants)(3)............ Geothermal California 544.0 100% 544.0
Lake County (2 power
plants)(3)............ Geothermal California 150.0 100% 150.0
PROJECTS UNDER
CONSTRUCTION
Westbrook............... Gas-Fired Maine 540.0 100% 540.0
Pasadena Expansion...... Gas-Fired Texas 510.0 100% 510.0
Tiverton(4)............. Gas-Fired Rhode Island 265.0 62.8% 166.4
Rumford(5).............. Gas-Fired Maine 265.0 66.7% 176.8
Dighton(6).............. Gas-Fired Massachusetts 169.0 50% 84.5
Clear Lake Expansion.... Gas-Fired Texas 35.0 100% 35.0
ANNOUNCED DEVELOPMENT
Delta Energy Center..... Gas-Fired California 880.0 50% 440.0
Magic Valley............ Gas-Fired Texas 700.0 100% 700.0
Metcalf Energy Center... Gas-Fired California 600.0 50% 300.0
South Point............. Gas-Fired Arizona 500.0 100% 500.0
Sutter.................. Gas-Fired California 500.0 100% 500.0
</TABLE>
- ---------------
(1) Nameplate capacity may not represent the actual output for a facility at any
particular time.
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<PAGE> 48
(2) See "-- Operating Power Plants -- Sumas Power Plant" for a description of
our interest in the Sumas Power Plant. Based on our current estimates, the
payments to be received by us represent approximately 70% of distributable
cash.
(3) For these geothermal power plants, nameplate capacity refers to the
approximate capacity of the power plants. The capacity of these plants is
expected to gradually diminish as the production of the related steam fields
declines.
(4) See "Project Development and Acquisitions -- Project Development -- Projects
Under Construction -- Tiverton Power Plant" for a description of our
interest in the Tiverton Power Plant.
(5) See "Project Development and Acquisitions -- Project Development -- Projects
Under Construction -- Rumford Power Plant" for a description of our interest
in the Rumford Power Plant.
(6) See "Project Development and Acquisitions -- Project Development -- Projects
Under Construction -- Dighton Power Plant" for a description of our interest
in the Dighton Power Plant. Based on our current estimates, our interest
represents our right to receive approximately 50% of project cash flow
beginning at the commencement of commercial operation.
OPERATING POWER PLANTS
Texas City Power Plant. The Texas City Power Plant is a 450 megawatt
gas-fired cogeneration facility located in Texas City, Texas. Electricity
generated by the Texas City Power Plant is sold under two separate long-term
agreements to (1) Texas Utilities Electric Company ("TUEC") under a power sales
agreement terminating on September 30, 2002, and (2) Union Carbide Corporation
("UCC") under a steam and electricity services agreement terminating on June 30,
1999. Each agreement contains payment provisions for capacity and electric
energy payments. Under a steam and electricity services agreement expiring
October 19, 2003, the Texas City Power Plant will supply UCC with 300,000 lbs/hr
of steam on a monthly average basis, with the required supply of steam not
exceeding 600,000 lbs/hr at any given time. During 1998, the Texas City Power
Plant generated approximately 2,517,316,000 kilowatt hours of electric energy
for sale to TUEC and UCC and approximately $188.3 million of revenue.
Clear Lake Power Plant. The Clear Lake Power Plant is a 377 megawatt gas/
hydrogen-fired cogeneration facility located in Pasadena, Texas. Electricity
generated by the Clear Lake Power Plant is sold under three separate long-term
agreements to (1) Texas-New Mexico Power Company ("TNP") under a power sales
agreement terminating in 2004, (2) Houston Lighting and Power Company ("HL&P")
under a power sales agreement terminating in 2005, and (3) Hoechst Celanese
Chemical Group, Inc. ("HCCG") under a power sales agreement terminating in 2004.
Each power sales agreement contains payment provisions for capacity and energy
payments. Under a steam purchase and sale agreement expiring August 31, 2004,
the Clear Lake Power Plant will supply up to 900,000 lbs/hr of steam to HCCG.
During 1998, the Clear Lake Power Plant generated approximately 2,912,649,000
kilowatt hours of electric energy for sale to TNP, HL&P and HCCG and
approximately $89.3 million of revenue.
Pasadena Power Plant. The Pasadena Power Plant is a 240 megawatt gas-fired
cogeneration facility located in Pasadena, Texas. Electricity generated by the
Pasadena Power Plant is sold under contract and into the open market. We entered
into an energy sales agreement with Phillips Petroleum Company ("Phillips")
terminating in 2018. Under
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<PAGE> 49
this agreement, we provide 90 megawatts of electricity and 200,000 lbs/hr of
steam to Phillips' Houston Chemical Complex. West Texas Utilities purchased 50
megawatts of capacity through the end of 1998. In 1999, LG&E Energy Marketing
will purchase up to 150 megawatts of electricity under a one-year agreement.
TUEC 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 our power
marketing organization. During 1998, the Pasadena Power Plant generated
approximately 812,314,000 kilowatt hours of electric energy with approximately
$30.5 million of revenue.
Gordonsville Power Plant. The Gordonsville Power Plant is a 240 megawatt
gas-fired cogeneration facility located near Gordonsville, Virginia. Electricity
generated by the Gordonsville Power Plant is sold to the Virginia Electric and
Power Company under two power sales agreements terminating on June 1, 2024, each
of which include payment provisions for capacity and energy. The Gordonsville
Power Plant sells steam to Rapidan Service Authority under the terms of a steam
purchase and sales agreement, which expires June 1, 2004. During 1998, the
Gordonsville Power Plant generated approximately 213,382,000 kilowatt hours of
electrical energy and approximately $37.4 million of revenue.
Lockport Power Plant. The Lockport Power Plant is a 184 megawatt gas-fired,
combined-cycle cogeneration facility located in Lockport, New York. The facility
is owned and operated by Lockport Energy Associates, L.P. ("LEA"). We own an
indirect 11.36% limited partnership interest in LEA. Electricity and steam is
sold to General Motors Corporation ("GM") under an energy sales agreement
expiring in December 2007 for use at the GM Harrison plant, which is located on
a site adjacent to the Lockport Power Plant. Electricity is also sold to New
York State Electricity and Gas Company ("NYSEG") under a power purchase
agreement expiring October 2007. NYSEG is required to purchase all of the
electric power produced by the Lockport Power Plant not required by GM. For
1998, the Lockport Power Plant generated approximately 1,284,830,000 kilowatt
hours of electricity and had $118.6 million in revenue.
Bayonne Power Plant. The Bayonne Power Plant is a 165 megawatt gas-fired
cogeneration facility located in Bayonne, New Jersey. The facility is primarily
owned by an affiliate of Cogen Technologies, Inc. We own an indirect 7.5%
limited partnership interest in the facility. Electricity generated by the
Bayonne Power Plant is sold under various power sales agreements to Jersey
Central Power & Light Company and Public Service Electric and Gas Company of New
Jersey. The Bayonne Power Plant also sells steam to two industrial entities.
During 1998, the Bayonne Power Plant generated approximately 1,399,860,000
kilowatt hours of electrical energy and approximately $116.6 million in revenue.
Auburndale Power Plant. The Auburndale Power Plant is a 150 megawatt
gas-fired cogeneration facility located near the city of Auburndale, Florida.
Electricity generated by the Auburndale Power Plant is sold under various power
sales agreements to Florida Power Corporation ("FPC"), Enron Power Marketing and
Sonat Power Marketing. Auburndale sells 131.18 megawatts of capacity and energy
to FPC under three power sales agreements, each terminating at the end of 2013.
The Auburndale Power Plant sells steam under two steam purchase and sale
agreements. One agreement is with Cutrale Citrus Juices, USA, an affiliate of
Sucocitro Cutrale LTDA, expiring on July 1, 2014. The second agreement is with
Todhunter International, Inc., doing business as Florida Distillers Company,
expiring on July 1, 2009. During 1998, the Auburndale Power Plant generated
approximately 1,022,146,000 kilowatt hours of electrical energy and
approximately $49.6 million in revenue.
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Sumas Power Plant. The Sumas Power Plant is a 125 megawatt gas-fired,
combined cycle cogeneration facility located in Sumas, Washington. We currently
hold an ownership interest in the Sumas Power Plant, which entitles us to
receive certain scheduled distributions during the next two years. Upon receipt
of the scheduled distributions, we will no longer have any ownership interest in
the Sumas Power Plant. Electrical energy generated by the Sumas Power Plant is
sold to Puget Sound Power & Light Company ("Puget") under the terms of a power
sales agreement terminating in 2013. Under the power sales agreement, Puget has
agreed to purchase an annual average of 123 megawatts of electrical energy. In
addition to the sale of electricity to Puget, pursuant to a long-term steam
supply and dry kiln lease agreement, the Sumas Power Plant produces and sells
approximately 23,000 lbs/hr of low pressure steam to an adjacent lumber-drying
facility owned by Sumas, which has been leased to and is operated by Socco, Inc.
During 1998, the Sumas Power Plant generated approximately 915,227,280 kilowatt
hours of electrical energy and approximately $49.6 million of total revenue.
King City Power Plant. The King City Power Plant is a 120 megawatt
gas-fired, combined-cycle cogeneration facility located in King City,
California. We operate the King City Power Plant under a long-term operating
lease for this facility with BAF Energy ("BAF"), terminating in 2018.
Electricity generated by the King City Power Plant is sold to Pacific Gas and
Electric Company ("PG&E") under a power sales agreement terminating in 2019. The
power sales agreement contains payment provisions for capacity and energy. In
addition to the sale of electricity to PG&E, the King City Power Plant produces
and sells thermal energy to a thermal host, Basic Vegetable Products, Inc., an
affiliate of BAF, under a long-term contract coterminous with the power sales
agreement. During 1998, the King City Power Plant generated approximately
428,825,000 kilowatt hours of electrical energy and approximately $45.6 million
of total revenue.
Gilroy Power Plant. The Gilroy Power Plant is a 120 megawatt gas-fired
cogeneration facility located in Gilroy, California. Electricity generated by
the Gilroy Power Plant is sold to PG&E under a power sales agreement terminating
in 2018. In addition, the Gilroy Power Plant produces and sells thermal energy
to a thermal host, Gilroy Foods, Inc., under a long-term contract that is
coterminous with the power sales agreement. During 1998, the Gilroy Power Plant
generated approximately 477,628,000 kilowatt hours of electrical energy for sale
to PG&E and approximately $39.3 million in revenue.
Kennedy International Airport Power Plant. The Kennedy International
Airport Power Plant is a 107 megawatt gas-fired cogeneration facility located at
John F. Kennedy International Airport in Queens, New York. The facility is owned
and operated by KIAC Partners ("KIAC"). We own an indirect 50% general
partnership interest in KIAC. Electricity and thermal energy generated by the
Kennedy International Airport Power Plant is sold to the Port Authority, and
incremental electric power is sold to Consolidated Edison Company of New York,
the New York Power Authority and other utility customers. Electric power and
chilled and hot water generated by the Kennedy International Airport Power Plant
is sold to the Port Authority under an energy purchase agreement that expires
November 2015. For 1998, the Kennedy International Airport Power Plant generated
approximately 533,755,000 kilowatt hours of electrical energy, 266,252 mmbtu of
chilled water and 178,405 mmbtu of hot water for sale to the Port Authority, and
generated approximately $56.1 million in revenue.
Pittsburg Power Plant. The Pittsburg Power Plant is a 70 megawatt gas-fired
cogeneration facility, located at The Dow Chemical Company's ("Dow") Pittsburg,
California chemical facility. We sell up to 18 megawatts of electricity to Dow
under a
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power sales agreement expiring in 2008. Surplus energy is sold to PG&E under an
existing power sales agreement. In addition, we sell approximately 200,000
lbs/hr of steam to Dow under an energy sales agreement expiring in 2003 and to
USS-POSCO Industries' nearby steel mill under a process steam contract expiring
in 2001. From its acquisition, in July 1998, through the end of 1998, the
Pittsburg Power Plant generated approximately 92,358,000 kilowatt hours of
electrical energy to Dow and PG&E and approximately $9.4 million in revenue.
Sonoma Power Plant. The Sonoma Power Plant consists of a 60 megawatt
geothermal power plant and associated steam fields located in Sonoma County,
California. Electricity generated by the Sonoma Power Plant is sold to the
Sacramento Municipal Utility District ("SMUD") under a power sales agreement for
up to 50 megawatts of off-peak power production, terminating in 2001. In
addition, SMUD has the option to purchase up to an additional 10 megawatts of
peak power production through 2005. We market the excess electricity into the
California power market. From its acquisition, in June 1998, through the end of
1998, the Sonoma Power Plant generated approximately 215,433,000 kilowatt hours
of electrical energy and approximately $6.2 million in revenue.
Bethpage Power Plant. The Bethpage Power Plant is a 57 megawatt gas-fired,
combined cycle cogeneration facility located adjacent to a Northrup Grumman
Corporation ("Grumman") facility in Bethpage, New York. Electricity and steam
generated by the Bethpage Power Plant are sold to Grumman under an energy
purchase agreement expiring August 2004. Electric power not sold to Grumman is
sold to Long Island Power Authority ("LIPA") under a generation agreement also
expiring August 2004. Grumman is also obligated to purchase a minimum of 158,000
klbs of steam per year from the Bethpage Power Plant. For 1998, the Bethpage
Power Plant generated approximately 474,991,000 kilowatt hours of electrical
energy for sale to Grumman and LIPA and approximately $32.9 million in revenue.
Greenleaf 1 Power Plant. The Greenleaf 1 Power Plant is a 49.5 megawatt
gas-fired cogeneration facility located near Yuba City, California. We operate
this facility under an operating lease with Union Bank of California,
terminating in 2014 (the "Greenleaf Lease"). Electricity generated by the
Greenleaf 1 Power Plant is sold to PG&E under a power sales agreement
terminating in 2019 which contains payment provisions for capacity and energy.
In addition, the Greenleaf 1 Power Plant sells thermal energy, in the form of
hot exhaust to dry wood waste, to a thermal host which is owned and operated by
us. For 1998, the Greenleaf 1 Power Plant generated approximately 326,543,000
kilowatt hours of electrical energy for sale to PG&E and approximately $17.8
million in revenue.
Greenleaf 2 Power Plant. The Greenleaf 2 Power Plant is a 49.5 megawatt
gas-fired cogeneration facility located near Yuba City, California. This
facility is also operated by us under the Greenleaf Lease. Electricity generated
by the Greenleaf 2 Power Plant is sold to PG&E under a power sales agreement
terminating in 2019 which includes payment provisions for capacity and energy.
In addition to the sale of electricity to PG&E, the Greenleaf 2 Power Plant
sells thermal energy to Sunsweet Growers, Inc. pursuant to a 30-year contract.
For 1998, the Greenleaf 2 Power Plant generated approximately 377,101,000
kilowatt hours of electrical energy for sale to PG&E and approximately $20.3
million in revenue.
Stony Brook Power Plant. The Stony Brook Power Plant is a 40 megawatt
gas-fired cogeneration facility located on the campus of the State University of
New York at Stony Brook, New York ("SUNY"). The facility is owned by Nissequogue
Cogen Partners
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("NCP"). We own an indirect 50% general partner interest in NCP. Steam and
electric power is sold to SUNY under an energy supply agreement expiring in
2023. Under the energy supply agreement, SUNY is required to purchase, and the
Stony Brook Power Plant is required to provide, all of SUNY's electric power and
steam requirements up to 36.125 megawatts of electricity and 280,000 lbs/hr of
process steam. The remaining electricity is sold to LIPA under a long-term
agreement. LIPA is obligated to purchase electric power generated by the
facility not required by SUNY. SUNY is required to purchase a minimum of 402,000
klbs per year of steam. For 1998, the Stony Brook Power Plant generated
approximately 326,584,000 kilowatt hours of electrical energy and 1,185,000 klbs
of steam for sale to SUNY and LIPA and approximately $31.1 million in revenue.
Agnews Power Plant. The Agnews Power Plant is a 29 megawatt gas-fired,
combined-cycle cogeneration facility located on the East Campus of the
state-owned Agnews Developmental Center in San Jose, California. We hold a 20%
ownership interest in GATX Calpine-Agnews, Inc., which is the sole stockholder
of O.L.S. Energy-Agnews, Inc. ("O.L.S. Energy-Agnews"). O.L.S. Energy-Agnews
leases the Agnews Power Plant under a sale leaseback arrangement. Electricity
generated by the Agnews Power Plant is sold to PG&E under a power sales
agreement terminating in 2021 which contains payment provisions for capacity and
energy. In addition, the Agnews Power Plant produces and sells electricity and
approximately 7,000 lbs/hr of steam to the Agnews Developmental Center pursuant
to a 30-year energy service agreement. During 1998, the Agnews Power Plant
generated approximately 215,180,000 kilowatt hours of electrical energy and
total revenue of $11.7 million.
Watsonville Power Plant. The Watsonville Power Plant is a 28.5 megawatt
gas-fired, combined cycle cogeneration facility located in Watsonville,
California. We operate the Watsonville Power Plant under an operating lease with
the Ford Motor Credit Company, terminating in 2009. Electricity generated by the
Watsonville Power Plant is sold to PG&E under a power sales agreement
terminating in 2009 which contains payment provisions for capacity and energy.
During 1998, the Watsonville Power Plant produced and sold steam to Farmers
Processing, a food processor. In addition, the Watsonville Power Plant sold
process water produced from its water distillation facility to Farmer's Cold
Storage, Farmer's Processing and Cascade Properties. For 1998, the Watsonville
Power Plant generated approximately 206,007,000 kilowatt hours of electrical
energy for sale to PG&E and approximately $11.4 million in revenue.
West Ford Flat Power Plant. The West Ford Flat Power Plant consists of a 27
megawatt geothermal power plant and associated steam fields located in northern
California. Electricity generated by the West Ford Flat Power Plant is sold to
PG&E under a power sales agreement terminating in 2008 which contains payment
provisions for capacity and energy. During 1998, the West Ford Flat Power Plant
generated approximately 235,529,000 kilowatt hours of electrical energy for sale
to PG&E and approximately $34.6 million of revenue.
Bear Canyon Power Plant. The Bear Canyon Power Plant consists of a 20
megawatt geothermal power plant and associated steam fields located in northern
California, two miles south of the West Ford Flat Power Plant. Electricity
generated by the Bear Canyon Power Plant is sold to PG&E under two 10 megawatt
power sales agreements terminating in 2008 which contain payment provisions for
capacity and energy. During 1998, the Bear Canyon Power Plant generated
approximately 176,508,000 kilowatt hours of electrical energy and approximately
$20.4 million of revenue.
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Aidlin Power Plant. The Aidlin Power Plant consists of a 20 megawatt
geothermal power plant and associated steam fields located in northern
California. We hold an indirect 5% ownership interest in the Aidlin Power Plant.
Electricity generated by the Aidlin Power Plant is sold to PG&E under two 10
megawatt power sales agreements terminating in 2009 which contain payment
provisions for capacity and energy. During 1998, the Aidlin Power Plant
generated approximately 170,046,000 kilowatt hours of electrical energy and
revenue of $24.4 million.
PROJECT DEVELOPMENT AND ACQUISITIONS
We are actively engaged in the development and acquisition of power
generation projects. We have historically focused principally on the development
and acquisition of interests in gas-fired and geothermal power projects,
although we also consider projects that utilize other power generation
technologies. We have significant expertise in a variety of power generation
technologies and have substantial capabilities in each aspect of the development
and acquisition process, including design, engineering, procurement,
construction management, fuel and resource acquisition and management, financing
and operations.
ACQUISITIONS
We will consider the acquisition of an interest in operating projects as
well as projects under development where we would assume responsibility for
completing the development of the project. In the acquisition of power
generation facilities, we generally seek to acquire an ownership interest in
facilities that offer us attractive opportunities for revenue and earnings
growth, and that permit us to assume sole responsibility for the operation and
maintenance of the facility. In evaluating and selecting a project for
acquisition, we consider a variety of factors, including the type of power
generation technology utilized, the location of the project, the terms of any
existing power or thermal energy sales agreements, gas supply and transportation
agreements and wheeling agreements, the quantity and quality of any geothermal
or other natural resource involved, and the actual condition of the physical
plant. In addition, we assess the past performance of an operating project and
prepare financial projections to determine the profitability of the project. We
generally seek to obtain a significant equity interest in a project and to
obtain the operation and maintenance contract for that project. See
"-- Strategy" and "Risk Factors -- Our power project development and acquisition
activities may not be successful."
We have grown substantially in recent years as a result of acquisitions of
interests in power generation facilities and steam fields. We believe that
although the domestic power industry is undergoing consolidation and that
significant acquisition opportunities are available, we are likely to confront
significant competition for acquisition opportunities. In addition, there can be
no assurance that we will continue to identify attractive acquisition
opportunities at favorable prices or, to the extent that any opportunities are
identified, that we will be able to consummate such acquisitions.
Pending Acquisitions
Sonoma County Power Plants. On January 26, 1999, we announced that we had
entered into definitive agreements to acquire 12 geothermal facilities from PG&E
in Sonoma County, California (the "Sonoma County Power Plants"), having a
combined capacity of 544 megawatts, for an aggregate investment of $139.0
million. We currently own a portion of the steam fields supplying the Sonoma
County Power Plants and have
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agreed to purchase the remaining steam fields from Unocal Corporation for $101.0
million. We expect to complete the steam field acquisition in March 1999 and the
acquisition of the Sonoma County Power Plants upon receipt of approval by the
California Public Utilities Commission ("CPUC") and FERC, currently anticipated
to occur in April 1999. There can be no assurance that such approvals will be
obtained or that we will successfully complete these acquisitions. Upon
acquiring these plants, we intend to sell their output into the competitive
markets.
Lake County Power Plants. On December 1, 1998, we announced that we had
exercised our right of first refusal to acquire two geothermal facilities from
PG&E in Lake County, California (the "Lake County Power Plants"), having a
combined capacity of 150 megawatts, for $75.3 million. We currently own the
steam field operations currently supplying the Lake County Power Plants. We
expect to complete this acquisition upon receipt of the approval by the CPUC and
FERC, currently anticipated to occur in April 1999. There can be no assurance
that such approvals will be obtained or that we will successfully consummate
this acquisition. Upon acquiring these plants, we intend to sell their output
into the competitive markets.
We anticipate that these acquisitions will enable us to consolidate our
operations in The Geysers into a single ownership structure and to integrate the
power plant and steam field operations, allowing us to optimize the efficiency
and performance of the facilities. We believe that these acquisitions will
provide us with significant synergies that leverage our expertise in geothermal
power generation and position us to benefit from the demand for "green" energy
in the competitive market.
PROJECT DEVELOPMENT
The development of power generation projects involves numerous elements,
including evaluating and selecting development opportunities, designing and
engineering the project, obtaining power sales agreements, acquiring necessary
land rights, permits and fuel resources, obtaining financing and managing
construction. We intend to focus primarily on development opportunities where we
are able to capitalize on our expertise in implementing an innovative and fully
integrated approach to project development in which we control the entire
development process. Utilizing this approach, we believe that we are able to
enhance the value of our projects throughout each stage of development in an
effort to maximize our return on investment.
We are pursuing the development of highly efficient, low-cost power plants
that seek to take advantage of inefficiencies in the electricity market. We
intend to sell all or a portion of the power generated by such plants into the
competitive market through a portfolio of short-, medium-and long-term power
sales agreements. We expect that these projects will represent a prototype for
our future plant developments. See "-- Strategy" and "Risk Factors -- Our power
project development and acquisition activities may not be successful."
The development of power generation facilities is subject to substantial
risks. In connection with the development of a power generation facility, we
must generally obtain power sales agreements, governmental permits and
approvals, fuel supply and transportation agreements, sufficient equity capital
and debt financing, electrical transmission agreements, site agreements and
construction contracts, and there can be no assurance that we 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
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performance. Although we 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, and obtaining all
required governmental permits and approvals, the development of a power project
may require us 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 we were unable
to complete the development of a facility, we would generally not be able to
recover our 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. We cannot assure that we will be successful
in the development of power generation facilities in the future.
Projects Under Construction
Westbrook Power Plant. In February 1999, we acquired from Genesis Power
Corporation ("Genesis"), a New England based power developer, the development
rights to a 540 megawatt gas-fired combined-cycle power plant to be located in
Westbrook, Maine (the "Westbrook Power Plant"). It is estimated that the
development of the Westbrook Power Plant will cost approximately $300.0 million.
Construction commenced in February 1999 and commercial operation is scheduled
for early 2001. Upon completion, the Westbrook Power Plant will be operated by
our company. It is anticipated that the output generated by the Westbrook Power
Plant will be sold into the New England power market and to wholesale and retail
customers in the northeastern United States.
Pasadena Expansion. We are currently expanding the Pasadena Power Plant by
an additional 510 megawatts. Construction began in November 1998 and commercial
operation is expected to begin in June 2000. The electricity output from this
expansion will be sold into the competitive market through our power sales
activities.
Tiverton Power Plant. In September 1998, we invested $40.0 million of
equity in the development of a 265 megawatt gas-fired power plant to be located
in Tiverton, Rhode Island (the "Tiverton Power Plant"). The Tiverton Power Plant
is being developed by Energy Management Inc. ("EMI"). It is estimated that the
development of the Tiverton Power Plant will cost approximately $172.5 million.
For our investment in the Tiverton Power Plant, we will earn 62.8% of the
Tiverton Power Plant project cash flow until a specified pre-tax return is
reached, whereupon our company and EMI will share projected cash flows equally
through the remaining life of the project. Construction commenced in late 1998
and commercial operation is currently scheduled for 2000. Upon completion, the
Tiverton Power Plant will be operated by EMI and will sell its output in the New
England power market and to wholesale and retail customers in the northeastern
United States.
Rumford Power Plant. In November 1998, we invested $40.0 million of equity
in the development of a 265 megawatt gas-fired power plant to be located in
Rumford, Maine (the "Rumford Power Plant"). The Rumford Power Plant is being
developed by EMI. It is estimated that the development of the Rumford Power
Plant will cost approximately $160.0 million. For our investment in the Rumford
Power Plant, we will earn 66.7% of the Rumford Power Plant project cash flow
until a specified pre-tax return is reached, whereupon our company and EMI will
share projected cash flows equally through the
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remaining life of the project. Construction commenced in late 1998 and
commercial operation is currently scheduled for 2000. Upon completion, the
Rumford Power Plant will be operated by EMI and will sell its output in the New
England power market and to wholesale and retail customers in the northeastern
United States.
Dighton Power Plant. In October 1997, we invested $16.0 million in the
development of a 169 megawatt gas-fired combined-cycle power plant to be located
in Dighton, Massachusetts (the "Dighton Power Plant"). This investment, which is
structured as subordinated debt, will provide us with a preferred payment stream
at a rate of 12.07% per annum for a period of twenty years from the commercial
operation date. It is estimated that the development of the Dighton Power Plant
will cost approximately $120.0 million. The Dighton Power Plant is being
developed by EMI. Construction commenced in the fourth quarter of 1997 and
commercial operation is scheduled to begin in May 1999. Upon completion, the
Dighton Power Plant will be operated by EMI and will sell its output into the
New England power market and to wholesale and retail customers in the
northeastern United States.
Clear Lake Expansion. We are currently expanding the Clear Lake Plant by 35
megawatts through certain capital improvements. Improvements began in late 1998
and commercial operation is expected to begin in June 1999. The electricity
output from this expansion will be sold into the competitive market through our
power sales activities.
Announced Development Projects
Delta Energy Center. On February 3, 1999, we, together with Bechtel
Enterprises, announced plans to develop an 880 megawatt gas-fired cogeneration
project in Pittsburg, California (the "Delta Energy Center"). The Delta Energy
Center will provide steam and electricity to the nearby Dow Chemical Company
facility and market the excess electricity into the California power market. We
anticipate that construction will commence in early 2000 and that operation of
the facility will commence in 2002. We are currently pursuing regulatory agency
permits for this project. On February 3, 1999, our company and Bechtel announced
that the Delta Energy Center has met the California Energy Commission's Data
Adequacy requirements in its Application for Certification.
Magic Valley Power Plant. On May 26, 1998, we announced that we 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 our 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. We
are 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.
Metcalf Energy Center. On February 24, 1999, we, together with Bechtel
Enterprises, announced plans to develop a 600 megawatt gas-fired cogeneration
project in San Jose, California (the "Metcalf Energy Center"). We expect the
California Energy Commission review, licensing and public hearing process will
be completed by mid-2000. We anticipate that construction will commence
following this approval and that commercial operation of the facility will
commence in mid-2002. Electricity generated by the Metcalf Energy Center will be
sold into the California power market.
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South Point Power Plant. In May 1998, we announced that we had entered into
a long-term lease agreement with the Fort Mojave Indian Tribe to develop a 500
megawatt gas-fired power plant (the "South Point Power Plant") on the tribe's
reservation in Mojave County, Arizona. The electricity generated will be sold to
the Arizona, Nevada and California power markets. We anticipate that the South
Point Power Plant will commence operation in 2000.
Sutter Power Plant. In February 1997, we announced plans to develop a 500
megawatt gas-fired combined cycle project in Sutter County, in northern
California (the "Sutter Power Plant"). The Sutter Power Plant would be northern
California's first newly constructed power plant. The Sutter Power Plant is
expected to provide electricity to the deregulated California power market
commencing in the year 2000. We are currently pursuing regulatory agency permits
for this project. On January 21, 1998, we announced that the Sutter Power Plant
has met the California Energy Commission's Data Adequacy requirements in its
Application for Certification.
GAS FIELDS
Montis Niger. On January 31, 1997, we purchased Montis Niger, Inc., a gas
production and pipeline company operating primarily in the Sacramento Basin in
northern California. On July 25, 1997, Montis Niger, Inc. was renamed Calpine
Gas Company. As of January 1, 1998, Calpine Gas Company had approximately 8.1
billion cubic feet of proven natural gas reserves and approximately 13,837 gross
acres and 13,738 net acres under lease in the Sacramento Basin. In addition,
Calpine Gas Company owns and operates an 80-mile pipeline delivering gas to the
Greenleaf 1 and 2 Power Plants which had been either produced by Calpine Gas
Company or purchased from third parties. Calpine Gas Company currently supplies
approximately 79% of the fuel requirements for the Greenleaf 1 and 2 Power
Plants.
Sheridan. On January 27, 1999, we announced that we had acquired a 20%
interest in 82 billion cubic feet of proven natural gas reserves located in the
Sacramento Basin in northern California. Sheridan Energy, Inc. ("Sheridan") owns
the remaining 80% interest in these reserves. In addition, we signed a 10-year
agreement with Sheridan under which we will purchase all of Sheridan's
Sacramento Basin production, which currently approximates 20,000 mmbtu per day.
GOVERNMENT REGULATION
We are subject to complex and stringent energy, environmental and other
governmental laws and regulations at the federal, state and local levels in
connection with the development, ownership and operation of its energy
generation facilities. Federal laws and regulations govern transactions by
electrical and gas utility companies, the types of fuel which may be utilized by
an electric generating plant, the type of energy which may be produced by such a
plant and the ownership of a plant. State utility regulatory commissions must
approve the rates and, in some instances, other terms and conditions under which
public utilities purchase electric power from independent producers and sell
retail electric power. Under certain circumstances where specific exemptions are
otherwise unavailable, state utility regulatory commissions may have broad
jurisdiction over non-utility electric power plants. Energy producing projects
also are subject to federal, state and local laws and administrative regulations
which govern the emissions and other substances produced, discharged or disposed
of by a plant and the geographical location, zoning, land
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use and operation of a plant. Applicable federal environmental laws typically
have both state and local enforcement and implementation provisions. These
environmental laws and regulations generally require that a wide variety of
permits and other approvals be obtained before the commencement of construction
or operation of an energy-producing facility and that the facility then operate
in compliance with such permits and approvals.
FEDERAL ENERGY REGULATION
PURPA
The enactment of the Public Utility Regulatory Policies Act of 1978, as
amended ("PURPA") and the adoption of regulations thereunder by FERC provided
incentives for the development of cogeneration facilities and small power
production facilities (those utilizing renewable fuels and having a capacity of
less than 80 megawatts).
A domestic electricity generating project must be a QF under FERC
regulations in order to take advantage of certain rate and regulatory incentives
provided by PURPA. PURPA exempts owners of QFs from the Public Utility Holding
Company Act of 1935, as amended ("PUHCA"), and exempts QFs from most provisions
of the Federal Power Act (the "FPA") and, except under certain limited
circumstances, state laws concerning rate or financial regulation. These
exemptions are important to us and our competitors. We believe that each of the
electricity generating projects in which we own an interest and which operates
as a QF power producer currently meets the requirements under PURPA necessary
for QF status.
PURPA provides two primary benefits to QFs. First, QFs generally are
relieved of compliance with extensive federal, state and local regulations that
control the financial structure of an electric generating plant and the prices
and terms on which electricity may be sold by the plant. Second, the FERC's
regulations promulgated under PURPA require that electric utilities purchase
electricity generated by QFs at a price based on the purchasing utility's
"avoided cost," and that the utility sell back-up power to the QF on a
non-discriminatory basis. The term "avoided cost" is defined as the incremental
cost to an electric utility of electric energy or capacity, or both, which, but
for the purchase from QFs, such utility would generate for itself or purchase
from another source. The FERC regulations also permit QFs and utilities to
negotiate agreements for utility purchases of power at rates lower than the
utility's avoided costs. While public utilities are not explicitly required by
PURPA to enter into long-term power sales agreements, PURPA helped to create a
regulatory environment in which it has been common for long-term agreements to
be negotiated.
In order to be a QF, a cogeneration facility must produce not only
electricity, but also useful thermal energy for use in an industrial or
commercial process for heating or cooling applications in certain proportions to
the facility's total energy output and must meet certain energy efficiency
standards. A geothermal facility may qualify as a QF if it produces less than 80
megawatts of electricity. Finally, a QF (including a geothermal or hydroelectric
QF or other qualifying small power producer) must not be controlled or more than
50% owned by an electric utility or by most electric utility holding companies,
or a subsidiary of such a utility or holding company or any combination thereof.
We endeavor to develop our projects, monitor compliance by the projects
with applicable regulations and choose our customers in a manner which minimizes
the risks of any project losing its QF status. Certain factors necessary to
maintain QF status are,
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however, subject to the risk of events outside our control. For example, loss of
a thermal energy customer or failure of a thermal energy customer to take
required amounts of thermal energy from a cogeneration facility that is a QF
could cause the facility to fail requirements regarding the level of useful
thermal energy output. Upon the occurrence of such an event, we would seek to
replace the thermal energy customer or find another use for the thermal energy
which meets PURPA's requirements, but no assurance can be given that this would
be possible.
If one of the facilities in which we have an interest should lose its
status as a QF, the project would no longer be entitled to the exemptions from
PUHCA and the FPA. This could also trigger certain rights of termination under
the facility's power sales agreement, could subject the facility to rate
regulation as a public utility under the FPA and state law and could result in
us inadvertently becoming a public utility holding company by owning more than
10% of the voting securities of, or controlling, a facility that would no longer
be exempt from PUHCA. This could cause all of our remaining projects to lose
their qualifying status, because QFs may not be controlled or more than 50%
owned by such public utility holding companies. Loss of QF status may also
trigger defaults under covenants to maintain QF status in the projects' power
sales agreements, steam sales agreements and financing agreements and result in
termination, penalties or acceleration of indebtedness under such agreements
such that loss of status may be on a retroactive or a prospective basis.
Under the Energy Policy Act of 1992, if a facility can be qualified as an
exempt wholesale generator ("EWG"), it will be exempt from PUHCA even if it does
not qualify as a QF. Therefore, another response to the loss or potential loss
of QF status would be to apply to have the project qualified as an EWG. However,
assuming this changed status would be permissible under the terms of the
applicable power sales agreement, rate approval from FERC would be required. In
addition, the facility would be required to cease selling electricity to any
retail customers (such as the thermal energy customer) to retain its EWG status
and could become subject to state regulation of sales of thermal energy. See
"-- Public Utility Holding Company Regulation."
Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at avoided costs. We do not know whether such legislation will be passed or
what form it may take. We believe that if any such legislation is passed, it
would apply only to new projects. As a result, although such legislation may
adversely affect our ability to develop new projects, we believe it would not
affect our existing QFs. There can be no assurance, however, that any
legislation passed would not adversely impact our existing projects.
Public Utility Holding Company Regulation
Under PUHCA, any corporation, partnership or other legal entity which owns
or controls 10% or more of the outstanding voting securities of a "public
utility company" or a company which is a "holding company" for a public utility
company is subject to registration with the SEC and regulation under PUHCA,
unless eligible for an exemption. A holding company of a public utility company
that is subject to registration is required by PUHCA to limit its utility
operations to a single integrated utility system and to divest any other
operations not functionally related to the operation of that utility system.
Approval by the SEC is required for nearly all important financial and business
dealings of a
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registered holding company. Under PURPA, most QFs are not public utility
companies under PUHCA.
The Energy Policy Act of 1992, among other things, amends PUHCA to allow
EWGs, under certain circumstances, to own and operate non-QF electric generating
facilities without subjecting those producers to registration or regulation
under PUHCA. The effect of such amendments has been to enhance the development
of non-QFs which do not have to meet the fuel, production and ownership
requirements of PURPA. We believe that these amendments benefit us by expanding
our ability to own and operate facilities that do not qualify for QF status.
However, they have also resulted in increased competition by allowing utilities
to develop such facilities which are not subject to the constraints of PUHCA.
Federal Natural Gas Transportation Regulation
We have an ownership interest in 18 gas-fired cogeneration projects. The
cost of natural gas is ordinarily the largest expense (other than debt service
costs) of a gas-fired project and is critical to the project's economics. The
risks associated with using natural gas can include the need to arrange
transportation of the gas from great distances, including obtaining removal,
export and import authority if the gas is transported from Canada; the
possibility of interruption of the gas supply or transportation (depending on
the quality of the gas reserves purchased or dedicated to the project, the
financial and operating strength of the gas supplier, whether firm or non-firm
transportation is purchased and the operating of the gas pipeline); and
obligations to take a minimum quantity of gas and pay for it (i.e., take-and-pay
obligations).
Pursuant to the Natural Gas Act, FERC has jurisdiction over the
transportation and storage of natural gas in interstate commerce. With respect
to most transactions that do not involve the construction of pipeline
facilities, regulatory authorization can be obtained on a self-implementing
basis. However, pipeline rates and terms and conditions for such services are
subject to continuing FERC oversight.
STATE REGULATION
State public utility commissions ("PUCs") have historically had broad
authority to regulate both the rates charged by, and the financial activities
of, electric utilities operating in their states and to promulgate regulation
for implementation of PURPA. Since a power sales agreement becomes a part of a
utility's cost structure (generally reflected in its retail rates), power sales
agreements with independent electricity producers, such as EWGs, are potentially
under the regulatory purview of PUCs and in particular the process by which the
utility has entered into the power sales agreements. If a PUC has approved the
process by which a utility secures its power supply, a PUC is generally inclined
to "pass through" the expense associated with power purchase agreement with an
independent power producer to the utility's retail customer. However, a
regulatory commission under certain circumstances may disallow the full
reimbursement to a utility for the cost to purchase power from a QF or an EWG.
In addition, retail sales of electricity or thermal energy by an independent
power producer may be subject to PUC regulation depending on state law.
Independent power producers which are not QFs under PURPA, or EWGs pursuant to
the Energy Policy Act of 1992, are considered to be public utilities in many
states and are subject to broad regulation by a PUC, ranging from requirement of
certificate of public convenience and necessity to regulation of organizational,
accounting, financial and other
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corporate matters. States may assert jurisdiction over the siting and
construction of electric generating facilities including QFs and EWGs and, with
the exception of QFs, over the issuance of securities and the sale or other
transfer of assets by these facilities.
In the State of California, restructuring legislation was enacted in
September 1996 and was implemented in 1998. This legislation established an
Independent Systems Operator ("ISO") responsible for centralized control and
efficient and reliable operation of the state-wide electric transmission grid,
and a Power Exchange responsible for an efficient competitive electric energy
auction open on a non-discriminatory basis to all electric services providers.
Other provisions include the quantification and qualification of utility
stranded costs to be eligible for recovery through competitive transition
charges ("CTC"), market power mitigation through utility divestiture of fossil
generation plants, the unbundling and establishment of rate structure for
historical utility functions, the continuation of public purpose programs and
issues related to issuance of rate reduction bonds.
The California Energy Commission ("CEC") and Legislature have
responsibility for development of a competitive market mechanism for allocation
and distribution of funds made available by the legislation for enhancement of
in-state renewable resource technologies and public interest research and
development programs. Funds are to be available through the four-year transition
period to a fully competitive electric services industry.
In addition to the significant opportunity provided for power producers
such as us through implementation of customer choice (direct access), the
California restructuring legislation both recognizes the sanctity of existing
contracts (including QF power sales contracts), provides for mitigation of
utility horizontal market power through divestiture of fossil generation by
California public utilities and provides funds for continuation of public
services programs including fuel diversity through enhancement for in-state
renewable technologies (includes geothermal) for the four-year transition period
to a fully competitive electric services industry.
Other states in which we conduct operations either have implemented or are
actively considering similar restructuring legislation.
State PUCs also have jurisdiction over the transportation of natural gas by
local distribution companies ("LDCs"). Each state's regulatory laws are somewhat
different; however, all generally require the LDC to obtain approval from the
PUC for the construction of facilities and transportation services if the LDC's
generally applicable tariffs do not cover the proposed transaction. LDC rates
are usually subject to continuing PUC oversight.
REGULATION OF CANADIAN GAS
The Canadian natural gas industry is subject to extensive regulation by
governmental authorities. At the federal level, a party exporting gas from
Canada must obtain an export license from the Canadian National Energy Board
("NEB"). The NEB also regulates Canadian pipeline transportation rates and the
construction of pipeline facilities. Gas producers also must obtain a removal
permit or license from provincial authorities before natural gas may be removed
from the province, and provincial authorities may regulate intra-provincial
pipeline and gathering systems. In addition, a party importing natural gas
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into the United States first must obtain an import authorization from the U.S.
Department of Energy.
ENVIRONMENTAL REGULATIONS
The exploration for and development of geothermal resources and the
construction and operation of power projects are subject to extensive federal,
state and local laws and regulations adopted for the protection of the
environment and to regulate land use. The laws and regulations applicable to us
primarily involve the discharge of emissions into the water and air and the use
of water, but can also include wetlands preservation, endangered species, waste
disposal and noise regulations. These laws and regulations in many cases require
a lengthy and complex process of obtaining licenses, permits and approvals from
federal, state and local agencies.
Noncompliance with environmental laws and regulations can result in the
imposition of civil or criminal fines or penalties. In some instances,
environmental laws also may impose clean-up or other remedial obligations in the
event of a release of pollutants or contaminants into the environment. The
following federal laws are among the more significant environmental laws as they
apply to us. In most cases, analogous state laws also exist that may impose
similar, and in some cases more stringent, requirements on us as those discussed
below.
Clean Air Act
The Federal Clean Air Act of 1970 (the "Clean Air Act") provides for the
regulation, largely through state implementation of federal requirements, of
emissions of air pollutants from certain facilities and operations. As
originally enacted, the Clean Air Act sets guidelines for emissions standards
for major pollutants (i.e., sulfur dioxide and nitrogen oxide) from newly built
sources. In late 1990, Congress passed the Clean Air Act Amendments (the "1990
Amendments"). The 1990 Amendments attempt to reduce emissions from existing
sources, particularly previously exempted older power plants. We believe that
all of our operating plants are in compliance with federal performance standards
mandated for such plants under the Clean Air Act and the 1990 Amendments. With
respect to its Aidlin geothermal plant and one of its steam field pipelines, our
operations have, in certain instances, necessitated variances under applicable
California air pollution control laws. However, we believe that we are in
material compliance with such laws with respect to such facilities.
Clean Water Act
The Federal Clean Water Act (the "Clean Water Act") establishes rules
regulating the discharge of pollutants into waters of the United States. We are
required to obtain a wastewater and storm water discharge permit for wastewater
and runoff, respectively, from certain of our facilities. We believe that, with
respect to our geothermal operations, we are exempt from newly promulgated
federal storm water requirements. We believe that we are in material compliance
with applicable discharge requirements under the Clean Water Act.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act ("RCRA") regulates the
generation, treatment, storage, handling, transportation and disposal of solid
and hazardous waste. We
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believe that we are exempt from solid waste requirements under RCRA. However,
particularly with respect to its solid waste disposal practices at the power
generation facilities and steam fields located at The Geysers, we are subject to
certain solid waste requirements under applicable California laws. We believe
that our operations are in material compliance with such laws.
Comprehensive Environmental Response, Compensation, and Liability Act
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), requires cleanup of sites from which
there has been a release or threatened release of hazardous substances and
authorizes the United States Environmental Protection Agency ("EPA") to take any
necessary response action at Superfund sites, including ordering potentially
responsible parties ("PRPs") liable for the release to take or pay for such
actions. PRPs are broadly defined under CERCLA to include past and present
owners and operators of, as well as generators of wastes sent to, a site. As of
the present time, we are not subject to liability for any Superfund matters.
However, we generate certain wastes, including hazardous wastes, and sends
certain of our wastes to third-party waste disposal sites. As a result, there
can be no assurance that we will not incur liability under CERCLA in the future.
COMPETITION
The power generation industry is characterized by intense competition, and
we encounter competition from utilities, industrial companies and other
independent 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, the CPUC issued
decisions which provide for direct access for all customers as of April 1, 1998.
Regulatory initiatives are also being considered in other states, including
Texas, New York and states in New England. See "Business -- Government
Regulation -- State Regulation." This competition has put pressure on electric
utilities to lower their costs, including the cost of purchased electricity, and
increasing competition in the supply of electricity in the future will increase
this pressure.
EMPLOYEES
As of December 31, 1998, we employed 458 people. None of our employees are
covered by collective bargaining agreements, and we have never experienced a
work stoppage, strike or labor dispute. We consider relations with our employees
to be good.
PROPERTIES
Our principal executive office is located in San Jose, California, under a
lease that expires in June 2001.
We have leasehold interests in 109 leases comprising 27,263 acres of
federal, state and private geothermal resource lands in The Geysers area in
northern California. These leases comprise our West Ford Flat Power Plant, Bear
Canyon Power Plant and certain steam fields. In the Glass Mountain and Medicine
Lake areas in northern California, we hold
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leasehold interests in 18 leases comprising approximately 25,028 acres of
federal geothermal resource lands.
In general, under the leases, we have the exclusive right to drill for,
produce and sell geothermal resources from these properties and the right to use
the surface for all related purposes. Each lease requires the payment of annual
rent until commercial quantities of geothermal resources are established. After
such time, the leases require the payment of minimum advance royalties or other
payments until production commences, at which time production royalties are
payable. Such royalties and other payments are payable to landowners, state and
federal agencies and others, and vary widely as to the particular lease. The
leases are generally for initial terms varying from 10 to 20 years or for so
long as geothermal resources are produced and sold. Certain of the leases
contain drilling or other exploratory work requirements. In certain cases, if a
requirement is not fulfilled, the lease may be terminated and in other cases
additional payments may be required. We believe that our leases are valid and
that we have complied with all the requirements and conditions material to the
continued effectiveness of the leases. A number of our leases for undeveloped
properties may expire in any given year. Before leases expire, we perform
geological evaluations in an effort to determine the resource potential of the
underlying properties. We cannot assure that we will decide to renew any
expiring leases.
We own 77 acres in Sutter County, California, on which the Greenleaf 1
Power Plant is located.
We own Calpine Gas Company, which leases property covering approximately
13,837 gross acres and 13,738 net acres.
See "-- Description of Facilities" for a description of the other material
leased or owned properties in which we have an interest. We believe that our
properties are adequate for our current operations.
LEGAL PROCEEDINGS
On September 30, 1997, a lawsuit was filed by Indeck North American Power
Fund ("Indeck") in the Circuit Court of Cook County, Illinois against Norweb
plc. and certain other parties, including us. Some of Indeck's claims relate to
Calpine Gordonsville, Inc.'s acquisition of a 50% interest in Gordonsville
Energy from Northern Hydro Limited and Calpine Auburndale, Inc.'s acquisition of
a 50% interest in Auburndale Power Plant Partners Limited Partnership from
Norweb Power Services (No. 1) Limited. Indeck is claiming that Calpine
Gordonsville, Inc., Calpine Auburndale, Inc. and Calpine Corporation tortiously
interfered with Indeck's contractual rights to purchase such interests and
conspired with other parties to do so. Indeck is seeking $25.0 million in
compensatory damages, $25.0 million in punitive damages, and the recovery of
attorneys' fees and costs. In July 1998, the court granted motions to dismiss,
without prejudice, the claims against Calpine Gordonsville, Inc. and Calpine
Auburndale, Inc. In August 1998, Indeck filed an amended complaint and the
defendants filed motions to dismiss. We expect a hearing to be held on those
motions during March 1999. We are unable to predict the outcome of these
proceedings but we do not believe that these proceedings will have a materially
adverse effect on our financial results.
There is currently a dispute between Texas-New Mexico Power Company ("TNP")
and Clear Lake Cogeneration ("CLC"), which owns the Clear Lake Power Plant,
regarding certain costs and other amounts that TNP has withheld from payments
due
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under the power sales agreement from August 1997 until October 1998. TNP has
withheld approximately $450,000 per month related to transmission charges. In
October 1997, CLC filed a petition for declaratory order with the Texas Public
Utilities Commission ("Texas PUC") requesting a declaration that TNP's
withholding is in error, which petition is currently pending. Also, as of
September 30, 1998, TNP has withheld approximately $7.7 million of standby power
charges. CLC filed an action in Texas courts on October 2, 1997, alleging TNP's
breach of the power sales agreement and is seeking refund of the standby
charges. In October 1998, TNP and CLC reached an agreement in principle to
settle all outstanding disputes. The parties are currently finalizing the
documentation of the settlement which must be approved by the Texas PUC. Both
the Texas PUC action and the court action have been put on hold pending
completion of the settlement and we do not believe that these proceedings will
have a materially adverse effect on our financial results.
An action was filed against Lockport Energy Associates ("LERA") and the New
York Public Service Commission ("NYPSC") in August 1997 by New York State
Electricity and Gas Company ("NYSEG") in the Federal District Court for the
Northern District of New York. NYSEG has requested the Court to direct NYPSC and
the Federal Energy Regulatory Commission (the "FERC") to modify contract rates
to be paid to the Lockport Power Plant. In October 1997, NYPSC filed a
cross-claim alleging that the FERC violated PURPA and the Federal Power Act by
failing to reform the NYSEG contract that was previously approved by the NYPSC.
Although we are unable to predict the outcome of this case, in any event, we
retain the right to require The Brooklyn Union Gas Company to purchase our
interest in the Lockport Power Plant for $18.9 million, less equity
distributions received by us, at any time before December 19, 2001.
We and our affiliates are involved in various other claims and legal
actions arising out of the normal course of business. We do not expect that the
outcome of these proceedings will have a material adverse effect on our
financial position or results of operations, although we cannot assure you in
this regard.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter Cartwright.................... 69 Chairman of the Board, President,
Chief Executive Officer and Director
Ann B. Curtis....................... 48 Executive Vice President, Chief
Financial Officer, Corporate
Secretary and Director
Jeffrey E. Garten................... 52 Director
Susan C. Schwab..................... 43 Director
George J. Stathakis................. 68 Director
John O. Wilson...................... 60 Director
V. Orville Wright................... 78 Director
Lynn A. Kerby....................... 60 Executive Vice President-Operations
Robert D. Kelly..................... 41 Senior Vice President-Finance
</TABLE>
Set forth below is certain information with respect to each director and
executive officer.
Peter Cartwright founded our company in 1984 and has served as a Director
and as our President and Chief Executive Officer since inception. Mr. Cartwright
became Chairman of our board of directors in September 1996. From 1979 to 1984,
Mr. Cartwright was Vice President and General Manager of the Western Regional
Office of Gibbs & Hill, Inc. ("Gibbs & Hill"), an architect-engineering firm
that specialized in power engineering projects. From 1960 to 1979, Mr.
Cartwright worked for General Electric's Nuclear Energy Division. His
responsibilities included plant construction, project management and new
business development. He served on the board of directors of nuclear fuel
manufacturing companies in Germany, Italy and Japan. Mr. Cartwright was
responsible for General Electric's technology development and licensing programs
in Europe and Japan. Mr. Cartwright obtained a Master of Science Degree in Civil
Engineering from Columbia University in 1953 and a Bachelor of Science Degree in
Geological Engineering from Princeton University in 1952.
Ann B. Curtis has served as Executive Vice President of our company since
August 1998, and before that was our Senior Vice President since September 1992,
and has been employed by us since our inception in 1984. Ms. Curtis became a
Director of our company in September 1996. She is responsible for our financial
and administrative functions, including the functions of general counsel,
corporate and project finance, accounting, human resources, public relations and
investor relations. Ms. Curtis also serves as our Chief Financial Officer and
Corporate Secretary. From our inception in 1984 through 1992, she served as our
Vice President for Management and Financial Services. Prior to joining our
company, Ms. Curtis was Manager of Administration for the Western Regional
Office of Gibbs & Hill.
Jeffrey E. Garten became a Director of our company in January 1997. Mr.
Garten has served as Dean of the Yale School of Management and William S.
Beinecke Professor in the Practice of International Trade and Finance since
November 1995. Mr. Garten served
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as Undersecretary of Commerce of International Trade in the United States
Department of Commerce from November 1993 to October 1995. From October 1990 to
October 1992, Mr. Garten was a managing director of The Blackstone Group, an
investment banking firm. Prior thereto, Mr. Garten founded and managed The Eliot
Group, a small investment bank, from November 1987 to October 1990, and served
as managing director of Lehman Brothers from January 1979 to November 1987.
Susan C. Schwab became a Director of our company in January 1997. Dr.
Schwab has served as Dean of the School of Public Affairs at the University of
Maryland since August 1995. Dr. Schwab served as Director, Corporate Business
Development at Motorola, Inc. from July 1993 to August 1995. She also served as
Assistant Secretary of Commerce for the U.S. and Foreign Commercial Service from
March 1989 to May 1993.
George J. Stathakis became a Director of our company in September 1996 and
has served as a Senior Advisor to us since December 1994. Mr. Stathakis has been
providing financial, business and management advisory services to numerous
corporations since 1985. He also served as Chairman of the Board and Chief
Executive Officer of Ramtron International Corporation, an advanced technology
semiconductor company, from 1990 to 1994. From 1986 to 1989, he served as
Chairman of the Board and Chief Executive Officer of International Capital
Corporation, a subsidiary of American Express. Prior to 1986, Mr. Stathakis
served thirty-two years with General Electric Corporation in various management
and executive positions. During his service with General Electric Corporation,
Mr. Stathakis founded the General Electric Trading Company and was appointed its
first President and Chief Executive.
John O. Wilson became a Director of our company in January 1997. Mr. Wilson
has served as a Senior Research Fellow at the Berkeley Roundtable on the
International Economy and as Executive Vice President and Chief Economist of SDR
Capital Management, Inc. since January 1999. Mr. Wilson served as Executive Vice
President and Chief Economist at Bank of America from August 1984 to January
1999. He joined Bank of America in June 1975 as Director of Economics-Policy
Research. He served as a faculty member at the University of California at
Berkeley from September 1979 to June 1991, at the University of Connecticut from
September 1974 to June 1975, and at Yale University from January 1967 to
September 1970. Mr. Wilson also served as Director of Regulatory Analysis of the
U.S. Atomic Energy Commission from April 1972 to October 1972, as Director of
Welfare Reform of the Department of Health, Education and Welfare from April
1971 to April 1972, and as Assistant Director of the U.S. Office of Economic
Opportunity from August 1969 to April 1971.
V. Orville Wright became a Director of our company in January 1997. Mr.
Wright served in various positions with MCI Communications Corp., including Vice
Chairman and Co-Chief Executive Officer from 1988 to 1991, Vice Chairman and
Chief Executive Officer from 1985 to 1987, and President and Chief Operating
Officer from 1975 to 1985. Prior to 1975, Mr. Wright served in senior positions
at Xerox Corp. from 1973 to 1975, at Amdahl Corporation from 1971 to 1973, at
RCA from 1969 to 1971, and at IBM from 1949 to 1969.
Lynn A. Kerby joined our company in January 1991 and served as Vice
President of Operations through January 1993, at which time he became our Senior
Vice President-Operations. Mr. Kerby became our Executive Vice
President-Operations in August 1998. Prior to joining us, Mr. Kerby served as
Senior Vice President-Operations of Guy F. Atkinson Company ("Guy F. Atkinson"),
an engineering and construction company, from
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1989 to 1990, and served in various other positions within Guy F. Atkinson since
1961. Mr. Kerby served on our company's board of directors from 1984 to 1988 as
a Guy F. Atkinson representative. He obtained a Bachelor of Science Degree in
Civil Engineering and Business from the University of Idaho in 1961. Mr. Kerby
holds a Class A Contractors License in the states of California, Arizona and
Hawaii.
Robert D. Kelly has served as our Senior Vice President-Finance since
January 1998 and Vice President, Finance from April 1994 to January 1998. Mr.
Kelly's responsibilities include all project and corporate finance activities.
From 1992 to 1994, Mr. Kelly served as our Director-Project Finance, and from
1991 to 1992, he served as Project Finance Manager. Prior to joining us, he was
the Marketing Manager of Westinghouse Credit Corporation from 1990 to 1991. From
1989 to 1990, Mr. Kelly was Vice President of Lloyds Bank PLC. From 1982 to
1989, Mr. Kelly was employed in various positions with The Bank of Nova Scotia.
He obtained a Master of Business Administration Degree from Dalhousie
University, Canada in 1980 and a Bachelor of Commerce Degree from Memorial
University, Canada, in 1979.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of February 17, 1999 by (1) each
person known by us to be the beneficial owner of more than five percent of the
outstanding shares of our common stock, (2) each of our directors, (3) certain
of our executive officers and (4) all of our officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
------------------- --------------------- ---------------------
<S> <C> <C>
J. & W. Seligman & Co. Incorporated(2)... 2,188,584 10.8%
100 Park Avenue
New York, NY 10017
Lazard Freres & Co. LLC(3)............... 2,111,808 10.4%
30 Rockefeller Plaza
New York, NY 10020
Wellington Management Company, LLP(4).... 1,995,400 9.9%
75 State Street
Boston, MA 02109
Hartford Capital Appreciation HLS Fund,
Inc.(5)................................ 1,886,500 9.3%
200 Hopmeadow Street
Simsbury, CT 06070
Public Employees Retirement System
of Ohio................................ 1,800,000 8.9%
277 East Town Street
Columbus, OH 43215
Putnam Investments, Inc.(6).............. 1,425,800 7.0%
One Post Office Square
Boston, MA 02109
Osterweis Capital Management, Inc.(7).... 1,130,100 5.6%
One Maritime Plaza, Suite 1201
San Francisco, CA 94111
Peter Cartwright(8)...................... 949,155 4.5%
Ann B. Curtis(9)......................... 260,375 1.3%
Lynn A. Kerby(10)........................ 152,023 *
Robert D. Kelly(11)...................... 110,327 *
Jeffrey E. Garten(12).................... 13,000 *
Susan C. Schwab(12)...................... 13,000 *
George J. Stathakis(13).................. 42,720 *
John O. Wilson(12)....................... 15,903 *
V. Orville Wright(12).................... 15,419 *
All executive officers and directors as a
group (9 persons)(14).................. 1,571,922 7.2%
</TABLE>
Footnotes appear on the next page.
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<PAGE> 70
- ---------------
* Less than one percent
(1) This table is based in part upon information supplied by Schedules 13G
filed by principal stockholders with the Securities and Exchange Commission
(the "Commission"). Beneficial ownership is determined in accordance with
the rules of the Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to
options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days after a specified
date, are deemed outstanding for computing the percentage of the person
holding such options but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them. The number of shares
of common stock outstanding as of March 4, 1999 was 20,267,297.
(2) According to the Schedule 13G filed with the Commission, J. & W. Seligman &
Co. Incorporated possesses shared voting power over 1,799,000 shares and
shared investment power over 2,188,584 shares.
(3) According to the Schedule 13G filed with the Commission, Lazard Freres &
Co. LLC possess sole voting power over 1,649,545 shares and sole investment
power over 2,111,808 shares.
(4) According to the Schedule 13G filed with the Commission, Wellington
Management Company, LLP possesses shared voting power over 1,960,400 shares
and shared investment power over 1,995,400 shares.
(5) According to the Schedule 13G filed with the Commission, Hartford Capital
Appreciation HLS Fund, Inc. possesses shared voting and investment power
over 1,886,500 shares.
(6) According to the Schedule 13G filed with the Commission, Putnam
Investments, Inc. possesses shared voting power over 42,500 shares and
shared investment power over 1,425,800 shares.
(7) According to the Schedule 13G filed with the Commission, Osterweis Capital
Management, Inc. possesses sole voting power over 961,550 shares and sole
investment power over 1,130,100 shares.
(8) Includes options to purchase 943,205 shares of our common stock issuable
upon the exercise of options outstanding as of January 1, 1999 or within 60
days thereafter.
(9) Includes options to purchase 260,062 shares of our common stock issuable
upon the exercise of options outstanding as of January 1, 1999 or within 60
days thereafter.
(10) Includes options to purchase 151,523 shares of our common stock issuable
upon the exercise of options outstanding as of January 1, 1999 or within 60
days thereafter.
(11) Includes options to purchase 109,327 shares of our common stock issuable
upon the exercise of options outstanding as of January 1, 1999 or within 60
days thereafter.
(12) Represents shares of our common stock issuable upon exercise of options
that are exercisable as of January 1, 1999 or will become exercisable
within 60 days thereafter.
(13) Includes options to purchase 39,720 shares of our common stock issuable
upon the exercise of options outstanding as of January 1, 1999 or within 60
days thereafter.
(14) Includes options to purchase 1,561,159 shares of our common stock issuable
upon the exercise of options outstanding as of January 1, 1999 or within 60
days thereafter.
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<PAGE> 71
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.001 par value, and 10,000,000 shares of preferred stock, $.001 par
value. The following summary is qualified in its entirety by the provisions of
our certificate of incorporation and bylaws, which have been filed as exhibits
to the Registration Statement of which this prospectus constitutes a part.
COMMON STOCK
There will be 26,267,297 shares of common stock outstanding upon the
completion of the common stock offering. The holders of common stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. See "Dividend Policy." In the
event of our liquidation, dissolution or winding up, the holders of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock to be
outstanding upon the completion of the common stock offering will be fully paid
and non-assessable.
PREFERRED STOCK
The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of
undesignated preferred stock and to fix the number of shares constituting any
series and the designations of such series, without any further vote or action
by the stockholders. The board of directors, without stockholder approval, can
issue preferred stock with voting and conversion rights which could adversely
affect the voting power of the holders of common stock. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of our company, or could delay or prevent a transaction that
might otherwise give our stockholders an opportunity to realize a premium over
the then prevailing market price of the common stock. There will be no shares of
preferred stock outstanding upon the completion of the common stock offering.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation and bylaws provide that our board of
directors is classified into three classes of Directors serving staggered,
three-year terms. The certificate of incorporation also provides that Directors
may be removed only by the affirmative vote of the holders of two-thirds of the
shares of our capital stock entitled to vote. Any vacancy on the board of
directors may be filled only by vote of the majority of Directors then in
office. Further, the certificate of incorporation provides that any "Business
Combination" (as therein defined) requires the affirmative vote of the holders
of two-thirds of the shares
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<PAGE> 72
of our capital stock entitled to vote, voting together as a single class. The
certificate of incorporation also provides that all stockholder actions must be
effected at a duly called meeting and not by a consent in writing. The bylaws
provide that our stockholders may call a special meeting of stockholders only
upon a request of stockholders owning at least 50% of our capital stock. These
provisions of the certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of our company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of our
company. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for our shares
and, as a consequence, they also may inhibit fluctuations in the market price of
our shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (1) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(2) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (3) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (1) any merger or
consolidation involving the corporation and the interested stockholder; (2) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (3) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (4)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (5) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
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<PAGE> 73
DESCRIPTION OF THE SENIOR NOTES
Concurrently with the common stock offering, we are offering up to $500.0
million aggregate principal amount of senior notes pursuant to the senior note
offering. The following discussion summarizes certain terms of the senior notes
and is qualified in its entirety by reference to the indenture relating to the
senior notes.
The % Senior Notes Due 2004, the % Senior Notes Due 2006, the %
Senior Notes Due 2009 and the % Senior Notes Due 2011 are to be issued under
separate indentures (together the "Indentures") to be dated as of
, 1999 among us and The Bank of New York, as trustee (the
"Trustee").
Each of these notes are senior unsecured obligations of our company.
The % Senior Notes bear interest at a rate of % per annum payable
semi-annually on and of each year and mature on
, 2004. The % Senior Notes bear interest at a rate of % per
annum payable semi-annually on and of each year
and mature on , 2006. The % Senior Notes bear interest at a rate
of % per annum payable semi-annually on and
of each year and mature on , 2009. The % Senior Notes bear
interest at a rate of % per annum payable semi-annually on
and of each year and mature on , 2011. All of
these notes are not subject to redemption prior to maturity.
Upon a Change of Control Triggering Event (as defined in the Indenture),
each holder of these notes will have the right to require us to repurchase such
notes at 101% of the principal amount thereof plus accrued and unpaid interest
to the repurchase date. The Revolving Credit Facility limits our ability to
redeem these notes.
The Indentures contain certain covenants that, among other things, limit
(1) the incurrence of additional debt by us and our subsidiaries, (2) the
payment of dividends on and redemptions of capital stock by us and our
subsidiaries, (3) the use of proceeds from the sale of assets and subsidiary
stock, (4) transactions with affiliates, (5) the incurrence of liens, (6) sale
and leaseback transactions and (7) consolidations, mergers and certain transfers
of assets.
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
7 7/8% SENIOR NOTES DUE 2008
On March 31, 1998 and July 24, 1998, we issued $300.0 million and $100.0
million, respectively, aggregate principal amount of 7 7/8% Senior Notes. The
7 7/8% Senior Notes are senior unsecured obligations of our company and rank
equal with our other senior notes, including the senior notes being offered in
the senior note offering.
The 7 7/8% Senior Notes bear interest at a rate of 7 7/8% per annum payable
semi-annually on April 1 and October 1 of each year and mature on April 1, 2008.
The 7 7/8% Senior Notes are not subject to redemption prior to maturity.
Upon a Change of Control Triggering Event (as defined in the 7 7/8%
Indenture), each holder of 7 7/8% Senior Notes will have the right to require us
to repurchase such 7 7/8% Senior Notes at 101% of the principal amount thereof
plus accrued and unpaid
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<PAGE> 74
interest to the repurchase date. The Revolving Credit Facility limits our
ability to redeem the 7 7/8% Senior Notes.
Similar to the indentures governing the senior notes being offered pursuant
to the senior note offering (and subject to similar qualifications), the 7 7/8%
Indenture contains certain covenants that, among other things, limit (1) the
incurrence of additional debt by us and our subsidiaries, (2) the payment of
dividends on and redemptions of capital stock by us and our subsidiaries, (3)
the use of proceeds from the sale of assets and subsidiary stock, (4)
transactions with affiliates, (5) the incurrence of liens, (6) sale and
leaseback transactions and (7) consolidations, mergers and certain transfers of
assets.
The foregoing summary describes certain provisions of the 7 7/8% Indenture
and the 7 7/8% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 7 7/8% Indenture and the
form of 7 7/8% Senior Notes.
8 3/4% SENIOR NOTES DUE 2007
On July 8, 1997 and September 10, 1997, we issued $200.0 million and $75.0
million, respectively, aggregate principal amount of 8 3/4% Senior Notes. The
8 3/4% Senior Notes are senior unsecured obligations of our company and rank
equal with our other senior notes, including the senior notes being offered in
the senior note offering.
The 8 3/4% Senior Notes bear interest at a rate of 8 3/4% per annum payable
semi-annually on January 15 and July 15 of each year and mature on July 15,
2007. The 8 3/4% Senior Notes are redeemable at our option, in whole or in part,
at any time after July 15, 2002 at the various redemption prices set forth in
the 8 3/4% Indenture, plus accrued interest to the date of redemption. In
addition, prior to July 15, 2000, up to $96.3 million of the 8 3/4% Senior Notes
may be redeemed at 108.75% of the principal amount thereof, plus accrued
interest, with the net proceeds of one or more public equity offerings by us.
Upon a Change of Control Triggering Event (as defined in the 8 3/4%
Indenture), each holder of 8 3/4% Senior Notes will have the right to require us
to repurchase such 8 3/4% Senior Notes at 101% of the principal amount thereof
plus accrued and unpaid interest to the repurchase date. The Revolving Credit
Facility limits our ability to redeem the 8 3/4% Senior Notes.
Similar to the indentures governing the senior notes being offered pursuant
to the senior note offering (and subject to similar qualifications), the 8 3/4%
Indenture contains certain covenants that, among other things, limit (1) the
incurrence of additional debt by us and our subsidiaries, (2) the payment of
dividends on and redemptions of capital stock by us and our subsidiaries, (3)
the use of proceeds from the sale of assets and subsidiary stock, (4)
transactions with affiliates, (5) the incurrence of liens, (6) sale and
leaseback transactions and (7) consolidations, mergers and certain transfers of
assets.
The foregoing summary describes certain provisions of the 8 3/4% Indenture
and the 8 3/4% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 8 3/4% Indenture and the
form of 8 3/4% Senior Notes.
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<PAGE> 75
10 1/2% SENIOR NOTES DUE 2006
On May 16, 1996, we issued $180.0 million aggregate principal amount of
10 1/2% Senior Notes. The 10 1/2% Senior Notes are senior unsecured obligations
of our company and will rank equal with our other senior notes, including the
senior notes being offered in the senior notes offering.
The 10 1/2% Senior Notes bear interest at a rate of 10 1/2% per annum
payable semi-annually on May 15, and November 15 of each year and mature on May
15, 2006. The 10 1/2% Senior Notes are redeemable at our option, in whole or in
part, at any time after May 15, 2001 at the various redemption prices set forth
in the 10 1/2% Indenture, plus accrued interest to the date of redemption. In
addition, prior to May 15, 1999, up to $63.0 million of 10 1/2% Senior Notes may
be redeemed at 110.50% of the principal amount thereof, plus accrued interest,
with the net proceeds of one or more public equity offerings by us.
Upon a Change of Control Triggering Event (as defined in the 10 1/2%
Indenture), each holder of 10 1/2% Senior Notes will have the right to require
us to repurchase such 10 1/2% Senior Notes at 101% of the principal amount
thereof plus accrued and unpaid interest to the repurchase date. The Revolving
Credit Facility limits our ability to redeem the 10 1/2% Senior Notes.
Similar to the indentures governing the senior notes being offered pursuant
to the senior note offering (and subject to similar qualifications), the 10 1/2%
Indenture contains certain covenants that, among other things, limit (1) the
incurrence of additional debt by us and our subsidiaries, (2) the payment of
dividends on and redemptions of capital stock by us and our subsidiaries, (3)
the use of proceeds from the sale of assets and subsidiary stock, (4)
transactions with affiliates, (5) the incurrence of liens, (6) sale and
leaseback transactions and (7) consolidations, mergers and certain transfers of
assets.
The foregoing summary describes certain provisions of the 10 1/2% Indenture
and the 10 1/2% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 10 1/2% Indenture and
the form of 10 1/2% Senior Notes.
9 1/4% SENIOR NOTES DUE 2004
On February 17, 1994, we issued $105.0 million aggregate principal amount
of 9 1/4% Senior Notes in an underwritten public offering. The 9 1/4% Senior
Notes are senior unsecured obligations of our company and will rank equal with
our other senior notes, including the senior notes being offered in the senior
notes offering.
The 9 1/4% Senior Notes bear interest at a rate of 9 1/4% per annum payable
semi-annually on February l and August l of each year and mature on February 1,
2004. The 9 1/4% Senior Notes are redeemable at our option, in whole or in part,
at any time after February 1, 1999 at the various redemption prices set forth in
the 9 1/4% Indenture, plus accrued interest to the date of redemption. In
addition, we may redeem up to $36.8 million of the 9 1/4% Senior Notes.
Upon a Change of Control Triggering Event (as defined in the 9 1/4%
Indenture), each holder of 9 1/4% Senior Notes will have the right to require us
to repurchase such 9 1/4% Senior Notes at 101% of the principal amount thereof
plus accrued and unpaid
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<PAGE> 76
interest to the repurchase date. The Revolving Credit Facility limits our
ability to redeem the 9 1/4% Senior Notes.
Similar to the indentures governing the senior notes being offered pursuant
to the senior note offering (and subject to similar qualifications), the 9 1/4%
Indenture contains certain covenants that, among other things, limit (1) the
incurrence of additional debt by us and our subsidiaries, (2) the payment of
dividends on and redemptions of capital stock by us and our subsidiaries, (3)
the use of proceeds from the sale of assets and subsidiary stock, (4)
transactions with affiliates, (5) the incurrence of liens, (6) sale and
leaseback transactions and (7) consolidations, mergers and certain transfers of
assets.
The foregoing summary describes certain provisions of the 9 1/4% Indenture
and the 9 1/4% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 9 1/4% Indenture and the
form of 9 1/4% Senior Notes.
OTHER
See "Business -- Description of Facilities" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a description
of our other indebtedness.
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<PAGE> 77
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp.,
Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co. and
Salomon Smith Barney Inc. are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
CIBC Oppenheimer Corp. .....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Goldman, Sachs & Co. .......................................
Salomon Smith Barney Inc. ..................................
---------
Total............................................. 6,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 900,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
PER WITHOUT WITH
SHARE OVER-ALLOTMENT OVER-ALLOTMENT
------ -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and
Commissions........................... $ $ $
Expenses payable by us.................. $ $ $
</TABLE>
We and each of our officers and directors have agreed that we will not
offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act of 1933 relating to any
additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock without the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days after the date of this prospectus, except in our case issuances pursuant to
the exercise of employee stock options outstanding on the date hereof.
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<PAGE> 78
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act, or contribute to payments which the underwriters may
be required to make in respect thereof.
The representatives, on behalf of the underwriters, may engage in
over-allotments, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when the
common stock originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the common stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on The New
York Stock Exchange or otherwise and, if commenced, may be discontinued at any
time.
From time to time, certain of the underwriters have provided advisory and
investment banking services to us, for which customary compensation has been
received. It is expected that such underwriters will continue to provide such
services to us in the future.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities law which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that such purchaser is purchasing as principal and not as agent, and (3)
such purchaser has reviewed the text above under "Resale Restrictions".
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<PAGE> 79
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Brobeck, Phleger & Harrison LLP, San Francisco, California. The underwriters
have been represented by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
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<PAGE> 80
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
reports. In those reports, that firm states that with respect to a certain
subsidiary its opinion is based on the reports of other independent public
accountants, namely Moss Adams LLP. The financial statements and supporting
schedules referred to above have been included herein in reliance upon the
authority of that firm as experts in giving said reports.
The consolidated financial statements of Sumas Cogeneration Company, L.P.
and Subsidiary as of December 31, 1998 and 1997 and for each of the years ended
December 31, 1998, 1997 and 1996 included in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission on February 18, 1999 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.
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<PAGE> 81
[CALPINE LOGO]
<PAGE> 82
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 5, 1999
$500,000,000
LOGO CALPINE CORPORATION
$ % Senior Notes Due 2004
$ % Senior Notes Due 2006
$ % Senior Notes Due 2009
$ % Senior Notes Due 2011
------------------
We will pay interest on the Senior Notes each and . The
first interest payment
will be made on , 1999.
We may not redeem the Senior Notes prior to their maturity.
Concurrently with this offering of Senior Notes, we are offering 6,000,000
shares of our
common stock.
INVESTING IN THE SENIOR NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE
7.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS CALPINE
PUBLIC(1) AND COMMISSIONS CORPORATION(1)
------------ ----------------- -------------------
<S> <C> <C> <C>
Per % Senior Note................ 100% % %
Total......................... $ $ $
Per % Senior Note................ 100% % %
Total......................... $ $ $
Per % Senior Note................ 100% % %
Total......................... $ $ $
Per % Senior Note................ 100% % %
Total......................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1999.
Delivery of the Senior Notes in book entry form only, will be made through
the Depository Trust Company on or about March , 1999, against payment in
immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
CIBC OPPENHEIMER
TD SECURITIES
ING BARINGS
SCOTIA CAPITAL MARKETS
Prospectus dated March , 1999.
<PAGE> 83
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 7
WHERE YOU CAN FIND MORE
INFORMATION....................... 7
FORWARD-LOOKING STATEMENTS.......... 7
USE OF PROCEEDS..................... 7
CAPITALIZATION...................... 8
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 9
PRO FORMA CONSOLIDATED FINANCIAL
DATA.............................. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATION...................... 11
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS............................ 12
MANAGEMENT.......................... 13
PRINCIPAL STOCKHOLDERS.............. 14
DESCRIPTION OF THE SENIOR NOTES..... 15
DESCRIPTION OF CERTAIN OTHER
INDEBTEDNESS...................... 54
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.................... 57
UNDERWRITING........................ 61
NOTICE TO CANADIAN RESIDENTS........ 62
LEGAL MATTERS....................... 63
EXPERTS............................. 63
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION CONTAINED IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
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<PAGE> 84
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the Senior Notes. You should carefully
read the entire prospectus, including the risk factors, the financial statements
and the documents incorporated by reference into it. The terms "Calpine," "our
company," "our" and "we," as used in this prospectus, refer to Calpine
Corporation and its consolidated subsidiaries.
THE COMPANY
Calpine is a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity predominantly in the United States. We have experienced
significant growth in all aspects of our business over the last five years.
Currently, we own interests in 22 power plants having an aggregate capacity of
2,729 megawatts and have three acquisition transactions pending in which we will
acquire 14 geothermal power plants with an aggregate capacity of 694 megawatts
and certain related steam fields. We also have six gas-fired projects under
construction having an aggregate capacity of 1,784 megawatts and have announced
plans to develop five gas-fired power plants with a total capacity of 3,180
megawatts. Upon completion of pending acquisitions and projects under
construction, we will have interests in 40 power plants having an aggregate
capacity of 5,207 megawatts, of which we will have a net interest in 4,271
megawatts. This represents significant growth from the 342 megawatts of capacity
we had at the end of 1993. Of this total generating capacity, 81% will be
attributable to gas-fired facilities and 19% will be attributable to geothermal
facilities.
As a result of our expansion program, our revenues, cash flow, earnings and
assets have grown significantly over the last five years, as shown in the table
below.
<TABLE>
<CAPTION>
COMPOUND ANNUAL
1993 1998 GROWTH RATE
-------- ---------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total Revenue..................... $ 69.9 $ 555.9 51%
EBITDA............................ 42.4 255.3 43%
Net Income........................ 3.8 45.7 64%
Total Assets...................... 302.3 1,728.9 42%
</TABLE>
Since our inception in 1984, we have developed substantial expertise in all
aspects of the development, acquisition and operation of power generation
facilities. We believe that the vertical integration of our extensive
engineering, construction management, operations, fuel management and financing
capabilities provides us with a competitive advantage to successfully implement
our acquisition and development program and has contributed to our significant
growth over the past five years.
THE MARKET
The power industry represents the third largest industry in the United
States, with an estimated end-user market of over $250 billion of electricity
sales in 1998 produced by an aggregate base of power generation facilities with
a capacity of approximately 750,000 megawatts. In response to increasing
customer demand for access to low-cost electricity and enhanced services, new
regulatory initiatives have been and are continuing to be adopted at both the
state and federal level to increase competition in the domestic
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power generation industry. The power generation industry historically has been
largely characterized by electric utility monopolies producing electricity from
old, inefficient, high-cost generating facilities selling to a captive customer
base. Industry trends and regulatory initiatives have transformed the existing
market into a more competitive market where end users purchase electricity from
a variety of suppliers, including non-utility generators, power marketers,
public utilities and others.
There is a significant need for additional power generating capacity
throughout the United States, both to satisfy increasing demand, as well as to
replace old and inefficient generating facilities. Due to environmental and
economic considerations, we believe this new capacity will be provided
predominantly by gas-fired facilities. We believe that these market trends will
create substantial opportunities for efficient, low-cost power producers that
can produce and sell energy to customers at competitive rates.
In addition, as a result of a variety of factors, including deregulation of
the power generation market, utilities, independent power producers and
industrial companies are disposing of power generation facilities. To date,
numerous utilities have sold or announced their intentions to sell their power
generation facilities and have focused their resources on the transmission and
distribution business segments. Many independent producers operating a limited
number of power plants are also seeking to dispose of their plants in response
to competitive pressures, and industrial companies are selling their power
plants to redeploy capital in their core businesses.
STRATEGY
Our strategy is to continue our rapid growth by capitalizing on the
significant opportunities in the power market, primarily through our active
development and acquisition programs. In pursuing our proven growth strategy, we
utilize our extensive management and technical expertise to implement a fully
integrated approach to the acquisition, development and operation of power
generation facilities. This approach uses our expertise in design, engineering,
procurement, finance, construction management, fuel and resource acquisition,
operations and power marketing, which we believe provide us with a competitive
advantage. The key elements of our strategy are as follows:
- Development and expansion of power plants. We are actively pursuing the
development and expansion of highly efficient, low-cost, gas-fired power
plants to replace old and inefficient generating facilities and meet the
demand for new generation.
- Acquisition of power plants. Our strategy is to acquire power generating
facilities that meet our stringent criteria, provide significant
potential for revenue, cash flow and earnings growth and provide the
opportunity to enhance the operating efficiencies of the plants.
- Enhancement of the performance and efficiency of existing power
projects. We continually seek to maximize the power generation potential
of our operating assets and minimize our operating and maintenance
expenses and fuel costs.
RECENT DEVELOPMENTS
Project Development and Construction. In July 1998, we achieved a key
milestone in our development program by completing the development of our 240
megawatt gas-fired power plant in Pasadena, Texas. The Pasadena Power Plant
serves as a prototype for future development projects. We currently have six
gas-fired projects under construction,
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<PAGE> 86
representing an additional 1,784 megawatts of capacity. Of these new projects,
we are expanding our Pasadena and Clear Lake facilities by an aggregate of 545
megawatts. In addition, four new gas-fired power plants, with a total capacity
of 1,239 megawatts, are currently under construction in Dighton, Massachusetts;
Tiverton, Rhode Island; Rumford, Maine; and Westbrook, Maine. We have also
announced plans to develop five additional power generation facilities, totaling
an estimated 3,180 megawatts of electricity, in California, Texas and Arizona.
Pending Acquisitions. We are currently in the process of completing three
acquisitions comprising 14 geothermal power plants with an aggregate capacity of
694 megawatts and certain related steam fields, located in The Geysers,
California. Historically, we have served as the steam supplier for these
facilities, which have been owned and operated by PG&E. We anticipate that these
acquisitions will enable us to consolidate our operations in The Geysers into a
single ownership structure and to integrate the power plant and steam field
operations, allowing us to optimize the efficiency and performance of the
facilities. We believe that these acquisitions will provide us with significant
synergies that utilize our expertise in geothermal power generation and position
us to benefit from the demand for "green" energy in the competitive market.
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<PAGE> 87
THE OFFERING
Securities Offered.............. $ aggregate principal amount of %
Senior Notes Due 2004;
$ aggregate principal amount of %
Senior Notes Due 2006;
$ aggregate principal amount of %
Senior Notes Due 2009; and
$ aggregate principal amount of %
Senior Notes Due 2011.
Maturity........................ , 2004 in the case of the
% Senior Notes;
, 2006 in the case of the
% Senior Notes;
, 2009 in the case of the
% Senior Notes; and
, 2011 in the case of the
% Senior Notes.
Interest Payment Dates.......... and of each
year, commencing , 1999.
Redemption...................... We cannot redeem the Senior Notes prior to
maturity.
Ranking......................... The Senior Notes will be our senior
unsecured obligations and will rank equal in
right of payment with all of our other
existing and future senior indebtedness and
senior in right of payment to all of our
subordinated indebtedness. The Senior Notes
will be effectively subordinated to all
liabilities of our subsidiaries, including
trade payables. As of December 31, 1998,
after giving effect to this offering and the
application of the net proceeds therefrom,
the Senior Notes would not be effectively
subordinated to any secured indebtedness and
we would have had $951.8 million of
outstanding indebtedness ranking equal with
the Senior Notes. See "Risk Factors -- We
have substantial indebtedness that we may be
unable to service and that restricts our
activities," "Risk Factors -- Our ability to
repay our debt depends upon the performance
of our subsidiaries" and "Description of the
Senior Notes -- Ranking."
Change of Control............... If a change of control triggering event
occurs, we must give holders of the Senior
Notes the opportunity to sell us their
Senior Notes at a purchase price of 101% of
their face amount, plus accrued and unpaid
interest, if any, to the date of purchase.
The term "change of control triggering
event" is defined in "Description of the
Senior Notes -- Certain Definitions."
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<PAGE> 88
Certain Covenants............... The indentures under which the Senior Notes
will be issued will contain certain
covenants that, among other things, limit
- the incurrence of additional debt by us
and our subsidiaries,
- the payment of dividends on and
redemptions of capital stock by us and our
subsidiaries,
- the use of proceeds from the sale of
assets and subsidiary stock,
- transactions with affiliates,
- the creation of liens, and
- sale leaseback transactions.
The indentures will also restrict our
ability to consolidate or merge with or
into, or to transfer all or substantially
all of our assets to, another person.
However, these limitations are subject to a
number of important qualifications and
exceptions. See "Description of the Senior
Notes -- Covenants."
Book-Entry; Delivery and Form... The Senior Notes will initially be
represented by one or more Global Notes in
definitive, fully registered form,
registered in the name of, a nominee of The
Depositary Trust Company ("DTC"). See
"Description of the Senior Notes --
Book-Entry System."
Use of Proceeds................. We expect to utilize a portion of the net
proceeds from the offerings as follows: (1)
$119.6 million to refinance indebtedness
relating to the Gilroy Power Plant, (2)
$101.0 million to acquire the steam fields
that service the Sonoma County Power Plants,
(3) $25.0 million to complete the expansion
of the Clear Lake Power Plant and (4)
approximately $400.0 million to finance a
portion of the power generation facilities
currently under construction and the
projects currently under development,
including, but not limited to, the
Westbrook, Sutter, South Point and Magic
Valley power plants. The remaining net
proceeds, if any, will be used for working
capital and general corporate purposes. See
"Use of Proceeds."
Concurrent Common Stock
Offering...................... Concurrently with this offering of Senior
Notes, we are offering (by a separate
prospectus) 6,000,000 shares of our common
stock.
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<PAGE> 89
SUMMARY CONSOLIDATED HISTORICAL AND OPERATING INFORMATION
The "Summary Consolidated Historical and Operating Information" to be
included in this Prospectus appears in this registration statement as part of
the prospectus for the common stock offering that also is part of this
registration statement.
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<PAGE> 90
RISK FACTORS
The "Risk Factors" section to be included in this prospectus appears in
this registration statement as part of the prospectus for the common stock
offering that also is part of this registration statement.
WHERE YOU CAN FIND MORE INFORMATION
The "Where you can find more information" section to be included in this
prospectus appears in this registration statement as part of the prospectus for
the common stock offering that also is part of this registration statement.
FORWARD-LOOKING STATEMENTS
The "Forward-looking statements" section to be included in this Prospectus
appears in this registration statement as part of the prospectus for the common
stock offering that also is part of this registration statement.
USE OF PROCEEDS
The "Use of Proceeds" section to be included in this prospectus appears in
this registration statement as part of the prospectus for the common stock
offering that also is part of this registration statement.
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<PAGE> 91
CAPITALIZATION
The "Capitalization" section to be included in this prospectus appears in
this registration statement as part of the prospectus for the common stock
offering that also is part of this registration statement.
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<PAGE> 92
SELECTED CONSOLIDATED FINANCIAL DATA
The "Selected Consolidated Financial Data" to be included in this
prospectus appears in this registration statement as part of the prospectus for
the common stock offering that also is part of this registration statement.
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<PAGE> 93
PRO FORMA CONSOLIDATED FINANCIAL DATA
The "Pro Forma Consolidated Financial Data" to be included in this
prospectus appears in this registration statement as part of the prospectus for
the common stock offering that also is part of this registration statement.
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<PAGE> 94
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" to be included in this prospectus appears in this
registration statement as part of the prospectus for the common stock offering
that also is part of this registration statement.
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<PAGE> 95
BUSINESS
The "Business" section to be included in this prospectus appears in this
registration statement as part of the prospectus for the common stock offering
that also is part of this registration statement.
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<PAGE> 96
MANAGEMENT
The "Management" section to be included in this prospectus appears in this
registration statement as part of the prospectus for the common stock offering
that also is part of this registration statement.
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<PAGE> 97
PRINCIPAL STOCKHOLDERS
The "Principal Stockholders" section to be included in this prospectus
appears in this registration statement as part of the prospectus for the common
stock offering that also is part of this registration statement.
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<PAGE> 98
DESCRIPTION OF THE SENIOR NOTES
We will issue the % Senior Notes due 2004, % Senior Notes due 2006, %
Senior Notes due 2009, and % Senior Notes due 2011, under separate indentures
(each an "Indenture" and together, the "Indentures") between ourselves and The
Bank of New York, as trustee (the "Trustee"). The terms of each of the
Indentures are the same except that the interest rates and the maturity dates of
the Senior Notes are different.
The following description is only a summary of the material provisions of
the Indentures. We urge you to read the Indentures because they, and not this
description, define your rights as holders of the Senior Notes. A copy of the
proposed form of Indenture is available upon request made to us or to the
underwriters.
We have no sinking fund or mandatory redemption obligations with respect to
the Senior Notes.
We are 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 "Where you can find more
information." In addition, if Sections 13 and 15(d) cease to apply to us, we
will covenant in the Indentures 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.
We conduct substantially all of our operations through our subsidiaries.
Creditors of our subsidiaries, including trade creditors, would have a claim on
our subsidiaries' assets that would be prior to the claims of the holders of the
Senior Notes. See "Risk Factors -- Our ability to service our indebtedness is
dependent on the earnings of our subsidiaries."
TERMS OF THE NOTES
The % Senior Notes are being issued with an aggregate principal amount of
$ and will mature on , 2004. The % Senior Notes are
being issued with an aggregate principal amount of $ and will mature on
, 2006. The % Senior Notes are being issued with an aggregate
principal amount of $ and will mature on , 2009. The
% Senior Notes are being issued with an aggregate principal amount of
$ and will mature on , 2011. The Senior Notes will be
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 for the Senior Notes set forth on the cover
page of this prospectus is payable semi-annually on and
of each year while the Senior Notes are outstanding, commencing on
, 1999 (each, an "Interest Payment Date"), to holders of record
at the close of business on the preceding and ,
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 will begin to accrue on ,
1999.
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
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<PAGE> 99
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 Senior Notes are not subject to redemption prior to maturity.
RANKING
The Indebtedness evidenced by the Senior Notes constitutes Senior
Indebtedness of the Company and will rank equal 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 7 7/8% Senior
Notes, the 8 3/4% Senior Notes, the 9 1/4% Senior Notes, and the 10 1/2% Senior
Notes. At December 31, 1998, after giving effect to this offering, the common
stock offering and the application of the net proceeds therefrom, we would have
had outstanding approximately $1.5 billion of Senior Indebtedness. We conduct
substantially all of our operations through our subsidiaries. Creditors of our
subsidiaries, including trade creditors, would have a claim on our subsidiaries'
assets that would be prior to the claims of the holders of the Senior Notes. At
December 31, 1998, after giving effect to this offering, the common stock
offering and the application of the proceeds therefrom, our subsidiaries would
not have had any outstanding indebtedness to which the Senior Notes would be
effectively subordinated and we would have had $951.8 million of outstanding
indebtedness ranking equal with the Senior Notes. See "Risk Factors -- Our
ability to service our indebtedness is dependent on the earnings of our
subsidiaries."
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
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<PAGE> 100
Affiliates" and "-- Covenants -- 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.
"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 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).
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<PAGE> 101
"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:
(i) if a Rating Agency maintains a rating of the Notes at the time a
Change of Control occurs, the occurrence of a Change of Control and the
occurrence of a Rating Decline or
(ii) 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 interest is
capitalized during the construction of such Facility) for such four fiscal
quarters;
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<PAGE> 102
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.
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<PAGE> 103
"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 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
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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
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(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.
"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
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<PAGE> 106
(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 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.
"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).
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<PAGE> 107
"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 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,
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<PAGE> 108
(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
(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,
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<PAGE> 109
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 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 determined by the Board of Directors in good faith. For
purposes of determining the aggregate
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<PAGE> 110
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 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 Notes in light of downgrading the rating
thereof.
"Issue Date" means the date on which the 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
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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.
"Notes" means, with respect to a particular Indenture, the Senior Notes
issued under that Indenture.
"Offering" means the offering and sale of the Notes.
"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 Note means the principal of the Note plus, if applicable,
the premium on the Note.
"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" means S&P and Moody's.
"Rating Category" means:
(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
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(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" means 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 Notes is under publicly announced consideration or
possible downgrade by either of the Rating Agencies),
(i) a decrease of the rating of the 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
Notes, stating that it is not downgrading, and is not considering
downgrading, the 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
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 Notes
(other than on a Change of Control or Asset Sale, provided that such Change
of Control or Asset Sale shall not yet have 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 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 Notes, the Refinancing Indebtedness shall be
contractually subordinated in right of payment to the Notes to at least the
same extent as the Indebtedness being refinanced,
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(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
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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 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 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 50% 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.
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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
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.
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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 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 "-- 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
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<PAGE> 117
negative reevaluations and other negative extraordinary charges not
otherwise reflected in Consolidated Net Income during such period;
(B) if the 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 Notes were Investment Grade for
the entire period;
(C) the 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) $25,000,000.
The failure to satisfy the conditions set forth in clauses (2) and (3)
above 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 above under "-- Limitation on Restricted
Payments"; provided, however, notwithstanding clause (1) above, 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) above under " -- Limitation on Restricted
Payments," the occurrence or existence of a Default or Event of Default
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<PAGE> 118
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) above 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) above 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 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) above under "-- Limitation on Restricted Payments";
(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 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."
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 $50,000,000 and provided
that the proceeds of such
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<PAGE> 119
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 $50,000,000;
(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 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 Notes at least to the same extent as such Subordinated
Indebtedness.
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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 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 (y) 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.
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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
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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; 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
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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 Notes are secured equally and ratably with
other Indebtedness of the Company pursuant to the provisions described
under "-- Limitations on Liens," without effectively providing that the
Notes shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured; and
(r) Liens on assets relating to the Magic Valley Generating Station;
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 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 Notes pursuant to this
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<PAGE> 124
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
Notes.
Notice of a Change of Control Offer shall be mailed by the Company to the
Holders of the 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 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 Note not surrendered or accepted for payment will
continue to accrue interest;
(d) that any 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 Note purchased (in whole or in
part) pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Note completed, to the Paying Agent at the address
specified in the notice (or otherwise make effective delivery of the 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 Note the Holder delivered for purchase and a statement that
such Holder is withdrawing his or her election to have the Note purchased.
On the Change of Control Purchase Date, the Company shall:
(i) accept for payment the 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 Notes or portions thereof so accepted and
(iii) deliver to the Trustee, no later than 11:00 a.m. eastern
standard time, the Notes so accepted together with an Officers' Certificate
stating that such Notes have been accepted for payment by the Company. The
Paying Agent shall promptly mail or deliver to Holders of Notes so accepted
payment in an amount equal to the purchase price. Holders whose Notes are
purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered.
41
<PAGE> 125
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 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
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<PAGE> 126
(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
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 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 Notes at not less than their principal amount plus
accrued interest (if any) pursuant to and subject to the conditions set
forth in the 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.
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<PAGE> 127
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 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.
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<PAGE> 128
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 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.
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<PAGE> 129
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
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 (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
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<PAGE> 130
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 Notes and the Company shall thereupon be
released from all obligations under the Indenture and under the 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 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 Notes which the Successor
Corporation thereafter shall cause to be signed and delivered to the Trustee for
that purpose. All the Notes so issued shall in all respects have the same legal
rank and benefit under the Indenture as the Notes theretofore or thereafter
issued in accordance with the terms of the Indenture as though all such 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 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 Notes,
(b) default in payment of the principal when due on any Note, or
failure to purchase Notes when required pursuant to the Indenture or the
Notes,
(c) default in performance of any other covenants or agreements in the
Indenture or in the Notes 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 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
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<PAGE> 131
Company (other than the 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) 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 Notes by notice to the Company and the Trustee,
may declare the principal amount of the 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 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 Notes.
The Holders of a majority in principal amount of the 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 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 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 Notes
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<PAGE> 132
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 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 Notes within 90 days of
occurrence, the Trustee may withhold notice to the Holders of the Notes of any
Default or Event of Default (except in payment on the Notes) if the Trustee in
good faith determines that the withholding of such notice is in the interest of
the Holders of the 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
Notes amend or supplement the Indenture or the 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 Note,
(ii) reduce the rate of or change the time of payment of interest on
any Note,
(iii) change the currency of payment of the Notes,
(iv) provide that the Notes will be redeemable prior to maturity,
(v) reduce the amount of 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 Notes to receive payments or the
provisions relating to amendments of the Indenture that require the consent
of Holders of each affected Note.
ACTIONS BY NOTEHOLDERS
Under the terms of the Indenture, a Holder of Notes may not pursue any
remedy with respect to the Indenture or the 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 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 Notes have
not given the Trustee an inconsistent direction during such 60-day period.
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<PAGE> 133
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 Notes, and the
provisions of the Indenture will no longer be in effect with respect to such
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of such Notes, to replace stolen, lost or mutilated 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 Notes, when due in accordance with the terms of the Indenture
and such 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 "-- Covenants -- Merger and Consolidation" and all the other covenants
described herein under "-- Covenants," clause (c) under "-- Events of Default"
with respect to such covenants and clauses (iv) and (v) under
"-- Covenants -- 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 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 Default and will be subject to federal income
tax on the same amount and in the same
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<PAGE> 134
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 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 Notes on the respective dates on which such
amounts are due but may not be sufficient to pay amounts due on such 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 Notes and the provisions of such Indenture will no
longer be in effect with respect to the Notes (except to the extent provided
under "-- Defeasance and Discharge") if such Notes mature within one year 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 Notes when due in accordance with the terms of the Indenture and such
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 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 Notes. The Company may have in
the future other relationships with such bank. Notices to the Trustee, Paying
Agent and Registrar under
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<PAGE> 135
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 Notes.
BOOK-ENTRY SYSTEM
The Notes will be represented by one or more Global Notes (collectively,
the "Global Note") registered in the name of a nominee of The Depository Trust
Company, as Depositary ("DTC"). Upon the issuance of the Global Note (each a
"Global Note" and together the "Global Notes"), DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Note to the accounts
of persons who have accounts with such depositary. Such accounts initially will
be designated by or on behalf of the underwriters, dealer or agents. Ownership
of beneficial interests in a Global Note will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Note 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).
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 Notes represented by such Global Note for all
purposes under the Indenture and the 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.
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. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require such delivery of such Notes or to
pledge such Notes, such holder
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<PAGE> 136
must transfer its interest in the Global Note in accordance with the normal
procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of 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 Note is credited and only in respect of
such portion of the aggregate principal amount of 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 the Global Note for
Certificated Notes which it will distribute to its participants.
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 has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Note among participants of DTC, it is 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 respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Note.
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<PAGE> 137
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
7 7/8% SENIOR NOTES DUE 2008
On March 31, 1998 and July 24, 1998, we issued $300.0 million and $100.0
million, respectively, aggregate principal amount of 7 7/8% Senior Notes. The
7 7/8% Senior Notes are senior unsecured obligations of our company and rank
equal with our other senior notes, including the Senior Notes being offered
pursuant to this prospectus.
The 7 7/8% Senior Notes bear interest at a rate of 7 7/8% per annum payable
semi-annually on April 1 and October 1 of each year and mature on April 1, 2008.
The 7 7/8% Senior Notes are not subject to redemption prior to maturity.
Upon a Change of Control Triggering Event (as defined in the 7 7/8%
Indenture), each holder of 7 7/8% Senior Notes will have the right to require us
to repurchase such 7 7/8% Senior Notes at 101% of the principal amount thereof
plus accrued and unpaid interest to the repurchase date. The Revolving Credit
Facility limits our ability to redeem the 7 7/8% Senior Notes.
Similar to the indentures governing the Senior Notes being offered pursuant
to this prospectus (and subject to similar qualifications), the 7 7/8% Indenture
contains certain covenants that, among other things, limit (1) the incurrence of
additional debt by us and our subsidiaries, (2) the payment of dividends on and
redemptions of capital stock by us and our subsidiaries, (3) the use of proceeds
from the sale of assets and subsidiary stock, (4) transactions with affiliates,
(5) the incurrence of liens, (6) sale and leaseback transactions and (7)
consolidations, mergers and certain transfers of assets.
The foregoing summary describes certain provisions of the 7 7/8% Indenture
and the 7 7/8% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 7 7/8% Indenture and the
form of 7 7/8% Senior Notes.
8 3/4% SENIOR NOTES DUE 2007
On July 8, 1997 and September 10, 1997, we issued $200.0 million and $75.0
million, respectively, aggregate principal amount of 8 3/4% Senior Notes. The
8 3/4% Senior Notes are senior unsecured obligations of our company and rank
equal with our other senior notes, including the Senior Notes being offered
pursuant to this prospectus.
The 8 3/4% Senior Notes bear interest at a rate of 8 3/4% per annum payable
semi-annually on January 15 and July 15 of each year and mature on July 15,
2007. The 8 3/4% Senior Notes are redeemable at our option, in whole or in part,
at any time after July 15, 2002 at the various redemption prices set forth in
the 8 3/4% Indenture, plus accrued interest to the date of redemption. In
addition, prior to July 15, 2000, up to $70.0 million of the 8 3/4% Senior Notes
may be redeemed at 108.75% of the principal amount thereof, plus accrued
interest, with the net proceeds of one or more public equity offerings by us.
Upon a Change of Control Triggering Event (as defined in the 8 3/4%
Indenture), each holder of 8 3/4% Senior Notes will have the right to require us
to repurchase such 8 3/4% Senior Notes at 101% of the principal amount thereof
plus accrued and unpaid interest to the repurchase date. The Revolving Credit
Facility limits our ability to redeem the 8 3/4% Senior Notes.
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<PAGE> 138
Similar to the indentures governing the Senior Notes being offered pursuant
to this prospectus (and subject to similar qualifications), the 8 3/4% Indenture
contains certain covenants that, among other things, limit (i) the incurrence of
additional debt by us and our subsidiaries, (ii) the payment of dividends on and
redemptions of capital stock by us and our subsidiaries, (iii) the use of
proceeds from the sale of assets and subsidiary stock, (iv) transactions with
affiliates, (v) the incurrence of liens, (vi) sale and leaseback transactions
and (vii) consolidations, mergers and certain transfers of assets.
The foregoing summary describes certain provisions of the 8 3/4% Indenture
and the 8 3/4% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 8 3/4% Indenture and the
form of 8 3/4% Senior Notes.
10 1/2% SENIOR NOTES DUE 2006
On May 16, 1996, we issued $180.0 million aggregate principal amount of
10 1/2% Senior Notes. The 10 1/2% Senior Notes are senior unsecured obligations
of our company and will rank equal with our other senior notes, including the
Senior Notes being offered pursuant to this prospectus.
The 10 1/2% Senior Notes bear interest at a rate of 10 1/2% per annum
payable semi-annually on May 15, and November 15 of each year and mature on May
15, 2006. The 10 1/2% Senior Notes are redeemable at our option, in whole or in
part, at any time after May 15, 2001 at the various redemption prices set forth
in the 10 1/2% Indenture, plus accrued interest to the date of redemption. In
addition, prior to May 15, 1999, up to $63.0 million of 10 1/2% Senior Notes may
be redeemed at 110.50% of the principal amount thereof, plus accrued interest,
with the net proceeds of one or more public equity offerings by us.
Upon a Change of Control Triggering Event (as defined in the 10 1/2%
Indenture), each holder of 10 1/2% Senior Notes will have the right to require
us to repurchase such 10 1/2% Senior Notes at 101% of the principal amount
thereof plus accrued and unpaid interest to the repurchase date. The Revolving
Credit Facility limits our ability to redeem the 10 1/2% Senior Notes.
Similar to the indentures governing the Senior Notes being offered pursuant
to this prospectus (and subject to similar qualifications), the 10 1/2%
Indenture contains certain covenants that, among other things, limit (1) the
incurrence of additional debt by us and our subsidiaries, (2) the payment of
dividends on and redemptions of capital stock by us and our subsidiaries, (3)
the use of proceeds from the sale of assets and subsidiary stock, (4)
transactions with affiliates, (5) the incurrence of liens, (6) sale and
leaseback transactions and (7) consolidations, mergers and certain transfers of
assets.
The foregoing summary describes certain provisions of the 10 1/2% Indenture
and the 10 1/2% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 10 1/2% Indenture and
the form of 10 1/2% Senior Notes.
9 1/4% SENIOR NOTES DUE 2004
On February 17, 1994, we issued $105.0 million aggregate principal amount
of 9 1/4% Senior Notes in an underwritten public offering. The 9 1/4% Senior
Notes are senior unsecured obligations of our company and will rank equal with
our other senior notes, including the Senior Notes being offered pursuant to
this prospectus.
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<PAGE> 139
The 9 1/4% Senior Notes bear interest at a rate of 9 1/4% per annum payable
semi-annually on February l and August l of each year and mature on February 1,
2004. The 9 1/4% Senior Notes are redeemable at our option, in whole or in part,
at any time after February 1, 1999 at the various redemption prices set forth in
the 9 1/4% Indenture, plus accrued interest to the date of redemption.
Upon a Change of Control Triggering Event (as defined in the 9 1/4%
Indenture), each holder of 9 1/4% Senior Notes will have the right to require us
to repurchase such 9 1/4% Senior Notes at 101% of the principal amount thereof
plus accrued and unpaid interest to the repurchase date. The Revolving Credit
Facility limits our ability to redeem the 9 1/4% Senior Notes.
Similar to the indentures governing the Senior Notes being offered pursuant
to this prospectus (and subject to similar qualifications), the 9 1/4% Indenture
contains certain covenants that, among other things, limit (1) the incurrence of
additional debt by us and our subsidiaries, (2) the payment of dividends on and
redemptions of capital stock by us and our subsidiaries, (3) the use of proceeds
from the sale of assets and subsidiary stock, (4) transactions with affiliates,
(5) the incurrence of liens, (6) sale and leaseback transactions and (7)
consolidations, mergers and certain transfers of assets.
The foregoing summary describes certain provisions of the 9 1/4% Indenture
and the 9 1/4% Senior Notes, a copy of each of which is available upon request
made to us. The foregoing summary does not purport to be complete and is subject
to and is qualified in its entirety by reference to the 9 1/4% Indenture and the
form of 9 1/4% Senior Notes.
OTHER
See "Business -- Description of Facilities" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a description
of our other indebtedness.
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<PAGE> 140
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 (the "Code"), final, temporary and
proposed Treasury regulations thereunder 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).
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 and broker-dealers, may be
subject to special rules not discussed below. This discussion addresses the tax
consequences to the initial holders of the Senior Notes which hold the Senior
Notes as a capital asset.
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 ACQUIRING, HOLDING AND DISPOSING OF THE SENIOR
NOTES.
UNITED STATES HOLDERS
In this discussion, "United States holder" means: (1) a citizen or resident
of the United States; (2) a corporation, partnership or other entity created or
organized under the laws of the United States or of any state; (3) an estate,
the income of which is subject to United States federal income taxation
regardless of its source; or (4) a trust, the administration of which is subject
to the primary supervision of a United States court and the control of all the
substantial decisions of which is within the authority of one or more United
States persons.
STATED INTEREST
A United States holder of a Senior Note will be required to report as
income for federal income tax purposes interest earned on a Senior Note in
accordance with the United States holder's method of tax accounting. A United
States holder of a Senior 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 United States holder must include
interest income when cash payments are received (or made available for receipt)
by such holder.
ORIGINAL ISSUE DISCOUNT
If the Senior Notes are issued with original issue discount ("OID") within
the meaning of Sections 1272 and 1273 of the Code and the pertinent Treasury
regulations, United States holders of the Senior Notes generally will be
required to include such OID in gross income as it accrues. The total amount of
OID, if any, with respect to each Senior Note will be any excess of its "stated
redemption price at maturity" over its "issue price"; provided that a Senior
Note will be deemed not to have OID if such excess is less than 1/4 of 1% of the
Senior 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 the
Senior Notes
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<PAGE> 141
(or a particular issue of Senior Notes) generally will be the first price at
which a substantial amount of such Senior Notes are sold. The "stated redemption
price at maturity" of the Senior Notes will be the sum of all payments provided
by the Senior Notes 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 United States holder of a
Senior Note issued with OID would be required to include the OID in income for
federal income tax purposes as it accrues under a "constant yield method,"
regardless of such United States holder's method of accounting for tax purposes.
To the extent required by applicable law, we will furnish to the IRS and to
record United States holders of the Senior 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 OTHER TAXABLE DISPOSITION OF A SENIOR NOTE
Upon the sale, exchange or other taxable disposition of a Senior Note, a
United States holder will recognize taxable gain or loss equal to the difference
between (1) 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 (2) the United
States holder's adjusted tax basis in the Senior Note. A United States holder's
adjusted tax basis in a Senior Note generally will equal the cost of the Senior
Note to the United States 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 that the Senior Note 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.
NON-UNITED STATES HOLDERS
INTEREST AND OID
In general, payments of interest (including any OID) received or accrued by
a holder of a Senior Note that is not a United States holder (a "non-United
States holder") will not be subject to United States federal withholding tax,
provided that:
(1) (a) the non-United States holder does not actually or constructively
own 10% or more of the total combined voting power of all classes
of our stock entitled to vote,
(b) the non-United States holder is not a controlled foreign corporation
that is related to us actually or constructively through stock
ownership, and
(c) the beneficial owner of the Senior Note, under penalty of perjury,
either directly or through a financial institution which holds the
Senior Note on behalf of the non-United States holder and holds
customers' securities in the ordinary course of its trade or
business, provides us or our agent with the beneficial owner's name
and address and certifies, under penalty of perjury, that it is not
a United States person;
(2) the interest received on the Senior Note is effectively connected with
the conduct by the non-United States holder of a trade or business
within the United States
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<PAGE> 142
and the non-United States holder complies with certain reporting
requirements; or
(3) the non-United States holder is entitled to the benefits of an income
tax treaty under which the interest is exempt from United States
withholding tax and the non-United States holder complies with certain
reporting requirements.
Payments of interest not exempt from United States federal withholding tax as
described above will be subject to such withholding tax at the rate of 30%
(subject to reduction under an applicable income tax treaty).
SALE, EXCHANGE OR OTHER TAXABLE DISPOSITION OF THE SENIOR NOTES
A non-United States holder generally will not be subject to United States
federal income tax (and generally no tax will be withheld) with respect to gain
realized or recognized on the sale, exchange or other taxable disposition of a
Senior Note, unless:
(1) the gain is effectively connected with a United States trade or
business conducted by the non-United States holder;
(2) the non-United States holder is an individual who is present in the
United States for 183 or more days during the taxable year of the
disposition and certain other requirements are satisfied; or
(3) the gain is subject to federal income tax pursuant to federal income
tax laws applicable to certain expatriates.
EFFECTIVELY CONNECTED INCOME
If interest and other payments received by a non-United States holder with
respect to the Senior Notes (including proceeds from the disposition of the
Senior Notes) are effectively connected with the conduct by the non-United
States holder of a trade or business within the United States (or the non-United
States holder is otherwise subject to United States federal income taxation on a
net basis with respect to such holder's ownership of the Senior Notes), such
non-United States holder will generally be subject to the rules described above
under "-- United States Holders" (subject to any modification provided under an
applicable income tax treaty). Such non-United States holder may also be subject
to the "branch profits tax" if such holder is a corporation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain non-corporate United States holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium and interest on,
and the proceeds of the disposition of, the Senior Notes. In general, backup
withholding will be imposed only if the United States holder: (1) fails to
furnish its taxpayer identification number ("TIN"), which, for an individual,
would be his or her Social Security number, (2) furnishes an incorrect TIN, (3)
is notified by the IRS that it has failed to report payments of interest or
dividends or (4) under certain circumstances, fails to certify, under penalty of
perjury, that is has furnished a correct TIN and has been notified by the IRS
that is subject to backup withholding tax for failure to report interest or
dividend payments. In addition, such payments of principal and interest to
United States holders will generally be subject to information reporting. United
States holders should consult their tax advisors regarding their qualification
for exemption from backup withholding and the procedure for obtaining such an
exemption, if applicable.
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<PAGE> 143
Backup withholding generally will not apply to payments made to a
non-United States holder of a Senior Note which provides the certification
described under "Non-United States Holders -- Interest and OID" or otherwise
establishes an exemption from backup withholding. Payments by a United States
office of a broker of the proceeds of a disposition of the Senior Notes
generally will be subject to backup withholding at a rate of 31% unless the
non-United States holder certifies that it is a non-United States person under
penalty of perjury or otherwise establishes an exemption.
The amount of any backup withholding imposed on a payment to a holder of a
Senior Note will be allowed as a credit against such holder's United States
federal income tax liability and may entitle such holder to a refund, provided
that the required information is furnished to the IRS.
NEW TREASURY REGULATIONS
New final Treasury regulations governing information reporting and the
certification procedures regarding withholding and backup withholding on certain
amounts paid to non-United States holders after December 31, 1999 generally
would not alter the treatment of non-United States holders described above. The
new Treasury regulations would alter the procedures for claiming the benefits of
an income tax treaty and may change the certification procedures relating to the
receipt by intermediaries of payments on behalf of a beneficial owner of a
Senior Note. Holders should consult their tax advisors concerning the effect, if
any, of such new Treasury regulations on an investment in the Senior Notes.
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<PAGE> 144
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated March , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, CIBC Oppenheimer
Corp., TD Securities (USA) Inc., ING Baring Furman Selz LLC and Scotia Capital
Markets (USA) Inc. are acting as representatives, the following respective
principal amounts of the Senior Notes set forth opposite the name of such
underwriter:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITER % NOTES % NOTES % NOTES % NOTES
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Credit Suisse First Boston
Corporation.................. $ $ $ $
CIBC Oppenheimer Corp. ........
TD Securities (USA) Inc. ......
ING Baring Furman Selz LLC.....
Scotia Capital Markets (USA)
Inc. ........................
Total.......................... $ $ $ $
====== ====== ====== ======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the Senior Notes, if any are purchased. The underwriting
agreement provides that if an underwriter defaults the purchase commitments of
non-defaulting underwriters may be increased or the offering of Senior Notes may
be terminated.
The underwriters propose to offer the Senior Notes initially at the public
offering price set forth on the cover page of this prospectus and to selling
group members at that price less a concession of % of the principal amount
per Senior Note. The underwriters and selling group members may allow a discount
of % of such principal amount per Senior Note on sales to other
broker/dealers. After the initial public offering, the public offering price and
concession and discount to broker/dealers may be changed by the representatives.
We estimate that our out-of-pocket expenses for this offering will be
approximately $200,000.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act, or to contribute to payments which the underwriters
may be required to make in respect thereof.
The Notes are a new issue of securities with no established trading market.
One or more of the underwriters intends to make a secondary market for the
Senior Notes. However, they are not obligated to do so and may discontinue
making a secondary market for the Senior Notes at any time without notice. No
assurance can be given as to how liquid the trading market for the Senior Notes
will be.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Senior Notes in the open market after the
distribution has been
61
<PAGE> 145
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when the
Notes originally sold by such syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Senior Notes to be higher than it would otherwise be in the absence
of such transactions. These transactions, if commenced, may be discontinued at
any time.
From time to time, certain of the underwriters have provided advisory and
investment banking services to us, for which customary compensation has been
received. It is expected that such underwriters will continue to provide such
services to us in the future.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Senior Notes in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the Senior Notes are effected. Accordingly, any resale of Senior Notes
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
Senior Notes.
REPRESENTATION OF PURCHASERS
Each purchaser of the Senior Notes in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such Senior Notes without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that such purchaser is purchasing as principal and not as agent, and (3)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or
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<PAGE> 146
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Senior Notes to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Senior Notes acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one such
report must be filed in respect of Notes acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Senior Notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Senior
Notes in their particular circumstances and with respect to the eligibility of
the Senior Notes for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Brobeck, Phleger & Harrison LLP, San Francisco, California. The underwriters
have been represented by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
reports. In those reports, that firm states that with respect to a certain
subsidiary its opinion is based on the reports of other public accountants,
namely Moss Adams LLP. The financial statements and supporting schedules
referred to above have been included herein in reliance upon the authority of
that firm as experts in giving said reports.
The consolidated financial statements of Sumas Cogeneration Company, L.P.
and Subsidiary as of December 31, 1998 and 1997 and for each of the years ended
December 31, 1998, 1997 and 1996 included in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission on February 18, 1999 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.
63
<PAGE> 147
[CALPINE LOGO]
<PAGE> 148
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Calpine in connection with
the sale of common stock and debt securities being registered. All amounts are
estimates except the SEC registration fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 197,446
NASD Filing Fee............................................. 30,500
Legal Fees and Expenses..................................... 150,000
Accounting Fees and Expenses................................ 150,000
Printing Fees............................................... 100,000
Transfer Agent Fees......................................... 15,000
Miscellaneous............................................... 357,054
----------
Total............................................. $1,000,000
==========
</TABLE>
- ---------------
ITEM 15. 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
II-1
<PAGE> 149
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.
We have entered into indemnification agreements with our 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 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement (Common Stock)
*1.2 Form of Underwriting Agreement (Senior Notes)
+3.1 Amended and restated Certificate of Incorporation of Calpine
Corporation, a Delaware corporation(a)
+3.2 Amended and restated By-laws of Calpine Corporation, a
Delaware corporation(a)
*4.1 Form of Indenture
+4.2 Indenture dated as of February 17, 1994 between the Company
and Shawmut Bank of Connecticut, National Association, as
Trustee, including form of Notes.(b)
+4.3 Indenture dated as of May 16, 1996 between the Company and
Fleet National Bank, as Trustee, including form of Notes.(c)
+4.4 Indenture dated as of July 8, 1997 between the Company and
The Bank of New York, as Trustee, including form of
Notes.(d)
+4.5 Indenture dated as of March 31, 1998 between the Company and
The Bank of New York, as Trustee, including form of Senior
Notes.(e)
*4.6 Form of Senior Note (included in Exhibit 4.1)
*5.1 Opinion of Brobeck, Phleger & Harrison LLP
**12.1 Statement as to Computation of Ratio of Earnings to Fixed
Charges
*23.1 Consent of Arthur Andersen LLP, independent accountants
*23.2 Consent of Moss Adams LLP, independent accountants
*23.3 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
+24.1 Powers of Attorney (included in the signature page of this
Registration Statement).
**25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Trustee (Form T-1).
</TABLE>
II-2
<PAGE> 150
- ---------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
(a) Incorporated by reference to registrant's Registration Statement on Form S-1
(Registration Statement 33-07497).
(b) Incorporated by reference to registrant's Registration Statement on Form S-1
(Registration Statement No. 33-73160).
(c) Incorporated by reference to registrant's Current Report on Form 8-K dated
August 29, 1996 and filed on September 13, 1996.
(d) Incorporated by reference to registrant's Quarterly Report on Form 10-Q
dated June 30, 1997 and filed on August 14, 1997.
(e) Incorporated by reference to registrant's Registration Statement on Form S-4
(Registration Statement No. 333-61047).
ITEM 17. UNDERTAKINGS
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;
(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.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and therefore is 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
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 151
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act, and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act, that is
incorporated by reference in the registration statement 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-4
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Jose, State of California, on this
5th day of March, 1999.
CALPINE CORPORATION
By /s/ ANN B. CURTIS
------------------------------------
Ann B. Curtis
Executive Vice President and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the registration statement has been signed below by the
following persons on behalf of Calpine and in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman, President, March 5, 1999
- --------------------------------------------- Chief Executive Officer,
Peter Cartwright and Director
(Principal Executive
Officer)
/s/ ANN B. CURTIS Executive Vice President March 5, 1999
- --------------------------------------------- and Director
Ann B. Curtis (Principal Financial and
Accounting Officer)
* Director March 5, 1999
- ---------------------------------------------
Jeffrey E. Garten
* Director March 5, 1999
- ---------------------------------------------
Susan C. Schwab
* Director March 5, 1999
- ---------------------------------------------
George J. Stathakis
* Director March 5, 1999
- ---------------------------------------------
John O. Wilson
* Director March 5, 1999
- ---------------------------------------------
V. Orville Wright
*By: /s/ ANN B. CURTIS Attorney-in-fact March 5, 1999
---------------------------------------
Ann B. Curtis
</TABLE>
II-5
<PAGE> 153
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement (Common Stock)
*1.2 Form of Underwriting Agreement (Senior Notes)
+3.1 Amended and restated Certificate of Incorporation of Calpine
Corporation, a Delaware corporation(a)
+3.2 Amended and restated By-laws of Calpine Corporation, a
Delaware corporation(a)
*4.1 Form of Indenture
+4.2 Indenture dated as of February 17, 1994 between the Company
and Shawmut Bank of Connecticut, National Association, as
Trustee, including form of Notes.(b)
+4.3 Indenture dated as of May 16, 1996 between the Company and
Fleet National Bank, as Trustee, including form of Notes.(c)
+4.4 Indenture dated as of July 8, 1997 between the Company and
The Bank of New York, as Trustee, including form of
Notes.(d)
+4.5 Indenture dated as of March 31, 1998 between the Company and
The Bank of New York, as Trustee, including form of Senior
Notes.(e)
*4.6 Form of Senior Note (included in Exhibit 4.1)
*5.1 Opinion of Brobeck, Phleger & Harrison LLP
**12.1 Statement as to Computation of Ratio of Earnings to Fixed
Charges
*23.1 Consent of Arthur Andersen LLP, independent accountants
*23.2 Consent of Moss Adams LLP, independent accountants
*23.3 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
+24.1 Powers of Attorney (included in the signature page of this
Registration Statement).
**25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Trustee (Form T-1).
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
(a) Incorporated by reference to registrant's Registration Statement on Form S-1
(Registration Statement 33-07497).
(b) Incorporated by reference to registrant's Registration Statement on Form S-1
(Registration Statement No. 33-73160).
(c) Incorporated by reference to registrant's Current Report on Form 8-K dated
August 29, 1996 and filed on September 13, 1996.
(d) Incorporated by reference to registrant's Quarterly Report on Form 10-Q
dated June 30, 1997 and filed on August 14, 1997.
(e) Incorporated by reference to registrant's Registration Statement on Form S-4
(Registration Statement No. 333-61047).
<PAGE> 1
EXHIBIT 1.1
$500,000,000
CALPINE CORPORATION
___% SENIOR NOTES DUE 2004
___% SENIOR NOTES DUE 2006
___% SENIOR NOTES DUE 2009
___% SENIOR NOTES DUE 2011
UNDERWRITING AGREEMENT
March ___, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
...........................................
...........................................,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Calpine Corporation, a Delaware corporation
("COMPANY"), proposes to issue and sell $___________ aggregate principal amount
of its of ___% Senior Notes due 2004 (the "2004 NOTES"), $___________ aggregate
principal amount of its of ___% Senior Notes due 2006 (the "2006 NOTES"),
$___________ aggregate principal amount of its of ___% Senior Notes due 2009
(the "2009 NOTES") and $___________ aggregate principal amount of its of ___%
Senior Notes due 2011 (the "2011 NOTES" and together with the 2004 Notes, 2006
Notes and 2009 Notes, the "SECURITIES"). Each of the 2004 Notes, 2006 Notes,
2009 Notes and 2011 Notes are to be issued under separate indentures, each dated
as of March ___, 1999 (each an "INDENTURE" and together, the "INDENTURES"),
between the Company and the Bank of New York, as Trustee. The Securities are
also referred to herein as the "OFFERED SECURITIES". The Company hereby agrees
with the several
<PAGE> 2
Underwriters named in Schedule A hereto ("UNDERWRITERS") as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333- ) relating to the
Offered Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("COMMISSION") and either (i) has been
declared effective under the Securities Act of 1933 ("ACT") and is not proposed
to be amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement ("INITIAL REGISTRATION STATEMENT") has
been declared effective, either (i) an additional registration statement
("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("RULE 462(B)")
under the Act and, if so filed, has become effective upon filing pursuant to
such Rule and the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE
462(C)") under the Act or, in the case of the additional registration statement,
Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to
the initial registration statement or, if filed prior to the execution and
delivery
2
<PAGE> 3
of this Agreement, the additional registration statement means (i) if
the Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule 462(c), or
(ii) if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"EFFECTIVE DATE" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all material incorporated by reference therein, including all
information contained in the additional registration statement (if any) and
deemed to be a part of the initial registration statement as of the Effective
Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("RULE 430A(B)") under the Act, is
hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The additional
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT". The Initial
Registration Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "REGISTRATION STATEMENTS" and individually as
a "REGISTRATION
3
<PAGE> 4
STATEMENT". The form of prospectus relating to the Offered Securities, as first
filed with the Commission pursuant to and in accordance with Rule 424(b) ("RULE
424(B)") under the Act or (if no such filing is required) as included in a
Registration Statement, including all material incorporated by reference in such
prospectus, is hereinafter referred to as the "PROSPECTUS". No document has been
or will be prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act, the Trust
Indenture Act of 1939 ("TRUST INDENTURE ACT") and the rules and regulations of
the Commission ("RULES AND REGULATIONS") and did not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
on the Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act, the Trust Indenture Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a material
fact and did not omit, or will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to the
execution and
4
<PAGE> 5
delivery of this Agreement, the Additional Registration Statement each conforms,
and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no
such filing is required) at the Effective Date of the Additional Registration
Statement in which the Prospectus is included, each Registration Statement and
the Prospectus will conform, in all respects to the requirements of the Act, the
Trust Indenture Act and the Rules and Regulations, and neither of such documents
includes, or will include, any untrue statement of a material fact or omits, or
will omit, to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. If the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all respects
to the requirements of the Act, the Trust Indenture Act and the Rules and
Regulations, neither of such documents will include any untrue statement of a
material fact or will omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a Registration
Statement or the Prospectus based upon written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information is that
described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business requires
such qualification.
(d) Each subsidiary of the Company (x) other than those
subsidiaries specified in clause (y) of this subparagraph has been duly
incorporated and is an existing corporation in good standing under the laws of
the jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus (y) that is not a corporation is a limited partnership, has been duly
formed and is validly existing as a limited partnership in good standing under
the laws of the jurisdiction of its formation, and has full power and authority
to own its properties and conduct it business as described in the Prospectus;
each subsidiary of the Company is duly qualified to do business as a foreign
corporation or limited partnership, as the case may be, in good standing in all
other jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid and
5
<PAGE> 6
nonassessable; except as set forth on Schedule B hereto, the capital stock of
each subsidiary owned by the Company, directly or through subsidiaries, is owned
free from liens, encumbrances and defects; and the Company is not a general
partner in any partnership.
(e) Each of the Indentures has been duly authorized and, if
the Effective Time of a Registration Statement is prior to the execution and
delivery of this Agreement, has been or otherwise upon such Effective Time will
be duly qualified under the Trust Indenture Act with respect to the Offered
Securities registered thereby; the Offered Securities have been duly authorized;
and when the Offered Securities are delivered and paid for pursuant to this
Agreement on the Closing Date (as defined below), each of the Indentures will
have been duly executed and delivered, such Offered Securities will have been
duly executed, authenticated, issued and delivered and will conform to the
description thereof contained in the Prospectus and each of the Indentures and
such Offered Securities will constitute valid and legally binding obligations of
the Company, enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with this
offering.
(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered pursuant to a
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(h) No consent, approval, authorization, or order of, or
filing with, any governmental agency or
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<PAGE> 7
body or any court is required for the consummation of the transactions
contemplated by this Agreement in connection with the issuance and sale of the
Offered Securities by the Company, except such as have been obtained and made
under the Act and the Trust Indenture Act and such as may be required under
state securities laws.
(i) The execution, delivery and performance of each of the
Indentures and this Agreement, and the issuance and sale of the Offered
Securities and compliance with the terms and provisions thereof will not result
in a breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Company or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the charter or
by-laws of the Company or any such subsidiary, and the Company has full power
and authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(j) This Agreement has been duly authorized, executed and
delivered by the Company.
(k) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by them, in each case free from liens, encumbrances
and defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and except as
disclosed in the Prospectus, the Company and its subsidiaries hold any leased
real or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by them.
(l) The Company and its subsidiaries possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by them as described in the Prospectus and have not received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority, license or
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<PAGE> 8
permit that, if determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole ("MATERIAL ADVERSE EFFECT").
(m) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that might
have a Material Adverse Effect.
(n) The Company and its subsidiaries own, possess or can
acquire on reasonable terms, adequate trademarks, trade names and other rights
to inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary
to conduct the business now operated by them, or presently employed by them, and
have not received any notice of infringement of or conflict with asserted rights
of others with respect to any intellectual property rights that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect.
(o) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or
toxic substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL
LAWS"), owns or operates any real property contaminated with any substance that
is subject to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any claim
relating to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to such a
claim.
(p) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if determined
adversely
8
<PAGE> 9
to the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations under the
Indentures or this Agreement, or which are otherwise material in the context of
the sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(q) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and, except as
otherwise disclosed in the Prospectus, such financial statements have been
prepared in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; the schedules included in each
Registration Statement present fairly the information required to be stated
therein; and the assumptions used in preparing the pro forma financial
statements included in each Registration Statement and the Prospectus provide a
reasonable basis for presenting the significant effects directly attributable to
the transactions or events described therein, the related pro forma adjustments
give appropriate effect to those assumptions, and the pro forma columns therein
reflect the proper application of those adjustments to the corresponding
historical financial statement amounts.
(r) The statistical and market-related data (other than
market-related data and statistical data provided by the Company) included in
the Registrations Statements and Prospectus are based on or derived from sources
which the Company believes to be reliable and accurate, it being understood,
however, that the Company has conducted no independent investigation of the
accuracy thereof.
(s) Except as disclosed in the Prospectus, since the date of
the latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated by
the
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<PAGE> 10
Prospectus, there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "INVESTMENT COMPANY" as
defined in the Investment Company Act of 1940.
(u) Neither the Company nor any of its subsidiaries is (i)
subject to regulation as a "HOLDING COMPANY" or a "SUBSIDIARY COMPANY" of a
holding company or a "PUBLIC UTILITY COMPANY" under Section 2(a) of the Public
Utility Holding Company Act of 1935 ("PUHCA"), (ii) subject to regulation under
the Federal Power Act, as amended ("FPA"), other than as contemplated by 18
C.F.R. Section 292.601(c) or (iii) subject to any state law or regulation with
respect to rates or the financial or orga nizational regulation of electric
utilities, other than as contemplated by 18 C.F.R. Section 292.602(c).
(v) Each of the power generation projects in which the Company
or its subsidiaries has an interest (the "PROJECTS") which is subject to the
requirements under the Public Utility Regulatory Policies Act of 1978, as
amended (16 U.S.C. Section 796, et seq.), and the regulations of the Federal
Energy Regulatory Commission ("FERC") promulgated thereunder, as amended from
time to time, necessary to be a "QUALIFYING COGENERATION FACILITY" and/or a
"QUALIFYING SMALL POWER PRODUCTION FACILITY" meets such requirements.
(w) The Company is subject to Section 13 or 15(d) of the
Exchange Act.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of ___% of the principal amount thereof
plus accrued interest from to the Closing Date (as hereinafter defined), the
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<PAGE> 11
respective principal amounts of Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver against payment of the purchase price the
Securities in the form of one or more permanent global securities in definitive
form (the "GLOBAL SECURITIES") deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any permanent global Securities will be held only
in book-entry form through DTC, except in the limited circumstances described in
the Prospectus. Payment for the Securities shall be made by the Underwriters in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC")
drawn to the order of at the office of Skadden, Arps, Slate, Meagher & Flom LLP
at 9:00 A.M., (New York time), on , or at such other time not later than seven
full business days thereafter as CSFBC and the Company determine, such time
being herein referred to as the "CLOSING DATE", against delivery to the Trustee
as custodian for DTC of the Global Securities representing all of the
Securities. The Global Securities will be made available for checking at the
office of Skadden, Arps, Slate, Meagher & Flom LLP at least 24 hours prior to
the Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the Company
will file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph
(4)) of Rule 424(b) not later than the earlier of (A) the second business day
following the execution and delivery of this Agreement or
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<PAGE> 12
(B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not effect
such amendment or supplementation without CSFBC's consent; and the Company will
also advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
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<PAGE> 13
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally available
to its securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration Statement
(or, if later, the Effective Date of the Additional Registration Statement)
which will satisfy the provisions of Section 11(a) of the Act. For the purpose
of the preceding sentence, "AVAILABILITY DATE" means the 45th day after the end
of the fourth fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last quarter
of the Company's fiscal year, "AVAILABILITY DATE" means the 90th day after the
end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of
each Registration Statement _____ of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the Underwriters
all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale and the determination of their eligibility for
investment under the laws of such jurisdictions as CSFBC designates and will
continue such qualifications in effect so long as required for the distribution.
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<PAGE> 14
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may reasonably
request.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing fees and
other expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale and
determination of their eligibility for investment under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for any fees charged by investment rating agencies for the rating of
the Offered Securities, for the filing fee incident to, and the reasonable fees
and disbursements of counsel to the Underwriters in connection with, the review
by the National Association of Securities Dealers, Inc. of the Offered
Securities, for any travel expenses of the Company's officers and employees and
any other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for expenses
incurred in distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.
(i) For a period of 30 days after the date of the initial
public offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Commission a registration statement under the Act relating to, any
United States dollar-denominated debt securities issued or guaranteed by the
Company and having a maturity of more than one-year from the date of issue or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC.
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<PAGE> 15
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Securities on the
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe
that:
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<PAGE> 16
(A) the unaudited financial statements included in
the Registration Statements do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations or
any material modifications should be made to such unaudited
financial statements for them to be in conformity with
generally accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(C) for the period from the closing date of the
latest income statement included in the Prospectus to the
closing date of the latest available income statement read by
such accountants there were any decreases, as compared with
the correspond ing period of the previous year, in
consolidated net revenues, or net operating income, or in the
ratio of earnings to fixed charges, except in all cases set
forth in clauses (B) and (C) above for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(iv) on the basis of their review of the unaudited pro forma
financial statements included in the Registration Statement and
inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that the
unaudited pro forma financial
16
<PAGE> 17
statements included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements under the Act; and
(v) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its subsidiaries subject to the internal controls of the
Company's accounting system or are derived directly from such records
by analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"PROSPECTUS" shall mean the prospectus included in the Registration Statements.
All financial statements and schedules included in material incorporated by
reference into the Prospectus shall be deemed included in the Registration
Statements for purposes of this subsection.
(b) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
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<PAGE> 18
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of the
amendment or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), from Moss Adams LLP confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to the effect
that they have compared specified dollar amounts (or percentages derived from
such dollar amounts) and other financial information contained in the
Registration Statements (in each case to the extent that such dollar amounts,
percentages and other financial information are derived from the general
accounting records of the Company or its subsidiaries subject to the internal
controls of the Company's or such subsidiaries' accounting systems or are
derived directly from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with such
results, except as otherwise specified in such letter.
(c) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York time, on
the date of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if any)
is not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later date as
shall have been consented to by CSFBC. If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
the Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to the Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the
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<PAGE> 19
Company or the Representatives, shall be contemplated by the Commission.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its subsidiaries
taken as one enterprise which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public offering or
the sale of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities of the Company by any "NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION" (as defined for purposes of Rule 436(g) under
the Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company (other
than an announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any suspension or
limitation of trading in securities generally on the New York Stock Exchange, or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or
New York authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or any
other substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities.
(e) The Representatives shall have received an opinion, dated
the Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the Company,
to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate
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power and authority to own its properties and conduct its business as
described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except to the
extent that the failure to be so qualified or in good standing would
not have a material adverse effect on the Company and its subsidiaries,
taken as a whole;;
(ii) Each of the Indentures has been duly authorized, executed
and delivered and has been duly qualified under the Trust Indenture
Act; the Offered Securities delivered on the Closing Date have been
duly authorized, executed, authenticated, issued and delivered and
conform to the description thereof contained in the Prospectus; and the
Indentures and the Offered Securities delivered on the Closing Date
constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
(iii) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the Act;
(iv) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"INVESTMENT COMPANY" as defined in the Investment Company Act of 1940.
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(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
the Trust Indenture Act and such as may be required under state
securities laws;
(vi) The execution, delivery and performance of each of the
Indentures and this Agreement and the issuance and sale of the Offered
Securities and compliance with the terms and provisions thereof will
not result in a breach or violation of any of the terms and provisions
of, or constitute a default under, the charter, by-laws, partnership
agreement or other organizational documents of the Company or any
subsidiary of the Company or any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Company or any subsidiary of the Company or any of their
properties, or, to such counsel's knowledge, any agreement or
instrument to which the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or to which any of
the properties of the Company or any such subsidiary is subject, and
the Company has full power and authority to authorize, issue and sell
the Offered Securities as contemplated by this Agreement;
(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was included
in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been
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instituted or are pending or contemplated under the Act, and each
Registration Statement and the Prospectus, and each amendment or
supplement thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the requirements of
the Act, the Trust Indenture Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or as of
the Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its issue date
or as of the Closing Date, contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; the contracts and agreements of the
Company and its subsidiaries described in the Registration Statements
and the Prospectus conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus and
the state ments in the Registration Statement and the Prospectus under
the caption "DESCRIPTION OF THE NOTES," insofar as such statements
constitute summaries of the legal matters, documents and governmental
proceedings referred to therein, fairly summarize and present the
information required to be shown; and after due inquiry such counsel
does not know of any legal or governmental proceedings required to be
described in a Registration Statement or the Prospectus which are not
described as required or of any contracts or documents of a character
required to be described in a Registration Statement or the Prospectus
or to be filed as exhibits to a Registration Statement which are not
described and filed as required; it being understood that such counsel
need express no opinion as to the financial statements or other
financial data contained in the Registration Statement or the
Prospectus; and
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The Representatives shall have received an opinion, dated
the Closing Date, of Joseph E.
22
<PAGE> 23
Ronan, Jr., General Counsel of the Company, to the effect that:
(i) Each subsidiary of the Company (x) other than those
subsidiaries specified in clause (y) of this Section 6(f)(i) has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, and
has corporate power and authority to own its property and to conduct
its business as described in the Prospectus or (y) that is not a
corporation is a limited partnership, has been duly formed and is
validly existing as a limited partnership in good standing under the
laws of the jurisdiction of its formation, and has full power and
authority to own its property and to conduct its business as described
in the Prospectus; and, in either case, is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
and the Company is not a general partner in any partnership;
(ii) The Company and each of its subsidiaries possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business as
now operated by them as described in the Prospectuses and such counsel
is not aware of the receipt of any notice of proceedings relating to
the revocation or modification of any such certificate, authority,
license or permit that, if determined adversely to the Company or any
of its subsidiaries, would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries, taken as a
whole;
(iii) The contracts and agreements of the Company and its
subsidiaries and affiliates described in the Prospectus under "Business
-- Description of Facilities conform in all material respects to the
descriptions thereof contained in the Prospectus, and the statements in
the Prospectus under the captions
23
<PAGE> 24
"Management", "Certain Transactions", "Business - Legal Proceedings"
and "Business - Governmental Regulation", insofar as such statements
constitute summaries of the legal matters, documents and governmental
proceedings referred to therein fairly summarize and present the
information required to be shown;
(iv) Such counsel is of the opinion that the Company and each
subsidiary of the Company (i) is in compliance with any and all
applicable environmental laws, (ii) has received all permits, licenses
or other approvals required of it under applicable environmental laws
to conduct its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with environmental laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company; and
(v) To such counsel's knowledge, neither the Company nor any
of its subsidiaries is (i) subject to regulation as a "HOLDING COMPANY"
or a "SUBSIDIARY COMPANY" of a holding company or an "AFFILIATE" of a
subsidiary or holding company or a "PUBLIC UTILITY COMPANY" under
Section 2(a) of PUHCA, (ii) subject to regulation under the FPA, other
than as contemplated by 18 C.F.R. Section 292.601(c) or (iii) subject
to any state law or regulation with respect to the rates or the
financial or organizational regulation of electric utilities, other
than as contemplated by 18 C.F.R. Section 292.602(c).
In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the corporate law of the State of
Delaware, upon opinions of other counsel, who shall be counsel reasonably
satisfactory to counsel for the Underwriters, in which case (i) the opinion of
such other counsel shall also be addressed to the Underwriters and (ii) the
opinion of Brobeck Phleger & Harrison LLP shall state that in their opinion,
they and the Underwriters are justified in relying on such other counsel's
opinion.
24
<PAGE> 25
(g) The Representatives shall have received from Skadden,
Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, such opinion or
opinions, dated the Closing Date, with respect to the incorporation of the
Company, the validity of the Offered Securities delivered on the Closing Date,
the Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(h) The Representatives shall have received a certificate,
dated the Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to the
Closing Date; no stop order suspending the effectiveness of any Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are contemplated by the Commission; the Additional Registration
Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior
to the time the Prospectus was printed and distributed to any Underwriter; and,
subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(i) The Representatives shall have received a letter, dated
the Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to the Closing
Date for the purposes of this subsection.
25
<PAGE> 26
(j) The Representatives shall have received a letter, dated
the Closing Date, from Moss Adams LLP which meets the requirements of subsection
(b) of this Section, except that the specified date referred to in such
subsection will be a date not more than five days prior to the Closing Date for
the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
requests. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of the Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, it partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below.
26
<PAGE> 27
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company, its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the Act
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the third
paragraph under the caption "Underwriting"and the information contained in the
seventh paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it
27
<PAGE> 28
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue
28
<PAGE> 29
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstand ing the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on the Closing
Date and the aggregate principal amount of Offered Securities that such
defaulting Underwriter or Underwriters agreed but failed to purchase does not
exceed 10% of the total principal amount of Offered Securities that the
Underwriters are obligated
29
<PAGE> 30
to purchase on the Closing Date, CSFBC may make arrangements satisfactory to the
Company for the purchase of such Offered Securities by other persons, including
any of the Underwriters, but if no such arrangements are made by the Closing
Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Offered
Securities that such defaulting Underwriters agreed but failed to purchase on
the Closing Date. If any Underwriter or Underwriters so default and the
aggregate principal amount of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total principal amount of Offered
Securities that the Underwriters are obligated to purchase on the Closing Date
and arrangements satisfactory to CSFBC and the Company for the purchase of such
Offered Securities by other persons are not made within 36 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company, except as provided in Section 9. As
used in this Agreement, the term "UNDERWRITER" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8
30
<PAGE> 31
or the occurrence of any event specified in clause (iii), (iv) or (v) of Section
6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department-Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Calpine Corporation, 50
West San Fernando Street, San Jose, California 95113, Attention: General
Counsel; provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or
31
<PAGE> 32
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
32
<PAGE> 33
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
CALPINE CORPORATION
By:
-----------------------------------
Name:
Title:
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
--------------------------------------
--------------------------------------
Acting on behalf of themselves and as the
Representative of the several Underwriters.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:
-----------------------------------------
Name:
Title:
33
<PAGE> 34
SCHEDULE A
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITERS OF 2004 NOTES OF 2006 NOTES OF 2009 NOTES OF 2011 NOTES
- ------------ ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Credit Suisse First
Boston Corporation $ $ $ $
- ----------------
- ----------------
- ----------------
- ----------------
---------------- ---------------- ---------------- ----------------
Total $ $ $ $
================ ================ ================ ================
</TABLE>
34
<PAGE> 1
EXHIBIT 1.2
6,900,000 SHARES
CALPINE CORPORATION
COMMON STOCK, $.001 PAR VALUE
UNDERWRITING AGREEMENT
March ___, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
...........................................
...........................................,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Calpine Corporation, a Delaware corporation
("COMPANY"), proposes to issue and sell 6,000,000 shares ("FIRM SECURITIES") of
its Common Stock, $.001 par value ("SECURITIES") and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 900,000 additional shares ("OPTIONAL SECURITIES") of its Securities as
set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "OFFERED SECURITIES". The Company hereby agrees with the
several Underwriters named in Schedule A hereto ("UNDERWRITERS") as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333- ) relating to the
Offered Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("COMMISSION") and either (i) has been
declared effective under the Securities Act of 1933 ("ACT") and is not proposed
to be amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement ("INITIAL REGISTRATION STATEMENT") has
been declared effective, either (i) an additional registration statement
("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("RULE 462(B)")
under the Act and, if so filed, has become effective upon filing pursuant to
such Rule and the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
<PAGE> 2
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE
462(C)") under the Act or, in the case of the additional registration statement,
Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to
the initial registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement means (i) if
the Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule 462(c), or
(ii) if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"EFFECTIVE DATE" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all material incorporated by reference therein, including all
information contained in the additional registration statement (if any) and
deemed to be a part of the initial registration statement as of the Effective
Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("RULE 430A(B)") under the Act, is
hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The additional
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT". The Initial
Registration Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "REGISTRATION STATEMENTS" and individually as a
"REGISTRATION STATEMENT". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("RULE 424(B)") under the Act or (if no such filing is
required) as included in a Registration Statement, including all material
incorporated by reference in such prospectus, is hereinafter referred to as the
"PROSPECTUS". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the rules
and regulations of the Commission ("RULES AND REGULATIONS") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) on the Effective Date of the Additional Registration Statement
(if any), each Registration Statement conformed, or will conform, in all
respects to the requirements of the Act and the Rules and Regulations and did
not include, or will not include, any untrue statement of a material fact and
did not omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (iii) on
the date of this Agreement, the Initial Registration
2
<PAGE> 3
Statement and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the Prospectus
is included, each Registration Statement and the Prospectus will conform, in all
respects to the requirements of the Act and the Rules and Regulations, and
neither of such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. If
the Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the Prospectus
will conform in all respects to the requirements of the Act and the Rules and
Regulations, neither of such documents will include any untrue statement of a
material fact or will omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a Registration
Statement or the Prospectus based upon written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information is that
described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business requires
such qualification.
(d) Each subsidiary of the Company (x) other than those
subsidiaries specified in clause (y) of this subparagraph has been duly
incorporated and is an existing corporation in good standing under the laws of
the jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus (y) that is not a corporation is a limited partnership, has been duly
formed and is validly existing as a limited partnership in good standing under
the laws of the jurisdiction of its formation, and has full power and authority
to own its properties and conduct it business as described in the Prospectus;
each subsidiary of the Company is duly qualified to do business as a foreign
corporation or limited partnership, as the case may be, in good standing in all
other jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; except as set forth on
Schedule B hereto, the capital stock of each subsidiary owned by the Company,
directly or through subsidiaries, is owned free from liens, encumbrances and
defects; and the Company is not a general partner in any partnership.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding shares
of capital stock of the Company are, and, when the Offered Securities have been
delivered and paid for in accordance with this Agreement on each Closing Date
(as defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the
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Company or any Underwriter for a brokerage commission, finder's fee or other
like payment in connection with this offering.
(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered pursuant to a
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(h) The Offered Securities have been approved for listing on
the New York Stock Exchange subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in connection
with the issuance and sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may be required under
state securities laws.
(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities and compliance with the
terms and provisions thereof will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company or any subsidiary of
the Company or any of their properties, or any agreement or instrument to which
the Company or any such subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the properties of the Company or any
such subsidiary is subject, or the charter or by-laws of the Company or any such
subsidiary, and the Company has full power and authority to authorize, issue and
sell the Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by them, in each case free from liens, encumbrances
and defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and except as
disclosed in the Prospectus, the Company and its subsidiaries hold any leased
real or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by them as described in the Prospectus and have not received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority, license or permit that, if determined adversely to the Company or any
of its subsidiaries, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole
("MATERIAL ADVERSE EFFECT").
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that might
have a Material Adverse Effect.
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(o) The Company and its subsidiaries own, possess or can
acquire on reasonable terms, adequate trademarks, trade names and other rights
to inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary
to conduct the business now operated by them, or presently employed by them, and
have not received any notice of infringement of or conflict with asserted rights
of others with respect to any intellectual property rights that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or
toxic substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL
LAWS"), owns or operates any real property contaminated with any substance that
is subject to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any claim
relating to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to such a
claim.
(q) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Offered Securities; and no such actions, suits or proceedings are threatened or,
to the Company's knowledge, contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and , except as
otherwise disclosed in the Prospectus, such financial statements have been
prepared in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; the schedules included in each
Registration Statement present fairly the information required to be stated
therein; and the assumptions used in preparing the pro forma financial
statements included in each Registration Statement and the Prospectus provide a
reasonable basis for presenting the significant effects directly attributable to
the transactions or events described therein, the related pro forma adjustments
give appropriate effect to those assumptions, and the pro forma columns therein
reflect the proper application of those adjustments to the corresponding
historical financial statement amounts.
(s) The statistical and market-related data (other than
market-related data and statistical data provided by the Company) included in
the Registrations Statements and Prospectus are based on or derived from sources
which the Company believes to be reliable and accurate, it being understood,
however, that the Company has conducted no independent investigation of the
accuracy thereof.
(t) Except as disclosed in the Prospectus, since the date of
the latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business,
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<PAGE> 6
properties or results of operations of the Company and its subsidiaries taken as
a whole, and, except as disclosed in or contemplated by the Prospectus, there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(u) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "INVESTMENT COMPANY" as
defined in the Investment Company Act of 1940.
(v) Neither the Company nor any of its subsidiaries is (i)
subject to regulation as a "HOLDING COMPANY" or a "SUBSIDIARY COMPANY" of a
holding company or a "PUBLIC UTILITY COMPANY" under Section 2(a) of the Public
Utility Holding Company Act of 1935 ("PUHCA"), (ii) subject to regulation under
the Federal Power Act, as amended ("FPA"), other than as contemplated by 18
C.F.R. Section 292.601(c) or (iii) subject to any state law or regulation with
respect to rates or the financial or orga nizational regulation of electric
utilities, other than as contemplated by 18 C.F.R. Section 292.602(c).
(w) Each of the power generation projects in which the Company
or its subsidiaries has an interest (the "PROJECTS") which is subject to the
requirements under the Public Utility Regulatory Policies Act of 1978, as
amended (16 U.S.C. Section 796, et seq.), and the regulations of the Federal
Energy Regulatory Commission ("FERC") promulgated thereunder, as amended from
time to time, necessary to be a "QUALIFYING COGENERATION FACILITY" and/or a
"QUALIFYING SMALL POWER PRODUCTION FACILITY" meets such requirements.
(x) The Company is subject to Section 13 or 15(d) of the
Exchange Act.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective numbers of
shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC")
drawn to the order of at the office of Skadden, Arps, Slate, Meagher
& Flom LLP, at 9:00 A.M., New York time, on , or at such
other time not later than seven full business days thereafter as CSFBC and the
Company determine, such time being herein referred to as the "FIRST CLOSING
DATE". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934,
the First Closing Date (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of securities for
all the Offered Securities sold pursuant to the offering. The certificates for
the Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the office of Skadden, Arps, Slate,
Meagher & Flom LLP at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional
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<PAGE> 7
Securities shall be purchased for the account of each Underwriter in the same
proportion as the number of shares of Firm Securities set forth opposite such
Underwriter's name bears to the total number of shares of Firm Securities
(subject to adjustment by CSFBC to eliminate fractions) and may be purchased by
the Underwriters only for the purpose of covering over-allotments made in
connection with the sale of the Firm Securities. No Optional Securities shall be
sold or delivered unless the Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CSFBC to the Company. Each time for the delivery of and payment
for the Optional Securities, being herein referred to as an "OPTIONAL CLOSING
DATE", which may be the First Closing Date (the First Closing Date and each
Optional Closing Date, if any, being sometimes referred to as a "CLOSING DATE"),
shall be determined by CSFBC but shall be not later than five full business days
after written notice of election to purchase Optional Securities is given. The
Company will deliver the Optional Securities being purchased on each Optional
Closing Date to the Representatives for the accounts of the several
Underwriters, against payment of the purchase price therefor in Federal (same
day) funds by official bank check or checks or wire transfer to an account at a
bank acceptable to CSFBC drawn to the order of , at the office
of Skadden, Arps, Slate, Meagher & Flom LLP. The certificates for the Optional
Securities being purchased on each Optional Closing Date will be in definitive
form, in such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the office of Skadden, Arps, Slate, Meagher & Flom
LLP at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the Company
will file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph
(4)) of Rule 424(b) not later than the earlier of (A) the second business day
following the execution and delivery of this Agreement or (B) the fifteenth
business day after the Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not effect
such amendment or supplementation without CSFBC's consent; and the Company will
also advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the
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<PAGE> 8
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally available
to its securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration Statement
(or, if later, the Effective Date of the Additional Registration Statement)
which will satisfy the provisions of Section 11(a) of the Act. For the purpose
of the preceding sentence, "AVAILABILITY DATE" means the 45th day after the end
of the fourth fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last quarter
of the Company's fiscal year, "AVAILABILITY DATE" means the 90th day after the
end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of
each Registration Statement ___ of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the Underwriters
all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as required
for the distribution.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may reasonably
request.
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<PAGE> 9
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing fees and
other expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under the laws
of such jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. of the Offered Securities,
for any travel expenses of the Company's officers and employees and any other
expenses of the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(i) For a period of 90 days after the date of the initial
public offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Commission a registration statement under the Act (other than a
registration statement on Form S-8) relating to, any additional shares of its
Securities or securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make any such
offer, sale, pledge, disposition or filing, without the prior written consent of
CSFBC, except grants of employee stock options pursuant to the terms of a plan
in effect on the date hereof, issuances of Securities pursuant to the exercise
of such options or the exercise of any other employee stock options outstanding
on the date hereof.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
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<PAGE> 10
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe
that:
(A) the unaudited financial statements included in
the Registration Statements do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations or
any material modifications should be made to such unaudited
financial statements for them to be in conformity with
generally accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(C) for the period from the closing date of the
latest income statement included in the Prospectus to the
closing date of the latest available income statement read by
such accountants there were any decreases, as compared with
the correspond ing period of the previous year, in
consolidated net revenues or net operating income or in the
total or per share amounts of consolidated net income except
in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(iv) on the basis of their review of the unaudited pro forma
financial statements included in the Registration Statement and
inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that the
unaudited pro forma financial statements included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements under the Act; and
(v) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its subsidiaries subject to the internal controls of the
Company's accounting system or are derived directly from such records
by analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be
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<PAGE> 11
filed shortly prior to its Effective Time, (ii) if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery of this
Agreement but the Effective Time of the Additional Registration is subsequent to
such execution and delivery, "REGISTRATION STATEMENTS" shall mean the Initial
Registration Statement and the additional registration statement as proposed to
be filed or as proposed to be amended by the post-effective amendment to be
filed shortly prior to its Effective Time, and (iii) "PROSPECTUS" shall mean the
prospectus included in the Registration Statements. All financial statements and
schedules included in material incorporated by reference into the Prospectus
shall be deemed included in the Registration Statements for purposes of this
subsection.
(b) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), from Moss Adams LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that they
have compared specified dollar amounts (or percentages derived from such dollar
amounts) and other financial information contained in the Registration
Statements (in each case to the extent that such dollar amounts, percentages and
other financial information are derived from the general accounting records of
the Company or its subsidiaries subject to the internal controls of the
Company's or such subsidiaries' accounting systems or are derived directly from
such records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such results, except as
otherwise specified in such letter.
(c) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York time, on
the date of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if any)
is not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later date as
shall have been consented to by CSFBC. If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
the Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its subsidiaries
taken as one enterprise which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public offering or
the sale of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities of the Company by any "NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION" (as defined for purposes of Rule 436(g) under
the Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company (other
than an
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announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any suspension or
limitation of trading in securities generally on the New York Stock Exchange, or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or
New York authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or any
other substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities.
(e) The Representatives shall have received an opinion, dated
such Closing Date, of Brobeck Phleger & Harrison LLP, counsel for the Company,
to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except to the
extent that the failure to be so qualified or in good standing would
not have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities;
(iii) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the Act;
(iv) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"INVESTMENT COMPANY" as defined in the Investment Company Act of 1940.
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws;
(vi) The execution, delivery and performance of this Agreement
and the consumma tion of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, the charter, by-laws, partnership
agreement or
12
<PAGE> 13
other organizational documents of the Company or any subsidiary of the
Company or any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over the
Company or any subsidiary of the Company or any of their properties,
or, to such counsel's knowledge, any agreement or instrument to which
the Company or any such subsidiary is a party or by which the Company
or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, and the Company has full
power and authority to authorize, issue and sell the Offered Securities
as contemplated by this Agreement;
(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was included
in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained any
untrue statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; the
contracts and agreements of the Company and its subsidiaries described
in the Registration Statements and the Prospectus conform in all
material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus and the statements in the
Registration Statement and the Prospectus under the caption
"Description of Capital Stock," insofar as such statements constitute
summaries of the legal matters, documents and governmental proceedings
referred to therein, fairly summarize and present the information
required to be shown; and after due inquiry such counsel does not know
of any legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to be
described in a Registration Statement or the Prospectus or to be filed
as exhibits to a Registration Statement which are not described and
filed as required; it being understood that such counsel need express
no opinion as to the financial statements or other financial data
contained in the Registration Statement or the Prospectus; and
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The Representatives shall have received an opinion, dated
such Closing Date, of Joseph E. Ronan, Jr., General Counsel of the Company, to
the effect that:
(i) Each subsidiary of the Company (x) other than those
subsidiaries specified in clause (y) of this Section 6(f)(i) has been
duly incorporated, is validly existing as a corporation in good
13
<PAGE> 14
standing under the laws of the jurisdiction of its incorporation, and
has corporate power and authority to own its property and to conduct
its business as described in the Prospectus or (y) that is not a
corporation is a limited partnership, has been duly formed and is
validly existing as a limited partnership in good standing under the
laws of the jurisdiction of its formation, and has full power and
authority to own its property and to conduct its business as described
in the Prospectus; and, in either case, is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
and the Company is not a general partner in any partnership;
(ii) The Company and each of its subsidiaries possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business as
now operated by them as described in the Prospectuses and such counsel
is not aware of the receipt of any notice of proceedings relating to
the revocation or modification of any such certificate, authority,
license or permit that, if determined adversely to the Company or any
of its subsidiaries, would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries, taken as a
whole;
(iii) The contracts and agreements of the Company and its
subsidiaries and affiliates described in the Prospectus under "Business
-- Description of Facilities conform in all material respects to the
descriptions thereof contained in the Prospectus, and the statements in
the Prospectus under the captions "Management", "Certain Transactions",
"Business - Legal Proceedings" and "Business - Governmental
Regulation", insofar as such statements constitute summaries of the
legal matters, documents and governmental proceedings referred to
therein fairly summarize and present the information required to be
shown;
(iv) Such counsel is of the opinion that the Company and each
subsidiary of the Company (i) is in compliance with any and all
applicable environmental laws, (ii) has received all permits, licenses
or other approvals required of it under applicable Environmental Laws
to conduct its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with environmental laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company; and
(v) To such counsel's knowledge, neither the Company nor any
of its subsidiaries is (i) subject to regulation as a "HOLDING COMPANY"
or a "SUBSIDIARY COMPANY" of a holding company or an "AFFILIATE" of a
subsidiary or holding company or a "PUBLIC UTILITY COMPANY" under
Section 2(a) of PUHCA, (ii) subject to regulation under the FPA, other
than as contemplated by 18 C.F.R. Section 292.601(c) or (iii) subject
to any state law or regulation with respect to the rates or the
financial or organizational regulation of electric utilities, other
than as contemplated by 18 C.F.R. Section 292.602(c).
In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the corporate law of the State of
Delaware, upon opinions of other counsel, who shall be counsel reasonably
satisfactory to counsel for the Underwriters, in which case (i) the opinion of
such other counsel shall also be addressed to
14
<PAGE> 15
the Underwriters and (ii) the opinion of Brobeck Phleger & Harrison LLP shall
state that in their opinion, they and the Underwriters are justified in relying
on such other counsel's opinion.
(g) The Representatives shall have received from Skadden,
Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, such opinion or
opinions, dated such Closing Date, with respect to the incorporation of the
Company, the validity of the Offered Securities delivered on such Closing Date,
the Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(h) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs (1)
and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(i) The Representatives shall have received a letter, dated
such Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
(j) The Representatives shall have received a letter, dated
such Closing Date, from Moss Adams LLP which meets the requirements of
subsection (b) of this Section, except that the specified date referred to in
such subsection will be a date not more than five days prior to such Closing
Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
requests. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or
15
<PAGE> 16
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(b) below.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the Act,
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting" and the information contained in the
eighth paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section, for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes
16
<PAGE> 17
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstand ing the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated
17
<PAGE> 18
severally, in proportion to their respective commitments hereunder, to purchase
the Offered Securities that such defaulting Underwriters agreed but failed to
purchase on such Closing Date. If any Underwriter or Underwriters so default and
the aggregate number of shares of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date
and arrangements satisfactory to CSFBC and the Company for the purchase of such
Offered Securities by other persons are not made within 36 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company, except as provided in Section 9
(provided that if such default occurs with respect to Optional Securities after
the First Closing Date, this Agreement will not terminate as to the Firm
Securities or any Optional Securities purchased prior to such termination). As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department-Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Calpine Corporation, 50
West San Fernando Street, San Jose, California 95113, Attention: General
Counsel; provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
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<PAGE> 19
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
19
<PAGE> 20
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
CALPINE CORPORATION
By:________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
----------------------------------------
----------------------------------------
Acting on behalf of themselves and as the
Representative of the several Underwriters.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:___________________________________
Name:
Title:
20
<PAGE> 21
SCHEDULE A
UNDERWRITER NUMBER OF FIRM SECURITIES
Credit Suisse First Boston Corporation
- ---------------------------------------
- ---------------------------------------
-----------------------
Total
=======================
21
<PAGE> 1
EXHIBIT 4.1
================================================================================
CALPINE CORPORATION
and
THE BANK OF NEW YORK, Trustee
- --------------------------------------------------------------------------------
Indenture
Dated as of March __, 1999
- --------------------------------------------------------------------------------
$_____________
___% Senior Notes Due 20__
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE 1
SECTION 1.1 Definitions 1
SECTION 1.2 Other Definitions 22
SECTION 1.3 Incorporation by Reference of Trust Indenture Act 23
SECTION 1.4 Rules of Construction 23
ARTICLE 2 THE SECURITIES 24
SECTION 2.1 Form and Dating 24
SECTION 2.2 Execution and Authentication 25
SECTION 2.3 Registrar and Paying Agent 26
SECTION 2.4 Paying Agent To Hold Money in Trust 26
SECTION 2.5 Securityholder Lists 27
SECTION 2.6 Transfer and Exchange 27
SECTION 2.7 Replacement Securities 29
SECTION 2.8 Outstanding Securities 30
SECTION 2.9 Determination of Holders' Action 30
SECTION 2.10 Temporary Securities 31
SECTION 2.11 Cancellation 31
SECTION 2.12 Defaulted Interest 31
ARTICLE 3 COVENANTS 32
SECTION 3.1 Payment of Securities 32
SECTION 3.2 Maintenance of Office or Agency 32
SECTION 3.3 Limitation on Restricted Payments 33
SECTION 3.4 Limitation on Incurrence of Indebtedness 36
SECTION 3.5 Limitation on Payment Restrictions Affecting Subsidiaries 38
SECTION 3.6 Limitation on Sale/Leaseback Transactions 39
SECTION 3.7 Limitation on Liens 40
SECTION 3.8 Change of Control 43
SECTION 3.9 Compliance Certificate 45
SECTION 3.10 SEC Reports 45
SECTION 3.11 Transactions with Affiliates 46
SECTION 3.12 Sales of Assets 47
SECTION 3.13 Corporate Existence 51
SECTION 3.14 Payment of Taxes and Other Claims 52
SECTION 3.15 Notice of Defaults and Other Events 52
SECTION 3.16 Maintenance of Properties and Insurance 52
SECTION 3.17 Limitation on Issuance of Capital Stock and Incurrence
of Indebtedness of Restricted Subsidiaries 53
SECTION 3.18 Limitation on Changes in the Nature of the Business 53
SECTION 3.19 Limitation on Subsidiary Investments 54
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ARTICLE 4 CONSOLIDATION, MERGER AND SALE 54
SECTION 4.1 Merger and Consolidation of Company 54
SECTION 4.2 Successor Substituted 56
ARTICLE 5 DEFAULTS AND REMEDIES 57
SECTION 5.1 Events of Default 57
SECTION 5.2 Acceleration 60
SECTION 5.3 Other Remedies 60
SECTION 5.4 Waiver of Past Defaults 60
SECTION 5.5 Control by Majority 61
SECTION 5.6 Limitation on Suits 61
SECTION 5.7 Rights of Holders To Receive Payment 62
SECTION 5.8 Collection Suit by Trustee 62
SECTION 5.9 Trustee May File Proofs of Claim 62
SECTION 5.10 Priorities 63
SECTION 5.11 Undertaking for Costs 63
SECTION 5.12 Waiver of Stay or Extension Laws 64
ARTICLE 6 TRUSTEE 64
SECTION 6.1 Duties of Trustee 64
SECTION 6.2 Rights of Trustee 65
SECTION 6.3 Individual Rights of Trustee 66
SECTION 6.4 Trustee's Disclaimer 66
SECTION 6.5 Notice of Defaults 67
SECTION 6.6 Reports by Trustee to Holders 67
SECTION 6.7 Compensation and Indemnity 67
SECTION 6.8 Replacement of Trustee 69
SECTION 6.9 Successor Trustee by Merger, etc 70
SECTION 6.10 Eligibility; Disqualification 70
SECTION 6.11 Preferential Collection of Claims Against Company 70
ARTICLE 7 SATISFACTION AND DISCHARGE OF INDENTURE 70
SECTION 7.1 Discharge of Liability on Securities; Defeasance 70
SECTION 7.2 Termination of Company's Obligations 71
SECTION 7.3 Defeasance and Discharge of Indenture 71
SECTION 7.4 Defeasance of Certain Obligations 74
SECTION 7.5 Application of Trust Money 76
SECTION 7.6 Repayment to Company 77
SECTION 7.7 Reinstatement 77
ARTICLE 8 AMENDMENTS AND SUPPLEMENTS 78
SECTION 8.1 Without Consent of Holders 78
SECTION 8.2 With Consent of Holders 79
SECTION 8.3 Compliance with Trust Indenture Act 80
SECTION 8.4 Revocation and Effect of Consents 80
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<TABLE>
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SECTION 8.5 Notation on or Exchange of Securities 80
SECTION 8.6 Trustee To Sign Amendments 80
SECTION 8.7 Fixing of Record Dates 81
ARTICLE 9 REDEMPTION 81
SECTION 9.1 Not Redeemable 82
ARTICLE 10 MISCELLANEOUS 82
SECTION 10.1 Trust Indenture Act Controls 82
SECTION 10.2 Notices 82
SECTION 10.3 Communication by Holders with Other Holders 83
SECTION 10.4 Certificate and Opinion as to Conditions Precedent 83
SECTION 10.5 Statements Required in Certificate or Opinion 84
SECTION 10.6 Rules by Trustee and Agents 84
SECTION 10.7 Legal Holidays 84
SECTION 10.8 Successors; No Recourse Against Others 85
SECTION 10.9 Duplicate Originals 85
SECTION 10.10 Other Provisions 85
SECTION 10.11 Governing Law 85
SIGNATURES 86
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EXHIBIT A -- Form of Security .......................................... A-1
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<PAGE> 6
INDENTURE dated as of March ___, 1999, between Calpine Corporation, a
Delaware corporation (the "Company"), and The Bank of New York, a New York
banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the holders of the Company's ___% Senior
Notes Due 20___:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions.
"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 Sections 3.11 and 3.12 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
<PAGE> 7
first sentence hereof. For purposes of Section 3.3, "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.
"Agent" means any Registrar, Paying Agent, authenticating agent,
co-registrar or additional paying agent.
"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 of
Section 3.12(b)) those permitted by Article IV hereof and those permitted by
Section 3.6 hereof) 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.
"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 Securities, 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, among the Company, certain commercial lending institutions
2
<PAGE> 8
named therein and The Bank of Nova Scotia, as agent for the lenders, as amended,
refinanced, 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 Parent or 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
3
<PAGE> 9
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 Securities 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 Securities 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 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
4
<PAGE> 10
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
5
<PAGE> 11
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 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 by-laws 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
6
<PAGE> 12
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
7
<PAGE> 13
accounts of such Person and such subsidiaries are consolidated in accordance
with GAAP. The term "Consolidated" shall have a correlative meaning.
"Controlled Non-Subsidiary Investment" means any Investment of the
type specified in clause (iv) of Section 3.3(a) 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 in Section 3.18
including Unrelated Businesses to the extent permitted by Section 3.18; (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 Securities, 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 Section 3.5, 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
8
<PAGE> 14
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 Security which is
payable, but is not punctually paid or duly provided for on any Interest Payment
Date.
"Depository" means The Depository Trust Company, its nominees, and
their respective successors until a successor Depository shall have become such
pursuant to the applicable provisions of this Indenture and thereafter
"Depository" shall mean or include each Person who is then a Depository
hereunder.
"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.
"Exchangeable Stock" means any Capital Stock which by its terms is
exchangeable or convertible at the option of any Person other than the Company
9
<PAGE> 15
into another security (other than Capital Stock of the Company which is neither
Exchangeable Stock nor Redeemable Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facility" means a power generation facility or energy producing
facility, including any related fuel 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 nonper-
10
<PAGE> 16
formance) 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 Security
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 of Sections 3.5 or 3.7 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 (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,
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<PAGE> 17
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 this 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.
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<PAGE> 18
"Indenture" means this Indenture as amended or supplemented from time
to time in accordance with the applicable provisions hereunder.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
"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 in Section 3.3, (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 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.
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"Investment Grade" means, with respect to the Securities, 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 Securities in light of
downgrading the rating thereof.
"Issue Date" means the date on which the Securities are originally
issued under this 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.
"Magic Valley Generating Station" means [TO COME]
"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
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<PAGE> 20
(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 Securities
pursuant to the Underwriting Agreement dated as of March __, 1999 among the
Company, Credit Suisse First Boston Corporation, and ____________________.
"Officer" means the Chairman, the President, any Vice President, the
Chief Operating Officer, the Chief Financial Officer, the Treasurer, the
Secretary, any Assistant Treasurer, any Assistant Secretary or the Controller of
the Company.
"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).
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<PAGE> 21
"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).
"Other Senior Notes" means all of the series of ___% Senior Notes Due
200_, the ___% Senior Notes Due 20__, and the ___% Senior Notes Due 20__, that
are issued under and pursuant to the terms of one or more indentures executed
the date hereof by the Company and the Trustee, as may be amended or
supplemented from time to time.
"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 Security means the principal of the Security plus, if
applicable, the premium on the Security.
"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.
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<PAGE> 22
"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 Securities 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 Parent or 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 Securities is under
publicly announced consideration or possible downgrade by either of the Rating
Agencies), (i) a decrease of the rating of the Securities 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 Securities, stating that it is not downgrading,
and is not considering downgrading, the Securities.
"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 Securities, (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 Securities (other than on a
Change of Control or Asset Sale, provided that such Change of Control or Asset
Sale shall not yet have 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
Securities.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
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<PAGE> 23
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 Securities, the Refinancing Indebtedness
shall be contractually subordinated in right of payment to the Securities 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 Securities, (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
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<PAGE> 24
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.
"SEC" means the Securities and Exchange Commission.
"Securities" means all series of the ___% Senior Notes Due 20__ that
are issued under and pursuant to the terms of this Indenture and any indenture
or indentures supplemental hereto, as amended or supplemented from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"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 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)
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<PAGE> 25
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 Securities, 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 Securities 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 50% 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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date first above written.
"Trustee" means the party named as such above until a successor
replaces it and thereafter means the successor.
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<PAGE> 26
"Trust Officer" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters or to whom any corporate trust
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"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 Section 3.3. 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 Section 3.4(a)
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 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.
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"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.
SECTION 1.2 Other Definitions.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
- ---- ------------------
<S> <C>
"Application Period" ....................................... 3.12
"Asset Sale Offer" ......................................... 3.12
"Asset Sale Offer Amount" .................................. 3.12
"Asset Sale Purchase Date" ................................. 3.12
"Bankruptcy Law" ........................................... 5.1
"Change of Control Offer" .................................. 3.8
"Change of Control Purchase Date" .......................... 3.8
"Custodian" ................................................ 5.1
"Event of Default" ......................................... 5.1
"Global Securities" ........................................ 2.1
"Legal Holiday" ............................................ 10.7
"Notice of Default" ........................................ 5.1
"Offer Period" ............................................. 3.12
"Paying Agent" ............................................. 2.3
"Registrar" ................................................ 2.3
"Restricted Payment"........................................ 3.3(a)
"Successor Corporation"..................................... 4.1(i)
</TABLE>
SECTION 1.3 Incorporation by Reference of
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<PAGE> 28
Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Holder or Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings assigned to them.
SECTION 1.4 Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) generally accepted accounting principles" means, and any
accounting term not otherwise defined has the meaning assigned to it
and shall be construed in accordance with, GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
23
<PAGE> 29
(e) provisions apply to successive events and transactions;
(f) "including" means including, without limitation;
(g) unsecured debt shall not be deemed to be subordinate or
junior to secured debt merely by virtue of its nature as unsecured
debt;
(h) the principal amount of any non-interest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the issuer dated such date
prepared in accordance with generally accepted accounting principles
and accretion of principal on such security shall be deemed to be the
Incurrence of Indebtedness; and
(i) the principal amount (if any) of any Preferred Stock shall be
the greatest of (i) the stated value, (ii) the redemption price or
(iii) the liquidation preference of such Preferred Stock.
ARTICLE II
THE SECURITIES
SECTION 2.1 Form and Dating.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A annexed hereto, which is part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Security shall be dated the date of
its authentication.
The terms and provisions contained in the form of Security annexed
hereto as Exhibit A shall constitute, and are expressly made, a part of this
Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
The Securities shall be issued initially in the form of one or more
permanent global Securities in registered form, substantially in the form as
above recited (the "Global Securities"), deposited with or on behalf of the
Trustee, as
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<PAGE> 30
custodian for the Depository, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. Each Global Security shall bear such legend
as may be required or reasonably requested by the Depository.
The definitive Securities shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
SECTION 2.2 Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be impressed, affixed, imprinted
or reproduced on the Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Securities for original issue in an
aggregate principal amount of $__________, upon a written order of the Company
signed by two Officers. Such order shall specify the amount of the Securities to
be authenticated and the date on which the original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time is unlimited.
The Trustee shall initially act as authenticating agent and may
subsequently appoint another Person acceptable to the Company as authenticating
agent to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
Provided that the authentication agent has entered into an agreement with the
Company concerning
25
<PAGE> 31
the authentication agent's duties, the Trustee shall not be liable for any act
or any failure of the authenticating agent to perform any duty either required
herein or authorized herein to be performed by such person in accordance with
this Indenture.
The Securities shall be issued only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3 Registrar and Paying Agent.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Securities may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional paying
agent and the term "Registrar" includes any co-registrar.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture. The
agreement shall implement the provisions of this Indenture that relate to such
agent. The Company shall promptly notify the Trustee of the name and address of
any such agent and any change in the address of such agent. If the Company fails
to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 6.7. The
Company or any Subsidiary or Affiliate of the Company may act as Paying Agent,
Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.4 Paying Agent To Hold Money in Trust.
On or prior to 11:00 a.m., eastern standard time, on each due date of
the principal and interest on any Security the Company shall deposit with the
Paying Agent a sum of money, in immediately available funds, sufficient to pay
such principal and interest in funds available when such becomes due. The
Company shall require each Paying Agent (other than the Trustee) to agree in
writing that the Paying Agent shall hold in trust for the benefit of
Securityholders
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<PAGE> 32
or the Trustee all money held by the Paying Agent for the payment of principal
of or interest on the Securities (whether such money has been paid to it by the
Company or any other obligor on the Securities) and shall notify the Trustee of
any default by the Company (or any other obligor on the Securities) in making
any such payment. If the Company or a Subsidiary or an affiliate of the Company
acts as Paying Agent, it shall segregate the money held by it as Paying Agent
and hold it as a separate trust fund for the benefit of the Securityholders. If
the Company defaults in its obligation to deposit funds for the payment of
principal and interest the Trustee may, during the continuation of such default,
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed by it. Upon doing so, the Paying
Agent (other than the Company or a Subsidiary or Affiliate of the Company) shall
have no further liability for the money delivered to the Trustee.
SECTION 2.5 Securityholder Lists.
The Trustee shall preserve in as current a form as reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least five Business Days before each Interest Payment Date and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of the Securityholders, and the Company shall otherwise comply with
TIA Section 312(a).
SECTION 2.6 Transfer and Exchange.
The Securities shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(1)
of the Uniform Commercial Code are met (and the Registrar shall be entitled to
assume such requirements have been met unless it receives written notice to the
contrary) and, if so required by the Trustee or the Company, if the Security
presented is accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Company, duly executed by the registered
owner or by his or her attorney duly authorized in writing. When Securities are
presented to the Registrar or a co-registrar with a request to exchange them for
an equal principal amount of Securities of other authorized denominations, the
Registrar shall make the exchange as
27
<PAGE> 33
requested if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-registrar's request. The Depository shall,
by acceptance of a Global Security, agree that transfers of beneficial interests
in such Global Security may be effected only through a book-entry system
maintained by the Depository (or its agent), and that ownership of a beneficial
interest in the Global Security shall be required to be reflected in a book
entry.
No service charge shall be made for any registration of transfer or
exchange of the Securities, but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar governmental
charge payable upon exchange pursuant to Section 2.10 or 8.5 of this Indenture).
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
Notwithstanding any other provisions of this Section 2.6, unless and
until it is exchanged in whole or in part for Securities in definitive
registered form, a Global Security representing all or a portion of the
Securities may not be transferred except as a whole by the Depository to a
nominee of such Depository or by a nominee of such Depository to such Depository
or another nominee of such Depository or by such Depository or any such nominee
to a successor Depository or a nominee of such successor Depository.
If the Depository notifies the Company that it is unwilling or unable
to continue as Depository for the Global Securities or if at any time the
Depository shall no longer be eligible under the next sentence of this
paragraph, the Company shall appoint a successor Depository with respect to the
Securities. Each Depository appointed pursuant to this Section 2.6 must, at the
time of its appointment and at all times while it serves as Depository, be a
clearing agency registered under the Exchange Act and any other applicable
statute or regulation. The Company will execute, and the Trustee will
authenticate and deliver upon a written order of the
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<PAGE> 34
Company signed by two Officers, Securities in definitive registered form in any
authorized denominations representing such Securities in exchange for such
Global Security or Securities if (i) the Depository notifies the Company that it
is unwilling or unable to continue as Depository for the Global Securities or if
at any time the Depository shall no longer be eligible to serve as Depository
and a successor Depository for the Securities is not appointed by the Company
within 90 days after the Company receives such notice or becomes aware of such
ineligibility or (ii) an Event of Default has occurred and is continuing.
The Company may at any time and in its sole discretion determine that
the Securities shall no longer be represented by a Global Security or
Securities. In such event the Company will execute, and the Trustee will
authenticate and deliver upon a written order of the Company signed by two
Officers, Securities in definitive registered form in any authorized
denominations representing such Securities in exchange for such Global Security
or Securities.
Upon the exchange of a Global Security for Securities in definitive
registered form without coupons, in authorized denominations, such Global
Security shall be cancelled by the Trustee. Securities in definitive registered
form issued in exchange for a Global Security pursuant to this Section 2.6 shall
be registered in such names and in such authorized denominations as the
Depository for such Global Security, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Securities to or as directed by the Persons in whose names
such Securities are so registered.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.7 Replacement Securities.
If a mutilated Security is surrendered to the Registrar or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken and the Holder furnishes to the Company and the Trustee
evidence to their satisfaction of such loss, destruction or wrongful taking, the
Company shall issue and the Trustee shall, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, authenticate a
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replacement Security if the requirements of Section 8-405 of the Uniform
Commercial Code are met (and the Registrar shall be entitled to assume such
requirements have been met unless it receives written notice to the contrary)
and if there is delivered to the Company and the Trustee such security or
indemnity as may be required to save each of them harmless, satisfactory to the
Company or the Trustee, as the case may be. The Company and the Trustee may
charge the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.8 Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If all the principal and interest on any Securities are considered
paid under Section 3.1, such Securities cease to be outstanding under this
Indenture and interest on such Securities shall cease to accrue.
If the Paying Agent (other than the Company or a Subsidiary or an
Affiliate of the Company) holds in accordance with this Indenture on a maturity
date money sufficient to pay all principal and interest due on that date then on
and after that date such Securities cease to be outstanding and interest on them
ceases to accrue (unless there shall be a default in such payment).
Subject to Section 2.9, a Security does not cease to be outstanding
because the Company or an Affiliate thereof holds the Security.
SECTION II.9 Determination of Holders' Action.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, waiver or consent,
Securities owned by or pledged to the Company, any other obligor upon the
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Securities or any Affiliate of the Company, or such other obligor shall be
disregarded and deemed not to be outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned or pledged shall be so disregarded.
SECTION 2.10 Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee, upon the
written order of the Company signed by two Officers, shall authenticate
definitive Securities in exchange for temporary Securities. Until such exchange,
temporary Securities shall be entitled to the same rights, benefits and
privileges as definitive Securities.
SECTION 2.11 Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment or cancellation and shall return such cancelled
Securities to the Company. The Company may not issue new Securities to replace
Securities that it has paid or delivered to the Trustee for cancellation.
SECTION 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it
shall pay Defaulted Interest, plus any interest payable on the Defaulted
Interest to the extent permitted by law, in any lawful manner. It may pay the
Defaulted Interest to the Persons who are Securityholders on a subsequent
special record date which date shall be at least five Business Days prior to the
payment date. The Company shall fix the special record date and payment date. At
least 15 days before the special record date, the Company (or the Trustee, in
the name of and at the expense of the Company) shall mail to Securityholders a
notice that states the special record date, payment date and amount of interest
to be paid.
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ARTICLE III
COVENANTS
SECTION 3.1 Payment of Securities.
The Company shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities. The Company shall pay
interest on overdue principal at the rate borne by the Securities; it shall pay
interest on overdue installments of interest at the rate borne by the Securities
to the extent lawful. Principal and interest shall be considered paid on the
date due if the Trustee or the Paying Agent (other than the Company or a
Subsidiary or an Affiliate of the Company) has received from or on behalf of the
Company on or prior to 11:00 a.m., eastern standard time, on that date, in
immediately available funds, money sufficient to pay all principal and interest
then due.
SECTION 3.2 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 10.2 of this Indenture.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York, for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
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SECTION 3.3 Limitation on Restricted Payments.
(a) So long as any of the Securities 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 NonConvertible 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 of Section 3.11, 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 of Section 3.4(a); and
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(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 Securities 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
Securities were Investment Grade for the entire period;
(C) the 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
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"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) $25 million.
(b) The failure to satisfy the conditions set forth in clauses (2) and
(3) of Subsection 3.3(a) shall not prohibit any of the following as long as the
condition set forth in clause (1) of Subsection 3.3(a) is satisfied (except as
set forth below):
(i) notwithstanding clause (1) of Section 3.3(a), the occurrence
or existence of a Default at the time of payment of dividends paid
within 60 days after the date of declaration thereof if at such date
of declaration such dividend would have complied with Subsection
3.3(a); 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
Subsection 3.3(a), 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 Subsection 3.3(a) and provided, further, that the Net Cash Proceeds
from such sale shall be excluded from sub-clause (C) of clause (3) of
Subsection 3.3(a);
(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
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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
Securities 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 Subsection 3.3(a);
(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 Securities as described
under Section 3.8 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 Section 3.12; and
SECTION 3.4 Limitation on Incurrence of Indebtedness.
(a) 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.
(b) Notwithstanding the foregoing, this Section shall 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 $50,000,000
and
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provided that the proceeds of such Indebtedness shall not be used for
the purpose of making any Restricted Payments pursuant to clause (i)
or (ii) of Section 3.3(a);
(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 subsection, is not in
excess of $50,000,000, and Indebtedness of the Company under the
Working Capital Credit Agreement not in excess of $50,000,000;
(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 Section 3.4(a);
(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 Section 3.4(b), provided
that the aggregate principal amount of Indebtedness Incurred pursuant
to this clause (viii), when taken together with outstanding
Indebtedness Incurred under
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the Bank Credit Agreement pursuant to clause (iv) of this Section
3.4(b), is not in excess of $50,000,000;
(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
Securities in effect prior to the Incurrence of such Related Asset
Indebtedness; and
(x) the Securities and the Other Senior Notes which have been
issued on the date hereof.
(c) Notwithstanding Sections 3.4(a) and (b), 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 by Section 3.3 or unless
such Indebtedness shall be contractually subordinated to the Securities at least
to the same extent as such Subordinated Indebtedness.
SECTION 3.5 Limitation on Payment Restrictions Affecting Subsidiaries.
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 this 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,
how-
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ever, 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 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 Section 3.7(l), that, in the reasonable determination of the
President or Chief Financial Officer of the Company (x) is required in order to
obtain such financing referred to in Section 3.7(l) and (y) 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 Section 3.4(b)(vii), 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.
SECTION 3.6 Limitation on Sale/Leaseback Transactions.
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
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without equally and ratably securing the Securities pursuant to Section 3.7 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 Section 3.7, 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.
SECTION 3.7 Limitation on Liens.
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,
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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 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,
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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 Section 3.4(b)(vii),
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); (q) Liens by which the Securities are secured
equally and ratably with other Indebtedness pursuant to this Section 3.7; in any
such case without effectively providing that the Securities shall be secured
equally and ratably with (or prior to) the obligations so secured for so long as
such obligations are so secured; and (r) Liens on assets relating to the Magic
Valley Generating Station; 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
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with respect to all outstanding leases in connection with Sale/Leaseback
Transactions entered into pursuant to the first proviso to Section 3.6 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.
SECTION 3.8 Change of Control.
In the event of a Change of Control Triggering Event, the Company
shall make an offer to purchase (the "Change of Control Offer") the Securities
then outstanding at a purchase price equal to one hundred one percent (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 Section. The date on which the Company shall purchase the
Securities pursuant to this Section (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 Securities.
Notice of a Change of Control Offer shall be mailed by the Company to
the Holders of the Securities 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 Securities
(in whole or in part) 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
this Section;
(b) the purchase price and the Change of Control Purchase Date;
(c) that any Security not surrendered or accepted for payment
will continue to accrue interest;
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<PAGE> 49
(d) that any Security 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 Security purchased (in
whole or in part) pursuant to a Change of Control Offer will be
required to surrender the Security, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Security completed, to
the Paying Agent at the address specified in the notice (or otherwise
make effective delivery of the Security 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 Security the Holder
delivered for purchase and a statement that such Holder is withdrawing
his or her election to have the Security purchased.
On the Change of Control Purchase Date, the Company shall (i) accept
for payment Securities 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
Securities or portions thereof so accepted and (iii) deliver to the Trustee, no
later than 11:00 a.m. eastern standard time, Securities so accepted together
with an Officers' Certificate stating that such Securities have been accepted
for payment by the Company. The Paying Agent shall promptly, and in any event
within one (1) Business Day following the deposit and delivery specified in
clauses (ii) and (iii) of the immediately preceding sentence, mail or deliver to
Holders of Securities so accepted payment in an amount equal to the purchase
price. Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section.
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To the extent that the provisions of any securities laws or regulations conflict
with provisions of this Section, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section by virtue thereof.
SECTION 3.9 Compliance Certificate.
The Company shall, within 120 days after the close of each fiscal year
following the issuance of the Securities, file with the Trustee an Officer's
Certificate, provided that one Officer executing the same shall be the principal
executive officer, the principal financial officer or the principal accounting
officer of the Company, covering the period from the date of issuance of the
Securities to the end of the fiscal year in which the Securities were issued, in
the case of the first such certificate, and covering the preceding fiscal year
in the case of each subsequent certificate, and stating whether or not, to the
knowledge of each such executing Officer, the Company has complied with and
performed and fulfilled all covenants on its part contained in this Indenture
and is not in default in the performance or observance of any of the terms or
provisions contained in this Indenture, and, if any such signer has obtained
knowledge of any default by the Company in the performance, observance or
fulfillment of any such covenant, term or provision specifying each such default
and the nature thereof. For the purpose of this Section 3.9, compliance shall be
determined without regard to any grace period or requirement of notice provided
pursuant to the terms of this Indenture.
SECTION 3.10 SEC Reports.
The Company shall, to the extent required by TIA Section 314(a), file
with the Trustee, within 15 days after the filing with the SEC, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act. In the event the Company is at any time
no longer subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, it shall, for so long as the Securities remain outstanding, file
with the Trustee and the SEC and mail to each Securityholder at such
Securityholder's registered address, within 15 days after the Company would have
been required to file such documents with the SEC, copies of the annual reports
and of the information, documents and other reports which the Company would have
been required to file with the SEC if the
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Company had continued to be subject to such Sections 13 or 15(d). The Company
also shall comply with the other provisions of TIA Section 314(a).
SECTION 3.11 Transactions with Affiliates.
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 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 Section 3.3(b); (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
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past practices of the Company and its Subsidiaries; (ix) payments pursuant to
Existing Agreements and 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 Section.
SECTION 3.12 Sales of Assets.
(a) 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. 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.
(b) Within three hundred sixty-five (365) days (such 365 days 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 Securities) 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
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extent the Company or such Restricted Subsidiary elects, to purchase Securities;
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 Securities pursuant to and subject to the conditions of Section
3.12(c); 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 Section 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.
Notwithstanding the foregoing, this Section 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 other-
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wise 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 Article IV, the Successor Corporation shall be deemed to have
sold the properties and assets of the Company not so transferred for purposes of
this Section 3.12, and shall comply with the provisions of this Section 3.12
with respect to such deemed sale as if it were an Asset Sale.
(c) Subject to the last sentence of this paragraph, in the event of an
Asset Sale that requires the purchase of Securities pursuant to clause (iii) of
the first paragraph of Section 3.12(b), the Company will be required to purchase
Securities tendered pursuant to an offer by the Company for the Securities (the
"Asset Sale Offer") at a purchase price of not less than their principal amount
plus accrued interest to the Asset Sale Purchase Date in accordance with the
procedures (including proration in the event of oversubscription) set forth in
Section 3.12(d). If the aggregate purchase price of Securities tendered pursuant
to the Asset Sale Offer is less than the Net Available Cash allotted to the
purchase of the Securities, the Company shall apply the remaining Net Available
Cash in accordance with the last sentence of the first paragraph of Section
3.12(b). The Company shall not be required to make an Asset Sale Offer for
Securities pursuant to this Section if the Net Available Cash available therefor
(after application of the proceeds as provided in Section 3.12(b)(i) and (ii))
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 Asset Sale
Offer is required with respect to the Net Available Cash from any subsequent
Asset Sale).
(d) (1) Promptly, and in any event prior to the 360th day after the
later of the date of each Asset Sale as to which the Company must make an Asset
Sale Offer or the receipt of Net Available Cash therefrom, the Company shall be
obligated to deliver to the Trustee and send, by first-class mail to each
Holder, a written notice stating that the Holder may elect to have his
Securities purchased by the Company either in whole or in part (subject to
proration as hereinafter de-
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scribed in the event the Asset Sale Offer is oversubscribed) in integral
multiples of $1,000 of principal amount, at the applicable purchase price. The
notice shall specify a purchase date not less than 30 days, nor more than 60
days, after the date of such notice (the "Asset Sale Purchase Date") and shall
contain the information required in a notice for a Change of Control Offer, to
the extent applicable.
(2) Not later than the date upon which written notice of an Asset Sale
Offer is delivered to the Trustee as provided below, the Company shall deliver
to the Trustee an Officers' Certificate as to (i) the amount of the Asset Sale
Offer (the "Asset Sale Offer Amount"), (ii) the allocation of the Net Available
Cash from the Asset Sales pursuant to which such Asset Sale Offer is being made
and (iii) the compliance of such allocation with the provisions of Section
3.12(a). On such date, the Company shall also deposit with a Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust)
funds in an amount equal to the Asset Sale Offer Amount to be held for payment
in accordance with the provisions of this Section. Upon the expiration of the
period for which the Asset Sale Offer remains open (the "Offer Period"), the
Company shall deliver, or cause to be delivered, to the Trustee the Securities
or portions thereof which have been properly tendered to and are to be accepted
by the Company. Paying Agent shall promptly, and in any event within one (1)
Business Day following the Asset Sale Purchase Date, mail or deliver payment to
each tendering Holder in the amount of the purchase price. In the event that the
aggregate purchase price of the Securities delivered, or caused to be delivered,
by the Company to the Trustee is less than the Asset Sale Offer Amount, the
Paying Agent shall deliver the excess to the Company immediately after the
expiration of the Offer Period and the delivery to the Trustee of the
Securities, or portions thereof that have been properly tendered to and are to
be accepted for payment by the Company.
(3) Holders electing to have a Security purchased will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security duly completed, to the Company or the
Paying Agent, as specified in, and at the address specified in, the notice at
least ten Business Days prior to the Asset Sale Purchase Date. Holders will be
entitled to withdraw their election if the Trustee or the Paying Agent receives,
not later than three Business Days prior to the Asset Sale Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security which was delivered for purchase by
the Holder and a statement that such Holder is withdrawing his election to have
such Security purchased. If at the expiration of the Offer Period the aggregate
principal amount
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of Securities surrendered by Holders exceeds the Asset Sale Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall be
purchased) and shall notify the Trustee of its selection in a writing signed by
two Officers. Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company will also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Paying Agent,
directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 3.13 Corporate Existence.
Except as permitted under Article IV, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate existence of each Restricted Subsidiary in
accordance with the respective organizational documents of the Company and of
each Restricted Subsidiary and the rights (charter and statutory), licenses and
franchises of the Company and the Restricted Subsidiaries necessary or
appropriate to carry out their businesses; provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or the
corporate existence of any Restricted Subsidiary, if the preservation thereof is
no longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries taken as a whole; and provided, further, that any
Restricted Subsidiary may consolidate with, merge into, or sell, convey,
transfer, lease or otherwise dispose of all or part of its property and assets
to the Company or any Wholly Owned Subsidiary to the extent otherwise permitted
under this Indenture.
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SECTION 3.14 Payment of Taxes and Other Claims.
The Company shall pay or discharge, or cause to be paid or discharged,
before any material penalty accrues thereon all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary; provided, however, that the Company shall not be required
to pay or discharge, or cause to be paid or discharged, any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves, if the same shall be required in accordance with GAAP, have been made.
SECTION 3.15 Notice of Defaults and Other Events.
In the event that any Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $1,000,000 or more
individually or $2,500,000 or more in the aggregate has been or could be
declared due and payable before its maturity because of the occurrence of any
event of default under such Indebtedness (including any Default under this
Indenture), the Company, promptly after it becomes aware thereof, will give
written notice thereof to the Trustee.
SECTION 3.16 Maintenance of Properties and Insurance.
The Company shall cause all properties used or useful in the conduct
of its business or the business of each Restricted Subsidiary and material to
the Company and the Restricted Subsidiaries taken as a whole to be maintained
and kept in normal condition, repair and working order and supplied with all
necessary equipment; provided, however, that nothing in this Section 3.16 shall
prevent the Company or any Restricted Subsidiary from discontinuing the use,
operation or maintenance of any of such properties or disposing of any of them,
if such discontinuance or disposal is, in the judgment of an Officer (or other
employee of the Company or any Restricted Subsidiary) of the Company or such
Restricted Subsidiary having managerial responsibility for any such property,
appropriate.
The Company shall provide or cause to be provided, for itself and the
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly
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situated and owning like properties, including, but not limited to,
product liability insurance and public liability insurance with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, of such kinds, and in such amounts, with such
deductibles and by such methods as the Company in good faith shall determine to
be reasonable and appropriate in the circumstances.
SECTION 3.17 Limitation on Issuance of Capital Stock and Incurrence of
Indebtedness of Restricted Subsidiaries.
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 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 Section 3.4(b).
SECTION 3.18 Limitation on Changes in the Nature of the Business.
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 Section. 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,
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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 Section 3.18 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 Section 3.18, 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.
SECTION 3.19 Limitation on Subsidiary Investments.
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.
ARTICLE IV
CONSOLIDATION, MERGER AND SALE
SECTION 4.1 Merger and Consolidation of Company.
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
hereto, executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, all the obligations of the
Company under this Indenture and the Securities;
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(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 this
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 this
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 this 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 this Indenture) shall have 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 (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
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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 paragraphs (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 Section shall be deemed to have occurred as
a consequence thereof, as long as the requirements of paragraphs (i) and (iii)
are satisfied in connection therewith.
SECTION 4.2 Successor Substituted.
(a) Upon any such consolidation or merger, or any conveyance,
transfer, or disposition of all or substantially all of the properties or assets
of the Company in accordance with Section 4.1, but not in the case of a lease,
the Successor Corporation shall succeed to and be substituted for the Company
under this Indenture and the Securities, and the Company shall thereupon be
released from all obligations hereunder and under the Securities 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 Securities issuable hereunder 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 this Indenture, the Trustee
shall authenticate and shall deliver any Securities which the Successor
Corporation thereafter
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<PAGE> 62
shall cause to be signed and delivered to the Trustee for that purpose. All the
Securities so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Securities theretofore or thereafter issued in
accordance with the terms of this Indenture as though all such Securities had
been issued at the date of the execution hereof.
(b) In the case of any consolidation, merger or transfer described in
Section 4.2(a) above, such changes in form (but not in substance) may be made in
the Securities thereafter to be issued as may be appropriate.
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.1 Events of Default.
An "Event of Default" means any of the following events:
(a) default in the payment of interest on any Security when the
same becomes due and payable, and such default continues for a period
of 30 days;
(b) default in the payment of the principal of any Security when
the same becomes due and payable at maturity or otherwise or a failure
to purchase Securities when required pursuant to this Indenture or the
Securities;
(c) default in performance of any other covenants or agreements
in the Securities or this Indenture and the default continues for 30
days after the date on which written notice of such default is given
to the Company by the Trustee or to the Company and the Trustee by
Holders of at least 25% in principal amount of the Securities then
outstanding hereunder;
(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 Securities)
having an outstanding principal amount of $2,000,000 (or its foreign
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<PAGE> 63
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) 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;
(f) the Company or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
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(v) admits in writing its inability to generally pay its debts as
such debts become due;
or takes any comparable action under any foreign laws relating to
insolvency;
(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any Significant
Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of its property, or
(iii) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws; and the order or decree
remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11 of the United States Code or
any similar Federal or State law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
Any notice of Default given by the Trustee or Securityholders under
this Section must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice of any event which with the giving of notice
or the lapse of time or both would become an Event of Default under clause (c),
(d), (e) or (g) hereof.
Subject to the provisions of Section 6.1 and 6.2, the Trustee shall
not be charged with knowledge of any Event of Default unless written notice
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thereof shall have been given to the Trustee by the Company, the Paying Agent,
any Holder or an agent of any Holder.
SECTION 5.2 Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (f) and (g) of Section 5.1 with respect to the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the Securities by notice to the Company and the Trustee,
may declare the principal of and accrued and unpaid interest on all the
Securities to be due and payable. Upon such declaration the principal and
interest shall be due and payable immediately. If an Event of Default specified
in clause (f) or (g) of Section 5.1 with respect to the Company occurs, the
principal of and interest on all the Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Securityholders. The Holders of a majority in principal
amount of the Securities by notice to the Trustee may rescind an acceleration
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 except
nonpayment of principal or interest that has become due solely because of the
acceleration. No such rescission shall affect any subsequent or other Default or
Event of Default or impair any consequent right.
SECTION 5.3 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the Securities
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 5.4 Waiver of Past Defaults.
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The Holders of a majority in principal amount of the Securities by
notice to the Trustee may waive an existing Default and its consequences except
(a) a Default in the payment of the principal of or interest on any Security or
(b) a Default in respect of a provision that under Section 8.2 cannot be amended
without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any consequent right.
SECTION 5.5 Control by Majority
The Holders of a majority in principal amount of the Securities 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 it.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture, or, subject to Section 6.1, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders, or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification reasonably satisfactory to it against all risk, losses and
expenses caused by taking or not taking such action. Subject to Section 6.1, the
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Indenture at the request or direction of the
Securityholders pursuant to this Indenture, unless such Securityholders shall
have provided to the Trustee security or indemnity reasonably satisfactory to it
against the costs, expenses and liabilities which might be incurred in
compliance with such request or direction.
SECTION 5.6 Limitation on Suits.
A Securityholder may pursue a remedy with respect to this Indenture or
the Securities only if:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
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<PAGE> 67
(c) such Holder or Holders offer to the Trustee security
reasonably satisfactory to it or indemnity against any loss, liability
or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity;
and
(e) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 5.7 Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
SECTION 5.8 Collection Suit by Trustee.
If an Event of Default specified in Section 5.1(a) or (b) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid (together with interest on such unpaid interest to the
extent lawful) and the amounts provided for in Section 6.7.
SECTION 5.9 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents and take such other actions including participating as a member or
otherwise in any committees of creditors appointed in the matter as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the amounts provided in Section 6.7) and the Securityholders allowed
in any judicial proceedings relative to the Company, its creditors or its
property and,
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unless prohibited by law or applicable regulations, may vote on
behalf of the Holders in any election of a trustee in bankruptcy or other Person
performing similar functions, and any Custodian in any such judicial proceeding
is hereby authorized by each Holder to make payments to the Trustee and, in the
event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 6.7. To the
extent that the payment of any such amount due to the Trustee under Section 6.7
out of the estate in any such proceeding shall be denied for any reason, payment
of the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Holders of the Securities may be entitled to receive in such proceeding whether
in liquidation or under any plan of reorganization or arrangement or otherwise.
SECTION 5.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 6.7;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Securities for principal and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall give written notice to each Securityholder and the
Trustee of the record date, the payment date and amount to be paid.
SECTION 5.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the
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suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.7,
or a suit by Holders of more than 10% in principal amount of the Securities.
SECTION 5.12 Waiver of Stay or Extension Laws.
The Company shall not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company
hereby expressly waives all benefit or advantage of any such law, and shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE VI
TRUSTEE
SECTION 6.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent Person
would exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others and no implied
covenants or obligations shall be read into this Indenture against the
Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the
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Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of
this Section.
(ii) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.2, 5.4 or 5.5.
(iv) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, unless it receives indemnity
satisfactory to it against any risk, loss, liability or expense.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee, in its capacity as Trustee and Registrar and Paying
Agent, shall not be liable to the Company, the Securityholders or any other
Person for interest on any money received by it, including, but not limited to,
money with respect to principal of or interest on the Securities, except as the
Trustee may agree with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
SECTION 6.2 Rights of Trustee.
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(a) The Trustee may rely on any document reasonably believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate, an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on any
such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers provided, however, that the Trustee's conduct does not constitute wilful
misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in accordance with
the advice of such counsel.
(f) The Trustee shall not be obligated to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or any other paper or document.
SECTION 6.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
6.10 and 6.11.
SECTION 6.4 Trustee's Disclaimer.
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The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement in the
Securities other than its authentication. The Trustee shall have no duty to
ascertain or inquire as to the performance of the Company's covenants in Article
III hereof.
SECTION 6.5 Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and if it
is actually known to a Trust Officer of the Trustee, the Trustee shall mail to
Securityholders a notice of the Default or Event of Default within 90 days after
a Trust Officer of the Trustee has actual knowledge of the occurrence thereof.
Except in the case of a Default in any payment on any Security, the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 6.6 Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 10.10, the
Trustee shall mail to Securityholders a brief report dated as of such date that
complies with TIA Section 313(a) if required by that Section. The Trustee also
shall comply with TIA Section 313(b)(2).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall promptly notify the Trustee when the Securities are
listed on any stock exchange and of any delisting thereof.
SECTION 6.7 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as the parties shall agree. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket disbursements, expenses and advances incurred by it.
Such expenses shall include the reasonable compensation and out-of-pocket
disbursements and expenses of the Trustee's agents and counsel.
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The Company shall indemnify the Trustee for, and hold it harmless
against, any loss, liability or expense, including reasonable attorneys' fees,
disbursements and expenses, incurred by it arising out of or in connection with
the administration of this trust and the performance of its duties hereunder
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(f) or (g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 6.7 and any Lien arising
hereunder shall survive the resignation or removal of the Trustee, the discharge
of the Company's obligations pursuant to Article VII of this Indenture and the
termination of this Indenture.
SECTION 6.8 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign at any time by so notifying the Company. The
Holders of a majority in principal amount of the Securities may, by written
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notice to the Trustee, remove the Trustee by so notifying the Trustee and the
Company. The Company, by notice to the Trustee, shall remove the Trustee if:
(a) the Trustee fails to comply with Section 6.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 6.7.
SECTION 6.9 Successor Trustee by Merger, etc.
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If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 6.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA Section
310(b). Nothing herein shall prevent the Trustee from filing with the SEC the
application referred to in the second-to-last paragraph of TIA Section 310(b).
SECTION 6.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), except with respect
to any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed is subject to TIA Section 311(a) to the extent
indicated.
ARTICLE VII
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 7.1 Discharge of Liability on Securities; Defeasance.
If (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.7) for cancellation or
(ii) all outstanding Securities have become due and payable and the Company
irrevocably deposits with the Trustee as trust funds solely for the benefit of
the Holders for that purpose funds sufficient to pay at maturity the principal
of and all accrued interest on all outstanding Securities (other than Securities
replaced pursuant to Section 2.7), and if in either case the Company pays all
other sums payable hereunder by the Company, then, subject to Sections 7.2 and
7.7, this Indenture shall cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
SECTION 7.2 Termination of Company's Obligations.
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Except as otherwise provided in this Section 7.2, the Company may
terminate its obligations under the Securities and this Indenture if:
(i) the Securities mature within one year, (ii) the Company
irrevocably deposits in trust with the Trustee or Paying Agent (other than the
Company or a Subsidiary or Affiliate of the Company) under the terms of an
irrevocable trust agreement in form and substance satisfactory to the Trustee,
as trust funds solely for the benefit of the Holders for that purpose, money or
U.S. Government Obligations that, through the payment of interest and principal
in respect thereof in accordance with its terms, will provide, not later than
one (1) Business Day prior to the applicable payment date, money sufficient (in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee), without
consideration of any reinvestment of interest, to pay principal and interest on
the Securities to maturity, and to pay all other sums payable by it hereunder,
(iii) no Default shall have occurred and be continuing on the date of such
deposit, (iv) 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 (v)
the Company has delivered to the Trustee an Officers' Certificate and an Opinion
of Counsel, in each case stating that all conditions precedent provided for
herein relating to the satisfaction and discharge of this Indenture have been
complied with; provided that the Trustee or Paying Agent shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of such principal and interest with
respect to the Securities.
With respect to the foregoing, the Company's obligations in Sections
2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.1, 3.2, 6.7, 6.8, 7.5 and 7.6 shall
survive until the Securities are no longer outstanding. Thereafter, only the
Company's obligations in Sections 6.7, 6.8 and 7.6 shall survive. After any such
irrevocable deposit and fulfillment of the other requirements of this Section
7.2, the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Securities and this Indenture except for those
surviving obligations specified above.
SECTION 7.3 Defeasance and Discharge of Indenture.
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<PAGE> 77
The Company will be deemed to have paid and will be discharged from
any and all obligations in respect of the Securities on the 123rd day after the
date of the deposit referred to in clause (i) hereof, and the provisions of this
Indenture will no longer be in effect with respect to the Securities, in each
case subject to the penultimate paragraph of this Section 7.3, and the Trustee,
at the reasonable request of and at the expense of the Company, shall execute
proper instruments acknowledging the same, except as to (a) rights of
registration of transfer and exchange, (b) substitution of apparently mutilated,
defaced, destroyed, lost or stolen Securities, (c) rights of Holders to receive
payments of principal thereof and interest thereon, (d) the Company's
obligations under Section 3.2, (e) the rights, obligations and immunities of the
Trustee hereunder including, without limitation, those arising under Section 6.7
hereof, (f) the rights of the Holders as beneficiaries of this Indenture with
respect to the property so deposited with the Trustee payable to all or any of
them and (g) the rights, obligations and immunities which survive as provided in
the penultimate paragraph of this Section 7.3; provided that the following
conditions shall have been satisfied:
(i) with reference to this Section 7.3, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirement of Section
6.10) or Paying Agent (other than the Company or a Subsidiary or
Affiliate of the Company) and conveyed all right, title and interest
for the benefit of the Holders, under the terms of an irrevocable
trust agreement in form and substance satisfactory to the Trustee as
trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders, in and to, (A) money
in an amount, (B) U.S. Government Obligations that, through the
payment of interest and principal in respect thereof in accordance
with their terms, will provide, not later than one Business Day before
the due date of any payment referred to in this clause (i), money in
an amount or (C) a combination thereof in an amount sufficient, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, without consideration of any
reinvestment of interest and after payment of all federal, state and
local taxes or other fees, charges and assessments in respect thereof
payable by the Trustee or Paying Agent, the principal of and interest
on the outstanding Securities when due; provided that the Trustee or
Paying Agent shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government Obligations to the
payment of such principal and interest with respect to the Securities;
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<PAGE> 78
(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;
(iii) no Default 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;
(iv) the Company shall have delivered to the Trustee (A) either
(1) a ruling directed to the Trustee received from the Internal
Revenue Service to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this Section 7.3 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
option had not been exercised or (2) an Opinion of Counsel (who may
not be an employee of the Company) to the same effect as the ruling
described in clause (1) accompanied by a ruling to that effect
published by the Internal Revenue Service, unless there has been a
change in the applicable federal income tax law since the date of this
Indenture such that a ruling from the Internal Revenue Service is no
longer required and (B) an Opinion of Counsel to the effect that (1)
the creation of the defeasance trust does not violate the Investment
Company Act of 1940, (2) after the passage of 123 days following the
deposit (except, with respect to any trust funds for the account of
any Holder who may be deemed to be an "insider" for purposes of Title
11 of the United States Code, after one year following the deposit),
the trust funds will not be subject to the effect of Section 547 of
the United States Bankruptcy Code or Section 15 of the New York Debtor
and Creditor Law in a case commenced by or against the Company under
either such statute, and either (x) the trust funds will no longer
remain the property of the Company (and therefore, will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally) or (y) if a
court were to rule under any such law in any case or proceeding that
the trust funds remained property of the Company, (I) assuming such
trust funds remained in the possession of the Trustee prior to such
court ruling to the extent not paid to Holders, the Trustee will hold,
for the benefit of the Holders, a valid and perfected security
interest in such trust funds that is
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<PAGE> 79
not avoidable in bankruptcy or otherwise except for the effect of
Section 552(b) of the United States Bankruptcy Code on interest on the
trust funds accruing after the commencement of a case under such
statute and (II) the Holders will be entitled to receive adequate
protection of their interests in such trust funds if such trust funds
are used in such case or proceeding; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 7.3 have been complied with.
Notwithstanding the foregoing clause (i), prior to the end of the 123-
day period referred to in clause (iv)(B)(2) above, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end of
such 123-day period with respect to this Section 7.3, the Company's obligations
in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.1, 3.2, 6.7, 6.8, 7.6 and 7.7
shall survive until the Securities are no longer outstanding. Thereafter, only
the Company's obligations in Sections 6.7, 7.6 and 7.7 shall survive. If and
when a ruling from the Internal Revenue Service or Opinion of Counsel referred
to in clause (iv)(A) above is able to be provided specifically without regard
to, and not in reliance upon, the continuance of the Company's obligations under
Section 3.1, then the Company's obligations under such Section 3.1 shall cease
upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance
with the other conditions precedent provided for herein relating to the
defeasance contemplated by this Section 7.3.
After any such irrevocable deposit and the fulfillment of the other
requirements of this Section 7.3, the Trustee upon request shall acknowledge in
writing the discharge of the Company's obligations under the Securities and this
Indenture except for those surviving obligations in the immediately preceding
paragraph.
SECTION 7.4 Defeasance of Certain Obligations.
The Company may omit to comply with any term, provision or condition
set forth in clauses (iv) and (v) of Section 4.1 and Sections 3.3 through 3.19,
and clause (c) of Section 5.1 with respect to clauses (iv) and (v) of Section
4.1 and Section 3.3 through 3.19, and clauses (d) and (e) of Section 5.1 shall
be
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deemed not to be Events of Default, in each case with respect to the
outstanding Securities if:
(i) with reference to this Section 7.4, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
6.10) or Paying Agent (other than the Company or a Subsidiary or
Affiliate of the Company) and conveyed all right, title and interest
for the benefit of the Holders, under the terms of an irrevocable
trust agreement in form and substance satisfactory to the Trustee as
trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders, in and to, (A) money
in an amount, (B) U.S. Government Obligations that, through the
payment of interest and principal in respect thereof in accordance
with their terms, will provide, not later than one Business Day before
the due date of any payment referred to in this clause (i), money in
an amount or (C) a combination thereof in an amount, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, without consideration of the
reinvestment of such interest and after payment of all federal, state
and local taxes or other fees, charges and assessments in respect
thereof payable by the Trustee or Paying Agent, the principal of and
interest on the outstanding Securities when due; provided that the
Trustee or Paying Agent shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations
to the payment of such principal and interest with respect to the
Securities;
(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;
(iii) no Default shall have occurred and be continuing on the
date of such deposit;
(iv) the Company has delivered to the Trustee an Opinion of
Counsel who is not employed by the Company to the effect that (A) the
creation of the defeasance trust does not violate the Investment
Company Act of 1940, (B) the Holders have a valid first-priority
security interest in the trust funds, (C) the Holders will not
recognize income, gain or loss for
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federal income tax purposes as a result of such deposit and defeasance
of certain obligations 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 and
(D) after the passage of 123 days following the deposit (except, with
respect to any trust funds for the account of any Holder who may be
deemed to be an "insider" for purposes of the United States Bankruptcy
Code, after one year following the deposit), the trust funds will not
be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law
in a case commenced by or against the Company under either such
statute, and either (1) the trust funds will no longer remain the
property of the Company (and therefore, will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (2) if a court
were to rule under any such law in any case or proceeding that the
trust funds remained property of the Company, (x) assuming such trust
funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to Holders, the Trustee will hold, for
the benefit of the Holders, a valid and perfected security interest in
such trust funds that is not avoidable in bankruptcy or otherwise
except for the effect of Section 552(b) of the United States
Bankruptcy Code on interest on the trust funds accruing after the
commencement of a case under such statute and (y) the Holders will be
entitled to receive adequate protection of their interests in such
trust funds if such trust funds are used in such case or proceeding;
and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 7.4 have been complied with.
SECTION 7.5 Application of Trust Money.
Subject to Section 7.7 of this Indenture, the Trustee or Paying Agent
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be, and
shall apply the deposited money and the money from U.S. Government Obligations
in accordance with this Indenture to the payment of principal of and interest on
the Securities. The Trustee shall be under no obligation to invest such money or
U.S. Government Obligations except as it may agree with the Company and in no
event
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shall the Trustee have any liability for, or in respect of, any such investment
made as agreed with the Company.
SECTION 7.6 Repayment to Company.
Subject to Sections 6.7, 7.2, 7.3 and 7.4 of this Indenture, the
Trustee and the Paying Agent shall promptly pay to the Company upon written
request any excess money held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years; provided, however, that the Company shall if requested by the Trustee or
the Paying Agent, give the Trustee or such Paying Agent indemnification
reasonably satisfactory to it against any and all liability which may be
incurred by it by reason of such payment; and provided, further, that the
Trustee or such Paying Agent before being required to make any payment may cause
to be published at the request and expense of the Company once in a newspaper of
general circulation in the City of New York or mail to each Holder entitled to
such money at such Holder's address as set forth in the Security Register notice
that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 7.7 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 7.2, 7.3 or 7.4 of this
Indenture, as the case may be, by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 7.2, 7.3 or 7.4 of this
Indenture, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be; provided
that, if the Company has made any payment of principal of or interest on any
Securities because of the reinstatement of
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its obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE VIII
AMENDMENTS AND SUPPLEMENTS
SECTION 8.1 Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Securities
or enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as then in effect) without
notice to or the consent of any Securityholder for one or more of the following
purposes:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article IV;
(c) to provide for uncertificated Securities in addition to
certificated Securities; provided, however, that the uncertificated
Securities are issued in registered form for purposes of Section
163(f) of the Internal Revenue Code of 1986, as amended, or in a
manner such that the uncertificated Securities are described in
Section 163(f)(2)(B) of the Code;
(d) to add additional guarantees with respect to the Securities
or to secure the Securities;
(e) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(f) to comply with the requirements of the SEC in connection with
qualification of the Indenture under the TIA;
(g) to make any change that does not adversely affect the rights
of any Securityholder; or
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(h) to provide for the issuance of additional Securities under
this Indenture subject to the limitations set forth in Section 3.4
hereof.
After an amendment or supplement under this Section becomes effective,
the Company shall mail to Securityholders a notice briefly describing such
amendment or supplement. The failure to give such notice to all Securityholders,
or any defect therein, shall not impair or affect the validity of an amendment
or supplement under this Section.
SECTION 8.2 With Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture or
the Securities with the written consent of the Holders of a majority in
principal amount of the Securities. However, without the consent of each
Securityholder affected, an amendment or supplement under this Section may not:
(a) reduce the amount of Securities the Holders of which must
consent to an amendment or supplement;
(b) reduce the rate of or change the time for payment of interest
on any Security;
(c) reduce the principal of or change the Stated Maturity of any
Security;
(d) provide that the Securities will be redeemable prior to
maturity;
(e) make any Security payable in currency or consideration other
than that stated in the Security;
(f) make any change in Section 5.4, Section 5.7 or this second
sentence of this Section 8.2.
It shall not be necessary for the consent of the Holders under this
Section 8.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
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After an amendment or supplement under this Section becomes effective,
the Company shall mail to Securityholders a notice briefly describing such
amendment or supplement. The failure to give such notice to all Securityholders,
or any defect therein, shall not impair or affect the validity of an amendment
or supplement under this Section.
SECTION 8.3 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Securities
shall be set forth in a supplemental indenture that complies with the TIA as
then in effect.
SECTION 8.4 Revocation and Effect of Consents.
Until an amendment or supplement under this Article or a waiver under
Article VI becomes effective, a consent to it by a Holder of a Security is a
continuing consent by the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of a Security if the Trustee receives the notice of revocation before
the date the amendment, supplement or waiver becomes effective.
After an amendment or supplement becomes effective, it shall bind
every Securityholder.
SECTION 8.5 Notation on or Exchange of Securities.
If an amendment changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee. The Trustee may
place an appropriate notation on the Security regarding the changed terms and
return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed terms. Failure to
make the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 8.6 Trustee To Sign Amendments.
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The Trustee shall sign any supplemental indenture which sets forth an
amendment or supplement authorized pursuant to this Article if the amendment or
supplement does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may but need not sign it. In
signing such supplemental indenture the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that such supplemental
indenture is authorized or permitted by this Indenture and, with respect to an
amendment or supplement pursuant to Section 8.2, evidence of the consents of
Holders required in connection therewith.
SECTION 8.7 Fixing of Record Dates.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to take any action under this
Indenture by vote or consent. Except as provided herein, such record date shall
be the later of 30 days prior to the first solicitation of such consent or vote
or the date of the most recent list of Securityholders furnished to the Trustee
pursuant to Section 2.5 prior to such solicitation. If a record date is fixed,
those Persons who were Securityholders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to take such
action by vote or consent or to revoke any vote or consent previously given,
whether or not such Persons continue to be Holders after such record date;
provided, however, that unless such vote or consent is obtained from the Holders
(or their duly designated proxies) of the requisite principal amount of
outstanding Securities prior to the date which is the 120th day after such
record date, any such vote or consent previously given shall automatically and
without further action by any Holder be canceled and of no further effect.
ARTICLE IX
REDEMPTION
SECTION 9.1 Not Redeemable. The Securities are not redeemable prior to
maturity.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of TIA Sections 310 to 317, inclusive, through
operation of TIA Section 318(c), such imposed duties shall control.
SECTION 10.2 Notices.
Any notice or communication shall be in writing and delivered in
person, or mailed by first-class mail (certified, return receipt requested),
addressed as follows:
if to the Company:
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Corporate Secretary
if to the Trustee:
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications. Any
notice to the Trustee under this Indenture shall be deemed given only when
received by the Trustee at the address specified in this Section 10.2.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to the Securityholder's address shown on the register kept by
the
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Registrar. Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 10.3 Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 10.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall, if requested by the Trustee,
furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent (including any covenants compliance
with which constitutes a condition precedent), if any, provided for in
this Indenture relating to the proposed action have been complied
with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel (which may rely upon an Officers' Certificate as to factual
matters), all such conditions precedent have been complied with.
SECTION 10.5 Statements Required in Certificate or Opinion.
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Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture other
than certificates provided pursuant to Section 3.9 shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 10.6 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 10.7 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York or the
State(s) in which the offices of the Trustee and the Paying Agent are located.
If a payment date is a Legal Holiday, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period. If a regular record date is a Legal Holiday, the
regular record date shall not be affected.
SECTION 10.8 Successors; No Recourse Against Others.
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(a) All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
(b) All liability of the Company described in the Securities insofar
as it relates to any director, officer, employee or stockholder, as such, of the
Company is waived and released by each Securityholder.
SECTION 10.9 Duplicate Originals.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 10.10 Other Provisions.
The first certificate pursuant to Section 3.09 shall be for the fiscal
year ending on December 31, 1999.
The reporting date for Section 6.6 is April 15 of each year. The first
reporting date is April 15, 1999.
SECTION 10.11 Governing Law.
The laws of the State of New York govern this Indenture and the
Securities, without regard to the conflicts of laws rules thereof.
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SIGNATURES
CALPINE CORPORATION
By______________________________________
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By______________________________________
Name:
Title:
Dated: March __, 1999
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<PAGE> 92
EXHIBIT A
================================================================================
(Form of Face of Security)
THIS SECURITY IS ISSUED IN GLOBAL FORM AND REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") OR A NOMINEE
THEREOF. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC, TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO., OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM IN ACCORDANCE WITH THE TERMS HEREOF AND OF THE
INDENTURE (AS DEFINED BELOW), THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY.
<PAGE> 93
CALPINE CORPORATION
___% SENIOR NOTE DUE 20__
No. ___ $_____________
CUSIP:
ISIN:
Calpine Corporation, a Delaware corporation, promises to pay to Cede &
Co., or registered assigns, the principal sum of ____________ Dollars on
___________, 20__.
Interest Payment Dates: __________ 1 and ___________ 1
Record Dates: ___________ 15 and ___________ 15
Additional provisions of this Security are set forth on the reverse
hereof.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Date:_____________
CALPINE CORPORATION
By______________________________________
Name:
Title:
By______________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION:
The Bank of New York, as
Trustee, certifies that
this is one of the Securities
referred to in the Indenture.
By: _________________________ Dated: _________________________________
Authorized Signature
A-2
<PAGE> 94
(Form of Reverse of Security)
CALPINE CORPORATION
___% SENIOR NOTE DUE 20__
(1) Interest. Calpine Corporation, a Delaware corporation (such
corporation, and its successors and assigns under the Indenture referred to
below, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at ___% per annum (shown above). The Company
will pay interest semiannually on __________ 1 and __________ 1 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from ___________, 1999.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months.
(2) Method of Payment. The Company will pay interest on the Securities
(except Defaulted Interest) to the persons who are registered Holders of
Securities at the close of business on the record date next preceding the
interest payment date even though Securities are canceled after the record date
and on or before the interest payment date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal and interest by check payable in such money. It may mail an interest
check to a Holder's registered address.
(3) Paying Agent, Registrar. Initially, The Bank of New York, a New
York banking corporation (the "Trustee"), will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-registrar
without notice. The Company may act as Paying Agent, Registrar or co-registrar.
(4) Indenture. The Company issued the Securities under an Indenture
dated as of March __, 1999 (the "Indenture") between the Company and the
Trustee. The Securities are unsecured general obligations of the Company and may
be issued in an unlimited principal amount. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"). Capitalized terms used herein but not defined herein are used as defined
in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
such terms.
(5) Redemption. The Company may not redeem the Securities prior to
maturity.
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(6) Denominations; Transfer; Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. The transfer of Securities may be registered and Securities
may be exchanged as provided in the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security 15 days before an interest payment date.
(7) Put Provisions. Upon a Change of Control Triggering Event, any
Holder of Securities will have the right to cause the Company to repurchase all
or any part of the Securities of such Holder at a repurchase price equal to 101%
of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase as provided in, and subject to the terms of,
the Indenture.
(8) Defeasance. Subject to certain conditions, the Company at any time
may terminate some or all of its obligations under the Securities and the
Indenture if the Company deposits with the Trustee money and/or U.S. Government
Obligations for the payment of principal and interest on the Securities to
maturity.
(9) Persons Deemed Owners. The registered Holder of a Security may be
treated as its owner for all purposes, except that interest (other than
Defaulted Interest) will be paid to the person that was the registered Holder on
the relevant record date for such payment of interest.
(10) Amendments and Waivers. Subject to certain exceptions, (i) the
Indenture or the Securities may be amended or supplemented with the consent of
the Holders of a majority in principal amount of the Securities; and (ii) any
existing default may be waived with the consent of the Holders of a majority in
principal amount of the Securities. Without the consent of any Securityholder,
the Indenture or the Securities may be amended or supplemented to cure any
ambiguity, omission, defect or inconsistency, to provide for assumption of
Company obligations to Securityholders or to provide for uncertificated
Securities in addition to or in place of certificated Securities, to provide for
guarantees with respect to, or security for, the Securities, or to comply with
the TIA or to add additional covenants or surrender Company rights, or to make
any change that does not adversely affect the rights of any Securityholder.
(11) Remedies. If an Event of Default occurs and is continuing, the
Trustee or Holders of at least 25% in principal amount of the Securities may
declare all the Securities to be due and payable immediately. Securityholders
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may require an indemnity before it enforces the Indenture
or the Securities. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from
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<PAGE> 96
Securityholders notice of any continuing default (except a Default in payment of
principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
(12) Trustee Dealings with Company. Subject to the provisions of the
TIA, the Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from, and perform services for the Company or
its Affiliates, and may otherwise deal with the Company or its Affiliates, as if
it were not Trustee. The Trustee will initially be The Bank of New York.
(13) No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
(14) Authentication. This Security shall not be valid until
authenticated by the manual signature of an authorized signatory of the Trustee
or an authenticating agent.
(15) Abbreviations. Customary abbreviations may be used in the name of
a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities. No representation is made as to the accuracy of such
numbers as printed on the Securities and reliance may be placed only on the
other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST
AND WITHOUT CHARGE A COPY OF THE INDENTURE, WHICH HAS IN IT THE TEXT OF THIS
SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: SECRETARY, CALPINE
CORPORATION, 50 WEST SAN FERNANDO STREET, SAN JOSE, CALIFORNIA 95113.
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<PAGE> 97
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Insert assignee's soc. sec or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Dated:____________ Signed:
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee:
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
OPTION OF HOLDER TO ELECT PURCHASE FORM
If you wish to elect to have this Security purchased by the Company
pursuant to Section 3.8 or 3.12 of the Indenture, check this box: [ ]
If you wish to elect to have only part of this Security purchased by the
Company pursuant to Section 3.8 or 3.12 of the Indenture, state the amount: $
*As set forth in the Indenture, any purchase pursuant to Section 3.12 is
subject to proration in the event the offer is oversubscribed.
Dated:____________ Signed:
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee:
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program
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<PAGE> 98
("STAMP") or such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
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<PAGE> 1
EXHIBIT 5.1
March 5, 1999
Calpine Corporation
50 West San Fernando Street
San Jose, CA 95113
Re: Calpine Corporation
Registration Statement on Form S-3 for 6,900,000 Shares of
Common Stock and $500.0 million of Senior Notes
Ladies and Gentlemen:
We have acted as counsel to Calpine Corporation, a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 6,900,000 shares of the Company's Common Stock (the
"Shares") and $500.0 million in aggregate principal amount of Senior Notes (the
"Senior Notes") pursuant to the Company's Registration Statement on Form S-3
(the "Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares and the Senior Notes. Based on such review, we are of the
opinion that:
1. The Shares have been duly authorized, and if, as and when
issued in accordance with the Registration Statement and the related prospectus
(as amended and supplemented through the date of issuance) will be legally
issued, fully paid and nonassessable; and
2. The Senior Notes have been duly authorized, and, when duly
executed by the Company and duly authenticated by the trustee in accordance with
the provisions of the Indenture, will constitute valid and legally binding
obligations of the Company.
We consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in
<PAGE> 2
Calpine Corporation
Page 2
the prospectus which is part of the Registration Statement. In giving this
consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act, the rules and regulations
of the Securities and Exchange Commission promulgated thereunder, or Item 509 of
Regulation S-K.
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares and the Senior Notes.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our reports dated February 5,
1999 in Calpine Corporation's Form 10-K for the year ended December 31, 1998 and
to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
March 4, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of Calpine Corporation for the registration of shares of
its common stock and % Senior Notes due 2004, % Senior Notes due 2006, %
Senior Notes due 2009 and % Senior Notes due 2011, of our report of Sumas
Cogeneration Company, L.P. and Subsidiary dated January 20, 1999, on our audits
of the consolidated financial statements of Sumas Cogeneration Company, L.P. and
Subsidiary as of December 31, 1998 and 1997, and for each of the three years
ended December 31, 1998, which report is included in Calpine Corporation's 1998
Annual Report on Form 10-K, filed with the Securities and Exchange Commission.
We also consent to the reference to our firm under the caption "Experts."
MOSS ADAMS LLP
Everett, Washington
March 4, 1999
