<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1999
REGISTRATION NO. 333-87427
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CALPINE CORPORATION
CALPINE CAPITAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4911 77-0212977
DELAWARE (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION (TO BE APPLIED FOR)
(STATE OF INCORPORATION) CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
50 WEST SAN FERNANDO STREET
SAN JOSE, CA 95113
(408) 995-5115
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PETER CARTWRIGHT
CHAIRMAN, 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>
J. MICHAEL SHEPHERD, ESQ. JOSEPH A. COCO, ESQ.
NORA L. GIBSON, ESQ. VINCENT J. PISANO, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
<TABLE>
<S> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING PRICE PER AGGREGATE OFFERING
OF SECURITIES TO BE REGISTERED TO BE REGISTERED SECURITY PRICE
- ----------------------------------------------------------------------------------------------------------------------
Common Stock........................................ 6,900,000(1) $45.094(3) $311,148,600(3)
% Convertible Preferred Securities, Remarketable
Term Income Deferrable Equity Securities (HIGH
TIDES(SM)).......................................... 4,600,000(2) $50.00(4)(5) $230,000,000
% Convertible Subordinated Debentures due 2029 of
Calpine Corporation................................. (7) (7) (7)
Common Stock, par value of $.001 per share of
Calpine Corporation................................. (8) (8) (8)
Preferred Securities Guarantee issued by Calpine
Corporation......................................... (9) (9) (9)
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<CAPTION>
<S> <C>
- ---------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
Common Stock........................................ $86,499(6)
% Convertible Preferred Securities, Remarketable
Term Income Deferrable Equity Securities (HIGH
TIDES(SM)).......................................... $63,940(6)
% Convertible Subordinated Debentures due 2029 of
Calpine Corporation................................. (7)
Common Stock, par value of $.001 per share of
Calpine Corporation................................. (8)
Preferred Securities Guarantee issued by Calpine
Corporation......................................... (9)
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- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 900,000 shares of common stock as to which the underwriters have
been granted an option to cover over-allotments, if any.
(2) Includes 600,000 HIGH TIDES which the underwriters have the option to
purchase solely to cover over-allotments, if any.
(3) The proposed maximum offering price per share and the registration fee were
calculated in accordance with Rule 457(c) based on the average of the high
and low prices for the registrant's common stock on September 15, 1999, as
listed on the New York Stock Exchange, and adjusted to reflect the
registrant's 2 for 1 stock split declared on September 20, 1999.
(4) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(i) of the Securities Act of 1933, as amended.
(5) Exclusive of accrued interest and distributions, if any.
(6) Previously paid.
(7) Up to $237,113,450 in aggregate principal amount of % Convertible
Subordinated Debentures due 2029 of Calpine Corporation may be issued and
sold to Calpine Capital Trust in connection with the issuance by the trust
of up to 4,600,000 of its HIGH TIDES. The convertible debentures may be
distributed, under certain circumstances, to the holders of HIGH TIDES for
no additional consideration.
(8) The HIGH TIDES are convertible into the convertible debentures, which are
convertible into common stock, par value $.001 per share, of Calpine
Corporation. Each HIGH TIDES is estimated to be initially convertible into
shares of common stock, subject to adjustment under certain
circumstances. The actual number of shares of common stock into which the
HIGH TIDES will be convertible will not be determined until the time of
pricing of the offering. Shares of common stock will be issued upon the
conversion of HIGH TIDES without the payment of additional consideration.
(9) Includes the rights of the holders of the HIGH TIDES under the HIGH TIDES
guarantee. No separate consideration will be received for the HIGH TIDES
guarantee.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 OCTOBER 26, 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 October 22, 1999, the last sale price of the common stock was $47.50.
The underwriters have an option to purchase a maximum of 900,000 additional
shares to cover over-allotments of shares.
Concurrently with this offering, we are offering $200 million of
convertible preferred securities of a subsidiary trust by means of a separate
prospectus. This offering and the convertible trust preferred securities
offering are not contingent on each other.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
<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 of common stock will be made on or about ,
1999.
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 WORLD MARKETS
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
GERARD KLAUER MATTISON &
CO.
The date of this prospectus is , 1999.
<PAGE> 3
[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> 4
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 9
WHERE YOU CAN FIND MORE
INFORMATION....................... 18
FORWARD-LOOKING STATEMENTS.......... 19
USE OF PROCEEDS..................... 20
PRICE RANGE OF COMMON STOCK......... 21
DIVIDEND POLICY..................... 21
CAPITALIZATION...................... 22
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 23
PRO FORMA CONSOLIDATED FINANCIAL
DATA.............................. 25
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 27
BUSINESS............................ 43
MANAGEMENT.......................... 69
PRINCIPAL STOCKHOLDERS.............. 72
DESCRIPTION OF CAPITAL STOCK........ 74
UNDERWRITING........................ 76
NOTICE TO CANADIAN RESIDENTS........ 78
LEGAL MATTERS....................... 79
EXPERTS............................. 79
</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> 5
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.
All information in this prospectus reflects the 2 for 1 stock split
declared by us on September 20, 1999.
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 38 power plants having an aggregate capacity of
3,694 megawatts and have a transaction pending in which we will acquire 80% of
Cogeneration Corporation of America, which owns interests in 6 power plants with
an aggregate capacity of 579 megawatts. We also have 8 gas-fired projects and
one project expansion under construction having an aggregate capacity of 4,535
megawatts and have announced plans to develop 5 gas-fired power plants with a
total capacity of 3,370 megawatts. Upon completion of pending acquisitions and
projects under construction, we will have interests in 52 power plants located
in 14 states having an aggregate capacity of 8,808 megawatts, of which we will
have a net interest in 7,431 megawatts. This represents significant growth from
the 342 megawatts of capacity we had at the end of 1993. Of this total
generating capacity, 90% will be attributable to gas-fired facilities and 10%
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.
1
<PAGE> 6
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.
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.
2
<PAGE> 7
- Enhancement of existing power plants. We continually seek to maximize the
power generation and revenue potential of our operating assets and
minimize our operating and maintenance expenses and fuel costs.
RECENT DEVELOPMENTS
Project Development and Construction. In May 1999, we completed a 35
megawatt expansion of our Clear Lake Power Plant to 412 megawatts, and the 169
megawatt Dighton Power Plant commenced commercial operations in August 1999.
We currently have nine projects under construction representing 4,535
additional megawatts. Of these new projects, we are currently expanding our
Pasadena facility by 545 megawatts to 785 megawatts and we have eight new power
plants under construction, including the Tiverton Power Plant in Rhode Island;
the Rumford Power Plant in Maine; the Westbrook Power Plant in Maine; the Sutter
Power Plant in California; the Los Medanos Power Plant in California; the South
Point Power Plant in Arizona; and the Magic Valley Power Plant in Texas; and the
Lost Pines 1 Power Plant in Texas. We have also announced plans to develop five
additional power generation facilities, totaling 3,370 megawatts, in California,
Texas, Arizona and Pennsylvania.
In July 1999, we announced an agreement with Credit Suisse First Boston,
New York branch and The Bank of Nova Scotia, as lead arrangers, for a $1.0
billion revolving construction loan facility. The credit facility will be
utilized to finance the construction of our development program. We expect to
finalize the documentation relating to this facility in the fourth quarter of
1999.
In August 1999, we announced the purchase of 18 F-class combustion turbines
from Siemens Westinghouse Power Corporation that will be capable of producing
4,900 megawatts of electricity in a combined-cycle configuration. Beginning in
2002, Siemens will deliver six turbines per year through 2004. Combined with our
existing turbine orders we have 69 turbines under contract, option, letter of
intent or other commitment capable of producing 17,745 megawatts.
Acquisitions. In March 1999, we completed the acquisition of Unocal
Corporation's Geysers geothermal steam fields in northern California for
approximately $102.1 million. The steam fields fuel our 12 Sonoma County power
plants, totaling 544 megawatts, purchased from Pacific Gas and Electric Company
in May 1999.
In May 1999 we completed the acquisition from Pacific Gas and Electric
Company of 14 geothermal power plants at The Geysers in northern California,
with a combined capacity of approximately 700 megawatts, for $212.8 million.
With the acquisition, we now own interests in and operate 18 geothermal power
plants that generate more than 800 megawatts of electricity, and we are the
nation's largest geothermal and green power producer. The combination of our
existing geothermal steam and power plant assets, the acquisition of the Sonoma
steam fields from Unocal, and the 14 power plants from Pacific Gas and Electric
Company allows us to fully integrate the steam and power plant operations at The
Geysers into one efficient, unified system to maximize the renewable natural
resource, lower overall production costs and extend the life of The Geysers.
In August 1999, we completed the acquisition of an additional 50% of the
Aidlin Power Plant from Edison Mission Energy (5%) and General Electric Capital
Corporation (45%) for a total purchase price of $7.2 million. We now own 55% of
the 20 megawatt Aidlin Geothermal Power Plant.
3
<PAGE> 8
In August 1999, we announced an agreement with Cogeneration Corporation of
America Inc. ("CGCA") to acquire 80% of its common stock for $25.00 per share or
approximately $145.0 million. NRG Energy, Inc., a wholly owned subsidiary of
Northern States Power, will own the remaining 20%. The transaction is subject to
the approval of CGCA shareholders and we expect to consummate the acquisition by
year-end 1999. CGCA currently owns interests in six natural gas-fired power
plants, totaling 579 megawatts. The plants are located in Pennsylvania, New
Jersey, Illinois and Oklahoma.
In October 1999, we completed the acquisition of Sheridan Energy, Inc., a
natural gas exploration and production company, through a $41.0 million cash
tender offer. We purchased the outstanding shares of Sheridan Energy's common
stock for $5.50 per share. In addition, we redeemed $11.5 million of outstanding
preferred stock of Sheridan Energy. Sheridan Energy's oil and gas properties,
including 148 billion cubic feet equivalent of proven reserves, are located in
northern California and the Gulf Coast region, where we are developing low-cost
natural gas supplies and proprietary pipeline systems to support our
strategically-located natural gas-fired power plants.
In October 1999, we completed the acquisition of the Calistoga geothermal
power plant from FPL Energy and Caithness Corporation for approximately $78.0
million. Located in The Geysers region of northern California, Calistoga is a 67
megawatt facility which provides electricity to Pacific Gas and Electric Company
under a long term contract.
Enhancement of Existing Power Plants. In July 1999, we announced a
renegotiation of our Gilroy power sales agreement with Pacific Gas and Electric
Company. The amendment provides for the termination of the remaining 18 years of
the long-term contract in exchange for a fixed long-term payment schedule. The
amended agreement is subject to approval by the California Public Utilities
Commission, whose decision we expect to receive in the fourth quarter of 1999.
We will continue to sell the output from the Gilroy Power Plant through October
2002 to Pacific Gas and Electric Company and thereafter we will market the
output in the California wholesale power market.
Third Quarter 1999 Earnings. On October 22, 1999, we announced earnings
for the three and nine months ended September 30, 1999.
Net income was $42.9 million for the quarter ended September 30, 1999,
representing an 86% increase compared to net income of $23.1 million for the
third quarter in 1998. Diluted earnings per share after accounting for the
recently completed two-for-one stock split rose 37% to $0.74 per share for the
quarter, from $0.54 per share for the same period in 1998. Revenue for the
quarter increased 42% from $186.2 million a year ago to $263.6 million. Earnings
before interest, tax, depreciation and amortization increased 28% to $119.1
million for the quarter compared to $93.4 million a year ago.
For the nine months ended September 30, 1999, net income was $64.3 million,
an increase of 103% compared to $31.6 million for the same period in 1998.
Diluted earnings per share rose 61% to $1.21 per share, compared to $0.75 per
share for the nine months of 1998. Revenue for the nine months was $600.2
million, a 57% increase from $382.9 million a year ago. Earnings before
interest, tax, depreciation and amortization for the nine months rose 43% to
$268.2 million, form $187 million in 1998. Total assets as of September 30,
1999, were $2.7 billion, up 59% from $1.7 billion at December 31, 1998.
Financial results for the three and nine months ended September 30, 1999
benefited primarily from the acquisition of 14 geothermal power plants totaling
approximately 700 megawatts from Pacific Gas and Electric Company, completed in
May 1999. For certain of
4
<PAGE> 9
these facilities, revenue includes amounts received under a Reliability Must Run
contract with the California Independent System Operator, which is awaiting
final Federal Energy Regulatory Commission approval.
OUR PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 50 West San Fernando Street,
San Jose, California 95113. Our telephone number is (408) 995-5115, and our
internet website address is www.calpine.com. The contents of our website are not
part of this prospectus.
5
<PAGE> 10
THE OFFERING
Common stock offered by
Calpine......................... 6,000,000 shares(1)
Common stock to be outstanding
after the offering............ 60,569,788 shares(1)(2)
Convertible preferred
offering........................ Concurrently with the common stock offering,
our subsidiary trust is offering (by a
separate prospectus) $200.0 million of
convertible preferred securities.
Use of proceeds................. We expect to use a substantial portion of
the net proceeds from the offerings to
finance power projects under development and
construction. In addition, we expect to use
$145.0 million of the net proceeds of this
offering to complete the acquisition of 80%
of CGCA. The remaining net proceeds, if any,
will be used for working capital and general
corporate purposes.
New York Stock Exchange
symbol.......................... CPN
- -------------------------
(1) Excludes the 900,000 shares that may be issued pursuant to the underwriters'
over-allotment option.
(2) Based on 54,569,788 shares outstanding as of October 22, 1999. Does not
include 3,453,458 shares of common stock subject to issuance upon exercise
of options previously granted and outstanding as of August 31, 1999, under
our 1996 Stock Incentive Plan.
6
<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 and the related notes, incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------ -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................. $ 94,762 $ 132,098 $ 214,554 $ 276,321 $ 555,948 $ 196,742 $ 336,590
Cost of revenue................ 52,845 77,388 129,200 153,308 375,327 136,125 238,170
Gross profit................... 41,917 54,710 85,354 123,013 180,621 60,617 98,420
Project development expenses... 1,784 3,087 3,867 7,537 7,165 3,119 4,248
General and administrative
expenses..................... 7,323 8,937 14,696 18,289 26,780 11,043 20,964
Income from operations......... 31,772 42,686 66,791 97,187 146,676 46,455 73,208
Interest expense............... 23,886 32,154 45,294 61,466 86,726 40,790 47,171
Other (income) expense......... (1,988) (1,895) (6,259) (17,438) (13,423) (6,599) (11,068)
Extraordinary charge net of tax
benefit of $--, $--, $--,
$--, $441, $207 and $793..... -- -- -- -- 641 302 1,150
Net income..................... $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 45,678 $ 8,569 $ 21,410
Diluted earnings per common
share:
Weighted average shares of
common stock outstanding... 21,842 21,913 29,758 42,032 42,328 42,100 50,469
Income before extraordinary
charge..................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.10 $ 0.21 $ 0.45
Extraordinary charge......... $ -- $ -- $ -- $ -- $ (0.02) $ (0.01) $ (0.02)
Net income................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.08 $ 0.20 $ 0.43
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and
amortization................. $ 21,580 $ 26,896 $ 40,551 $ 48,935 $ 82,913 $ 32,104 $ 45,449
EBITDA(1)...................... $ 53,707 $ 69,515 $ 117,379 $ 172,616 $ 255,306 $ 93,374 $ 151,927
EBITDA to Consolidated Interest
Expense(2)................... 2.23x 2.11x 2.41x 2.60x 2.74x 2.16x 2.92x
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 1.11x 1.43x
SELECTED OPERATING INFORMATION:
Power plants:
Electricity revenue(4):
Energy..................... $ 45,912 $ 54,886 $ 93,851 $ 110,879 $ 252,178 $ 93,735 $ 177,305
Capacity................... $ 7,967 $ 30,485 $ 65,064 $ 84,296 $ 193,535 $ 67,103 $ 106,155
Megawatt hours produced...... 447,177 1,033,566 1,985,404 2,158,008 9,864,080 2,217,659 5,516,805
Average energy price per
kilowatt hour(5)........... 10.267c 5.310c 4.727c 5.138c 2.557c 4.227c 3.214c
</TABLE>
Footnotes appear on the next page.
7
<PAGE> 12
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------------ JUNE 30,
1994 1995 1996 1997 1998 1999
-------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 96,532 $ 320,287
Total assets............ 421,372 554,531 1,031,397 1,380,915 1,728,946 2,549,750
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 79,210
Notes payable........... 5,296 6,348 -- -- -- --
Senior notes............ 105,000 105,000 285,000 560,000 951,750 1,551,750
Total debt.............. 334,402 407,726 601,132 855,859 1,071,390 1,630,960
Stockholders' equity.... 18,649 25,227 203,127 239,956 286,966 514,127
</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 volume, and variable energy payments, which are
related to production volume.
(5) The average energy price per kilowatt hour represents energy revenue divided
by the megawatt hours produced.
8
<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 June 30, 1999, our total
consolidated indebtedness was $1.6 billion, our total consolidated assets were
$2.5 billion and our stockholders' equity was $514.1 million. On June 30, 1999,
on an as adjusted basis after giving effect to the sale of common stock and
convertible preferred securities in the offerings and the application of the
proceeds from the offerings, our total consolidated indebtedness would have been
approximately $1.6 billion, our total consolidated assets would have been
approximately $3.0 billion and our as adjusted cash balances would have been
approximately $777.2 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 $1.5 billion aggregate
principle amount of 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,
- create liens,
- sell assets, and
- acquire facilities or other businesses.
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Also, if our management or ownership changes, the indentures governing our
senior notes 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.
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). As of June 30, 1999, our subsidiaries had $79.2 million of
non-recourse project financing. 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.
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<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 June 30, 1999, we had approximately $1.6
billion of total consolidated indebtedness, $79.2 million of which represented
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.
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
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<PAGE> 16
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 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.
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<PAGE> 17
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 42 of the 52 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 June 30, 1999, our gas-
fired and geothermal power generation facilities have operated at an average
availability of approximately 96% and 99%, respectively. 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 payments under our financing obligations which could
result in losing our interest in the power generation facility.
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<PAGE> 18
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. Generally, 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
15
<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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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,
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<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 November of 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. 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
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<PAGE> 23
reference facilities by calling the SEC at 1-800-SEC-0330. You can also access
copies 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.
333-87427) 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 as amended for the year
ended December 31, 1998, our Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999 and June 30, 1999, our Current Report on Form 8-K dated May
7, 1999, our Current Report on Form 8-K dated October 11, 1999, and our Current
Report on Form 8-K dated October 22, 1999, each 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 convertible
preferred securities 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.
19
<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 offering (after deducting underwriting
discounts and commissions and estimated offering expenses) will be approximately
$265.0 million ($304.7 million if the underwriters' over-allotment option in the
common stock offering is exercised in full), assuming an offering price of
$46.00 per share. We expect to use a substantial portion of the net proceeds
from this offering to finance power projects under development and construction.
In addition, we expect to use $145.0 million of the net proceeds to complete the
acquisition of 80% of CGCA. The remaining net proceeds, if any, will be used for
working capital and general corporate purposes. See "Business -- Project
Development and Acquisitions." Pending such uses, we expect to invest the net
proceeds in short-term, interest-bearing securities.
20
<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. The information in the
following table reflects the 2 for 1 stock split declared by us on September 20,
1999.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997
First Quarter.............................................. $11.375 $ 8.563
Second Quarter............................................. 10.438 7.875
Third Quarter.............................................. 11.469 8.250
Fourth Quarter............................................. 10.625 6.188
1998
First Quarter.............................................. $ 9.250 $ 6.375
Second Quarter............................................. 10.625 8.625
Third Quarter.............................................. 10.750 8.563
Fourth Quarter............................................. 13.813 8.906
1999
First Quarter.............................................. $18.688 $12.625
Second Quarter............................................. 29.500 17.563
Third Quarter.............................................. 47.875 27.406
Fourth Quarter (through October 22, 1999).................. 51.500 42.531
</TABLE>
As of October 22, 1999, there were approximately 85 holders of record of
our common stock. On October 22, 1999, the last sale price reported on the New
York Stock Exchange for our common stock was $47.50 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.
21
<PAGE> 26
CAPITALIZATION
The following table sets forth, as of June 30, 1999 (1) the actual
consolidated capitalization of the Company; and (2) the consolidated
capitalization of our Company as adjusted for the sale of the shares of our
common stock and convertible preferred securities in the offerings. This table
should be read in conjunction with the consolidated financial statements and
related notes thereto incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
UNAUDITED
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
CASH:
Cash and cash equivalents........................... $ 320,287 $ 777,247
========== ==========
LONG-TERM DEBT:
Non-recourse project financing, net of current
portion.......................................... $ 79,210 $ 79,210
Senior notes........................................ 1,551,750 1,551,750
---------- ----------
Total long-term debt........................ 1,630,960 1,630,960
---------- ----------
Company-obligated convertible preferred securities of
a subsidiary trust(1)............................... -- 192,000
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; 54,348,294 shares
outstanding, actual; and 60,348,294 shares
outstanding, as adjusted(2)(3)(4)................ 54 60
Additional paid-in capital.......................... 374,591 639,545
Retained earnings................................... 139,482 139,482
---------- ----------
Total stockholders' equity.................. 514,127 779,087
---------- ----------
Total capitalization..................... $2,145,087 $2,602,047
========== ==========
</TABLE>
- -------------------------
(1) Proceeds are recorded net of unamortized issuance costs of $8,000.
(2) Excludes the 900,000 shares that may be issued upon exercise of the
underwriters' over-allotment option.
(3) Does not include 3,202,649 shares of common stock subject to issuance upon
exercise of options previously granted and outstanding as of June 30, 1999
under our 1996 Stock Incentive Plan.
(4) Reflects 2 for 1 stock split declared by us on September 20, 1999.
22
<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 consolidated financial data for the six
months ended and as of June 30, 1998 and June 30, 1999 are unaudited, but have
been prepared on the same basis as the audited consolidated financial statements
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
financial position and results of operations for these periods. Consolidated
operating results for the six months ended June 30, 1999 should not be
considered indicative of the results that may be expected for the entire year.
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the related notes thereto
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales........ $90,295 $127,799 $199,464 $237,277 $507,897 $178,798 $304,322
Service contract revenue from
related parties.................. 7,221 7,153 6,455 10,177 20,249 8,529 13,238
Income (loss) from unconsolidated
investments in power projects.... (2,754) (2,854) 6,537 15,819 25,240 6,853 18,321
Interest income on loans to power
projects......................... -- -- 2,098 13,048 2,562 2,562 709
------- -------- -------- -------- -------- -------- --------
Total revenue................ 94,762 132,098 214,554 276,321 555,948 196,742 336,590
Cost of revenue...................... 52,845 77,388 129,200 153,308 375,327 136,125 238,170
------- -------- -------- -------- -------- -------- --------
Gross profit......................... 41,917 54,710 85,354 123,013 180,621 60,617 98,420
Project development expenses......... 1,784 3,087 3,867 7,537 7,165 3,119 4,248
General and administrative
expenses........................... 7,323 8,937 14,696 18,289 26,780 11,043 20,964
Provision for write-off of project
development costs.................. 1,038 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Income from operations............... 31,772 42,686 66,791 97,187 146,676 46,455 73,208
Interest expense..................... 23,886 32,154 45,294 61,466 86,726 40,790 47,171
Other (income) expense............... (1,988) (1,895) (6,259) (17,438) (13,423) (6,599) (11,068)
------- -------- -------- -------- -------- -------- --------
Income before provision for income
taxes............................ 9,874 12,427 27,756 53,159 73,373 12,264 37,105
Provision for income taxes........... 3,853 5,049 9,064 18,460 27,054 3,393 14,545
------- -------- -------- -------- -------- -------- --------
Income before extraordinary
charge........................... 6,021 7,378 18,692 34,699 46,319 8,871 22,560
Extraordinary charge for retirement
of debt, net of tax benefit of $--,
$--, $--, $--, $441, $207 and
$793............................... -- -- -- -- 641 302 1,150
------- -------- -------- -------- -------- -------- --------
Net income......................... $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 45,678 $ 8,569 $ 21,410
======= ======== ======== ======== ======== ======== ========
Basic earnings per common share:
Weighted average shares of common
stock outstanding................ 20,776 20,776 25,805 39,892 40,242 40,112 47,518
Income before extraordinary
charge........................... $ 0.29 $ 0.36 $ 0.72 $ 0.87 $ 1.15 $ 0.22 $ 0.47
Extraordinary charge............... $ -- $ -- $ -- $ -- $ (0.02) $ (0.01) $ (0.02)
Net income......................... $ 0.29 $ 0.36 $ 0.72 $ 0.87 $ 1.13 $ 0.21 $ 0.45
Diluted earnings per common share:
Weighted average shares of common
stock outstanding................ 21,842 21,913 29,758 42,032 42,328 42,100 50,469
Income before extraordinary
charge........................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.10 $ 0.21 $ 0.45
Extraordinary charge............... $ -- $ -- $ -- $ -- $ (0.02) $ (0.01) $ (0.02)
Net income......................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.08 $ 0.20 $ 0.43
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA AND
RATIOS:
Depreciation and
amortization.............. $ 21,580 $ 26,896 $ 40,551 $ 48,935 $ 82,913 $ 32,104 $ 45,449
EBITDA(1)................... $ 53,707 $ 69,515 $ 117,379 $ 172,616 $ 255,306 $ 93,374 $ 151,927
EBITDA to Consolidated
Interest Expense(2)....... 2.23x 2.11x 2.41x 2.60x 2.74x 2.16x 2.92x
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 1.11x 1.43x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------- AS OF
1994 1995 1996 1997 1998 JUNE 30, 1999
-------- -------- ---------- ---------- ---------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 96,532 $ 320,287
Property, plant and equipment, net... 335,453 447,751 648,208 736,339 1,094,303 1,568,882
Investments in power projects........ 11,114 8,218 13,936 222,542 221,509 234,584
Notes receivable..................... 16,882 25,785 36,143 117,357 10,899 16,202
Total assets......................... 421,372 554,531 1,031,397 1,380,915 1,728,946 2,549,750
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 79,210
Notes payable........................ 5,296 6,348 -- -- -- --
Senior notes......................... 105,000 105,000 285,000 560,000 951,750 1,551,750
Total debt........................... 334,402 407,726 601,132 855,859 1,071,390 1,630,960
Stockholders' equity................. 18,649 25,227 203,127 239,956 286,966 514,127
</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.
24
<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 Management's Discussion and
Analysis of Financial Condition and Results of Operations 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.
25
<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, $-- and $441............ 641 -- 641
-------- --------- --------
Net income.................................... $ 45,678 $ 3,348 $ 49,026
======== ========= ========
Basic earnings per common share:
Weighted average shares of common stock
outstanding................................... 40,242 40,242
Income before extraordinary charge.............. $ 1.15 $ 1.24
Extraordinary charge............................ $ (0.02) $ (0.02)
Net income...................................... $ 1.13 $ 1.22
Diluted earnings per common share:
Weighted average shares of common stock
outstanding................................... 42,328 42,328
Income before extraordinary charge.............. $ 1.10 $ 1.18
Extraordinary charge............................ $ (0.02) $ (0.02)
Net income...................................... $ 1.08 $ 1.16
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>
26
<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 September 10, 1999, we had interests in 37 power plants
predominantly in the United States, having an aggregate capacity of 3,627
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 and 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.
27
<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.
On January 4, 1999, we completed the acquisition of a 20% interest in 82
billion cubic feet of proven natural gas reserves located in the Sacramento
basin of Northern California. We paid approximately $14.9 million for $13.0
million in redeemable non-voting preferred stock and 20% of the outstanding
common stock of Sheridan California Energy, Inc. ("SCEI"). Additionally, we
signed a ten year gas contract enabling us to purchase 100% of SCEI's
production.
On February 17, 1999, we announced that the Delta Energy Center met the
California Energy Commission's Data Adequacy requirements. This ruling stated
that our Application for Certification contained adequate information for the
California Energy Commission to begin its analysis of the power plant's
environmental impacts and proposed mitigation. The Delta Energy Center, an 880
megawatt gas-fired power plant located at the Dow Chemical facility in
Pittsburg, California, is the first power plant that will be developed, owned
and operated under a joint venture with Bechtel Enterprises, and will provide
power to the Pittsburg, California and the greater San Francisco Bay Area. The
gas-fired power plant is to be constructed by Bechtel and operated by us.
On February 17, 1999, we announced plans to develop, own and operate a 545
megawatt gas-fired power plant in Westbrook, Maine. We acquired the development
rights for the Westbrook Power Plant from Genesis Power Corporation. This power
plant is scheduled to begin power deliveries in early 2001, and will serve the
New England market.
On February 24, 1999, we announced plans to develop, own and operate a 600
megawatt gas-fired power plant located in San Jose, California. This power
plant, called the Metcalf Energy Center, is the second power plant to be
developed under the
28
<PAGE> 33
joint venture with Bechtel Enterprises, and will provide electricity to the San
Francisco Bay area. We expect the plant to commence operation in mid 2002.
On March 19, 1999, we completed the acquisition of Unocal Corporation's
Geysers geothermal steam fields in northern California for approximately $102.1
million. The steam fields fuel our 12 Sonoma County power plants, totaling 544
megawatts of capacity. We purchased these plants from PG&E on May 7, 1999.
On April 14, 1999, we received approval from the California Energy
Commission to construct a 545 megawatt gas-fired power plant near Yuba City,
California. This power plant, called the Sutter Power Plant, was the first new
power plant approved in California's deregulated power industry. Electricity
produced by the Sutter Power Plant will be sold into California's energy market.
We expect the plant to commence operation in early 2001.
On April 22, 1999, we entered into a joint venture with GenTex Power
Corporation to develop, own and operate a 545 megawatt gas-fired power plant in
Bastrop County, Texas, called Lost Pines 1. Construction of this power plant is
expected to begin in October 1999. Under the definitive agreements we entered in
September 1999, we will manage all phases of the plant's development process,
with GenTex and ourselves jointly operating the plant. The output from Lost
Pines 1 will be divided equally, with GenTex selling its portion to its customer
base, while we will sell our portion to the wholesale power market in Texas. We
expect the plant to commence operation in mid-2001.
On April 23, 1999, we entered into a joint agreement with Pinnacle West
Capital Corporation to develop, own and operate a 545 megawatt gas-fired power
plant located in Phoenix, Arizona. This plant, called the West Phoenix Power
Plant, will provide power to the Phoenix metropolitan area, and construction
will commence in 2000. We expect the plant to commence operation in 2002.
On May 7, 1999, we completed the acquisitions from PG&E, of 12 Sonoma
County and 2 Lake County power plants for approximately $212.8 million. The
acquisitions were financed with a 24 year operating lease. Our geothermal steam
fields fuel the facilities, which have a combined capacity of approximately 694
megawatts of electricity. All of the generation from the facilities is sold to
the California energy market, with the exception of an agreement entered into on
April 29, 1999, to sell to Commonwealth Energy Corporation 75 megawatts of
geothermal electricity in 1999, 100 megawatts in 2000, and 125 megawatts in 2001
and through June 2002. Historically, we have served as a steam supplier for
these facilities, which had been owned and operated by PG&E. These acquisitions
have enabled 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 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.
On June 21, 1999, we acquired the rights to build, own and operate a 545
megawatt gas-fired power plant located in Ontelaunee Township, Pennsylvania. The
plant, called the Ontelaunee Energy Center, will provide power to residences and
businesses throughout the Pennsylvania-New Jersey-Maryland power pool.
Construction will commence in 2000 and the plant is scheduled to begin
production in 2002.
On July 26, 1999, we announced plans to enter into a $1.0 billion revolving
construction credit facility and expect to enter into definitive agreements in
the fall of 1999. The non-recourse credit facility will serve as a key component
of our development
29
<PAGE> 34
program and will be utilized to finance the construction of our diversified
portfolio of gas-fired power plants currently under development. We currently
intend to refinance the construction facility in the longer-term capital markets
prior to its four-year maturity.
On August 20, 1999, we announced the purchase of 18 F-class combustion
turbines from Siemens Westinghouse Power Corporation that will be capable of
producing 4,900 megawatts of electricity in a combined-cycle configuration.
Beginning in 2002, Siemens will deliver six turbines per year through 2004.
Combined with our existing turbine order we have 69 turbines under contract,
option or letter of intent capable of producing 17,745 megawatts.
On August 27, 1999, we announced an agreement with CGCA to acquire 80% of
its common stock for $25.00 per share or approximately $145.0 million. NRG
Energy, Inc., a wholly owned subsidiary of Northern States Power, will own the
remaining 20%. The transaction is subject to the approval of CGCA shareholders
and we expect to consummate the acquisition by year-end 1999. CCGA currently
owns interests in six natural gas-fired power plants, totaling 579 megawatts.
The plants are located in Pennsylvania, New Jersey, Illinois and Oklahoma.
On August 31, 1999, we completed the acquisition of an additional 50% of
the Aidlin Power Plant from Edison Mission Energy (5%) and General Electric
Capital Corporation (45%) for a total purchase price of $7.2 million. We now own
55% of the 20-megawatt Aidlin Power Plant.
On September 29, 1999 we completed the acquisition of development rights to
build, own and operate the Los Medanos Power Plant from Enron North America. The
Los Medanos Power Plant is a 550 megawatt gas-fired cogeneration plant located
adjacent to USS-POSCO Industries steel mill in Pittsburg, California. Los
Medanos will supply USS-POSCO with 60 megawatts of electricity and 75,000 pounds
per hour of steam, and market the excess electricity into the California power
exchange and under bilateral contracts. Construction commenced in September 1999
and commercial operation is scheduled to occur in 2001.
On September 30, 1999 we announced plans to build, own and operate an 800
megawatt gas-fired cogeneration power plant at Bayer Corporation's chemical
facility in Baytown, Texas. The Baytown Power Plant will supply Bayer with all
of its electric and steam requirements for 20 years and market excess
electricity into the Texas wholesale power market. Construction is estimated to
commence in 2000 and commercial operation in 2001.
On October 1, 1999, we completed the acquisition of Sheridan Energy, Inc.,
a natural gas exploration and production company, through a $41.0 million cash
tender offer. We purchased the outstanding shares of Sheridan Energy's common
stock for $5.50 per share. In addition, we redeemed $11.5 million of outstanding
preferred stock of Sheridan Energy. Sheridan Energy's oil and gas properties,
including 148 billion cubic feet equivalent of proven reserves, are located in
northern California and the Gulf Coast region, where we are developing low-cost
natural gas supplies and proprietary pipeline systems to support our
strategically-located natural gas-fired power plants.
On October 21, 1999, we completed the acquisition of the Calistoga
geothermal power plant from FPL Energy and Caithness Corporation for
approximately $78.0 million. Located in The Geysers region of northern
California, Calistoga is a 67 megawatt facility
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<PAGE> 35
which provides electricity to Pacific Gas and Electric Company under a long-term
contract.
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, and the 12
Sonoma County and 2 Lake County power plants purchased from PG&E on May 7, 1999.
The information set forth under steam fields consists of the results for the
Thermal Power Company Steam Fields prior to the acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
POWER PLANTS:
Electricity revenue
(1):
Energy................. $ 45,912 $ 54,886 $ 93,851 $ 110,879 $ 252,178 $ 93,735 $ 177,305
Capacity............... $ 7,967 $ 30,485 $ 65,064 $ 84,296 $ 193,535 $ 67,103 $ 106,155
Megawatt hours
produced............. 447,177 1,033,566 1,985,404 2,158,008 9,864,080 2,217,659 5,516,805
Average energy price
per kilowatt hour
(2).................. 10.267c 5.310c 4.727c 5.138c 2.557c 4.227c 3.214c
STEAM FIELDS:
Steam revenue (3):
Calpine................ $ 32,631 $ 39,669 $ 40,549 $ 42,102 $ 36,130 $ 17,960 $ 20,862
Other interest......... $ 2,051 $ -- $ -- $ -- $ -- $ -- $ --
Megawatt hours
produced............. 2,156,492 2,415,059 2,528,874 2,641,422 2,323,623 981,114 1,192,722
Average price per
kilowatt hour........ 1.608c 1.643c 1.603c 1.594c 1.555c 1.831c 1.749c
</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
completed several acquisitions of geothermal power plants and steam fields
during 1999. Since the steam fields serve power plants owned by us following
their acquisitions, our steam fields will no longer recognize steam revenue.
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<PAGE> 36
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenue -- Total revenue increased 71% to $336.6 million for the six months
ended June 30, 1999 compared to $196.7 million for the same period in 1998.
Electricity and steam sales revenue for the six months ended June 30, 1999
increased 70% to $304.3 million as compared to $178.8 million for the same
period a year ago. This increase is primarily due to an increase of $106.3
million for power plants that were acquired during the first half of 1998, and
$32.7 million for our Pasadena plant that became operational in the third
quarter of 1998, partially offset by a decrease of $21.6 million at the Bear
Canyon and West Ford Flat Power Plants relating to the expiration of the fixed
priced period of their power sales agreements.
Service contract revenue increased to $13.2 million for the six months
ended June 30, 1999 compared to $8.5 million for the same period in 1998. The
increase was primarily attributable to third party excess gas sales, as well as
an increase for fuel management fees.
Income from unconsolidated investments in power projects for the six months
ended June 30, 1999 increased 165% to $18.3 million as compared to $6.9 million
for the same period a year ago. This increase is primarily attributable to an
increase of $11.4 million of equity income from our investment in Sumas, an
increase of $1.5 million of equity income from our investment in the Bayonne
Power Plant, and an increase of $1.1 million from our Kennedy International
Airport Power Plant. These increases were partially offset by a reduction of
$2.9 million in equity income from our Texas City and Clear Lake Power Plants,
which were consolidated on March 31, 1998.
Interest income on loans to power projects for the six months ended June
30, 1999 decreased to $709,000 compared to $2.6 million for the same period a
year ago. The decrease is primarily related to the acquisition of the remaining
50% interest in Texas Cogeneration Company on March 31, 1998, offset by dividend
income received from Sheridan California Energy.
Cost of revenue -- Cost of revenue increased to $238.2 million for the six
months ended June 30, 1999 compared to $136.1 million for the same period in
1998. The increase of $102.1 million was primarily attributable to increased
plant operating, fuel and depreciation expenses as a result of the acquisition
of the remaining interests in the Texas City, Clear Lake Power Plants on March
31, 1998, the acquisition of the remaining interest in the Bethpage Power Plant
on February 5, 1998, the acquisition of the Pittsburg Power Plant on July 21,
1998, the consolidation of our Geysers operations on May 7, 1999 and the startup
of the Pasadena Power Plant in July of 1998.
General and administrative expenses -- General and administrative expenses for
the six months ended June 30, 1999 increased to $21.0 million compared to $11.0
million for the same period in 1998. The increase was attributable to continued
growth in personnel and associated overhead costs necessary to support the
overall growth in our operations.
Interest expense -- Interest expense for the six months ended June 30, 1999
increased to $47.2 million from $40.8 million for the same period a year ago.
The increase was primarily attributable to $21.8 million of interest associated
with the issuances of senior
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<PAGE> 37
notes in 1999 and 1998, partially offset by an increase in capitalized interest
of $10.3 million, and a decrease in interest expense of $4.7 million related to
the retirement of non-recourse project financing for the Greenleaf Power Plant
in 1998 and the Gilroy Power Plant in 1999.
Provision for income taxes -- The effective income tax rate was approximately
39% for the six months ended June 30, 1999. The reductions from the statutory
tax rate was primarily due to depletion in excess of tax basis benefits at our
geothermal facilities, and a decrease in the California taxes paid due to our
expansion into states other than California.
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.
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.
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<PAGE> 38
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 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.
34
<PAGE> 39
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 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
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<PAGE> 40
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.
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operating activities......... $ 59,944 $ 108,461 $ 171,233 $ 23,073 $ 58,555
Investing activities......... (330,937) (402,158) (406,657) (174,923) (590,328)
Financing activities......... 345,153 246,240 283,443 203,696 755,528
--------- --------- --------- --------- ---------
Total................. $ 74,160 $ (47,457) $ 48,019 $ 51,846 $ 223,755
========= ========= ========= ========= =========
</TABLE>
Operating activities for the six months ended June 30, 1999 provided $58.6
million, consisting of approximately $44.1 million of depreciation and
amortization, $21.4 million of net income, $25.5 million of distributions from
unconsolidated investments in power projects, $13.3 million of deferred income
taxes, and a $7.2 million net increase in operating liabilities. This was offset
by $34.6 million net increase in operating assets and $18.3 million of income
from unconsolidated investments. 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 the six months ended June 30, 1999 used $590.3
million, primarily due to $102.2 million for the acquisition of steam fields
from Unocal, $14.9 million for the acquisition of a 20% interest in SCEI, a
$15.8 million increase in restricted cash, $79.3 million of capital expenditures
related to the construction of the Pasadena Power Plant Expansion, $344.6
million of other capital expenditures principally for turbine purchases and for
the Clear Lake Expansion project, $33.8 million of capitalized project
development costs, $14.0 million of interest capitalized on construction
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<PAGE> 41
projects, $8.4 million of additional loans to principal owners of power plants,
$655,000 for the acquisition of additional investments, offset by $1.9 million
of maturities of collateral securities in connection with the King City Power
Plant, the repayment of $3.1 million of outstanding loans, and $18.4 million
from the sale and leaseback transaction of the Geysers Power Company plants.
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 the six months ended June 30, 1999 provided $755.5
million of cash consisting of $79.2 million of borrowings for the construction
of the Pasadena Power Plant, $77.6 million of borrowings related to a bridge
facility, $794.8 million of net proceeds from additional equity and senior debt
financings received in March and April of 1999, and $1.2 million for the
issuance of common stock for our Employee Stock Purchase Plan, partially offset
by $120.6 million in repayment of non-recourse project financing in April 1999,
and $77.6 million of repayments related to a bridge facility. 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 June 30, 1999, cash and cash equivalents were $320.3 million and working
capital was $346.4 million. For 1999, cash and cash equivalents increased by
$223.8 million and working capital increased by $259.5 million as compared to
December 31, 1998. 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.
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 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.
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<PAGE> 42
On January 4, 1999, we entered into a Credit Agreement with ING to provide
up to $265.0 million of non-recourse project financing for the construction of
the Pasadena facility expansion. As of June 30, 1999, $79.2 million was
outstanding as a construction loan under the agreement. The outstanding loan
bears interest at ING's base rate plus an applicable margin or at LIBOR plus an
applicable margin and is payable quarterly. The construction loan will convert
to a term loan once the project has completed construction. The construction
loan will mature on or before July 1, 2000, but is subject to an extension to
October 1, 2000 if there are sufficient construction funds available. The term
loan will be available for a period not to exceed five years from the
construction loan maturity date. In connection with the Credit Agreement, we
entered into a $10.0 million letter of credit facility. At June 30, 1999, there
were no letters of credit outstanding under the facility.
On March 26, 1999, we completed a public offering of 12,000,000 shares of
our common stock at $15.50 per share. The net proceeds from this public offering
were approximately $177.9 million. Additionally, in April 1999, we sold an
additional 1,800,000 shares of common stock at $15.50 per share pursuant to the
exercise of the underwriters' over-allotment option for net proceeds of
approximately $26.7 million.
On March 29, 1999, we completed a public offering of $250.0 million of our
7 5/8% Senior Notes Due 2006 and of our $350.0 million 7 3/4% Senior Notes Due
2009. After deducting underwriting discounts and expenses of the offering, the
aggregate net proceeds from the sale of the Senior Notes were approximately
$588.3 million. The Senior Notes Due 2006 bear interest at 7 5/8% per year,
payable semi-annually on April 15 and October 15 each year and mature on April
15, 2006. The Senior Notes Due 2006 are not redeemable prior to maturity. The
Senior Notes Due 2009 bear interest at 7 3/4% per year, payable semi-annually on
April 15 and October 15 each year and mature on April 15, 2009. The Senior Notes
Due 2009 are not redeemable prior to maturity.
The net proceeds from the sale of the common stock, the Senior Notes Due
2006, and the Senior Notes Due 2009 were used as follows: (1) $120.6 million to
refinance indebtedness relating to the Gilroy Power Plant, (2) $77.6 million to
repay indebtedness under a bridge facility provided by Credit Suisse First
Boston to finance a portion of the purchase price to acquire the steam fields
that service the Sonoma County power plants, (3) $50.0 million to repay
outstanding borrowings under our revolving credit facility, $23.4 million of
which was incurred to finance a portion of the steam fields that service the
Sonoma Power Plants, (4) $25.0 million to complete the expansion of the Clear
Lake Power Plant, (5) approximately $400.0 million to finance a portion of power
generation facilities currently under construction and the projects currently
under development, and (6) the remaining $119.6 million will be used for general
corporate purposes. Transaction costs incurred in connection with the senior
notes offered were recorded as deferred charge and are amortized over the
respective lives of the Senior Notes Due 2006 and the Senior Notes Due 2009
using the effective interest rate method.
At June 30, 1999, we had a $100.0 million revolving credit facility
available with a consortium of commercial lending institutions. We had no
borrowings and $20.9 million of letters of credit outstanding under the credit
facility. 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.
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<PAGE> 43
At June 30, 1999, 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. During 1998, we issued $400.0 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.
At June 30, 1999, 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 June 30, 1999, we had no borrowings under this working capital line
and $74,000 of letters of credit outstanding. Borrowings accrue interest at
prime plus 1%.
FINANCIAL MARKET RISKS
From time to time, we use interest rate swap agreements to mitigate our
exposure to interest rate fluctuations. We do not use derivative financial
instruments for speculative or trading purposes. The following table summarizes
the fair market value of our existing interest rate swap agreements as of June
30, 1999 (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
NOTIONAL AVERAGE
MATURITY DATE PRINCIPAL AMOUNT INTEREST RATE FAIR MARKET VALUE
- ------------- ---------------- ------------- -----------------
<S> <C> <C> <C>
2000 $ 21,800 9.9% $ (571)
2009 65,000 6.1% 1,156
2013 75,000 7.2% (3,480)
2014 79,970 6.7% (1,423)
---------------- ------------- -----------------
Total $241,770 7.1% $(4,318)
================ ============= =================
</TABLE>
Short-term investments. As of June 30, 1999, we have short-term investments
of $271.3 million. These short-term investments consist of highly liquid
investments with maturities between three and twelve months. These investments
are subject to interest rate risk and will increase in value if market interest
rates increase. We have the ability to hold these investments to maturity, and
as a result, we would not expect the value of these investments to be affected
to any significant degree by the effect of a sudden change in market interest
rates. Declines in interest rates over time will reduce our interest income.
39
<PAGE> 44
Outstanding debt. As of June 30, 1999, we have outstanding long-term debt
of approximately $1.6 billion primarily made up of $1.5 billion of senior notes
and $79.2 million of construction financing. Our construction financing has a
floating interest rate which has averaged 6.8%. Our outstanding long-term senior
notes as of June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
MATURITY DATE CARRYING AMOUNT INTEREST RATE FAIR MARKET VALUE
- ------------- --------------- ------------- -----------------
<S> <C> <C> <C>
2004 $ 105,000 9 1/4% $ 106,050
2006 171,750 10 1/2% 185,267
2006 250,000 7 5/8% 243,125
2007 275,000 8 3/4% 282,219
2008 400,000 7 7/8% 384,600
2009 350,000 7 3/4% 330,313
--------------- -----------------
Total $1,551,750 $1,513,574
=============== =================
</TABLE>
Gas prices fluctuations. We enter into derivative commodity instruments to
hedge our exposure to the impact of price fluctuations on gas purchases. Such
instruments include regulated natural gas contracts and over-the-counter swaps
and basis hedges with major energy derivative product specialists. All hedge
transactions are subject to our risk management policy which does not permit
speculative positions. These transactions are accounted for under the hedge
method of accounting. Cash flows from derivative instruments are recognized as
incurred through changes in working capital.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued FASB Statement No. 137 entitled "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133." The Statement would amend SFAS No. 133 to defer
its effective date to all fiscal quarters of all fiscal years beginning after
June 15, 2000. 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 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,
40
<PAGE> 45
- 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 fourth
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..... 100% Complete May 1999
Remediation........... 98% In Progress October 1999
Contingency 5%
Planning............ In Progress November 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 fall 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 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 expect to complete this
process by year-end 1999.
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<PAGE> 46
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 600 responses have been received as of July 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 November 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, 1999 through June 30, 1999, $321,000 was charged to expense.
Approximately 9% of the estimated total cost was incurred in 1998, 63% will be
incurred in 1999 and the remainder will be incurred in 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 the fall of 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.
42
<PAGE> 47
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 38 power plants having an aggregate capacity of
3,694 megawatts and have an acquisition pending in which we will acquire 80% of
CGCA which owns interests in 6 power plants with an aggregate capacity of 579
megawatts. We also have 8 gas-fired projects and one project expansion under
construction having an aggregate capacity of 4,535 megawatts and have announced
plans to develop 5 gas-fired power plants with a total capacity of 3,370
megawatts. Upon completion of pending acquisitions and projects under
construction, we will have interests in 52 power plants located in 14 states
having an aggregate capacity of 8,808 megawatts, of which we will have a net
interest in 7,431 megawatts. This represents significant growth from the 342
megawatts of capacity we had at the end of 1993. Of this total generating
capacity, 90% will be attributable to gas-fired facilities and 10% 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> 48
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 May 1999, we completed a 35 megawatt expansion of our Clear Lake Power
Plant to 412 megawatts, and we commenced commercial operations at our 169
megawatt Dighton Power Plant in August 1999.
We currently have nine projects under construction representing an
additional 4,535 megawatts. Of these new projects, we are currently
expanding our Pasadena facility by 545 megawatts to 785 megawatts and we
have eight new power plants under construction, including the Tiverton
Power Plant in Rhode Island; the Rumford Power Plant in Maine; the
Westbrook Power Plant in Maine; the Sutter Power Plant in California; the
Los Medanos Power Plant in California; the South Point Power Plant in
Arizona; the Magic Valley Power Plant in Texas; and the Lost Pines 1
Power Plant in Texas. We have also announced plans to develop five
additional power generation facilities, totaling 3,370 megawatts, in
California, Texas, Arizona and Pennsylvania.
In July 1999, we announced an agreement with Credit Suisse First Boston,
New York branch and The Bank of Nova Scotia, as lead arrangers, for a
$1.0 billion revolving construction loan facility. The credit facility
will be utilized to finance the
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<PAGE> 49
construction of our development program. We expect to finalize the
documentation relating to this facility in the fourth quarter of 1999.
On August 20, 1999, we announced the purchase of 18 F-class combustion
turbines from Siemens Westinghouse Power Corporation that will be capable
of producing 4,900 megawatts of electricity. Beginning in 2002, Siemens
will deliver six turbines per year through 2004. Combined with our
existing turbine order we have 69 turbines under contract, option or
letter of intent capable of producing 17,745 megawatts.
- 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 portfolio through the
acquisition of power generation facilities through the completion of 32
acquisitions to date.
On March 19, 1999, we completed the acquisition of Unocal Corporation's
Geysers geothermal steam fields in northern California for approximately
$102.1 million. The steam fields fuel our 12 Sonoma County power plants,
totaling 544 megawatts purchased from Pacific Gas and Electric Company.
On May 7, 1999 we completed the acquisition from Pacific Gas and Electric
Company ("PG&E") of 14 geothermal power plants at The Geysers in northern
California, with a combined capacity of approximately 700 megawatts, for
$212.8 million. With the acquisition, we now own interests in and operate
18 geothermal power plants that generate more than 800 megawatts of
electricity, and we are the nation's largest geothermal and green power
producer. The combination of our existing geothermal steam and power
plant assets, the acquisition of the Sonoma steam fields from Unocal, and
the 14 power plants from PG&E allows us to fully integrate the steam and
power plant operations at The Geysers into one efficient, unified system
to maximize the renewable natural resource, lower overall production
costs and extend the life of The Geysers.
On August 27, 1999, we announced an agreement with CGCA to acquire 80% of
its common stock for $25.00 per share or approximately $145.0 million.
NRG Energy, Inc., a wholly owned subsidiary of Northern States Power,
will own the remaining 20%. The transaction is subject to the approval of
CGCA shareholders and we expect to consummate the acquisition by year-end
1999. CCGA currently owns interests in six natural gas-fired power
plants, totaling 579 megawatts. The plants are located in Pennsylvania,
New Jersey, Illinois and Oklahoma.
On August 31, 1999, we completed the acquisition of an additional 50% of
the Aidlin Power Plant from Edison Mission Energy (5%) and General
Electric Capital Corporation (45%) for a total purchase price of $7.2
million. We now own 55% of the 20 megawatt Aidlin Power Plant.
On October 1, 1999, we completed the acquisition of Sheridan Energy,
Inc., a natural gas exploration and production company, through a $41.0
million cash tender offer. We purchased the outstanding shares of
Sheridan Energy's common stock for $5.50 per share. In addition, we
redeemed $11.5 million of outstanding preferred stock of Sheridan Energy.
Sheridan Energy's oil and gas properties, including 148 billion cubic
feet equivalent of proven reserves, are located in
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<PAGE> 50
northern California and the Gulf Coast region, where we are developing
low-cost natural gas supplies and proprietary pipeline systems to support
our strategically-located natural gas-fired power plants.
On October 21, 1999, we completed the acquisition of the Calistoga
geothermal power plant from FPL Energy and Caithness Corporation for
approximately $78.0 million. Located in The Geysers region of northern
California, Calistoga is a 67 megawatt facility which provides
electricity to PG&E under a long-term contract.
- Enhancement of existing power plants. We continually seek to maximize the
power generation and revenue 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 52 power plants with an aggregate
capacity of 8,808 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 June 30, 1999,
our gas-fired and geothermal power generation facilities have operated at
an average availability of approximately 96% and 99%, respectively. We
believe that achieving and maintaining a low-cost of production will be
increasingly important to compete effectively in the power generation
market.
On July 8, 1999, we announced a renegotiation of our Gilroy power sales
agreement with PG&E. The amendment provides for the termination of the
remaining 18 years of the long-term contract in exchange for a fixed
long-term payment schedule. The amended agreement is subject to approval
by the California Public Utilities Commission, whose decision we expect
to receive in the fourth quarter of 1999. We will continue to sell the
output from the Gilroy Power Plant through October 2002 to PG&E and
thereafter we will market the output in the California wholesale power
market.
DESCRIPTION OF FACILITIES
We currently have interests in 38 power generation facilities with a
current aggregate capacity of approximately 3,694 megawatts, consisting of 19
gas-fired power plants with a total capacity of 2,806 megawatts and 19
geothermal power generation facilities with a total capacity of 888 megawatts.
We also have an acquisition pending comprising 6 gas-fired facilities with an
aggregate capacity of 579 megawatts, 8 gas-fired projects and one project
expansion currently under construction with an aggregate capacity of 4,535
megawatts, and have announced the development of 5 additional power plants with
an aggregate capacity of 3,370 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
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<PAGE> 51
payment rates are usually indexed to the fuel costs of the contracting utility
or to general inflation indices. Capacity payments are based on a power plant's
net electrical output and/or its available capacity. Energy payments are made
for each kilowatt hour of energy delivered, while capacity payments, under
certain circumstances, are made whether or not any electricity is delivered.
Upon completion of the pending acquisitions and projects under
construction, we will provide operating and maintenance services for 42 of the
52 power plants 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> 52
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.
[DEPICTION OF A MAP OF THE UNITED STATES, WITH MARKERS INDICATING THE LOCATION
OF OUR FACILITIES]
<TABLE>
<CAPTION>
MEGAWATTS
-----------------------
# OF PLANT CALPINE NET
PLANTS CAPACITY INTEREST
------ -------- -----------
<S> <C> <C> <C>
In operation.................................... 38 3,694 2,955
Pending acquisitions............................ 6 579 400
Under construction
-- New facilities............................. 8 3,990 3,531
-- Expansion projects......................... -- 545 545
Announced development........................... 5 3,370 2,357
-- ------ -----
57 12,178 9,788
== ====== =====
</TABLE>
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<PAGE> 53
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
Sonoma County (12 power
plants)(3)............ Geothermal California 544.0 100% 544.0
Texas City.............. Gas-Fired Texas 450.0 100% 450.0
Clear Lake.............. Gas-Fired Texas 412.0 100% 412.0
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
Dighton(6).............. Gas-Fired Massachusetts 169.0 50% 84.5
Bayonne................. Gas-Fired New Jersey 165.0 7.5% 12.4
Auburndale.............. Gas-Fired Florida 150.0 50% 75.0
Lake County (2 power
plants)(3)............ Geothermal California 150.0 100% 150.0
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 55% 11.0
Calistoga............... Geothermal California 67.0 100% 67.0
PENDING ACQUISITIONS
Grays Ferry............. Gas-Fired Pennsylvania 150.0 40% 60.0
Parlin.................. Gas-Fired New Jersey 122.0 80% 97.6
Morris.................. Gas-Fired Illinois 117.0 80% 93.6
Pryor................... Gas-Fired Oklahoma 110.0 80% 88.0
Newark.................. Gas-Fired New Jersey 58.0 80% 46.4
Philadelphia............ Gas-Fired Pennsylvania 22.0 66.4% 14.6
PROJECTS UNDER
CONSTRUCTION
Magic Valley............ Gas-Fired Texas 730.0 100% 730.0
Los Medanos............. Gas-Fired California 550.0 100% 550.0
Westbrook............... Gas-Fired Maine 545.0 100% 545.0
Pasadena Expansion...... Gas-Fired Texas 545.0 100% 545.0
South Point............. Gas-Fired Arizona 545.0 100% 545.0
Sutter.................. Gas-Fired California 545.0 100% 545.0
Lost Pines 1............ Gas-Fired Texas 545.0 50% 272.5
Tiverton(4)............. Gas-Fired Rhode Island 265.0 62.8% 166.4
Rumford(5).............. Gas-Fired Maine 265.0 66.7% 176.8
</TABLE>
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<PAGE> 54
<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>
ANNOUNCED DEVELOPMENT
Delta Energy Center..... Gas-Fired California 880.0 50% 440.0
Baytown................. Gas-Fired Texas 800.0 100% 800.0
Metcalf Energy Center... Gas-Fired California 600.0 50% 300.0
West Phoenix............ Gas-Fired Arizona 545.0 50% 272.5
Ontelaunee.............. Gas-Fired Pennsylvania 545.0 100% 545.0
</TABLE>
- -------------------------
(1) Nameplate capacity may not represent the actual output for a facility at any
particular time.
(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
Sonoma County Power Plants. The Sonoma County power plants consist of 12
geothermal power plants and associated steam fields having combined capacity of
544 megawatts located at The Geysers in northern California. The power plants
were acquired from PG&E on May 7, 1999 and we market the output from these
plants into the California power market.
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.
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Clear Lake Power Plant. The Clear Lake Power Plant is a 412 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 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.
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. This investment, which is structured as subordinated
debt, will provide us with a preferred payment stream at a rate of 12.07% per
year for a period of twenty years
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from the commercial operation date. The Dighton Power Plant was developed by EMI
and cost approximately $120.0 million. Commercial operation commenced in August
1999. The Dighton Power Plant is operated by EMI and sells its output into the
New England power market and to wholesale and retail customers in the
northeastern United States.
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.
Lake County Power Plants. The Lake County power plants consist of two
geothermal power plants and associated steam fields having a combined capacity
of 150 megawatts located at The Geysers in northern California. We acquired
these power plants from PG&E on May 7, 1999, and we market the output from these
plants into the California power market.
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 PG&E under a power
sales agreement terminating in 2019. The power sales agreement
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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 July 1999 we announced a renegotiation of our Gilroy power sales
agreement with PG&E. The amendment provides for the termination of the remaining
18 years of the long-term contract in exchange for a fixed long-term payment
schedule. The amended agreement is subject to approval by the California Public
Utilities Commission, whose decision we expect to receive in the fourth quarter
of 1999. We will continue to sell the output from the Gilroy Power Plant through
October 2002 to PG&E and thereafter we will market the output in the California
wholesale power market. 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. 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 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
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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 ("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
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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.
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 55% 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.
Calistoga Power Plant. The Calistoga Power Plant consists of a 67 megawatt
geothermal power plant and associated steam fields located in northern
California. Electricity generated by the Calistoga Power Plant is sold to PG&E
under a power sales agreement terminating in 2014 which contains payment
provisions for capacity and energy.
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During 1998, the Calistoga Power Plant generated approximately 614,073,000
kilowatt hours of electrical energy for sale to PG&E and approximately $27.9
million in revenue.
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
COGENERATION CORPORATION OF AMERICA. On August 27, 1999 we announced an
agreement with CGCA to acquire 80% of its common stock for $25.00 per share or
approximately $145.0 million. NRG Energy, Inc., a wholly owned subsidiary of
Northern States Power will own the remaining 20%. The transaction is subject to
shareholder approval and we expect to consummate the acquisition by year-end
1999. CGCA currently owns interests in six natural gas-fired power plants,
totaling 579 megawatts. The plants are located in Pennsylvania, New Jersey,
Illinois and Oklahoma. As of June 30, 1999 CGCA had approximately $296.6 million
of indebtedness, including $216.1 million of non-recourse project debt.
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Grays Ferry Power Plant. The Grays Ferry Power Plant is a 150 megawatt,
natural gas-fired cogeneration project located in Philadelphia,
Pennsylvania. CGCA owns 50% of the project and 50% is owned by Trigen Energy
Corporation. The facility is operated by Trigen. Electricity generated by
the Grays Ferry Power Plant is sold under two long-term power sales
agreements to PECO Energy Company, expiring in 2017. An affiliate of Trigen
purchases the steam produced by the project pursuant to a 25-year contract
expiring in 2022.
Parlin Power Plant. The Parlin Power Plant consists of a 122 megawatt
natural gas-fired cogeneration power plant located in Parlin, New Jersey.
The facility is operated by NRG Energy, Inc. Electricity generated by the
Parlin Power Plant is sold pursuant to a long-term contract expiring in 2011
to Jersey Central Power and Light Company ("JCP&L"), and steam produced is
sold to E.I. Dupont de Nemours and Company under a long-term agreement
expiring in 2021.
Morris Power Plant. The Morris Power Plant consists of a 117 megawatt
natural gas-fired cogeneration facility located in Morris, Illinois. The
facility is operated by NRG Energy, Inc. Electricity and steam produced by
the facility is sold to Equistar Chemicals, L.P. pursuant to a long-term
contract expiring in 2023. Any surplus electricity is marketed to the
Illinois power market.
Pryor Power Plant. The Pryor Power Plant is a 110 megawatt natural gas-fired
cogeneration power plant located in Pryor, Oklahoma. The facility is
operated by NRG Energy, Inc. The Pryor Power Plant sells 100-megawatts of
capacity and varying amounts of electrical energy to Oklahoma Gas and
Electric under a contract expiring in 2007. Steam produced from the Pryor
facility is sold to a number of industrial users under contracts with
various termination dates ranging from 1998 to 2007. Surplus electricity is
also sold to the Public Service of Oklahoma at its avoided cost.
Newark Power Plant. The Newark Power Plant consists of a 58 megawatt natural
gas-fired cogeneration power plant located in Newark, New Jersey. The
facility is operated by NRG Energy, Inc. Electricity produced by the
facility is sold pursuant to a long-term contract expiring in 2015 to JCP&L.
Steam produced is sold to Newark Boxboard under a long-term contract
expiring in 2015.
Philadelphia Water Project. The Philadelphia Water Project consists of two
standby peak shaving facilities located at the Philadelphia Water
Department's Northeast and Southwest wastewater treatment plants. CGCA owns
83% of the project and the project is operated by O'Brien Energy Services
Company. The project sells capacity and energy on demand to the Philadelphia
Municipal Authority pursuant to two long-term contracts expiring in 2013.
SHERIDAN ENERGY, INC. On October 1, 1999 we completed the acquisition of
Sheridan Energy, a natural gas exploration and production company, through a
$41.0 million cash tender offer. We purchased the outstanding shares of Sheridan
Energy's common stock for $5.50 per share. In addition, we redeemed $11.5
million of outstanding preferred stock of Sheridan Energy. Sheridan Energy's oil
and gas properties, including 148 billion cubic feet equivalent of proven
reserves, are located in northern California and the Gulf Coast region, where we
are developing low-cost natural gas supplies and proprietary pipeline systems to
support our strategically-located natural gas-fired power plants. As of June 30,
1999, Sheridan Energy had indebtedness of $71.5 million.
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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 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
Magic Valley Power Plant. In May 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 730 megawatt natural
gas-fired power plant under development in Edinburg, Texas. Magic Valley
Electric Cooperative Inc., 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
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wholesale customers, initially targeting south Texas. Construction commenced in
April 1999 with commercial operations scheduled to begin in February 2001.
Los Medanos Power Plant. In September 1999, we finalized an agreement with
Enron North America for the development rights of a 550 megawatt gas-fired plant
in Pittsburg, California. Construction commenced in September 1999 and
commercial operations will begin in 2001. The facility will provide electricity
and industrial steam totaling approximately 55 megawatts to USS-POSCO Industries
under a long-term agreement. The balance of the plant's output will be sold into
the California power market.
Westbrook Power Plant. In February 1999, we acquired from Genesis Power
Corporation ("Genesis"), a New England based power developer, the development
rights to a 545 megawatt gas-fired combined-cycle power plant to be located in
Westbrook, Maine. 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 545 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.
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 545
megawatt gas-fired 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. Construction commenced in August 1999 and we
anticipate that the South Point Power Plant will begin operation in March 2001.
Sutter Power Plant. In February 1997, we announced plans to develop a 545
megawatt gas-fired combined cycle project in Sutter County, in northern
California. The Sutter Power Plant would be northern California's first newly
constructed power plant since deregulation of the California power market in
1998. Construction commenced in August 1999 and the Sutter Power Plant is
expected to provide electricity to the deregulated California power market
commencing in the year 2001. We are currently pursuing regulatory agency permits
for this project. In January 1998, we announced that the Sutter Power Plant has
met the California Energy Commission's Data Adequacy requirements in its
Application for Certification.
Lost Pines 1 Power Plant. In September 1999, we entered into definitive
agreements with Austin, Texas-based GenTex Power Corporation, the power
generation affiliate of the Lower Colorado River Authority, to build a 545
megawatt gas-fired facility in Bastrop County, Texas. Construction of this
facility is scheduled to began in October 1999 and commercial operation in June
2001. Upon commercial operation, GenTex will take half of the electrical output
for sale to its customers and we will market the remaining energy to the Texas
power market.
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 is being developed by Energy
Management Inc.
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("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 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 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.
Announced Development Projects
Delta Energy Center. In February 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.
Baytown Power Plant. In October 1999 we announced plans to build, own and
operate an 800 megawatt gas-fired cogeneration power plant at Bayer
Corporation's chemical facility in Baytown, Texas. The Baytown Power Plant will
supply Bayer with all of its electric and steam requirements for 20 years and
market excess electricity into the Texas wholesale power market. Construction is
estimated to commence in 2000 and commercial operation in 2001.
Metcalf Energy Center. In February 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.
West Phoenix Power Plant. In April 1999, we announced an agreement with
Pinnacle West Capital Corporation to develop a 545 megawatt gas-fired facility
at Arizona Public Services West Phoenix Power Station in Phoenix, Arizona.
Construction is scheduled to
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begin in mid-2000 with final completion in late 2002. The facility is estimated
to cost $220 million and the electricity will be sold into the Arizona power
market.
Ontelaunee Energy Center. In June 1999, we announced that we had acquired
the rights to develop a 545 megawatt gas-fired power plant in Ontelaunee
Township in eastern Pennsylvania. Permitting for the proposed $255 million
facility is underway and construction is scheduled to begin in early 2000.
Commercial operation is estimated for late 2002. Output from the plant will be
sold into the Pennsylvania/New Jersey/Maryland (PJM) power pool and pursuant to
bilateral contracts.
GAS FIELDS
Montis Niger. In January 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. In January 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 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 use and operation of a
plant. Applicable federal environmental laws typically have both state and local
enforcement and implementation provisions. These environmental laws and
regulations generally require that a wide variety of permits and other approvals
be obtained before the commencement of construction or operation of an
energy-producing facility and that the facility then operate in compliance with
such permits and approvals.
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FEDERAL ENERGY REGULATION
PURPA
The enactment 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, 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
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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 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
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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 19 gas-fired cogeneration projects. The
cost of natural gas is ordinarily the largest expense 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 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-
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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 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
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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 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
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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.
In Texas, recently enacted legislation will phase-in a deregulated power market
commencing January 1, 2001. Regulatory initiatives are also being considered in
other states, including 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 August 31, 1999, we had 641 employees. 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 105 leases comprising 19,813 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 leasehold interests in 20 leases
comprising approximately 23,598 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
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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 on the motions to be
held in the near future. 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.
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..................... 44 Director
George J. Stathakis................. 69 Director
John O. Wilson...................... 61 Director
V. Orville Wright................... 79 Director
Thomas R. Mason..................... 55 Executive Vice President
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.
Thomas R. Mason has served as our Executive Vice President since August
1999 and Senior Vice President since March 1999 until August 1999. Mr. Mason is
responsible for managing our power plant construction and operations activities.
Prior to joining us, Mr. Mason was President and Chief Operating Officer of
CalEnergy Operating Services Inc., a wholly owned subsidiary of MidAmerica
Energy Holdings Company from 1995 to
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<PAGE> 75
February 1999. He obtained a Masters of Business Administration Degree from the
University of Chicago in 1970 and a Bachelor of Science Degree in Electrical
Engineering from Purdue University in 1966.
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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<PAGE> 76
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of August 31, 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.
All figures reflect the 2 for 1 stock split declared by us on September 20,
1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
------------------- --------------------- ---------------------
<S> <C> <C>
Putnam Investments, Inc.................. 5,698,912 10.4%
One Post Office Square
Boston, MA 02109
Fidelity Management & Research Co........ 5,274,960 9.7%
82 Devonshire Street, E34E
Boston, MA 02109
Ohio Public Employee Retirement System... 4,200,000 7.7%
277 East Town Street
Columbus, OH 43215
Wellington Management Company, LLP....... 4,024,600 7.4%
75 State Street
Boston, MA 02109
Peter Cartwright(2)...................... 2,011,604 3.6%
Ann B. Curtis(3)......................... 534,008 *
Thomas R. Mason.......................... 2,000 *
Robert D. Kelly(4)....................... 243,320 *
Jeffrey E. Garten(5)..................... 31,122 *
Susan C. Schwab(5)....................... 29,848 *
George J. Stathakis(6)................... 95,562 *
John O. Wilson(5)........................ 37,348 *
V. Orville Wright(7)..................... 45,960 *
All executive officers and directors as a
group (9 persons)(8)................... 3,030,772 5.3%
</TABLE>
- -------------------------
* Less than one percent
(1) This table is based in part upon information supplied by Schedules 13F
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 October 22, 1999 was 54,569,788.
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<PAGE> 77
(2) Includes options to purchase 1,999,704 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(3) Includes options to purchase 533,382 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(4) Includes options to purchase 240,720 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(5) Represents shares of our common stock issuable upon exercise of options
that are exercisable as of August 31, 1999 or will become exercisable
within 60 days thereafter.
(6) Includes options to purchase 89,562 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(7) Includes options to purchase 35,960 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(8) Includes options to purchase 3,184,270 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
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<PAGE> 78
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. The
information provided below reflects the 2 for 1 stock split declared by us on
September 20, 1999.
COMMON STOCK
There will be 60,569,788 shares of common stock outstanding upon the
completion of this offering, based on the 54,569,788 shares outstanding as of
October 22, 1999. 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"
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<PAGE> 79
(as therein defined) requires the affirmative vote of the holders of two-thirds
of the shares 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> 80
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 World Markets
Corp., Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs &
Co., Salomon Smith Barney Inc. and Gerard Klauer Mattison & Co., 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 World Markets Corp.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Goldman, Sachs & Co.........................................
Salomon Smith Barney Inc....................................
Gerard Klauer Mattison & Co., 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 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 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>
Per Share Total
--------------------------------- ---------------------------------
Without With Without With
Over-Allotment Over-Allotment Over-Allotment Over-Allotment
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us....
Expenses payable by us......
</TABLE>
We and each of our officers and directors have agreed that we will not
offer, sell, contract 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, or
publicly disclose the intention to make an offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
76
<PAGE> 81
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 and the concurrent offering HIGH TIDES.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
The representatives 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.
- 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 is purchased in a syndicate covering transaction to
cover syndicate short positions.
These 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.
Credit Suisse First Boston, New York branch expects to be the lead arranger
and a lender for our proposed $1.0 billion revolving construction loan facility
and, in such capacity, expects to receive customary fees for such services. The
decision of Credit Suisse First Boston Corporation to distribute the common
stock offered hereby and the HIGH TIDES being offered concurrently was made
independent of Credit Suisse First Boston, New York branch which lender had no
involvement in determining whether or when to distribute the common stock or the
HIGH TIDES under the offerings or the terms of the offerings. Credit Suisse
First Boston Corporation will not receive any benefit from the offerings other
than its portion of the underwriting fees as paid by us.
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. In addition, Credit Suisse First Boston
Corporation, CIBC World Markets Corp. and ING Barings LLC are acting as
underwriters in the concurrent offering of HIGH TIDES.
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<PAGE> 82
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".
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
Ontario securities law. 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.
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<PAGE> 83
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.
EXPERTS
The consolidated financial statements and schedules as of December 31,
1998, 1997 and 1996 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 Sumas Cogeneration Company, L.P. its
opinion is based on the reports of other independent public accountants, namely
Moss Adams LLP. The consolidated financial statements 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 as
amended 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> 84
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 IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 26, 1999
4,000,000 HIGH TIDES(SM)
CALPINE CAPITAL TRUST
% Convertible Preferred Securities
Remarketable Term Income Deferrable Equity Securities (HIGH TIDES)(SM*)
(liquidation amount $50 per HIGH TIDES)
guaranteed, to the extent described herein by,
and convertible into common stock of,
LOGO CALPINE CORPORATION
------------------
The % Convertible Preferred Securities, Remarketable Term Income
Deferrable Equity Securities (HIGH TIDES)(SM) represent undivided preferred
beneficial ownership interests in the assets of Calpine Capital Trust. Subject
to the deferral provisions described in this prospectus, the trust will pay
distributions on the HIGH TIDES on each , ,
and . The trust will make the first distribution on
, 2000. Calpine Corporation may redeem the HIGH TIDES at any time
after , 2002.
Calpine Corporation will own all the common securities issued by the trust.
The trust exists for the sole purpose of issuing the common securities and the
HIGH TIDES and using the proceeds to purchase % Convertible Subordinated
Debentures due 2029 from Calpine.
Each HIGH TIDES is initially convertible into shares of Calpine's common
stock at the rate of shares of common stock for each of the HIGH
TIDES (equivalent to an initial conversion price of $ per share of common
stock). Your HIGH TIDES may be remarketed no earlier than , 2004
and no later than , 2004. At our option and subject to the results
of remarketing, the HIGH TIDES may become nonconvertible or convertible into a
different number of shares of common stock. The remarketing agent will attempt
to obtain a price of 101% of the liquidation amount of the HIGH TIDES. Calpine's
common stock is traded on The New York Stock Exchange under the symbol "CPN." On
October 22, 1999, the last reported sales price of the common stock was $47.50.
The underwriters have an option to purchase a maximum of 600,000 additional
HIGH TIDES to cover over-allotments.
We do not intend to list the HIGH TIDES on a national securities exchange
or automated interdealer quotation system.
Concurrently with this offering, we are offering 6,000,000 shares of our
common stock by means of a separate prospectus. The underwriters of the common
stock offering have an option to purchase up to 900,000 additional shares of
common stock to cover over-allotments of shares. This offering and the common
stock offering are not contingent on each other.
INVESTING IN THE HIGH TIDES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 16.
<TABLE>
<CAPTION>
PROCEEDS
PRICE TO UNDERWRITING TO THE
PUBLIC(1) COMMISSIONS TRUST(1)
------------------ ------------ ---------------
<S> <C> <C> <C>
Per HIGH TIDES................................... $50 (2) $50
Total............................................ $200,000,000 (2) $200,000,000
</TABLE>
(1) Plus accrued distributions, if any, from , 1999.
(2) Calpine had agreed to pay a commission to the underwriters of $ per each
of the HIGH TIDES, or $ in the aggregate.
Delivery of the HIGH TIDES will be made on or about , 1999.
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.
* The terms Remarketable Term Income Deferrable Equity Securities (HIGH
TIDES)(SM) or HIGH TIDES(SM) are registered service marks of Credit Suisse
First Boston Corporation.
CREDIT SUISSE FIRST BOSTON
CIBC WORLD MARKETS
ING BARINGS
The date of this prospectus is , 1999.
<PAGE> 85
[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> 86
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY...................... 1
RISK FACTORS............................ 16
WHERE YOU CAN FIND MORE INFORMATION..... 30
FORWARD-LOOKING STATEMENTS.............. 31
USE OF PROCEEDS......................... 32
PRICE RANGE OF COMMON STOCK............. 32
DIVIDEND POLICY......................... 33
ACCOUNTING TREATMENT.................... 33
CAPITALIZATION.......................... 34
SELECTED CONSOLIDATED FINANCIAL DATA.... 35
PRO FORMA CONSOLIDATED FINANCIAL DATA... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................ 39
BUSINESS................................ 55
MANAGEMENT.............................. 81
PRINCIPAL STOCKHOLDERS.................. 84
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
CALPINE CAPITAL TRUST................... 85
THE REMARKETING......................... 86
THE REMARKETING AGENT................... 92
DESCRIPTION OF HIGH TIDES............... 94
DESCRIPTION OF CONVERTIBLE SUBORDINATED
DEBENTURES............................ 117
DESCRIPTION OF THE GUARANTEE............ 129
RELATIONSHIP AMONG THE HIGH TIDES, THE
CONVERTIBLE SUBORDINATED DEBENTURES
AND THE GUARANTEE..................... 132
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.......................... 134
DESCRIPTION OF CAPITAL STOCK............ 143
CERTAIN ERISA CONSIDERATIONS............ 145
UNDERWRITING............................ 148
NOTICE TO CANADIAN RESIDENTS............ 150
LEGAL MATTERS........................... 151
EXPERTS................................. 151
</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> 87
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 HIGH TIDES. You should carefully
read the entire prospectus, including the risk factors, the financial statements
and the documents incorporated by reference into it. Unless we indicate
otherwise, information in this prospectus assumes the underwriters will not
exercise their over-allotment option. Unless the context requires otherwise,
"Calpine," "our company," "our," "we," "us," or similar terms refer to Calpine
Corporation and its consolidated subsidiaries, excluding Calpine Capital Trust.
However, in the descriptions of the HIGH TIDES, the debentures, the guarantee,
the trust and related matters, these terms refer solely to Calpine Corporation
and not the trust or any of our other consolidated subsidiaries.
All information in this prospectus reflects the 2 for 1 stock split
declared by us on September 20, 1999.
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 38 power plants having an aggregate capacity of
3,694 megawatts and have a transaction pending in which we will acquire 80% of
Cogeneration Corporation of America, which owns interests in 6 power plants with
an aggregate capacity of 579 megawatts. We also have 8 gas-fired projects and
one project expansion under construction having an aggregate capacity of 4,535
megawatts and have announced plans to develop 5 gas-fired power plants with a
total capacity of 3,370 megawatts. Upon completion of pending acquisitions and
projects under construction, we will have interests in 52 power plants located
in 14 states having an aggregate capacity of 8,808 megawatts, of which we will
have a net interest in 7,431 megawatts. This represents significant growth from
the 342 megawatts of capacity we had at the end of 1993. Of this total
generating capacity, 90% will be attributable to gas-fired facilities and 10%
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
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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.
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.
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- 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 existing power plants. We continually seek to maximize the
power generation and revenue potential of our operating assets and
minimize our operating and maintenance expenses and fuel costs.
RECENT DEVELOPMENTS
Project Development and Construction. In May 1999, we completed a 35
megawatt expansion of our Clear Lake Power Plant to 412 megawatts, and the 169
megawatt Dighton Power Plant commenced commercial operations in August 1999.
We currently have nine projects under construction representing 4,535
additional megawatts. Of these new projects, we are currently expanding our
Pasadena facility by 545 megawatts to 785 megawatts and we have eight new power
plants under construction, including the Tiverton Power Plant in Rhode Island;
the Rumford Power Plant in Maine; the Westbrook Power Plant in Maine; the Sutter
Power Plant in California; the South Point Power Plant in Arizona; the Lost
Pines 1 Power Plant in Texas; the Los Medanos Power Plant in California; and the
Magic Valley Power Plant in Texas. We have also announced plans to develop five
additional power generation facilities, totaling 3,370 megawatts, in California,
Texas, Arizona and Pennsylvania.
In July 1999, we announced an agreement with Credit Suisse First Boston,
New York branch and The Bank of Nova Scotia, as lead arrangers, for a $1.0
billion revolving construction loan facility. The credit facility will be
utilized to finance the construction of our development program. We expect to
finalize the documentation relating to this facility in the fourth quarter of
1999.
In August 1999, we announced the purchase of 18 F-class combustion turbines
from Siemens Westinghouse Power Corporation that will be capable of producing
4,900 megawatts of electricity in a combined-cycle configuration. Beginning in
2002, Siemens will deliver six turbines per year through 2004. Combined with our
existing turbine orders we have 69 turbines under contract, option, letter of
intent or other commitment capable of producing 17,745 megawatts.
Acquisitions. In March 1999, we completed the acquisition of Unocal
Corporation's Geysers geothermal steam fields in northern California for
approximately $102.1 million. The steam fields fuel our 12 Sonoma County power
plants, totaling 544 megawatts, purchased from Pacific Gas and Electric Company
in May 1999.
In May 1999, we completed the acquisition from Pacific Gas and Electric
Company of 14 geothermal power plants at The Geysers in northern California,
with a combined capacity of approximately 700 megawatts, for $212.8 million.
With the acquisition, we now own interests in and operate 18 geothermal power
plants that generate more than 800 megawatts of electricity, and we are the
nation's largest geothermal and green power producer. The combination of our
existing geothermal steam and power plant assets, the acquisition of the Sonoma
steam fields from Unocal, and the 14 power plants from Pacific Gas and Electric
Company allows us to fully integrate the steam and power plant operations at The
Geysers into one efficient, unified system to maximize the renewable natural
resource, lower overall production costs and extend the life of The Geysers.
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In August 1999, we completed the acquisition of an additional 50% of the
Aidlin Power Plant from Edison Mission Energy (5%) and General Electric Capital
Corporation (45%) for a total purchase price of $7.2 million. We now own 55% of
the 20 megawatt Aidlin Geothermal Power Plant.
In August 1999, we announced an agreement with Cogeneration Corporation of
America Inc. ("CGCA") to acquire 80% of its common stock for $25.00 per share or
approximately $145.0 million. NRG Energy, Inc., a wholly owned subsidiary of
Northern States Power, will own the remaining 20%. The transaction is subject to
the approval of CGCA shareholders and we expect to consummate the acquisition by
year-end 1999. CGCA currently owns interests in six natural gas-fired power
plants, totaling 579 megawatts. The plants are located in Pennsylvania, New
Jersey, Illinois and Oklahoma.
In October 1999, we completed the acquisition of Sheridan Energy, Inc., a
natural gas exploration and production company, through a $41.0 million cash
tender offer. We purchased all of the outstanding shares of Sheridan Energy's
common stock for $5.50 per share. In addition, we redeemed $11.5 million of
outstanding preferred stock of Sheridan Energy. Sheridan Energy's oil and gas
properties, including 148 billion cubic feet equivalent of proven reserves, are
located in northern California and the Gulf Coast region, where we are
developing low-cost natural gas supplies and proprietary pipeline systems to
support our strategically-located natural gas-fired power plants.
In October 1999, we completed the acquisition of the Calistoga geothermal
power plant from FPL Energy and Caithness Corporation for approximately $78.0
million. Located in The Geysers region of northern California, Calistoga is a 67
megawatt facility which provides electricity to Pacific Gas and Electric Company
under a long term contract.
Enhancement of Existing Power Plants. In July 1999, we announced a
renegotiation of our Gilroy power sales agreement with Pacific Gas and Electric
Company. The amendment provides for the termination of the remaining 18 years of
the long-term contract in exchange for a fixed long-term payment schedule. The
amended agreement is subject to approval by the California Public Utilities
Commission, whose decision we expect to receive in the fourth quarter of 1999.
We will continue to sell the output from the Gilroy Power Plant through October
2002 to Pacific Gas and Electric Company and thereafter we will market the
output in the California wholesale power market.
Third Quarter 1999 Earnings. On October 22, 1999, we announced earnings
for the three and nine months ended September 30, 1999.
Net income was $42.9 million for the quarter ended September 30, 1999,
representing an 86% increase compared to net income of $23.1 million for the
third quarter in 1998. Diluted earnings per share after accounting for the
recently completed two-for-one stock split rose 37% to $0.74 per share for the
quarter, from $0.54 per share for the same period in 1998. Revenue for the
quarter increased 42% from $186.2 million a year ago to $263.6 million. Earnings
before interest, tax, depreciation and amortization increased 28% to $119.1
million for the quarter compared to $93.4 million a year ago.
For the nine months ended September 30, 1999, net income was $64.3 million,
an increase of 103% compared to $31.6 million for the same period in 1998.
Diluted earnings per share rose 61% to $1.21 per share, compared to $0.75 per
share for the nine months of 1998. Revenue for the nine months was $600.2
million, a 57% increase from $382.9 million a year ago. Earnings before
interest, tax, depreciation and amortization for the nine months
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rose 43% to $268.2 million, form $187 million in 1998. Total assets as of
September 30, 1999, were $2.7 billion, up 59% from $1.7 billion at December 31,
1998.
Financial results for the three and nine months ended September 30, 1999
benefited primarily from the acquisition of 14 geothermal power plants totaling
approximately 700 megawatts from Pacific Gas and Electric Company, completed in
May 1999. For certain of these facilities, revenue includes amounts received
under a Reliability Must Run contract with the California Independent System
Operator, which is awaiting final Federal Energy Regulatory Commission approval.
THE TRUST
Calpine Capital Trust is a recently created Delaware business trust. The
trust will issue HIGH TIDES to the public and common securities to us. The trust
will use the proceeds of those issuances to buy Calpine's % Convertible
Subordinated Debentures due 2029. We will, on a subordinated basis, fully and
unconditionally guarantee all of the trust's obligations under the HIGH TIDES.
For financial reporting purposes, we will treat the trust as one of our
subsidiaries. Accordingly, we will include the accounts of the trust in our
consolidated financial statements. We will present the HIGH TIDES as a separate
line item in our consolidated balance sheet entitled "Company-obligated
mandatorily redeemable convertible preferred securities of a subsidiary trust,"
and we will include appropriate disclosures about the HIGH TIDES in the notes to
our consolidated financial statements. For financial reporting purposes, we will
record distributions payable on the HIGH TIDES as a minority interest in our
consolidated statement of income.
OUR PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 50 West San Fernando Street,
San Jose, California 95113. Our telephone number is (408) 995-5115, and our
internet website address is www.calpine.com. The contents of our website are not
part of this prospectus.
The trust's place of business and telephone number are the principal
executive offices and telephone number of Calpine.
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THE OFFERING
Issuer....................... Calpine Capital Trust. Substantially all of the
assets of the trust will consist of Calpine's
% Convertible Subordinated Debentures due
2029. We will own 100% of the outstanding common
securities of the trust.
Securities Offered........... 4,000,000 HIGH TIDES. Additionally, we and the
trust have granted the underwriters an option
for 30 days after the date of this prospectus to
purchase up to an additional 600,000 HIGH TIDES
at the initial offering price plus accrued
distributions.
Distributions................ Distributions will accrue on the HIGH TIDES from
the date of original issuance at the applicable
rate applied to the stated liquidation amount of
$50 per HIGH TIDES. The applicable rate will be
% per annum from the date of original
issuance to, but excluding the reset date. The
reset date is any date (1) not later than
October , 2004, or the final reset date, or,
if the day is not a business day, the next
succeeding business day, and (2) not earlier
than 70 business days prior to October , 2004,
as may be determined by the remarketing agent,
in its sole discretion, for settlement of a
successful remarketing. On or after the reset
date, the applicable rate will be the term rate
established by the remarketing agent based on
the outcome of the remarketing. Subject to the
distribution deferral provisions described
below, the trust will pay those distributions
quarterly in arrears on each , ,
and , commencing , 2000.
Because distributions on the HIGH TIDES
constitute interest for United States federal
income tax purposes, corporate holders of the
HIGH TIDES will not be entitled to a
dividends-received deduction.
Distribution Deferral
Provisions................. The trust's ability to pay distributions on the
HIGH TIDES is solely dependent on its receipt of
interest payments from us on the debentures. We
can, on one or more occasions, defer the
interest payments due on the debentures for up
to 20 consecutive quarters unless an event of
default under the debentures has occurred and is
continuing. However, we cannot defer interest
payments beyond the (1) maturity of the
debentures, and (2) in the case of a deferral
period that begins prior to the reset date, the
reset date. If we defer interest payments on the
debentures, the trust will also defer
distributions on the HIGH TIDES. The trust will
be able to pay distributions on the HIGH TIDES
only if and to the extent it receives interest
payments from us on the debentures. During any
deferral period prior to the reset date,
distributions will
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continue to accumulate quarterly at an annual
rate of % of the liquidation amount of $50
per HIGH TIDES. Also, the deferred distributions
will themselves accrue additional distributions
at an annual rate of %, to the extent
permitted by law. The trust will send you
written notice of a deferral of distributions on
the HIGH TIDES not later than ten days prior to
the record date for the related HIGH TIDES
distribution. During any period in which we
defer interest payments on the debentures, we
cannot:
- declare or pay any dividend on our capital
stock;
- redeem, purchase, acquire or make a
liquidation payment on any of our capital
stock; or
- make any interest, principal or premium
payment on, or repurchase or redeem, any of
our debt securities that rank equally with or
junior to the debentures.
If an interest payment deferral occurs, you will
continue to recognize interest income for United
States federal income tax purposes in advance of
your receipt of any corresponding cash
distribution.
If you convert your HIGH TIDES during any
interest payment deferral period, you will not
receive any cash payment for any deferred
distributions.
Conversion Into Common
Stock...................... On or prior to the tender notification date, you
may convert each HIGH TIDES into shares of
common stock of Calpine at the initial rate of
shares of common stock for each HIGH
TIDES (equivalent to an initial conversion price
of $ per share of common stock). The last
reported sale price of Calpine's common stock on
the NYSE on October 22, 1999 was $47.50 per
share. On and after the reset date, each HIGH
TIDES may, at the trust's option and subject to
the results of remarketing, become
nonconvertible or convertible into a different
number of shares of common stock. The conversion
price and conversion ratio in effect at any time
shall hereafter be referred to as the applicable
conversion price and the applicable conversion
ratio, respectively, each of which will be
subject to adjustment in certain circumstances.
In connection with any conversion of the HIGH
TIDES, the property trustee of the trust will
exchange those HIGH TIDES for debentures having
a principal amount equal to the stated
liquidation amount of HIGH TIDES exchanged. The
conversion agent will then
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immediately convert the debentures into
Calpine's common stock.
We will not issue any fractional shares of
common stock as a result of the conversion.
Instead, we will pay the fractional interest in
cash based on the then current market value of
our common stock. Also, we will not issue any
additional shares of our common stock upon
conversion of the HIGH TIDES to pay for any
accrued but unpaid distributions on the HIGH
TIDES at the time of conversion.
Maturity..................... The HIGH TIDES do not have a stated maturity.
However, the trust must redeem the HIGH TIDES
upon the repayment or redemption, in whole or in
part, of the debentures. The debentures will
mature on October , 2029, unless earlier
redeemed. Upon redemption of the debentures on
October , 2029, the trust will redeem the HIGH
TIDES at their liquidation amounts plus accrued
and unpaid distributions.
Remarketing.................. The remarketing agent has agreed to use its
reasonable best efforts to remarket all HIGH
TIDES tendered for remarketing. The remarketing
agent will establish the following, all of which
will be effective as of the reset date:
- the term rate per annum at which distributions
will accrue on the HIGH TIDES,
- the number of shares of common stock, if any,
into which HIGH TIDES may be converted, and
- the price, manner and time, if any, at which
the HIGH TIDES may be redeemed at our option,
prior to the stated maturity date of the
debentures.
The reset date is any date (1) not later than
October , 2004, or the final reset date, or,
if the day is not a business day, the next
succeeding business day, and (2) not earlier
than 70 business days prior to October , 2004,
as may be determined by the remarketing agent,
in its sole discretion, for settlement of a
successful remarketing.
The remarketing agent will use its best efforts
to establish the term rate, term conversion
price and ratio and term call provisions most
favorable to us consistent with the remarketing
of all HIGH TIDES tendered at a reset price
equal to 101% of the liquidation amount of the
HIGH TIDES.
At least 30 business days but not more than 90
business days prior to the final reset date, the
trust will send a
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<PAGE> 95
remarketing notice to you stating whether it
intends to remarket the HIGH TIDES as securities
that either will be convertible into common
stock or nonconvertible. All HIGH TIDES you own
will be deemed tendered for remarketing unless
you deliver an irrevocable notice to the
contrary to the tender agent prior to the tender
notification date. The tender agent will
promptly remit the irrevocable notice to the
remarketing agent prior to the tender
notification date. The tender notification date
is a date no earlier than 10 business days
following the remarketing notice date, or a
shorter period as shall be agreed to by the
remarketing agent.
If no HIGH TIDES are tendered for remarketing,
the remarketing will not take place, and the
remarketing agent will set the term rate, term
conversion price and ratio and term call
provisions in a manner consistent with the
remarketing notice in the manner that it
believes, in its sole discretion, would result
in a price per HIGH TIDES equal to 101% of the
liquidation amount of the HIGH TIDES were a
remarketing actually to occur.
If any HIGH TIDES are tendered for remarketing,
the remarketing agent will commence a
convertible remarketing or a nonconvertible
remarketing. In either case, an initial
remarketing will proceed according to
instructions set forth in the remarketing
notice. The initial remarketing will fail if:
- despite using its best efforts, the
remarketing agent is unable to establish a
term rate less than or equal to the maximum
rate, which is a rate equal to the treasury
rate plus 6%, during the initial remarketing
period,
- the remarketing agent is excused from its
obligations because of the failure by us or
the trust to satisfy certain conditions or the
occurrence of certain market events specified
in the remarketing agreement, or
- there is no remarketing agent on the first day
of the initial remarketing period.
In the event of an initial failed remarketing,
the remarketing agent will commence a final
remarketing. This final remarketing will be a
convertible remarketing if the initial
remarketing was a nonconvertible remarketing and
vice versa. If the remarketing agent is still
not able to establish a term rate less than or
equal to the maximum rate during the final
remarketing period or upon the failure by us or
the trust to satisfy certain
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<PAGE> 96
conditions or the occurrence of certain market
events specified in the remarketing agreement,
the final remarketing will fail. In the event of
a failed final remarketing, the HIGH TIDES will
remain outstanding as convertible securities at
a term rate equal to the treasury rate plus 6%
per annum and with a term conversion price equal
to 105% of the average closing price of our
common stock for the five consecutive trading
days after the final failed remarketing
termination date. In the event of a failed final
remarketing, all outstanding HIGH TIDES will be
redeemable by us, in whole or in part, at any
time on or after the third anniversary of the
reset date at a redemption price equal to 100%
of the aggregate liquidation amount thereof,
plus accrued and unpaid distributions thereon.
If the remarketing agent is able to establish a
term rate less than or equal to the maximum rate
during the initial remarketing period or the
final remarketing period, as the case may be,
new holders will deliver the reset price for the
remarketed HIGH TIDES, and the term provisions
will become effective on the reset date.
If for any reason term provisions are
established by the remarketing agent but on the
reset date the remarketing agent is unable to
sell one or more HIGH TIDES tendered for
remarketing, the remarketing agent will be
obligated, subject to some conditions, to
purchase the HIGH TIDES for the reset price on
the reset date.
Remarketing Agent............ Credit Suisse First Boston Corporation has
agreed to act as the initial remarketing agent,
but may resign or be replaced by us prior to the
remarketing in accordance with the remarketing
agreement. The remarketing will be done without
charge to the holders of HIGH TIDES, but we will
pay the remarketing agent a fee equal to %
of the aggregate liquidation amount of the HIGH
TIDES outstanding on the reset date upon
settlement of the transactions contemplated by
the remarketing.
Optional Redemption.......... We may redeem the debentures:
- in whole or in part, at any time on or after
October , 2002 until but excluding the
tender notification date, at a redemption
price equal to % of the principal amount of
the debentures, declining ratably to 100% of
the principal amount of the debentures after
, plus any accrued and unpaid
interest; and
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- after the reset date, in accordance with the
term call protections established in the
remarketing or upon a failed final
remarketing.
Upon the redemption in whole or in part of the
debentures, the proceeds of the redemption shall
be concurrently applied to redeem, at the
applicable redemption price, the related HIGH
TIDES having an aggregate liquidation amount
equal to the aggregate principal amount of
debentures redeemed.
Tax Event or Investment
Company Event Redemption or
Distribution............... Upon the occurrence of specified tax changes
affecting the trust's taxable status or the
deductibility of interest on the debentures or
changes in the law causing the trust to be
considered an investment company, we will cause
the trustees to dissolve and liquidate the trust
and, after satisfaction of liabilities of
creditors of the trust, distribute the
debentures to you. In limited circumstances, we
may redeem the debentures in whole, but not in
part, at a price equal to the principal amount
of the debentures plus accrued and unpaid
interest, in lieu of distributing the
debentures. Upon the occurrence of certain
changes in the tax laws, we may also cause the
HIGH TIDES to remain outstanding and pay
additional amounts due on the debentures as a
result of the change.
Effect of Redemption......... Each of the terms, "stated maturity price,"
"initial redemption price," "term redemption
price," if applicable, and "tax event redemption
price" are referred to as a redemption price.
Upon the repayment or redemption of the
debentures, the trust will concurrently redeem,
on a pro rata basis, at the applicable
redemption price, the HIGH TIDES and common
securities having a liquidation amount equal to
the principal amount of the repaid or redeemed
debentures. If an event of default exists under
the debentures or the declaration of trust that
governs the trust, the HIGH TIDES will receive a
preference over the trust's common securities.
Guarantee.................... We will irrevocably guarantee, on a subordinated
basis and to the extent set forth in this
prospectus, the payment of the following:
- distributions on the HIGH TIDES to the extent
of available trust funds;
- the amount payable upon redemption of the HIGH
TIDES to the extent of available trust funds;
and
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- generally, the liquidation amount of the HIGH
TIDES to the extent of trust funds available
for distribution to you.
The guarantee will be unsecured and subordinate
to all of our senior debt. Our guarantee is
effectively junior to the debt and other
liabilities of our subsidiaries, and as a
result, funds may not be available for payment
under the guarantee.
Effectively, we have, through the guarantee, the
debentures, the indenture governing the
debentures and the trust's declaration of trust,
taken together, fully, irrevocably and
unconditionally guaranteed all of the trust's
obligations under the HIGH TIDES. No single
document standing alone or operating in
conjunction with fewer than all of the other
documents constitutes a full guarantee. It is
only the combined operation of these documents
that has the effect of providing a full,
irrevocable and unconditional guarantee of the
trust's obligations under the HIGH TIDES.
Liquidation of the Trust..... We, as holder of the trust's common securities,
have the right at any time to dissolve the
trust, subject to specified conditions. If we
dissolve the trust, after satisfaction of
liabilities to creditors of the trust, we will
distribute to you debentures having a principal
amount equal to the liquidation amount of the
HIGH TIDES you hold or, in limited
circumstances, an amount equal to the
liquidation amount per HIGH TIDES plus
accumulated and unpaid distributions to the date
of payment.
Voting Rights................ Except in limited circumstances or as required
by law, you do not have any voting rights,
unless an event of default with respect to the
debentures occurs and is continuing or we
default under the guarantee with respect to the
HIGH TIDES, in which case, you will be entitled,
by majority vote, to appoint an additional
trustee of the trust or remove the Delaware
trustee or the property trustee.
Ranking...................... Generally, the trust will make payments on the
HIGH TIDES pro rata with its common securities.
The debentures will be unsecured and subordinate
and junior in right of payment to all of our
senior debt. At June 30, 1999, we had $1.5
billion of senior debt on a consolidated basis.
Our subsidiaries are separate legal entities and
have no obligations to pay, or make funds
available for the payment of, any amount due on
the debentures, the HIGH TIDES or the guarantee.
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Form of HIGH TIDES........... The HIGH TIDES will be represented by a global
certificate registered in the name of Cede & Co., as nominee for The Depository
Trust Company.
Use of Proceeds.............. The trust will use the gross proceeds from this
offering and from the issuance of the trust's
common securities to purchase the debentures. We
expect to use a substantial portion of the net
proceeds from the sale of the debentures to the
trust and our concurrent common stock offering
to finance power projects under development and
construction. The remaining net proceeds, if
any, will be used for working capital and
general corporate purposes.
Absence of Market for the
HIGH TIDES................. The HIGH TIDES will be a new issue of securities
for which there is currently no market. We do
not intend to list the HIGH TIDES on a national
securities exchange or automated interdealer
quotation system. Although the underwriters have
informed the trust and us that they currently
intend to make a market in the HIGH TIDES, the
underwriters are not obligated to do so, and
they may discontinue any such market making at
any time without notice.
Accordingly, we cannot assure you as to the
development or liquidity of any market for the
HIGH TIDES.
Concurrent Common Stock
Offering................... Concurrently with this offering of HIGH TIDES,
we are offering by a separate prospectus,
6,000,000 shares of our common stock. The
underwriters of the common stock offering have
an option to purchase up to 900,000 additional
shares of common stock to cover over-allotments.
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<PAGE> 100
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 and the related notes, incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------ -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................. $ 94,762 $ 132,098 $ 214,554 $ 276,321 $ 555,948 $ 196,742 $ 336,590
Cost of revenue................ 52,845 77,388 129,200 153,308 375,327 136,125 238,170
Gross profit................... 41,917 54,710 85,354 123,013 180,621 60,617 98,420
Project development expenses... 1,784 3,087 3,867 7,537 7,165 3,119 4,248
General and administrative
expenses..................... 7,323 8,937 14,696 18,289 26,780 11,043 20,964
Income from operations......... 31,772 42,686 66,791 97,187 146,676 46,455 73,208
Interest expense............... 23,886 32,154 45,294 61,466 86,726 40,790 47,171
Other (income) expense......... (1,988) (1,895) (6,259) (17,438) (13,423) (6,599) (11,068)
Extraordinary charge net of tax
benefit of $--, $--, $--,
$--, $441, $207 and $793..... -- -- -- -- 641 302 1,150
Net income..................... $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 45,678 $ 8,569 $ 21,410
Diluted earnings per common
share:
Weighted average shares of
common stock outstanding... 21,842 21,913 29,758 42,032 42,328 42,100 50,469
Income before extraordinary
charge..................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.10 $ 0.21 $ 0.45
Extraordinary charge......... $ -- $ -- $ -- $ -- $ (0.02) $ (0.01) $ (0.02)
Net income................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.08 $ 0.20 $ 0.43
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and
amortization................. $ 21,580 $ 26,896 $ 40,551 $ 48,935 $ 82,913 $ 32,104 $ 45,449
EBITDA(1)...................... $ 53,707 $ 69,515 $ 117,379 $ 172,616 $ 255,306 $ 93,374 $ 151,927
EBITDA to Consolidated Interest
Expense(2)................... 2.23x 2.11x 2.41x 2.60x 2.74x 2.16x 2.92x
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 1.11x 1.43x
SELECTED OPERATING INFORMATION:
Power plants:
Electricity revenue(4):
Energy..................... $ 45,912 $ 54,886 $ 93,851 $ 110,879 $ 252,178 $ 93,735 $ 177,305
Capacity................... $ 7,967 $ 30,485 $ 65,064 $ 84,296 $ 193,535 $ 67,103 $ 106,155
Megawatt hours produced...... 447,177 1,033,566 1,985,404 2,158,008 9,864,080 2,217,659 5,516,805
Average energy price per
kilowatt hour(5)........... 10.267c 5.310c 4.727c 5.138c 2.557c 4.227c 3.214c
</TABLE>
Footnotes appear on the next page.
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<PAGE> 101
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------------ JUNE 30,
1994 1995 1996 1997 1998 1999
-------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 96,532 $ 320,287
Total assets............................ 421,372 554,531 1,031,397 1,380,915 1,728,946 2,549,750
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 79,210
Notes payable........................... 5,296 6,348 -- -- -- --
Senior notes............................ 105,000 105,000 285,000 560,000 951,750 1,551,750
Total debt.............................. 334,402 407,726 601,132 855,859 1,071,390 1,630,960
Stockholders' equity.................... 18,649 25,227 203,127 239,956 286,966 514,127
</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 volume, and variable energy payments, which are
related to production volume.
(5) The average energy price per kilowatt hour represents energy revenue divided
by the megawatt hours produced.
15
<PAGE> 102
RISK FACTORS
Investing in the HIGH TIDES involves risk. You should carefully consider
the risk factors described below, in addition to the other information contained
in this prospectus, before making an investment decision. The risks and
uncertainties described below are not the only risks we face. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial
may 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 the HIGH TIDES and our common stock to decline and the loss of all or
part of your investment.
RISKS RELATING TO CALPINE
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 June 30, 1999, our total
consolidated indebtedness was $1.6 billion, our total consolidated assets were
$2.5 billion and our stockholders' equity was $514.1 million. On June 30, 1999,
on an as adjusted basis after giving effect to the sale of common stock and
convertible preferred securities in the offerings and the application of the
proceeds from the offerings, our total consolidated indebtedness would have been
approximately $1.6 billion, our total consolidated assets would have been
approximately $3.0 billion and our as adjusted cash balances would have been
approximately $777.2 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 $1.5 billion aggregate
principle amount of 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,
16
<PAGE> 103
- create liens,
- sell assets, and
- acquire facilities or other businesses.
Also, if our management or ownership changes, the indentures governing our
senior notes 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.
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). As of June 30, 1999, our subsidiaries had $79.2 million of
non-recourse project financing. 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.
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<PAGE> 104
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 June 30, 1999, we had approximately $1.6
billion of total consolidated indebtedness, $79.2 million of which represented
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.
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
18
<PAGE> 105
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 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.
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<PAGE> 106
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 42 of the 52 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 June 30, 1999, our gas-
fired and geothermal power generation facilities have operated at an average
availability of approximately 96% and 99%, respectively. 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 payments under our financing obligations which could
result in losing our interest in the power generation facility.
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<PAGE> 107
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> 108
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. Generally, 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
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<PAGE> 109
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> 110
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,
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<PAGE> 111
- sales of substantial amounts of our securities into the marketplace,
- 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 November of 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> 112
RISKS RELATING TO THE HIGH TIDES
THE TRUST MAY NOT BE ABLE TO MAKE DISTRIBUTIONS ON THE HIGH TIDES IF WE DEFAULT
ON OUR SENIOR DEBT BECAUSE OUR OBLIGATIONS TO PAY ON THE DEBENTURES AND THE
GUARANTEE ARE SUBORDINATED TO OUR PAYMENT OBLIGATIONS UNDER OUR SENIOR DEBT
Because of the subordinated nature of the guarantee and the debentures, we:
- will not be permitted to make any payments of principal, including
redemption payments, or interest on the debentures if we default on our
senior debt;
- will not be permitted to make payments on the guarantee if we default on
any of our senior debt; and
- must pay all our senior debt before we make payments on the guarantee or
the debentures if we become bankrupt, liquidate or dissolve.
The HIGH TIDES, the guarantee and the debentures do not limit our ability
or the ability of our subsidiaries to incur additional indebtedness, including
indebtedness that ranks senior to the debentures and the guarantee. At June 30,
1999, we had $1.5 billion of senior debt on a consolidated basis. Because the
trust will be able to pay amounts due on the HIGH TIDES only if we make payments
on the debentures, your ability to receive distributions may be affected by our
indebtedness.
THE DEBENTURES WILL BE EFFECTIVELY SUBORDINATED TO OBLIGATIONS OF OUR
SUBSIDIARIES
Our right to participate in any distribution of assets of any of our
subsidiaries upon that subsidiary's dissolution, winding-up, liquidation or
reorganization or otherwise (and thus the ability of the holders of the HIGH
TIDES to benefit indirectly from the distribution) is subject to the prior
claims of the creditors of that subsidiary, except to the extent that we are a
creditor of the subsidiary and our claims are recognized. Therefore, the
debentures will be effectively subordinated to all indebtedness and other
obligations of our subsidiaries. Our subsidiaries are separate legal entities
and have no obligations to pay, or make funds available for the payment of, any
amounts due on the debentures, the HIGH TIDES or the guarantee.
THE DEFERRAL OF INTEREST PAYMENTS MAY HAVE AN ADVERSE EFFECT ON THE TRADING
PRICE OF THE HIGH TIDES
If no event of default under the debentures has occurred and is continuing,
we may defer the payment of interest on the debentures for a period not
exceeding 20 consecutive quarters. If we defer interest payments on the
debentures, the trust will defer quarterly distributions on the HIGH TIDES.
However, distributions will still accumulate quarterly and the deferred
distributions will themselves accrue additional distributions at the annual rate
of %, to the extent permitted by law. There is no limitation on the number
of times that we may elect to defer interest payments. However, no deferral
period may extend beyond (1) the maturity of the debentures whether at the
stated maturity or by declaration of acceleration, call for redemption or
otherwise or (2) in the case of a deferral period beginning prior to the reset
date, the reset date.
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<PAGE> 113
We have no current intention of deferring interest payments on the
debentures. However, if we exercise our right in the future, you will include
original issue discount on the HIGH TIDES in taxable income for federal income
tax purposes, prior to the receipt of cash. In addition, the HIGH TIDES may
trade at prices that do not fully reflect the value of deferred interest on the
debentures. If you sell your HIGH TIDES during an interest deferral period, you
may not receive the same return on your investment as a holder who continues to
hold HIGH TIDES. In addition, our right to defer interest payments on the
debentures may mean that the market price of the HIGH TIDES may be more volatile
than the market prices of other securities that do not have these rights.
IF YOU DO NOT ELECT TO KEEP YOUR HIGH TIDES UPON A REMARKETING NOTICE, YOUR HIGH
TIDES WILL NO LONGER BE OUTSTANDING AFTER A SUCCESSFUL REMARKETING
If you do not notify the remarketing agent, your HIGH TIDES will no longer
be outstanding after the successful remarketing, and you will have no further
rights thereunder except to receive an amount equal to:
- from the proceeds of the remarketing, 101% of the aggregate liquidation
amount of the HIGH TIDES, plus
- from us, accrued and unpaid distributions on the HIGH TIDES up until, but
excluding, the reset date.
The remarketing agent agrees to use its best efforts to remarket all HIGH
TIDES tendered for remarketing. All HIGH TIDES will be considered tendered
unless the holder of HIGH TIDES gives irrevocable notice to the contrary to the
tender agent, which the tender agent will promptly remit to the remarketing
agent, before the tender notification date.
THE REMARKETING OF THE HIGH TIDES MAY NOT BE SUCCESSFUL AND THE TERMS OF THE
HIGH TIDES AFTER ANY REMARKETING ARE SUBJECT TO CHANGE
The remarketing will have failed if:
- despite using its best efforts, the remarketing agent cannot establish a
term rate less than or equal to the maximum rate,
- the remarketing agent is excused from remarketing the HIGH TIDES because
of (a) the failure by us to satisfy a condition in the remarketing
agreement or (b) the occurrence of certain market events specified in the
remarketing agreement; or
- there is no remarketing agent on the first day of the initial remarketing
period.
If the initial remarketing fails, the remarketing agent will commence a
final remarketing during the final remarketing period. If the final remarketing
fails, then the HIGH TIDES will remain outstanding at a term rate equal to the
treasury rate plus 6% per annum and with a term conversion price equal to 105%
of the average closing price of our common stock for the five consecutive
trading days after the final failed remarketing termination date. In the event
of a failed final remarketing, all outstanding HIGH TIDES will be redeemable by
us, in whole or in part, at any time on or after the third anniversary of the
reset date at a redemption price equal to 100% of the aggregate liquidation
amount thereof, plus accrued and unpaid distributions thereon. If no HIGH TIDES
are tendered for remarketing, the remarketing will not take place, although the
remarketing will not be
27
<PAGE> 114
deemed to have failed. The remarketing agent will set the term provisions
according to the instructions contained in the remarketing notice in the manner
that it believes, in its sole discretion, would result in a price per HIGH TIDES
equal to 101% of the liquidation amount if a remarketing were actually to occur.
AFTER THE RESET DATE, THE HIGH TIDES MAY NO LONGER BE CONVERTIBLE OR MAY BE
CONVERTIBLE INTO A FEWER NUMBER OF SHARES OF OUR COMMON STOCK
Each HIGH TIDES is initially convertible, at the option of the holder, into
shares of common stock, which may be adjusted in certain
circumstances. See "Description of HIGH TIDES -- Conversion Rights" We may
choose to remarket the HIGH TIDES so that after the reset date the HIGH TIDES
will not be convertible into shares of common stock, or, each HIGH TIDES will be
convertible into a different number of shares of common stock. See "The
Remarketing."
THE TRUST MAY REDEEM THE HIGH TIDES WITHOUT YOUR CONSENT IF SPECIFIED TAX
CHANGES OCCUR OR IF THE TRUST WOULD BE REQUIRED TO REGISTER AS AN INVESTMENT
COMPANY
Upon the occurrence of specified tax changes affecting the trust's taxable
status or the deductibility of interest on the debentures or changes in the law
causing the trust to be considered an investment company, we may either dissolve
and liquidate the trust and, after satisfaction of liabilities of creditors of
the trust, distribute the debentures to you and to us, as the holder of the
trust's common securities, on a pro rata basis or we may redeem all of the
debentures. If we redeem the debentures, the trust will use the cash it receives
from that redemption to redeem the HIGH TIDES and the trust's common securities.
WE MAY CAUSE THE HIGH TIDES TO BE REDEEMED ON OR AFTER OCTOBER , 2002 WITHOUT
YOUR CONSENT
We may redeem all or some of the debentures at our option at any time on or
after October , 2002. The redemption price initially includes a premium
declining over time to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest. You should assume that we will exercise our
redemption option if we are able to refinance the debentures at a lower interest
rate or if we conclude it is otherwise in our interest to redeem the debentures.
The trust will use the cash it receives from the redemption of the debentures to
redeem an equivalent amount of HIGH TIDES and its common securities on a pro
rata basis.
DISTRIBUTION OF THE DEBENTURES TO YOU MAY HAVE ADVERSE TAX CONSEQUENCES FOR YOU
We may dissolve and liquidate the trust at any time. If that happens, the
trust will redeem the HIGH TIDES and its common securities by distributing,
after satisfaction of liabilities of creditors of the trust, the debentures to
you and to us, as the holder of the trust's common securities, on a pro rata
basis.
Under current United States federal income tax laws, a distribution of
debentures on the dissolution of the trust would not be a taxable event to you.
However, if there is a change in the law and, for example, the trust is
characterized for United States federal
28
<PAGE> 115
income tax purposes as an association taxable as a corporation at the time of
its dissolution, the distribution of debentures would likely constitute a
taxable event to you.
Because you may receive debentures, you should make an investment decision
with regard to the debentures in addition to the HIGH TIDES. You should
carefully review all the information regarding the debentures contained in this
prospectus.
THE DISTRIBUTION OF DEBENTURES UPON LIQUIDATION OF THE TRUST MAY HAVE AN ADVERSE
EFFECT ON THE TRADING PRICE OF THE HIGH TIDES
We have the right to dissolve and liquidate the trust. Although we have no
current intention of doing so, we anticipate that we would consider exercising
this right if the expenses associated with maintaining the trust are
substantially greater than we expect or for other business reasons. If we
exercise our right to dissolve and liquidate the trust, the trust will redeem
the HIGH TIDES and its common securities by distributing, after satisfaction of
liabilities of creditors of the trust, the debentures to you and to us on a pro
rata basis, unless an event of default under the debentures has occurred and is
continuing, in which case you will have priority over us.
We cannot predict the market prices for the debentures that the trust may
distribute to you. Accordingly the debentures that you receive on a
distribution, or the HIGH TIDES you hold pending a distribution, may trade at a
discount to the price that you paid to purchase the HIGH TIDES.
WE GUARANTEE PAYMENTS ON THE HIGH TIDES ONLY IF THE TRUST HAS CASH AVAILABLE
If we fail to make payments on the debentures, the trust will not be able
to pay distributions, the redemption price or the liquidation amount of each
HIGH TIDES. In those circumstances, you will not be able to rely upon the
guarantee for payment of these amounts. Instead, if we are in default under the
debentures, you may:
- rely on the property trustee for the trust to enforce the trust's rights
under the debentures; or
- directly sue us or seek other remedies to collect your share of payments
owed.
YOU HAVE LIMITED VOTING RIGHTS
You will have limited voting rights relating generally to:
- the modification of the HIGH TIDES and our guarantee of the HIGH TIDES;
and
- the exercise of the trust's rights as holder of debentures.
You are not entitled to appoint, remove or replace the property trustee of
the trust or the statutory trustee of the trust except upon the occurrence of
certain events. The property trustee, and the holders of all of the trust's
common securities may, subject to certain conditions, amend the declaration of
trust without your consent to:
- cure any ambiguity;
- make provisions of the declaration of trust not inconsistent with other
provisions of the declaration of trust;
- ensure that the trust will not be classified for United States federal
income tax purposes as an association subject to taxation as a
corporation;
- ensure that the trust will be classified as a grantor trust; or
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<PAGE> 116
- ensure that the trust will not be required to register as an "investment
company" under the Investment Company Act of 1940.
THE HIGH TIDES AND THE DEBENTURES DO NOT HAVE AN ESTABLISHED MARKET
Prior to this offering, there has been no public market for the HIGH TIDES.
The underwriters currently plan to make a market in the HIGH TIDES. However, the
underwriters may suspend their market making activities at any time and for any
reason. Accordingly, we cannot assure you that an active trading market for the
HIGH TIDES will develop or be sustained. If a market were to develop, the HIGH
TIDES could trade at prices that may be higher or lower than their offering
price depending upon many factors, including:
- prevailing interest rates;
- Calpine's operating results; and
- the market for similar securities.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. 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 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.
333-87427) we and the trust 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 as amended for the year
ended December 31, 1998, our Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999 and June 30, 1999, our Current Report on Form 8-K dated May
7, 1999, our Current Report on Form 8-K dated October 11, 1999, and our Current
Report on Form 8-K dated October 22, 1999, each 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 HIGH TIDES and common stock 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.
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<PAGE> 117
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> 118
USE OF PROCEEDS
We estimate that the gross proceeds from the sale of the HIGH TIDES will be
$200.0 million. The trust will use these proceeds, together with the proceeds
from the issuance of the trust's common securities, to purchase debentures from
us. After deducting the underwriting commissions which we have agreed to pay on
behalf of the trust, and the other offering expenses we will pay, we estimate
that we will receive net proceeds of $192.0 million from the sale of the
debentures to the trust, or $220.8 million if the underwriters' over-allotment
option is exercised in full. We expect to use a substantial portion of the net
proceeds from this offering and the concurrent common stock offering to finance
power projects under development and construction. The remaining proceeds, if
any, will be used for working capital and general corporate purposes. See
"Business -- Project Development and Acquisitions." Pending such uses, we expect
to invest the net proceeds in short-term, interest-bearing securities.
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. The information in the
following table reflects the 2 for 1 stock split declared by us on September 20,
1999.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997
First Quarter.............................................. $11.375 $ 8.563
Second Quarter............................................. 10.438 7.875
Third Quarter.............................................. 11.469 8.250
Fourth Quarter............................................. 10.625 6.188
1998
First Quarter.............................................. $ 9.250 $ 6.375
Second Quarter............................................. 10.625 8.625
Third Quarter.............................................. 10.750 8.563
Fourth Quarter............................................. 13.813 8.906
1999
First Quarter.............................................. $18.688 $12.625
Second Quarter............................................. 29.500 17.563
Third Quarter.............................................. 47.875 27.406
Fourth Quarter (through October 22, 1999).................. 51.500 42.531
</TABLE>
As of October 22, 1999, there were approximately 85 holders of record of
our common stock. On October 22, 1999, the last sale price reported on the New
York Stock Exchange for our common stock was $47.50 per share.
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<PAGE> 119
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.
ACCOUNTING TREATMENT
For financial reporting purposes, we will treat the trust as one of our
subsidiaries. Accordingly, we will include the accounts of the trust in our
consolidated financial statements. We will present the HIGH TIDES as a separate
line item in our consolidated balance sheet entitled "Company-obligated
mandatorily redeemable convertible preferred securities of a subsidiary trust,"
and we will include appropriate disclosures about the HIGH TIDES in the notes to
our consolidated financial statements. For financial reporting purposes, we will
record distributions payable on the HIGH TIDES as a minority interest in our
consolidated statement of income.
We have not included separate financial statements of the trust because we
do not consider those financial statements material to you because:
- Calpine, a reporting company under the Securities Exchange Act of 1934,
will own, directly or indirectly all of the voting securities of the
trust;
- the trust has no independent operations but exists for the sole purpose
of issuing securities representing undivided beneficial interests in the
trust's assets and investing the proceeds in the debentures; and
- we will fully and unconditionally guarantee the obligations of the trust
under the HIGH TIDES and the common securities to the extent that the
trust has assets available to meet such obligations.
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<PAGE> 120
CAPITALIZATION
The following table sets forth, as of June 30, 1999 (1) the actual
consolidated capitalization of the Company; and (2) the consolidated
capitalization of our Company as adjusted for the sale of the shares of our
common stock and convertible preferred securities in the offerings. This table
should be read in conjunction with the consolidated financial statements and
related notes thereto incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
UNAUDITED
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
CASH:
Cash and cash equivalents........................... $ 320,287 $ 777,247
========== ==========
LONG-TERM DEBT:
Non-recourse project financing, net of current
portion.......................................... $ 79,210 $ 79,210
Senior notes........................................ 1,551,750 1,551,750
---------- ----------
Total long-term debt........................ 1,630,960 1,630,960
---------- ----------
Company-obligated convertible preferred securities of
a subsidiary trust(1)............................... -- 192,000
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; 54,348,294 shares
outstanding, actual; and 60,348,294 shares
outstanding, as adjusted(2)(3)(4)................ 54 60
Additional paid-in capital.......................... 374,591 639,545
Retained earnings................................... 139,482 139,482
---------- ----------
Total stockholders' equity.................. 514,127 779,087
---------- ----------
Total capitalization..................... $2,145,087 $2,602,047
========== ==========
</TABLE>
- -------------------------
(1) Proceeds are recorded net of unamortized issuance costs of $8,000.
(2) Excludes the 900,000 shares that may be issued upon exercise of the
underwriters' over-allotment option.
(3) Does not include 3,202,649 shares of common stock subject to issuance upon
exercise of options previously granted and outstanding as of June 30, 1999
under our 1996 Stock Incentive Plan.
(4) Reflects 2 for 1 stock split declared by us on September 20, 1999.
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<PAGE> 121
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 consolidated financial data for the six
months ended and as of June 30, 1998 and June 30, 1999 are unaudited, but have
been prepared on the same basis as the audited consolidated financial statements
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
financial position and results of operations for these periods. Consolidated
operating results for the six months ended June 30, 1999 should not be
considered indicative of the results that may be expected for the entire year.
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the related notes thereto
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales........ $90,295 $127,799 $199,464 $237,277 $507,897 $178,798 $304,322
Service contract revenue from
related parties.................. 7,221 7,153 6,455 10,177 20,249 8,529 13,238
Income (loss) from unconsolidated
investments in power projects.... (2,754) (2,854) 6,537 15,819 25,240 6,853 18,321
Interest income on loans to power
projects......................... -- -- 2,098 13,048 2,562 2,562 709
------- -------- -------- -------- -------- -------- --------
Total revenue................ 94,762 132,098 214,554 276,321 555,948 196,742 336,590
Cost of revenue...................... 52,845 77,388 129,200 153,308 375,327 136,125 238,170
------- -------- -------- -------- -------- -------- --------
Gross profit......................... 41,917 54,710 85,354 123,013 180,621 60,617 98,420
Project development expenses......... 1,784 3,087 3,867 7,537 7,165 3,119 4,248
General and administrative
expenses........................... 7,323 8,937 14,696 18,289 26,780 11,043 20,964
Provision for write-off of project
development costs.................. 1,038 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Income from operations............... 31,772 42,686 66,791 97,187 146,676 46,455 73,208
Interest expense..................... 23,886 32,154 45,294 61,466 86,726 40,790 47,171
Other (income) expense............... (1,988) (1,895) (6,259) (17,438) (13,423) (6,599) (11,068)
------- -------- -------- -------- -------- -------- --------
Income before provision for income
taxes............................ 9,874 12,427 27,756 53,159 73,373 12,264 37,105
Provision for income taxes........... 3,853 5,049 9,064 18,460 27,054 3,393 14,545
------- -------- -------- -------- -------- -------- --------
Income before extraordinary
charge........................... 6,021 7,378 18,692 34,699 46,319 8,871 22,560
Extraordinary charge for retirement
of debt, net of tax benefit of $--,
$--, $--, $--, $441, $207 and
$793............................... -- -- -- -- 641 302 1,150
------- -------- -------- -------- -------- -------- --------
Net income......................... $ 6,021 $ 7,378 $ 18,692 $ 34,699 $ 45,678 $ 8,569 $ 21,410
======= ======== ======== ======== ======== ======== ========
Basic earnings per common share:
Weighted average shares of common
stock outstanding................ 20,776 20,776 25,805 39,892 40,242 40,112 47,518
Income before extraordinary
charge........................... $ 0.29 $ 0.36 $ 0.72 $ 0.87 $ 1.15 $ 0.22 $ 0.47
Extraordinary charge............... $ -- $ -- $ -- $ -- $ (0.02) $ (0.01) $ (0.02)
Net income......................... $ 0.29 $ 0.36 $ 0.72 $ 0.87 $ 1.13 $ 0.21 $ 0.45
Diluted earnings per common share:
Weighted average shares of common
stock outstanding................ 21,842 21,913 29,758 42,032 42,328 42,100 50,469
Income before extraordinary
charge........................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.10 $ 0.21 $ 0.45
Extraordinary charge............... $ -- $ -- $ -- $ -- $ (0.02) $ (0.01) $ (0.02)
Net income......................... $ 0.28 $ 0.34 $ 0.63 $ 0.83 $ 1.08 $ 0.20 $ 0.43
</TABLE>
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<PAGE> 122
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA AND
RATIOS:
Depreciation and
amortization.............. $ 21,580 $ 26,896 $ 40,551 $ 48,935 $ 82,913 $ 32,104 $ 45,449
EBITDA(1)................... $ 53,707 $ 69,515 $ 117,379 $ 172,616 $ 255,306 $ 93,374 $ 151,927
EBITDA to Consolidated
Interest Expense(2)....... 2.23x 2.11x 2.41x 2.60x 2.74x 2.16x 2.92x
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 1.11x 1.43x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------- AS OF
1994 1995 1996 1997 1998 JUNE 30, 1999
-------- -------- ---------- ---------- ---------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 22,527 $ 21,810 $ 95,970 $ 48,513 $ 96,532 $ 320,287
Property, plant and equipment, net... 335,453 447,751 648,208 736,339 1,094,303 1,568,882
Investments in power projects........ 11,114 8,218 13,936 222,542 221,509 234,584
Notes receivable..................... 16,882 25,785 36,143 117,357 10,899 16,202
Total assets......................... 421,372 554,531 1,031,397 1,380,915 1,728,946 2,549,750
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 79,210
Notes payable........................ 5,296 6,348 -- -- -- --
Senior notes......................... 105,000 105,000 285,000 560,000 951,750 1,551,750
Total debt........................... 334,402 407,726 601,132 855,859 1,071,390 1,630,960
Stockholders' equity................. 18,649 25,227 203,127 239,956 286,966 514,127
</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.
36
<PAGE> 123
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 Management's Discussion and
Analysis of Financial Condition and Results of Operations 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.
37
<PAGE> 124
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, $-- and $441............ 641 -- 641
-------- --------- --------
Net income.................................... $ 45,678 $ 3,348 $ 49,026
======== ========= ========
Basic earnings per common share:
Weighted average shares of common stock
outstanding................................... 40,242 40,242
Income before extraordinary charge.............. $ 1.15 $ 1.24
Extraordinary charge............................ $ (0.02) $ (0.02)
Net income...................................... $ 1.13 $ 1.22
Diluted earnings per common share:
Weighted average shares of common stock
outstanding................................... 42,328 42,328
Income before extraordinary charge.............. $ 1.10 $ 1.18
Extraordinary charge............................ $ (0.02) $ (0.02)
Net income...................................... $ 1.08 $ 1.16
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>
38
<PAGE> 125
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 September 10, 1999, we had interests in 37 power plants
predominantly in the United States, having an aggregate capacity of 3,627
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 and 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.
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.
39
<PAGE> 126
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.
On January 4, 1999, we completed the acquisition of a 20% interest in 82
billion cubic feet of proven natural gas reserves located in the Sacramento
basin of Northern California. We paid approximately $14.9 million for $13.0
million in redeemable non-voting preferred stock and 20% of the outstanding
common stock of Sheridan California Energy, Inc. ("SCEI"). Additionally, we
signed a ten year gas contract enabling us to purchase 100% of SCEI's
production.
On February 17, 1999, we announced that the Delta Energy Center met the
California Energy Commission's Data Adequacy requirements. This ruling stated
that our Application for Certification contained adequate information for the
California Energy Commission to begin its analysis of the power plant's
environmental impacts and proposed mitigation. The Delta Energy Center, an 880
megawatt gas-fired power plant located at the Dow Chemical facility in
Pittsburg, California, is the first power plant that will be developed, owned
and operated under a joint venture with Bechtel Enterprises, and will provide
power to the Pittsburg, California and the greater San Francisco Bay Area. The
gas-fired power plant is to be constructed by Bechtel and operated by us.
On February 17, 1999, we announced plans to develop, own and operate a 545
megawatt gas-fired power plant in Westbrook, Maine. We acquired the development
rights for the Westbrook Power Plant from Genesis Power Corporation. This power
plant is scheduled to begin power deliveries in early 2001, and will serve the
New England market.
On February 24, 1999, we announced plans to develop, own and operate a 600
megawatt gas-fired power plant located in San Jose, California. This power
plant, called the Metcalf Energy Center, is the second power plant to be
developed under the joint venture with Bechtel Enterprises, and will provide
electricity to the San Francisco Bay area. We expect the plant to commence
operation in mid 2002.
40
<PAGE> 127
On March 19, 1999, we completed the acquisition of Unocal Corporation's
Geysers geothermal steam fields in northern California for approximately $102.1
million. The steam fields fuel our 12 Sonoma County power plants, totaling 544
megawatts of capacity. We purchased these plants from PG&E on May 7, 1999.
On April 14, 1999, we received approval from the California Energy
Commission to construct a 545 megawatt gas-fired power plant near Yuba City,
California. This power plant, called the Sutter Power Plant, was the first new
power plant approved in California's deregulated power industry. Electricity
produced by the Sutter Power Plant will be sold into California's energy market.
We expect the plant to commence operation in early 2001.
On April 22, 1999, we entered into a joint venture with GenTex Power
Corporation to develop, own and operate a 545 megawatt gas-fired power plant in
Bastrop County, Texas, called Lost Pines I. Construction of this power plant is
expected to begin in October 1999. Under the definitive agreements we entered in
September 1999, we will manage all phases of the plant's development process,
with GenTex and ourselves jointly operating the plant. The output from Lost
Pines I will be divided equally, with GenTex selling its portion to its customer
base, while we will sell our portion to the wholesale power market in Texas. We
expect the plant to commence operation in mid-2001.
On April 23, 1999, we entered into a joint agreement with Pinnacle West
Capital Corporation to develop, own and operate a 545 megawatt gas-fired power
plant located in Phoenix, Arizona. This plant, called the West Phoenix Power
Plant, will provide power to the Phoenix metropolitan area, and construction
will commence in 2000. We expect the plant to commence operation in 2002.
On May 7, 1999, we completed the acquisitions from PG&E, of 12 Sonoma
County and 2 Lake County power plants for approximately $212.8 million. The
acquisitions were financed with a 24 year operating lease. Our geothermal steam
fields fuel the facilities, which have a combined capacity of approximately 694
megawatts of electricity. All of the generation from the facilities is sold to
the California energy market, with the exception of an agreement entered into on
April 29, 1999, to sell to Commonwealth Energy Corporation 75 megawatts of
geothermal electricity in 1999, 100 megawatts in 2000, and 125 megawatts in 2001
and through June 2002. Historically, we have served as a steam supplier for
these facilities, which had been owned and operated by PG&E. These acquisitions
have enabled 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 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.
On June 21, 1999, we acquired the rights to build, own and operate a 545
megawatt gas-fired power plant located in Ontelaunee Township, Pennsylvania. The
plant, called the Ontelaunee Energy Center, will provide power to residences and
businesses throughout the Pennsylvania-New Jersey-Maryland power pool.
Construction will commence in 2000 and the plant is scheduled to begin
production in 2002.
On July 26, 1999, we announced plans to enter into a $1.0 billion revolving
construction credit facility and expect to enter into definitive agreements in
the fall of 1999. The non-recourse credit facility will serve as a key component
of our development program and will be utilized to finance the construction of
our diversified portfolio of gas-
41
<PAGE> 128
fired power plants currently under development. We currently intend to refinance
the construction facility in the longer-term capital markets prior to its
four-year maturity.
On August 20, 1999, we announced the purchase of 18 F-class combustion
turbines from Siemens Westinghouse Power Corporation that will be capable of
producing 4,900 megawatts of electricity in a combined-cycle configuration.
Beginning in 2002, Siemens will deliver six turbines per year through 2004.
Combined with our existing turbine order we have 69 turbines under contract,
option or letter of intent capable of producing 17,745 megawatts.
On August 27, 1999, we announced an agreement with CGCA to acquire 80% of
its common stock for $25.00 per share or approximately $145.0 million. NRG
Energy, Inc., a wholly owned subsidiary of Northern States Power, will own the
remaining 20%. The transaction is subject to the approval of CGCA shareholders
and we expect to consummate the acquisition by year-end 1999. CCGA currently
owns interests in six natural gas-fired power plants, totaling 579 megawatts.
The plants are located in Pennsylvania, New Jersey, Illinois and Oklahoma.
On August 31, 1999, we completed the acquisition of an additional 50% of
the Aidlin Power Plant from Edison Mission Energy (5%) and General Electric
Capital Corporation (45%) for a total purchase price of $7.2 million. We now own
55% of the 20-megawatt Aidlin Power Plant.
On September 29, 1999 we completed the acquisition of development rights to
build, own and operate the Los Medanos Power Plant from Enron North America. The
Los Medanos Power Plant is a 550 megawatt gas-fired cogeneration plant located
adjacent to USS-POSCO Industries steel mill in Pittsburg, California. Los
Medanos will supply USS-POSCO with 60 megawatts of electricity and 75,000 pounds
per hour of steam, and market the excess electricity into the California power
exchange and under bilateral contracts. Construction commenced in September 1999
and commercial operation is scheduled to occur in 2001.
On September 30, 1999 we announced plans to build, own and operate an 800
megawatt gas-fired cogeneration power plant at Bayer Corporation's chemical
facility in Baytown, Texas. The Baytown Power Plant will supply Bayer with all
of its electric and steam requirements for 20 years and market excess
electricity into the Texas wholesale power market. Construction is estimated to
commence in 2000 and commercial operation in 2001.
On October 1, 1999, we completed the acquisition of Sheridan Energy, Inc.,
a natural gas exploration and production company, through a $41.0 million cash
tender offer. We purchased the outstanding shares of Sheridan Energy's common
stock for $5.50 per share. In addition, we redeemed $11.5 million of outstanding
preferred stock of Sheridan Energy. Sheridan Energy's oil and gas properties,
including 148 billion cubic feet equivalent of proven reserves, are located in
northern California and the Gulf Coast region, where we are developing low-cost
natural gas supplies and proprietary pipeline systems to support our
strategically-located natural gas-fired power plants.
On October 21, 1999, we completed the acquisition of the Calistoga
geothermal power plant from FPL Energy and Caithness Corporation for
approximately $78.0 million. Located in The Geysers region of northern
California, Calistoga is a 67 megawatt facility which provides electricity to
Pacific Gas and Electric Company under a long-term contract.
42
<PAGE> 129
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, and the 12
Sonoma County and 2 Lake County power plants purchased from PG&E on May 7, 1999.
The information set forth under steam fields consists of the results for the
Thermal Power Company Steam Fields prior to the acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
POWER PLANTS:
Electricity revenue
(1):
Energy................. $ 45,912 $ 54,886 $ 93,851 $ 110,879 $ 252,178 $ 93,735 $ 177,305
Capacity............... $ 7,967 $ 30,485 $ 65,064 $ 84,296 $ 193,535 $ 67,103 $ 106,155
Megawatt hours
produced............. 447,177 1,033,566 1,985,404 2,158,008 9,864,080 2,217,659 5,516,805
Average energy price
per kilowatt hour
(2).................. 10.267c 5.310c 4.727c 5.138c 2.557c 4.227c 3.214c
STEAM FIELDS:
Steam revenue (3):
Calpine................ $ 32,631 $ 39,669 $ 40,549 $ 42,102 $ 36,130 $ 17,960 $ 20,862
Other interest......... $ 2,051 $ -- $ -- $ -- $ -- $ -- $ --
Megawatt hours
produced............. 2,156,492 2,415,059 2,528,874 2,641,422 2,323,623 981,114 1,192,722
Average price per
kilowatt hour........ 1.608c 1.643c 1.603c 1.594c 1.555c 1.831c 1.749c
</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
completed several acquisitions of geothermal power plants and steam fields
during 1999. Since the steam fields serve power plants owned by us following
their acquisitions, our steam fields will no longer recognize steam revenue.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenue -- Total revenue increased 71% to $336.6 million for the six months
ended June 30, 1999 compared to $196.7 million for the same period in 1998.
43
<PAGE> 130
Electricity and steam sales revenue for the six months ended June 30, 1999
increased 70% to $304.3 million as compared to $178.8 million for the same
period a year ago. This increase is primarily due to an increase of $106.3
million for power plants that were acquired during the first half of 1998, and
$32.7 million for our Pasadena plant that became operational in the third
quarter of 1998, partially offset by a decrease of $21.6 million at the Bear
Canyon and West Ford Flat Power Plants relating to the expiration of the fixed
priced period of their power sales agreements.
Service contract revenue increased to $13.2 million for the six months
ended June 30, 1999 compared to $8.5 million for the same period in 1998. The
increase was primarily attributable to third party excess gas sales, as well as
an increase for fuel management fees.
Income from unconsolidated investments in power projects for the six months
ended June 30, 1999 increased 165% to $18.3 million as compared to $6.9 million
for the same period a year ago. This increase is primarily attributable to an
increase of $11.4 million of equity income from our investment in Sumas, an
increase of $1.5 million of equity income from our investment in the Bayonne
Power Plant, and an increase of $1.1 million from our Kennedy International
Airport Power Plant. These increases were partially offset by a reduction of
$2.9 million in equity income from our Texas City and Clear Lake Power Plants,
which were consolidated on March 31, 1998.
Interest income on loans to power projects for the six months ended June
30, 1999 decreased to $709,000 compared to $2.6 million for the same period a
year ago. The decrease is primarily related to the acquisition of the remaining
50% interest in Texas Cogeneration Company on March 31, 1998, offset by dividend
income received from Sheridan California Energy.
Cost of revenue -- Cost of revenue increased to $238.2 million for the six
months ended June 30, 1999 compared to $136.1 million for the same period in
1998. The increase of $102.1 million was primarily attributable to increased
plant operating, fuel and depreciation expenses as a result of the acquisition
of the remaining interests in the Texas City, Clear Lake Power Plants on March
31, 1998, the acquisition of the remaining interest in the Bethpage Power Plant
on February 5, 1998, the acquisition of the Pittsburg Power Plant on July 21,
1998, the consolidation of our Geysers operations on May 7, 1999 and the startup
of the Pasadena Power Plant in July of 1998.
General and administrative expenses -- General and administrative expenses for
the six months ended June 30, 1999 increased to $21.0 million compared to $11.0
million for the same period in 1998. The increase was attributable to continued
growth in personnel and associated overhead costs necessary to support the
overall growth in our operations.
Interest expense -- Interest expense for the six months ended June 30, 1999
increased to $47.2 million from $40.8 million for the same period a year ago.
The increase was primarily attributable to $21.8 million of interest associated
with the issuances of senior notes in 1999 and 1998, partially offset by an
increase in capitalized interest of $10.3 million, and a decrease in interest
expense of $4.7 million related to the retirement of non-recourse project
financing for the Greenleaf Power Plant in 1998 and the Gilroy Power Plant in
1999.
Provision for income taxes -- The effective income tax rate was approximately
39% for the six months ended June 30, 1999. The reductions from the statutory
tax rate was primarily
44
<PAGE> 131
due to depletion in excess of tax basis benefits at our geothermal facilities,
and a decrease in the California taxes paid due to our expansion into states
other than California.
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.
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.
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<PAGE> 132
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 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
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<PAGE> 133
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 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
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<PAGE> 134
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.
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operating activities......... $ 59,944 $ 108,461 $ 171,233 $ 23,073 $ 58,555
Investing activities......... (330,937) (402,158) (406,657) (174,923) (590,328)
Financing activities......... 345,153 246,240 283,443 203,696 755,528
--------- --------- --------- --------- ---------
Total................. $ 74,160 $ (47,457) $ 48,019 $ 51,846 $ 223,755
========= ========= ========= ========= =========
</TABLE>
Operating activities for the six months ended June 30, 1999 provided $58.6
million, consisting of approximately $44.1 million of depreciation and
amortization, $21.4 million of net income, $25.5 million of distributions from
unconsolidated investments in power projects, $13.3 million of deferred income
taxes, and a $7.2 million net increase in operating liabilities. This was offset
by $34.6 million net increase in operating assets and $18.3 million of income
from unconsolidated investments. 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 the six months ended June 30, 1999 used $590.3
million, primarily due to $102.2 million for the acquisition of steam fields
from Unocal, $14.9 million for the acquisition of a 20% interest in SCEI, a
$15.8 million increase in restricted cash, $79.3 million of capital expenditures
related to the construction of the Pasadena Power Plant Expansion, $344.6
million of other capital expenditures principally for turbine purchases and for
the Clear Lake Expansion project, $33.8 million of capitalized project
development costs, $14.0 million of interest capitalized on construction
projects, $8.4 million of additional loans to principal owners of power plants,
$655,000 for the acquisition of additional investments, offset by $1.9 million
of maturities of collateral securities in connection with the King City Power
Plant, the repayment of $3.1 million of outstanding loans, and $18.4 million
from the sale and leaseback transaction of the Geysers Power Company plants.
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
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<PAGE> 135
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 the six months ended June 30, 1999 provided $755.5
million of cash consisting of $79.2 million of borrowings for the construction
of the Pasadena Power Plant, $77.6 million of borrowings related to a bridge
facility, $794.8 million of net proceeds from additional equity and senior debt
financings received in March and April of 1999, and $1.2 million for the
issuance of common stock for our Employee Stock Purchase Plan, partially offset
by $120.6 million in repayment of non-recourse project financing in April 1999,
and $77.6 million of repayments related to a bridge facility. 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 June 30, 1999, cash and cash equivalents were $320.3 million and working
capital was $346.4 million. For 1999, cash and cash equivalents increased by
$223.8 million and working capital increased by $259.5 million as compared to
December 31, 1998. 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.
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 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 January 4, 1999, we entered into a Credit Agreement with ING to provide
up to $265.0 million of non-recourse project financing for the construction of
the Pasadena facility expansion. As of June 30, 1999, $79.2 million was
outstanding as a construction loan under the agreement. The outstanding loan
bears interest at ING's base rate plus an applicable margin or at LIBOR plus an
applicable margin and is payable quarterly. The construction loan will convert
to a term loan once the project has completed construction. The construction
loan will mature on or before July 1, 2000, but is subject to an extension to
October 1, 2000 if there are sufficient construction funds available. The term
loan will be available for a period not to exceed five years from the
construction loan maturity date.
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<PAGE> 136
In connection with the Credit Agreement, we entered into a $10.0 million letter
of credit facility. At June 30, 1999, there were no letters of credit
outstanding under the facility.
On March 26, 1999, we completed a public offering of 12,000,000 shares of
our common stock at $15.50 per share. The net proceeds from this public offering
were approximately $177.9 million. Additionally, in April 1999, we sold an
additional 1,800,000 shares of common stock at $15.50 per share pursuant to the
exercise of the underwriters' over-allotment option for net proceeds of
approximately $26.7 million.
On March 29, 1999, we completed a public offering of $250.0 million of our
7 5/8% Senior Notes Due 2006 and of our $350.0 million 7 3/4% Senior Notes Due
2009. After deducting underwriting discounts and expenses of the offering, the
aggregate net proceeds from the sale of the Senior Notes were approximately
$588.3 million. The Senior Notes Due 2006 bear interest at 7 5/8% per year,
payable semi-annually on April 15 and October 15 each year and mature on April
15, 2006. The Senior Notes Due 2006 are not redeemable prior to maturity. The
Senior Notes Due 2009 bear interest at 7 3/4% per year, payable semi-annually on
April 15 and October 15 each year and mature on April 15, 2009. The Senior Notes
Due 2009 are not redeemable prior to maturity.
The net proceeds from the sale of the common stock, the Senior Notes Due
2006, and the Senior Notes Due 2009 were used as follows: (1) $120.6 million to
refinance indebtedness relating to the Gilroy Power Plant, (2) $77.6 million to
repay indebtedness under a bridge facility provided by Credit Suisse First
Boston to finance a portion of the purchase price to acquire the steam fields
that service the Sonoma County power plants, (3) $50.0 million to repay
outstanding borrowings under our revolving credit facility, $23.4 million of
which was incurred to finance a portion of the steam fields that service the
Sonoma Power Plants, (4) $25.0 million to complete the expansion of the Clear
Lake Power Plant, (5) approximately $400.0 million to finance a portion of power
generation facilities currently under construction and the projects currently
under development, and (6) the remaining $119.6 million will be used for general
corporate purposes. Transaction costs incurred in connection with the senior
notes offered were recorded as deferred charge and are amortized over the
respective lives of the Senior Notes Due 2006 and the Senior Notes Due 2009
using the effective interest rate method.
At June 30, 1999, we had a $100.0 million revolving credit facility
available with a consortium of commercial lending institutions. We had no
borrowings and $20.9 million of letters of credit outstanding under the credit
facility. 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 June 30, 1999, 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. During 1998, we issued $400.0 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.
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<PAGE> 137
At June 30, 1999, 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 June 30, 1999, we had no borrowings under this working capital line
and $74,000 of letters of credit outstanding. Borrowings accrue interest at
prime plus 1%.
FINANCIAL MARKET RISKS
From time to time, we use interest rate swap agreements to mitigate our
exposure to interest rate fluctuations. We do not use derivative financial
instruments for speculative or trading purposes. The following table summarizes
the fair market value of our existing interest rate swap agreements as of June
30, 1999 (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
NOTIONAL AVERAGE
MATURITY DATE PRINCIPAL AMOUNT INTEREST RATE FAIR MARKET VALUE
- ------------- ---------------- ------------- -----------------
<S> <C> <C> <C>
2000 $ 21,800 9.9% $ (571)
2009 65,000 6.1% 1,156
2013 75,000 7.2% (3,480)
2014 79,970 6.7% (1,423)
---------------- ------------- -----------------
Total $241,770 7.1% $(4,318)
================ ============= =================
</TABLE>
Short-term investments. As of June 30, 1999, we have short-term investments
of $271.3 million. These short-term investments consist of highly liquid
investments with maturities between three and twelve months. These investments
are subject to interest rate risk and will increase in value if market interest
rates increase. We have the ability to hold these investments to maturity, and
as a result, we would not expect the value of these investments to be affected
to any significant degree by the effect of a sudden change in market interest
rates. Declines in interest rates over time will reduce our interest income.
Outstanding debt. As of June 30, 1999, we have outstanding long-term debt
of approximately $1.6 billion primarily made up of $1.5 billion of senior notes
and $79.2 million of construction financing. Our construction financing has a
floating interest rate which has averaged 6.8%. Our outstanding long-term senior
notes as of June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
MATURITY DATE CARRYING AMOUNT INTEREST RATE FAIR MARKET VALUE
- ------------- --------------- ------------- -----------------
<S> <C> <C> <C>
2004 $ 105,000 9 1/4% $ 106,050
2006 171,750 10 1/2% 185,267
2006 250,000 7 5/8% 243,125
2007 275,000 8 3/4% 282,219
2008 400,000 7 7/8% 384,600
2009 350,000 7 3/4% 330,313
--------------- -----------------
Total $1,551,750 $1,513,574
=============== =================
</TABLE>
Gas prices fluctuations. We enter into derivative commodity instruments to
hedge our exposure to the impact of price fluctuations on gas purchases. Such
instruments include regulated natural gas contracts and over-the-counter swaps
and basis hedges with major energy derivative product specialists. All hedge
transactions are subject to our risk
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management policy which does not permit speculative positions. These
transactions are accounted for under the hedge method of accounting. Cash flows
from derivative instruments are recognized as incurred through changes in
working capital.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued FASB Statement No. 137 entitled "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133." The Statement would amend SFAS No. 133 to defer
its effective date to all fiscal quarters of all fiscal years beginning after
June 15, 2000. 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 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.
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<PAGE> 139
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 fourth
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..... 100% Complete May 1999
Remediation........... 98% In Progress October 1999
Contingency 5%
Planning............ In Progress November 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 fall 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 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 expect to complete this
process by year-end 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 600 responses have been received as of July 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 November 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, 1999 through June 30, 1999, $321,000 was charged to expense.
Approximately 9% of the estimated total cost was incurred in 1998, 63% will be
incurred in 1999 and the remainder will be incurred in 2000. These costs have
been and will be funded through operating cash
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<PAGE> 140
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 the fall of 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> 141
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 38 power plants having an aggregate capacity of
3,694 megawatts and have an acquisition pending in which we will acquire 80% of
CGCA which owns interests in 6 power plants with an aggregate capacity of 579
megawatts. We also have 8 gas-fired projects and one project expansion under
construction having an aggregate capacity of 4,535 megawatts and have announced
plans to develop 5 gas-fired power plants with a total capacity of 3,370
megawatts. Upon completion of pending acquisitions and projects under
construction, we will have interests in 52 power plants located in 14 states
having an aggregate capacity of 8,808 megawatts, of which we will have a net
interest in 7,431 megawatts. This represents significant growth from the 342
megawatts of capacity we had at the end of 1993. Of this total generating
capacity, 90% will be attributable to gas-fired facilities and 10% 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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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 May 1999, we completed a 35 megawatt expansion of our Clear Lake Power
Plant to 412 megawatts, and we commenced commercial operations at our 169
megawatt Dighton Power Plant in August 1999.
We currently have nine projects under construction representing an
additional 4,535 megawatts. Of these new projects, we are currently
expanding our Pasadena facility by 545 megawatts to 785 megawatts and we
have eight new power plants under construction, including the Tiverton
Power Plant in Rhode Island; the Rumford Power Plant in Maine; the
Westbrook Power Plant in Maine; the Sutter Power Plant in California; the
Los Medanos Power Plant in California; the South Point Power Plant in
Arizona; the Magic Valley Power Plant in Texas; and the Lost Pines 1
Power Plant in Texas. We have also announced plans to develop five
additional power generation facilities, totaling 3,370 megawatts, in
California, Texas, Arizona and Pennsylvania.
In July 1999, we announced an agreement with Credit Suisse First Boston,
New York branch and The Bank of Nova Scotia, as lead arrangers, for a
$1.0 billion
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revolving construction loan facility. The credit facility will be
utilized to finance the construction of our development program. We
expect to finalize the documentation relating to this facility in the
fourth quarter of 1999.
On August 20, 1999, we announced the purchase of 18 F-class combustion
turbines from Siemens Westinghouse Power Corporation that will be capable
of producing 4,900 megawatts of electricity. Beginning in 2002, Siemens
will deliver six turbines per year through 2004. Combined with our
existing turbine order we have 69 turbines under contract, option or
letter of intent capable of producing 17,745 megawatts.
- 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 portfolio through the
acquisition of power generation facilities through the completion of 32
acquisitions to date.
On March 19, 1999, we completed the acquisition of Unocal Corporation's
Geysers geothermal steam fields in northern California for approximately
$102.1 million. The steam fields fuel our 12 Sonoma County power plants,
totaling 544 megawatts purchased from Pacific Gas and Electric Company.
On May 7, 1999 we completed the acquisition from Pacific Gas and Electric
Company ("PG&E") of 14 geothermal power plants at The Geysers in northern
California, with a combined capacity of approximately 700 megawatts, for
$212.8 million. With the acquisition, we now own interests in and operate
18 geothermal power plants that generate more than 800 megawatts of
electricity, and we are the nation's largest geothermal and green power
producer. The combination of our existing geothermal steam and power
plant assets, the acquisition of the Sonoma steam fields from Unocal, and
the 14 power plants from PG&E allows us to fully integrate the steam and
power plant operations at The Geysers into one efficient, unified system
to maximize the renewable natural resource, lower overall production
costs and extend the life of The Geysers.
On August 27, 1999, we announced an agreement with CGCA to acquire 80% of
its common stock for $25.00 per share or approximately $145.0 million.
NRG Energy, Inc., a wholly owned subsidiary of Northern States Power,
will own the remaining 20%. The transaction is subject to the approval of
CGCA shareholders and we expect to consummate the acquisition by year-end
1999. CCGA currently owns interests in six natural gas-fired power
plants, totaling 579 megawatts. The plants are located in Pennsylvania,
New Jersey, Illinois and Oklahoma.
On August 31, 1999, we completed the acquisition of an additional 50% of
the Aidlin Power Plant from Edison Mission Energy (5%) and General
Electric Capital Corporation (45%) for a total purchase price of $7.2
million. We now own 55% of the 20 megawatt Aidlin Power Plant.
On October 1, 1999, we completed the acquisition of Sheridan Energy,
Inc., a natural gas exploration and production company, through a $41.0
million cash tender offer. We purchased the outstanding shares of
Sheridan Energy's common stock for $5.50 per share. In addition, we
redeemed $11.5 million of outstanding preferred stock of Sheridan Energy.
Sheridan Energy's oil and gas properties, including 148 billion cubic
feet equivalent of proven reserves, are located in
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northern California and the Gulf Coast region, where we are developing
low-cost natural gas supplies and proprietary pipeline systems to support
our strategically-located natural gas-fired power plants.
On October 21, 1999, we completed the acquisition of the Calistoga
geothermal power plant from FPL Energy and Caithness Corporation for
approximately $78.0 million. Located in The Geysers region of northern
California, Calistoga is a 67 megawatt facility which provides
electricity to PG&E under a long-term contract.
- Enhancement of existing power plants. We continually seek to maximize the
power generation and revenue 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 52 power plants with an aggregate
capacity of 8,808 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 June 30, 1999,
our gas-fired and geothermal power generation facilities have operated at
an average availability of approximately 96% and 99%, respectively. We
believe that achieving and maintaining a low-cost of production will be
increasingly important to compete effectively in the power generation
market.
On July 8, 1999, we announced a renegotiation of our Gilroy power sales
agreement with PG&E. The amendment provides for the termination of the
remaining 18 years of the long-term contract in exchange for a fixed
long-term payment schedule. The amended agreement is subject to approval
by the California Public Utilities Commission, whose decision we expect
to receive in the fourth quarter of 1999. We will continue to sell the
output from the Gilroy Power Plant through October 2002 to PG&E and
thereafter we will market the output in the California wholesale power
market.
DESCRIPTION OF FACILITIES
We currently have interests in 38 power generation facilities with a
current aggregate capacity of approximately 3,694 megawatts, consisting of 19
gas-fired power plants with a total capacity of 2,806 megawatts and 19
geothermal power generation facilities with a total capacity of 888 megawatts.
We also have an acquisition pending comprising 6 gas-fired facilities with an
aggregate capacity of 579 megawatts, 8 gas-fired projects and one project
expansion currently under construction with an aggregate capacity of 4,535
megawatts, and have announced the development of 5 additional power plants with
an aggregate capacity of 3,370 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
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inflation indices. Capacity payments are based on a power plant's net electrical
output and/or its available capacity. Energy payments are made for each kilowatt
hour of energy delivered, while capacity payments, under certain circumstances,
are made whether or not any electricity is delivered.
Upon completion of the pending acquisitions and projects under
construction, we will provide operating and maintenance services for 42 of the
52 power plants 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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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.
[DEPICTION OF A MAP OF THE UNITED STATES, WITH MARKERS INDICATING THE LOCATION
OF OUR FACILITIES]
<TABLE>
<CAPTION>
MEGAWATTS
-----------------------
# OF PLANT CALPINE NET
PLANTS CAPACITY INTEREST
------ -------- -----------
<S> <C> <C> <C>
In operation.................................... 38 3,694 2,955
Pending acquisitions............................ 6 579 400
Under construction
-- New facilities............................. 8 3,990 3,531
-- Expansion projects......................... -- 545 545
Announced development........................... 5 3,370 2,357
-- ------ -----
57 12,178 9,788
== ====== =====
</TABLE>
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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
Sonoma County (12 power
plants)(3)............ Geothermal California 544.0 100% 544.0
Texas City.............. Gas-Fired Texas 450.0 100% 450.0
Clear Lake.............. Gas-Fired Texas 412.0 100% 412.0
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
Dighton(6).............. Gas-Fired Massachusetts 169.0 50% 84.5
Bayonne................. Gas-Fired New Jersey 165.0 7.5% 12.4
Auburndale.............. Gas-Fired Florida 150.0 50% 75.0
Lake County (2 power
plants)(3)............ Geothermal California 150.0 100% 150.0
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 55% 11.0
Calistoga............... Geothermal California 67.0 100% 67.0
PENDING ACQUISITIONS
Grays Ferry............. Gas-Fired Pennsylvania 150.0 40% 60.0
Parlin.................. Gas-Fired New Jersey 122.0 80% 97.6
Morris.................. Gas-Fired Illinois 117.0 80% 93.6
Pryor................... Gas-Fired Oklahoma 110.0 80% 88.0
Newark.................. Gas-Fired New Jersey 58.0 80% 46.4
Philadelphia............ Gas-Fired Pennsylvania 22.0 66.4% 14.6
PROJECTS UNDER
CONSTRUCTION
Magic Valley............ Gas-Fired Texas 730.0 100% 730.0
Los Medanos............. Gas-Fired California 550.0 100% 550.0
Westbrook............... Gas-Fired Maine 545.0 100% 545.0
Pasadena Expansion...... Gas-Fired Texas 545.0 100% 545.0
South Point............. Gas-Fired Arizona 545.0 100% 545.0
Sutter.................. Gas-Fired California 545.0 100% 545.0
Lost Pines 1............ Gas-Fired Texas 545.0 50% 272.5
Tiverton(4)............. Gas-Fired Rhode Island 265.0 62.8% 166.4
Rumford(5).............. Gas-Fired Maine 265.0 66.7% 176.8
</TABLE>
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<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>
ANNOUNCED DEVELOPMENT
Delta Energy Center..... Gas-Fired California 880.0 50% 440.0
Baytown................. Gas-Fired Texas 800.0 100% 800.0
Metcalf Energy Center... Gas-Fired California 600.0 50% 300.0
West Phoenix............ Gas-Fired Arizona 545.0 50% 272.5
Ontelaunee.............. Gas-Fired Pennsylvania 545.0 100% 545.0
</TABLE>
- -------------------------
(1) Nameplate capacity may not represent the actual output for a facility at any
particular time.
(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
Sonoma County Power Plants. The Sonoma County power plants consist of 12
geothermal power plants and associated steam fields having combined capacity of
544 megawatts located at The Geysers in northern California. The power plants
were acquired from PG&E on May 7, 1999 and we market the output from these
plants into the California power market.
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.
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Clear Lake Power Plant. The Clear Lake Power Plant is a 412 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 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.
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. This investment, which is structured as subordinated
debt, will provide us with a preferred payment stream at a rate of 12.07% per
year for a period of twenty years
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from the commercial operation date. The Dighton Power Plant was developed by EMI
and cost approximately $120.0 million. Commercial operation commenced in August
1999. The Dighton Power Plant is operated by EMI and sells its output into the
New England power market and to wholesale and retail customers in the
northeastern United States.
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.
Lake County Power Plants. The Lake County power plants consist of two
geothermal power plants and associated steam fields having a combined capacity
of 150 megawatts located at The Geysers in northern California. We acquired
these power plants from PG&E on May 7, 1999, and we market the output from these
plants into the California power market.
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 PG&E under a power
sales agreement terminating in 2019. The power sales agreement
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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 July 1999 we announced a renegotiation of our Gilroy power sales
agreement with PG&E. The amendment provides for the termination of the remaining
18 years of the long-term contract in exchange for a fixed long-term payment
schedule. The amended agreement is subject to approval by the California Public
Utilities Commission, whose decision we expect to receive in the fourth quarter
of 1999. We will continue to sell the output from the Gilroy Power Plant through
October 2002 to PG&E and thereafter we will market the output in the California
wholesale power market. 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. 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 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
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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 ("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
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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.
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 55% 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.
Calistoga Power Plant. The Calistoga Power Plant consists of a 67 megawatt
geothermal power plant and associated steam fields located in northern
California. Electricity generated by the Calistoga Power Plant is sold to PG&E
under a power sales agreement terminating in 2014 which contains payment
provisions for capacity and energy.
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During 1998, the Calistoga Power Plant generated approximately 614,073,000
kilowatt hours of electrical energy for sale to PG&E and approximately $27.9
million in revenue.
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
COGENERATION CORPORATION OF AMERICA. On August 27, 1999 we announced an
agreement with CGCA to acquire 80% of its common stock for $25.00 per share or
approximately $145.0 million. NRG Energy, Inc., a wholly owned subsidiary of
Northern States Power will own the remaining 20%. The transaction is subject to
shareholder approval and we expect to consummate the acquisition by year-end
1999. CGCA currently owns interests in six natural gas-fired power plants,
totaling 579 megawatts. The plants are located in Pennsylvania, New Jersey,
Illinois and Oklahoma. As of June 30, 1999 CGCA had approximately $296.6 million
of indebtedness, including $216.1 million of non-recourse project debt.
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Grays Ferry Power Plant. The Grays Ferry Power Plant is a 150 megawatt,
natural gas-fired cogeneration project located in Philadelphia,
Pennsylvania. CGCA owns 50% of the project and 50% is owned by Trigen Energy
Corporation. The facility is operated by Trigen. Electricity generated by
the Grays Ferry Power Plant is sold under two long-term power sales
agreements to PECO Energy Company, expiring in 2017. An affiliate of Trigen
purchases the steam produced by the project pursuant to a 25-year contract
expiring in 2022.
Parlin Power Plant. The Parlin Power Plant consists of a 122 megawatt
natural gas-fired cogeneration power plant located in Parlin, New Jersey.
The facility is operated by NRG Energy, Inc. Electricity generated by the
Parlin Power Plant is sold pursuant to a long-term contract expiring in 2011
to Jersey Central Power and Light Company ("JCP&L"), and steam produced is
sold to E.I. Dupont de Nemours and Company under a long-term agreement
expiring in 2021.
Morris Power Plant. The Morris Power Plant consists of a 117 megawatt
natural gas-fired cogeneration facility located in Morris, Illinois. The
facility is operated by NRG Energy, Inc. Electricity and steam produced by
the facility is sold to Equistar Chemicals, L.P. pursuant to a long-term
contract expiring in 2023. Any surplus electricity is marketed to the
Illinois power market.
Pryor Power Plant. The Pryor Power Plant is a 110 megawatt natural gas-fired
cogeneration power plant located in Pryor, Oklahoma. The facility is
operated by NRG Energy, Inc. The Pryor Power Plant sells 100-megawatts of
capacity and varying amounts of electrical energy to Oklahoma Gas and
Electric under a contract expiring in 2007. Steam produced from the Pryor
facility is sold to a number of industrial users under contracts with
various termination dates ranging from 1998 to 2007. Surplus electricity is
also sold to the Public Service of Oklahoma at its avoided cost.
Newark Power Plant. The Newark Power Plant consists of a 58 megawatt natural
gas-fired cogeneration power plant located in Newark, New Jersey. The
facility is operated by NRG Energy, Inc. Electricity produced by the
facility is sold pursuant to a long-term contract expiring in 2015 to JCP&L.
Steam produced is sold to Newark Boxboard under a long-term contract
expiring in 2015.
Philadelphia Water Project. The Philadelphia Water Project consists of two
standby peak shaving facilities located at the Philadelphia Water
Department's Northeast and Southwest wastewater treatment plants. CGCA owns
83% of the project and the project is operated by O'Brien Energy Services
Company. The project sells capacity and energy on demand to the Philadelphia
Municipal Authority pursuant to two long-term contracts expiring in 2013.
SHERIDAN ENERGY, INC. On October 1, 1999 we completed the acquisition of
Sheridan Energy, a natural gas exploration and production company, through a
$41.0 million cash tender offer. We purchased the outstanding shares of Sheridan
Energy's common stock for $5.50 per share. In addition, we redeemed $11.5
million of outstanding preferred stock of Sheridan Energy. Sheridan Energy's oil
and gas properties, including 148 billion cubic feet equivalent of proven
reserves, are located in northern California and the Gulf Coast region, where we
are developing low-cost natural gas supplies and proprietary pipeline systems to
support our strategically-located natural gas-fired power plants. As of June 30,
1999, Sheridan Energy had indebtedness of $71.5 million.
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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 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
Magic Valley Power Plant. In May 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 730 megawatt natural
gas-fired power plant under development in Edinburg, Texas. Magic Valley
Electric Cooperative Inc., 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
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wholesale customers, initially targeting south Texas. Construction commenced in
April 1999 with commercial operations scheduled to begin in February 2001.
Los Medanos Power Plant. In September 1999, we finalized an agreement with
Enron North America for the development rights of a 550 megawatt gas-fired plant
in Pittsburg, California. Construction commenced in September 1999 and
commercial operations will begin in 2001. The facility will provide electricity
and industrial steam totaling approximately 55 megawatts to USS-POSCO Industries
under a long-term agreement. The balance of the plant's output will be sold into
the California power market.
Westbrook Power Plant. In February 1999, we acquired from Genesis Power
Corporation ("Genesis"), a New England based power developer, the development
rights to a 545 megawatt gas-fired combined-cycle power plant to be located in
Westbrook, Maine. 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 545 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.
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 545
megawatt gas-fired 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. Construction commenced in August 1999 and we
anticipate that the South Point Power Plant will begin operation in March 2001.
Sutter Power Plant. In February 1997, we announced plans to develop a 545
megawatt gas-fired combined cycle project in Sutter County, in northern
California. The Sutter Power Plant would be northern California's first newly
constructed power plant since deregulation of the California power market in
1998. Construction commenced in August 1999 and the Sutter Power Plant is
expected to provide electricity to the deregulated California power market
commencing in the year 2001. We are currently pursuing regulatory agency permits
for this project. In January 1998, we announced that the Sutter Power Plant has
met the California Energy Commission's Data Adequacy requirements in its
Application for Certification.
Lost Pines 1 Power Plant. In September 1999, we entered into definitive
agreements with Austin, Texas-based GenTex Power Corporation, the power
generation affiliate of the Lower Colorado River Authority, to build a 545
megawatt gas-fired facility in Bastrop County, Texas. Construction of this
facility is scheduled to began in October 1999 and commercial operation in June
2001. Upon commercial operation, GenTex will take half of the electrical output
for sale to its customers and we will market the remaining energy to the Texas
power market.
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 is being developed by Energy
Management Inc.
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("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 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 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.
Announced Development Projects
Delta Energy Center. In February 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.
Baytown Power Plant. In October 1999 we announced plans to build, own and
operate an 800 megawatt gas-fired cogeneration power plant at Bayer
Corporation's chemical facility in Baytown, Texas. The Baytown Power Plant will
supply Bayer with all of its electric and steam requirements for 20 years and
market excess electricity into the Texas wholesale power market. Construction is
estimated to commence in 2000 and commercial operation in 2001.
Metcalf Energy Center. In February 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.
West Phoenix Power Plant. In April 1999, we announced an agreement with
Pinnacle West Capital Corporation to develop a 545 megawatt gas-fired facility
at Arizona Public Services West Phoenix Power Station in Phoenix, Arizona.
Construction is scheduled to
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begin in mid-2000 with final completion in late 2002. The facility is estimated
to cost $220 million and the electricity will be sold into the Arizona power
market.
Ontelaunee Energy Center. In June 1999, we announced that we had acquired
the rights to develop a 545 megawatt gas-fired power plant in Ontelaunee
Township in eastern Pennsylvania. Permitting for the proposed $255 million
facility is underway and construction is scheduled to begin in early 2000.
Commercial operation is estimated for late 2002. Output from the plant will be
sold into the Pennsylvania/New Jersey/Maryland (PJM) power pool and pursuant to
bilateral contracts.
GAS FIELDS
Montis Niger. In January 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. In January 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 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 use and operation of a
plant. Applicable federal environmental laws typically have both state and local
enforcement and implementation provisions. These environmental laws and
regulations generally require that a wide variety of permits and other approvals
be obtained before the commencement of construction or operation of an
energy-producing facility and that the facility then operate in compliance with
such permits and approvals.
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FEDERAL ENERGY REGULATION
PURPA
The enactment 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, 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.
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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 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
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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 19 gas-fired cogeneration projects. The
cost of natural gas is ordinarily the largest expense 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 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
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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 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.
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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 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
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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.
In Texas, recently enacted legislation will phase-in a deregulated power market
commencing January 1, 2001. Regulatory initiatives are also being considered in
other states, including 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 August 31, 1999, we had 641 employees. 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 105 leases comprising 19,813 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 leasehold interests in 20 leases
comprising approximately 23,598 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
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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 on the motions to be
held in the near future. 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.
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..................... 44 Director
George J. Stathakis................. 69 Director
John O. Wilson...................... 61 Director
V. Orville Wright................... 79 Director
Thomas R. Mason..................... 55 Executive Vice President
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.
Thomas R. Mason has served as our Executive Vice President since August
1999 and Senior Vice President since March 1999 until August 1999. Mr. Mason is
responsible for managing our power plant construction and operations activities.
Prior to joining us, Mr. Mason was President and Chief Operating Officer of
CalEnergy Operating Services Inc., a wholly owned subsidiary of MidAmerica
Energy Holdings Company from 1995 to February 1999. He obtained a Masters of
Business Administration Degree from the
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University of Chicago in 1970 and a Bachelor of Science Degree in Electrical
Engineering from Purdue University in 1966.
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 August 31, 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.
All figures reflect the 2 for 1 stock split declared by us on September 20,
1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
------------------- --------------------- ---------------------
<S> <C> <C>
Putnam Investments, Inc.................. 5,698,912 10.4%
One Post Office Square
Boston, MA 02109
Fidelity Management & Research Co........ 5,274,960 9.7%
82 Devonshire Street, E34E
Boston, MA 02109
Ohio Public Employee Retirement System... 4,200,000 7.7%
277 East Town Street
Columbus, OH 43215
Wellington Management Company, LLP....... 4,024,600 7.4%
75 State Street
Boston, MA 02109
Peter Cartwright(2)...................... 2,011,604 3.6%
Ann B. Curtis(3)......................... 534,008 *
Thomas R. Mason.......................... 2,000 *
Robert D. Kelly(4)....................... 243,320 *
Jeffrey E. Garten(5)..................... 31,122 *
Susan C. Schwab(5)....................... 29,848 *
George J. Stathakis(6)................... 95,562 *
John O. Wilson(5)........................ 37,348 *
V. Orville Wright(7)..................... 45,960 *
All executive officers and directors as a
group (9 persons)(8)................... 3,030,772 5.3%
</TABLE>
- -------------------------
* Less than one percent
(1) This table is based in part upon information supplied by Schedules 13F
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 October 22, 1999 was 54,569,788.
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(2) Includes options to purchase 1,999,704 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(3) Includes options to purchase 533,382 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(4) Includes options to purchase 240,720 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(5) Represents shares of our common stock issuable upon exercise of options
that are exercisable as of August 31, 1999 or will become exercisable
within 60 days thereafter.
(6) Includes options to purchase 89,562 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(7) Includes options to purchase 35,960 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
(8) Includes options to purchase 3,184,270 shares of our common stock issuable
upon the exercise of options outstanding as of August 31, 1999 or within 60
days thereafter.
CALPINE CAPITAL TRUST
Calpine Capital Trust is a statutory business trust created under Delaware
law on October 4, 1999 pursuant to a declaration of trust among the initial
trustees and Calpine and a certificate of trust filed with the Delaware
Secretary of State. The declaration of trust will be amended and restated in its
entirety as of the date the trust initially issues the HIGH TIDES. The
declaration of trust will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended, upon the effectiveness of the registration statement of
which this prospectus is a part. Unless the context requires otherwise,
"Calpine," "we," "us," "our" or similar terms in this section refer solely to
Calpine Corporation and not the trust or any of our other consolidated
subsidiaries.
The trust's assets consist principally of the debentures, and payments
under the debentures are its sole revenue. The trust exists for the exclusive
purposes of:
- issuing the HIGH TIDES and the common securities representing undivided
beneficial ownership interests in the trust's assets;
- investing the gross proceeds of those securities in the debentures; and
- engaging in only those other activities necessary or incidental to those
purposes.
Calpine will directly or indirectly acquire common securities of the trust
in an aggregate liquidation amount equal to at least 3% of the total capital of
the trust. The trust will generally make payments on the common securities pro
rata with the HIGH TIDES. However, if an event of default under the declaration
of trust occurs and is continuing, Calpine's right to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to your rights.
Pursuant to the declaration of trust, the trust will have five trustees,
which we refer to in this prospectus as declaration trustees:
- three of the trustees, referred to as administrative trustees, will be
officers of Calpine;
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- the fourth trustee will be The Bank of New York, which will act as
property trustee; and
- the fifth trustee will be The Bank of New York (Delaware), which will act
as the Delaware statutory trustee.
In limited circumstances, the holders of a majority of the HIGH TIDES will
be entitled to appoint one additional trustee, referred to as the special
trustee. The special trustee need not be an officer or employee of or otherwise
affiliated with Calpine. The special trustee will have the same rights, powers
and privileges as the administrative trustees. See "Description of HIGH
TIDES -- Voting Rights; Amendment of the Declaration."
The property trustee holds title to the debentures for your benefit and the
benefit of the holders of the trust's common securities. As the holder of the
debentures, the property trustee has the power to exercise all the rights,
powers and privileges granted to the holder of the debentures under the
indenture governing the debentures between Calpine and The Bank of New York, as
debenture trustee. In addition, the property trustee maintains exclusive control
of a segregated non-interest bearing bank account to hold all payments made in
respect of the debentures for your benefit and the benefit of the holders of the
trust's common securities.
Subject to your right to appoint a special trustee, we, as the direct or
indirect holder of all of the trust's common securities, have the right to
appoint, remove or replace any of the trustees and to increase or decrease the
number of trustees; provided, however, that during an event of default under the
indenture, the property trustee and the Delaware trustee may only be removed by
the holders of a majority in liquidation amount of the HIGH TIDES. However, the
number of trustees must always be at least three, a majority of which must be
administrative trustees, and, unless otherwise required by applicable law, there
must always be a Delaware statutory trustee. See "Description of Convertible
Subordinated Debentures."
THE REMARKETING
NOTICE OF REMARKETING: TENDER FOR SALE BY REMARKETING; RETENTION OF HIGH TIDES
At least 30 business days but not more than 90 business days prior to the
final reset date, the trust will send to you a remarketing notice stating
whether it intends to remarket the HIGH TIDES as securities that either will be
convertible into common stock or nonconvertible. So that no holder of HIGH
TIDES, through inadvertence or otherwise, may fail to tender any HIGH TIDES for
sale in the remarketing, each outstanding HIGH TIDES you own will be deemed to
have been tendered for remarketing unless you have given irrevocable notice to
the contrary to the tender agent. The tender agent will promptly remit the
notice to the remarketing agent. The irrevocable notice, which may be telephonic
or written, must be delivered prior to 5:00 p.m., New York City time on the
tender notification date. The tender notification date is a business day no
earlier than 10 business
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days following the remarketing notice date, or a shorter period as shall be
agreed to by the remarketing agent. If you elect to retain HIGH TIDES, your
notice must state:
- the number of HIGH TIDES to be retained (which must be all of the HIGH
TIDES represented by the applicable certificate, unless such certificate
is a global HIGH TIDES certificate),
- the number of the certificate representing the HIGH TIDES not being
tendered (unless such certificate is a global HIGH TIDES certificate),
and
- the number of HIGH TIDES represented by such certificate (unless such
certificate is a global HIGH TIDES certificate).
Any transferee of a HIGH TIDES is bound to the terms of any such notice
which has been given relating to the transferred HIGH TIDES.
Any failure by you to give timely notice of an election to retain all or
any part of your HIGH TIDES will constitute an irrevocable tender for sale in
the remarketing of all the HIGH TIDES you hold. On and after the reset date, the
terms of all HIGH TIDES, whether or not tendered for remarketing, will be
modified by the term provisions, as the same shall be established by the
remarketing agent.
If the HIGH TIDES are not held by DTC or its nominee in the form of one or
more global HIGH TIDES, certificates representing remarketed HIGH TIDES will be
issued to the purchasers thereof, irrespective of whether the certificates
formerly representing such HIGH TIDES have been delivered to the tender agent.
If you do not duly give notice that you will retain your HIGH TIDES, your rights
with respect to the HIGH TIDES will cease upon the successful remarketing of the
HIGH TIDES, except your right to receive an amount equal to:
- from the proceeds of the remarketing, 101% of the aggregate liquidation
amount of the HIGH TIDES, plus
- from us, any accrued and unpaid distributions on the HIGH TIDES to, but
excluding, the reset date (upon surrender of the certificate representing
the HIGH TIDES to the tender agent properly endorsed for transfer, in the
case of a holder other than DTC, which has taken physical delivery of a
HIGH TIDES certificate) but without any additional interest thereon (and
the certificate will cease to represent outstanding HIGH TIDES).
If no HIGH TIDES are tendered for remarketing, the remarketing will not
take place, although the remarketing will not be deemed to have failed. Under
these circumstances, the remarketing agent will set the term provisions in a
manner consistent with the remarketing notice that it believes, in its sole
discretion, would result in a price per HIGH TIDES equal to 101% of the
liquidation amount thereof were a remarketing actually to occur.
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THE REMARKETING PROCESS
The remarketing agent has agreed to use its best efforts to remarket all
HIGH TIDES tendered for remarketing in accordance with the remarketing
agreement. The remarketing agent will establish, effective beginning on the
reset date:
- the term rate per annum at which distributions will accrue on the HIGH
TIDES,
- the term conversion ratio and price, which determine the number of shares
of common stock, if any, into which each HIGH TIDES may be converted, and
- the term call protections, which are the price, manner and time, if any,
at which the HIGH TIDES may be redeemed.
In this prospectus, we refer to the term rate, the term conversion ratio
and price and the term call protections as the term provisions.
The remarketing agent will use its best efforts to establish the term
provisions most favorable to us consistent with the successful remarketing of
all HIGH TIDES tendered at a price equal to 101% of the liquidation amount. The
remarketing agent may purchase HIGH TIDES tendered for remarketing, but it shall
not be obligated to purchase any HIGH TIDES except to the extent expressly
provided under the remarketing agreement.
The remarketing will be done without charge to the holders of the HIGH
TIDES, but we shall be obligated to pay the remarketing agent fees for its
services. Neither we nor any of our affiliates will be permitted to submit
orders for or purchase tendered HIGH TIDES in the remarketing.
In establishing the term provisions during the remarketing, the remarketing
agent will take into account the following remarketing conditions:
- short-term and long-term market interest rates and indices of the
short-term and long-term interest rates,
- market supply and demand for short-term and long-term securities,
- yield curves for short-term and long-term securities comparable to the
HIGH TIDES,
- industry and financial conditions which may affect the HIGH TIDES,
- the number of HIGH TIDES to be remarketed,
- the number of potential purchasers,
- the number of shares of common stock, if any, into which the HIGH TIDES
will be convertible,
- the current ratings by nationally recognized statistical rating
organizations of our long-term subordinated debt and of other outstanding
capital securities of the trust, including the HIGH TIDES and the common
securities, and
- the length and type of call protections, if any.
We currently have no intention of causing the applicable conversion price
on the reset date to be less than 100% of the fair market value of the common
stock on the reset date.
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If any HIGH TIDES are tendered for remarketing, on the business day
following the tender notification date, the remarketing agent will commence a
convertible remarketing or a nonconvertible remarketing, as the case may be, in
accordance with the remarketing agreement and pursuant to the instructions set
forth in the remarketing notice. The remarketing agent will determine, and upon
request make available to interested persons, non-binding indications of the
term provisions based upon then-current remarketing conditions. The remarketing
agent will solicit and receive orders from prospective investors to purchase
tendered HIGH TIDES. The remarketing agent will continue using its best efforts
to remarket the HIGH TIDES as described above, adjusting the non-binding
indications of the term provisions as necessary to establish the term conditions
most favorable to us consistent with remarketing all HIGH TIDES tendered at 101%
of the aggregate liquidation amount until the remarketing is completed or is
deemed to have failed for any of the reasons set forth under "-- Effect of a
Failed Remarketing."
If the remarketing agent determines that the remarketing has not failed,
the remarketing agent will promptly communicate the term provisions to the
tender agent. The initial remarketing termination date is the tenth business day
following the tender notification date, or a shorter period as shall be agreed
to by the remarketing agent. The tender agent will communicate the term
provisions to the declaration trustees, the debenture trustee, the trust, the
paying agent, us and each holder, if any, which timely elected not to tender all
of its HIGH TIDES for remarketing, by written notice or by telephone promptly
confirmed by telecopy or other writing. On the reset date, new holders will
tender the reset price for the tendered HIGH TIDES as set forth below under
"-- Settlement" and the term provisions will become effective.
EFFECT OF FAILED REMARKETING
The initial remarketing will fail if:
- despite using its best efforts the remarketing agent is unable to
establish, prior to the initial remarketing termination date, a term rate
that is less than or equal to the treasury rate plus 6% per annum, which
we refer to in this prospectus as the maximum rate,
- the remarketing agent is excused from remarketing the HIGH TIDES because
of the failure by us or the trust to satisfy a condition in the
remarketing agreement or the occurrence of certain market events
specified in the remarketing agreement, or
- there is no remarketing agent on the first day of the initial remarketing
period.
If the initial remarketing fails because the remarketing agent was not able
to establish a term rate less than or equal to the maximum rate, the remarketing
agent will commence a final remarketing during the period beginning on the
business day following the initial remarketing termination date and ending on
the date which is 10 business days later, or a shorter period as shall be agreed
to by the remarketing agent. The final remarketing will be a convertible
remarketing if the initial remarketing was a nonconvertible remarketing and vice
versa.
If the remarketing agent is able to establish a term rate less than or
equal to the maximum rate during the final remarketing period, it shall promptly
communicate the term provisions to the tender agent, who will communicate the
term provisions to the declaration trustees, the trust, the paying agent, us and
each holder, if any, which timely elected not to tender all of its HIGH TIDES
for remarketing, by written notice or by telephone promptly confirmed by
telecopy or other writing. On the reset date, new holders
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will tender the reset price for the tendered HIGH TIDES as set forth below under
"-- Settlement" and the term provisions will become effective.
If despite using its best efforts, the remarketing agent is still not able
to establish a term rate less than or equal to the maximum rate prior to the
expiration of the final remarketing period the final remarketing will fail. In
the event of a failed final remarketing, the remarketing agent will establish
the terms of the HIGH TIDES. The term rate shall be a rate equal to the treasury
rate plus 6% per annum. The term conversion price will be equal to 105% of the
average closing price of our common stock for the five consecutive trading days
after the final failed remarketing termination date. In the event of a failed
final remarketing, all outstanding HIGH TIDES will be redeemable by us, in whole
or in part, at any time on or after the third anniversary of the reset date at a
redemption price equal to 100% of the aggregate liquidation amount thereof, plus
accrued and unpaid distributions thereon. There can be no assurance that all of
the HIGH TIDES tendered will be remarketed.
The term "treasury rate" means (A) the yield, under the heading which
represents the average for the week immediately prior to the date of
calculation, appearing in the most recently published statistical release
designated H.15(519) or any successor publication which is published weekly by
the Federal Reserve and which establishes yields on actively traded United
States Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the remaining
life (if no maturity is within three months before or after the remaining life,
yields for the two published maturities most closely corresponding to the
remaining life shall be determined and the treasury rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (B) if such release, or any successor release, is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the comparable treasury issue, calculated using a price for the
comparable treasury issue (expressed as a percentage of its principal amount)
equal to the comparable treasury price for the reset date. The treasury rate
shall be calculated on the third business day preceding the reset date.
The term "comparable treasury issue" means the United States Treasury
security selected by the quotation agent as having a maturity comparable to the
remaining life that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining life. If no United
States Treasury security has a maturity which is within a period from three
months before to three months after the reset date, the two most closely
corresponding United States Treasury securities shall be used as the comparable
treasury issue, and the rate being calculated shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
The term "comparable treasury price" means (A) the arithmetic mean of five
reference treasury dealer quotations for the reset date, after excluding the
highest and lowest such reference treasury dealer quotations, or (B) if the
quotation agent obtains fewer than five reference treasury dealer quotations,
the arithmetic mean of all the reference treasury dealer quotations.
The term "quotation agent" means Credit Suisse First Boston Corporation and
its successor provided, however, that if the foregoing shall cease to be a
primary United States
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Government securities dealer in The City of New York we shall substitute
therefor another primary treasury dealer.
The term "reference treasury dealer" means (A) the quotation agent and (B)
any other primary treasury dealer selected by the debenture trustee after
consultation with us.
The term "reference treasury dealer quotations" means, with respect to each
reference treasury dealer and the reset date, the arithmetic mean, as determined
by the debenture trustee, of the bid and asked prices for the comparable
treasury issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the debenture trustee by such reference treasury dealer at
5:00 p.m., New York City time, on the third business day preceding the reset
date.
The term "remaining life" means the period beginning on the reset date and
ending at October , 2029.
SETTLEMENT
Settlement of transactions in connection with the remarketing will take
place on the reset date, or such earlier date as the remarketing agent may, in
its sole discretion, determine. Payments in respect of the tendered HIGH TIDES
in an amount equal to the reset price will be made by the tender agent (but only
to the extent in fact received by the tender agent) on the date in the manner
described under "Description of HIGH TIDES -- Form, Book-Entry Procedures and
Transfer," but, in the case of a holder (other than DTC) which has taken
physical delivery of a certificate representing its HIGH TIDES, the payment
shall be made only upon surrender to the tender agent by 2:30 p.m. New York City
time on the reset date (or any succeeding date) of the certificate representing
the HIGH TIDES, properly endorsed for transfer.
Neither we, the trust, the declaration trustees, the tender agent and
(except to the extent expressly provided under "The Remarketing" and "The
Remarketing Agent") the remarketing agent will be obligated to provide or
advance funds to make payment to the holders of HIGH TIDES tendered in the
remarketing.
PURCHASES BY US AND OUR AFFILIATES
While we, or an affiliate, may from time to time purchase, hold, or sell
HIGH TIDES, neither we nor any of our affiliates may purchase any HIGH TIDES on
the reset date or submit orders in the remarketing, and the remarketing agent
has agreed that it will not knowingly remarket any HIGH TIDES to us or any of
our affiliates.
TENDER AGENT
Tenders of HIGH TIDES in the remarketing will be made to the tender agent,
and the tender agent will pay to the prior holders thereof the reset price,
provided the tender agent receives the amount from the remarketing agent. The
tender agent will be the property trustee or, in the event of the distribution
of debentures to the holders of HIGH TIDES prior to the reset date, the
debenture trustee.
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TERMINATION OF THE TRUST
If the trust is for any reason dissolved and liquidated prior to the reset
date and the debentures are distributed to the holders of HIGH TIDES and common
securities, the remarketing will proceed as described in this prospectus except
that the debentures rather than the HIGH TIDES will be remarketed by the
remarketing agent, the debenture trustee rather than the property trustee will
be the tender agent and the descriptions of the remarketing of the HIGH TIDES in
this prospectus (including under "The Remarketing" and "The Remarketing Agent")
will apply with such changes as are necessary to the remarketing of debentures.
Accordingly, in such an event, without limiting the generality of the foregoing
statements:
- the debentures instead of the HIGH TIDES will be deemed to have been
tendered for remarketing absent timely notice to the contrary, provided
that any notice duly and timely given in respect of the tender for
remarketing of any HIGH TIDES will apply to the debentures distributed in
respect thereof,
- the debentures instead of the HIGH TIDES will be remarketed by the
remarketing agent,
- the remarketing agent will use its best efforts to establish the term
provisions most favorable to us consistent with the successful
remarketing of all debentures tendered therefor at a reset price equal to
101% of the principal amount of the debentures, and
- subject to the proviso in the first bullet point above, a holder of
debentures which has not duly given notice by the tender notification
date that it will retain its debentures will cease to have any further
rights with respect to the debentures upon the successful remarketing of
the debentures, except the right of the holder to receive an amount equal
to (1) from the proceeds of the remarketing, 101% of the principal amount
of the debentures, plus (2) from us, any accrued but unpaid interest on
the debentures to, but excluding, the reset date (upon surrender of the
certificate representing the debentures to the tender agent properly
endorsed for transfer, in the case of a holder other than DTC, which has
taken physical delivery of a debentures certificate) but without any
additional interest thereon (and any such certificate will cease to
represent outstanding debentures).
If the debentures are accelerated, redeemed or otherwise prepaid on or
prior to the reset date, the remarketing will not take place.
THE REMARKETING AGENT
We will use our reasonable best efforts to assure that, at all times prior
to and including the reset date, an investment bank, broker, dealer or other
organization which, in our judgment, is qualified to remarket HIGH TIDES and to
establish the term rate is acting as remarketing agent, provided that if we fail
to appoint a successor upon the resignation or removal of the remarketing agent
reasonably promptly, a successor having such qualifications may be appointed by
the holders of at least 25% in aggregate liquidation amount of the outstanding
HIGH TIDES. Credit Suisse First Boston Corporation has agreed to act as the
initial remarketing agent but may resign or be replaced by us, in accordance
with the terms of the remarketing agreement. The remarketing agent may authorize
any broker-dealer to assist in the remarketing.
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The remarketing agreement among us, the trust, the administrative trustees
and the tender agent provides that the remarketing agent will receive fees from
us for the remarketing equal to 1% of the aggregate liquidation amount of
outstanding HIGH TIDES on the reset date upon settlement of the transactions
contemplated by the remarketing. In addition to these fees we will reimburse the
remarketing agent for all out-of-pocket expenses reasonably incurred in
connection with the performance of its duties. In the event that both the
initial remarketing and the final remarketing fail, we shall not be required to
pay any fees to, or reimburse any out-of-pocket expense of, the remarketing
agent. The remarketing will be done without charge to the holders of the HIGH
TIDES.
We have agreed in the remarketing agreement to indemnify the remarketing
agent against some liabilities arising out of or in connection with its duties,
or to contribute to payments which the remarketing agent may be required to make
in respect thereof.
The remarketing agent may resign and be relieved from its duties under the
remarketing agreement under limited circumstances on a date specified in a
notice in writing delivered to us and to the trust. The remarketing agent's
resignation will not become effective until at least 30 days after delivery of
the notice. The successor remarketing agent must be an investment bank, broker,
dealer or other organization which, in our judgment, is qualified to remarket
the HIGH TIDES and establish the term provisions and which has entered into a
remarketing agreement with us, the trust and the administrative trustees in
which it has agreed to conduct the remarketing in accordance with the terms and
conditions described in this prospectus and provided in the remarketing
agreement. The holders of a majority in aggregate liquidation amount of the
outstanding HIGH TIDES may remove the remarketing agent for cause. The tender
agent will send notice to you of the resignation or removal of the remarketing
agent and the appointment of a successor remarketing agent. If there is no
remarketing agent on the first day of the initial remarketing period, the
remarketing will fail and the HIGH TIDES will remain outstanding on the terms
described in this prospectus under "The Remarketing -- Effect of Failed
Remarketing."
The remarketing agreement provides that the remarketing agent will not be
obligated to remarket HIGH TIDES if:
- there is a material misstatement or omission in any (a) disclosure
document approved by us or the trust in connection with the remarketing
or (b) document publicly disclosed (including in a filing pursuant to the
Securities Exchange Act of 1934) by or on behalf of us or the trust,
unless in each case the remarketing agent is satisfied that such
misstatement or omission has been properly corrected, or
- either we or the trust fails to satisfy conditions customary in an
offering.
Broker-dealers, if any, which obtain purchasers for the HIGH TIDES will be
paid a commission or fee by the remarketing agent based upon the remarketing fee
described above and the number of HIGH TIDES sold. Broker-dealers will enter
into broker-dealer agreements with the remarketing agent, which will provide for
their participation in the remarketing and will require them to follow certain
private placement procedures. The identity of the broker-dealers, if any, which
will participate in the remarketing has not yet been determined. The remarketing
agent will have the right to select broker-dealers at any time prior to the
reset date. No broker-dealer will be obligated to purchase the HIGH TIDES.
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If for any reason term provisions are established by the remarketing agent
but on the reset date the remarketing agent is unable to sell one or more HIGH
TIDES tendered for remarketing, the remarketing agent will be obligated, except
upon the occurrence of certain market events specified in the remarketing
agreement, to purchase the HIGH TIDES for the reset price on the reset date.
DESCRIPTION OF HIGH TIDES
Under the terms of the declaration of trust, the declaration trustees on
behalf of the trust will issue the HIGH TIDES and the common securities in fully
registered form without interest coupons. The HIGH TIDES will represent
preferred undivided beneficial ownership interests in the assets of the trust,
and the holders of the HIGH TIDES will be entitled to a preference over us, as
the holder of the trust's common securities, in limited circumstances with
respect to distributions and amounts payable on redemption of the HIGH TIDES and
the trust's common securities or dissolution and liquidation of the trust, as
well as other benefits as described in the declaration of trust. See
"-- Subordination of Common Securities." The declaration of trust will be
qualified under and will be subject to and governed by the Trust Indenture Act
of 1939 upon effectiveness of the registration statement of which this
prospectus is a part. This summary of the provisions of the HIGH TIDES, the
trust's common securities and the declaration of trust is subject to, and is
qualified in its entirety by reference to, all the provisions of the declaration
of trust, including the definitions of certain terms. A copy of the declaration
of trust has been filed as an exhibit to the registration statement of which
this prospectus is a part. Unless the context requires otherwise, "Calpine,"
"we," "us," "our" or similar terms in this section refer solely to Calpine
Corporation and not the trust or any of our other consolidated subsidiaries.
GENERAL
The trust will make payments on the HIGH TIDES pro rata with its common
securities except as described under "-- Subordination of Common Securities."
The guarantee executed by us for your benefit will provide for a guarantee on a
subordinated basis with respect to the HIGH TIDES but will not guarantee payment
of distributions or amounts payable on redemption of the HIGH TIDES or on
dissolution and liquidation of the trust when the trust does not have funds on
hand available to make those payments. See "Description of the Guarantee."
Credit Suisse First Boston Corporation has agreed to act as initial
remarketing agent with respect to the HIGH TIDES and is referred to herein as
the remarketing agent. The remarketing agent will be paid fees for its services
and may resign or be replaced by us under certain circumstances. The remarketing
agent may also be removed at any time for cause by the holders of a majority of
the aggregate liquidation amount of HIGH TIDES outstanding. See "The Remarketing
Agent."
DISTRIBUTIONS
Distributions will accrue on the HIGH TIDES from the date of their original
issuance at the applicable rate of the stated liquidation amount of $50 per HIGH
TIDES. Subject to the deferral rights described below, the trust will pay the
distributions quarterly in arrears on each , , and
, each referred to as a
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distribution date, commencing , 2000, to the person in whose name
each HIGH TIDES is registered at the close of business on the day
of the month of the applicable distribution date.
Each registered holder of HIGH TIDES on the fifteenth day prior to the
reset date, including any holder which has tendered or is deemed to have
tendered its HIGH TIDES for remarketing, shall be paid distributions and
additional amounts, if any, accrued to but excluding the reset date. The reset
date is any date (1) not later than October , 2004, or, if the day is not a
business day, the next succeeding business day, and (2) not earlier than 70
business days prior to October , 2004, as may be determined by the remarketing
agent, in its sole discretion, for settlement of a successful remarketing.
Distributions and additional amounts, if any, accrued from and after the reset
date to but excluding , shall be paid on
to the person in whose name each HIGH TIDES is registered on the
preceding , subject to our right to initiate a deferral period.
The applicable rate will be the initial rate of % per annum from the date
of original issuance of the HIGH TIDES but excluding the reset date. From the
reset date, the applicable rate will be the term rate established by the
remarketing agent to be effective on the reset date. On the reset date, the
remarketing agent will notify the declaration trustees, the trust, the debenture
trustee, the paying agent, us and the holders, if any, which elected not to
tender all their HIGH TIDES for remarketing of the term provisions, including
the term rate. The notification must be made by written notice or by telephone
promptly confirmed by telecopy or other writing. See "The Remarketing."
The amount of distributions payable for any period will be computed based
on the number of days elapsed in a 360-day year of twelve 30-day months. If any
distribution date is not a business day, the trust will pay distributions
payable on that date on the next succeeding day that is a business day, and
without any additional distributions or other payments in respect of any such
delay, with the same force and effect as if made on the date the payment was
originally payable. Distributions that the trust does not pay on the applicable
distribution date will accrue additional distributions on the amount of the
accrued distributions, to the extent permitted by law, compounded quarterly from
the relevant distribution date. As used in this prospectus, the term
"distribution" includes quarterly distributions, additional distributions on
quarterly distributions not paid on the applicable distribution date and special
distributions upon certain tax events, as applicable. See "Description of
Convertible Subordinated Debentures -- Additional Amounts." As used in this
prospectus, a "business day" means any day other than a Saturday or a Sunday, or
a day on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed, or a day on which the
corporate trust office of the property trustee or the debenture trustee is
closed for business.
So long as no event of default under the debentures has occurred and is
continuing, we have the right to defer the payment of interest on the debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarters. However, no deferral period may extend beyond (1) the maturity of the
debentures whether at the stated maturity or by declaration of acceleration,
call for redemption or otherwise and (2) in the case of a deferral period
beginning prior to the reset date, the reset date. We have agreed, among other
things, not to declare or pay any dividend on our capital stock, subject to
certain exceptions, during any deferral period. See "Description of Convertible
Subordinated Debentures -- Option to Extend Interest Payment Date." As a
consequence of any deferral election, the trust will defer quarterly
distributions on the HIGH TIDES during the deferral period. Deferred
distributions to which you are entitled will accumulate additional distributions
at the
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applicable rate, compounded quarterly from the relevant payment date for
distributions during any deferral period, to the extent permitted by applicable
law.
See "Description of Convertible Subordinated Debentures -- Option to Extend
Interest Payment Date" and "Certain United States Federal Income Tax
Consequences -- Interest Income" for a more detailed discussion of the terms and
conditions affecting our right to defer the payment of interest on the
debentures.
We have no current intention of exercising our right to defer payments of
interest on the debentures.
The trust's revenue available for distribution to you will be limited to
payments under the debentures. See "Description of Convertible Subordinated
Debentures -- General." If we do not make interest payments on the debentures,
the property trustee will not have funds available to pay distributions on the
HIGH TIDES. We have guaranteed the payment of distributions, if and to the
extent the trust has funds legally available for the payment of those
distributions and cash sufficient to make those payments, on a limited basis as
set forth under "Description of the Guarantee."
CONVERSION RIGHTS
General. You may convert your HIGH TIDES at any time prior to 5:00 p.m.,
New York City time, on or prior to the tender notification date and, in the
event of a convertible remarketing or a failed final remarketing, from and after
the reset date to and including October , 2029 (except that you may convert
HIGH TIDES called for redemption by us at any time prior to 5:00 p.m., New York
City time, on the relevant redemption date), at your option and in the manner
described below, into shares of our common stock. On or prior to the tender
notification date, you may convert each HIGH TIDES, pursuant to the initial
conversion ratio, into shares of our common stock (equivalent to
an initial conversion price of $ per share of common stock). On and after
the reset date, the trust has the option to make each HIGH TIDES, subject to the
results of the remarketing, become convertible into a different number of shares
of common stock or nonconvertible. See "The Remarketing." The conversion ratio
and the equivalent conversion price in effect at any given time are referred to
in this prospectus as the applicable conversion ratio and the applicable
conversion price, respectively, and will be subject to adjustment as described
under "-- Conversion Price Adjustments" below. The trust will covenant in the
declaration of trust not to convert debentures held by it except pursuant to a
notice of conversion delivered to the property trustee, as conversion agent, by
you.
If you wish to exercise your conversion right, you must deliver an
irrevocable conversion notice, together, if the HIGH TIDES are in certificated
form, with the certificated security, to the conversion agent who will, on your
behalf, exchange the HIGH TIDES for a like amount of debentures and immediately
convert the debentures into shares of our common stock. You may obtain copies of
the required form of the conversion notice from the conversion agent.
If you are the record holder of HIGH TIDES at the close of business on a
distribution record date, you will be entitled to receive the distribution
payable on your HIGH TIDES on the corresponding distribution date even if you
convert your HIGH TIDES after the distribution record date but prior to the
distribution date. Except as provided in the immediately preceding sentence,
neither we nor the trust will make, or be
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required to make, any payment, allowance or adjustment for accrued and unpaid
distributions, whether or not in arrears, on converted HIGH TIDES, even if you
convert your HIGH TIDES during a deferral period. We will make no payment or
allowance for distributions on our shares of common stock issued upon
conversion, except to the extent that those shares of common stock are held of
record on the record date for any distributions. We will deem each conversion to
have been effected immediately prior to the close of business on the day on
which the trust received the related conversion notice.
We will not issue any fractional shares of our common stock as a result of
conversion. Instead, we will pay fractional interest in cash based on the
closing price of our common stock at the time of conversion.
Conversion Price Adjustments -- General. The applicable conversion price of
the HIGH TIDES will be adjusted, without duplication, upon the happening of the
following events:
- the payment of dividends and other distributions payable exclusively in
our common stock on our common stock,
- the issuance to all holders of our common stock of rights or warrants,
- subdivisions and combinations of our common stock,
- the payment of dividends and other distributions to all holders of our
common stock consisting of evidences of our indebtedness, securities or
capital stock, cash or assets, except for those rights or warrants
referred to in the second bullet clause above and dividend and
distributions paid exclusively in cash,
- the payment to holders of our common stock in respect of a tender or
exchange offer, other than an odd-lot offer, by us or any of our
subsidiaries for our common stock at a price in excess of 110% of the
current market price of our common stock as of the trading day next
succeeding the last date tenders or exchanges may be made pursuant to the
tender or exchange offer, and
- the payment of dividends and other distributions on our common stock paid
exclusively in cash, excluding:
-- cash dividends that do not exceed the per share amount of the
smallest of the immediately four preceding quarterly cash dividends,
as adjusted to reflect any of the events described above; and
-- cash dividends the per share amount of which, together with the
aggregate per share amount of any other cash dividends paid within
the 12 months preceding the date of payment of such cash dividends,
does not exceed 12 1/2 % of the current market price of our common
stock as of the trading day immediately preceding the date of
declaration of the dividend.
We may, at our option, make reductions in the applicable conversion price
as our board of directors deems advisable to avoid or diminish any income tax to
our common stockholders resulting from any dividend or distribution of stock, or
rights to acquire stock, or from any event treated similarly for federal income
tax purposes. See "Certain United States Federal Income Tax
Consequences -- Adjustment of Conversion Price."
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The applicable conversion price will not be adjusted:
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on securities of Calpine and the investment of
additional optional amounts in shares of our common stock under any plan;
- upon the issuance of any shares of our common stock or options or rights
to purchase those shares pursuant to any present or future employee,
director or consultant benefit plan or program of Calpine; or
- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right, or exercisable, exchangeable or convertible
security outstanding as of the date the HIGH TIDES were first issued.
No adjustment in the applicable conversion price will be required unless
the adjustment would require an increase or decrease of at least 1% of the
applicable conversion price. If the adjustment is not made because the
adjustment does not change the applicable conversion price by more than 1%, then
the adjustment that is not made will be carried forward and taken into account
in any future adjustment. Except as specifically described above, the applicable
conversion price will not be subject to adjustment in the case of the issuance
of any of our common stock, or securities convertible into or exchangeable for
our common stock.
Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of
Calpine. If we are a party to a transaction which results in our common shares
being converted into the right to receive, or being exchanged for, securities,
cash or other property of a third party, the conversion price may be adjusted as
described below. The following are examples of company transactions which may
result in an adjustment to the conversion price:
- merger,
- consolidation,
- sale of all or substantially all of our assets,
- recapitalization or reclassification of our common shares, or
- any compulsory share exchange.
If we are a party to any company transaction, in each case, as a result of
which shares of our common stock will be converted into the right to receive
other securities, cash or other property, we will ensure that lawful provision
is made as part of the terms of the company transaction so that the holder of
each HIGH TIDES then outstanding will have the right thereafter to convert the
HIGH TIDES only into:
- in the case of any company transaction other than a company transaction
involving a Common Stock Fundamental Change, the kind and amount of
securities, cash and other property receivable upon the consummation of
the company transaction by a holder of that number of shares of our
common stock into which a HIGH TIDES was convertible immediately prior to
the company transaction; or
- in the case of a company transaction involving a Common Stock Fundamental
Change, common stock of the kind received by holders of our common stock;
but in each case after giving effect to any adjustment discussed below relating
to a Fundamental Change if the company transaction constitutes a Fundamental
Change.
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The holders of HIGH TIDES will have no voting rights with respect to any
company transaction.
In the case of any company transaction involving a Fundamental Change, the
applicable conversion price will be adjusted immediately before the Fundamental
Change as follows:
- in the case of a Non-Stock Fundamental Change, the applicable conversion
price of the HIGH TIDES will become the lower of:
- the applicable conversion price immediately prior to the Non-Stock
Fundamental Change, but after giving effect to any other prior
adjustments, and
- the result obtained by multiplying the greater of the relevant price or
the then applicable reference market price by the optional redemption
ratio (the product is referred to as the "adjusted relevant price" or
the "adjusted reference market price," as the case may be); and
- in the case of a Common Stock Fundamental Change, the applicable
conversion price of the HIGH TIDES immediately prior to the Common Stock
Fundamental Change, but after giving effect to any other prior
adjustments, will be adjusted by multiplying the applicable conversion
price by a fraction of which the numerator will be the Purchaser Stock
Price and the denominator will be the relevant price.
However, in the event of a Common Stock Fundamental Change in which:
- 100% of the value of the consideration received by a holder of our common
stock is common stock of the successor, acquirer or other third party
(and cash, if any, is paid only with respect to any fractional interests
in the common stock resulting from the Common Stock Fundamental Change);
and
- all our common stock will have been exchanged for, converted into, or
acquired for common stock (and cash with respect to fractional interests)
of the successor, acquirer or other third party;
the applicable conversion price of the HIGH TIDES immediately prior to the
Common Stock Fundamental Change will be adjusted by multiplying the applicable
conversion price by a fraction of which the numerator will be one and the
denominator will be the number of shares of common stock of the successor,
acquirer or other third party received by a holder of one share of our common
stock as a result of the Common Stock Fundamental Change.
In the absence of the adjustments to the applicable conversion price in the
event of a company transaction involving a Fundamental Change, in the case of a
company transaction each HIGH TIDES would become convertible into the
securities, cash, or other property receivable by a holder of the number of
shares of our common stock into which each HIGH TIDES was convertible
immediately prior to the company transaction. Thus, in the absence of the
Fundamental Change provisions, a company transaction could substantially lessen
or eliminate the value of the conversion privilege associated with the HIGH
TIDES. For example, if a company were to acquire Calpine in a cash merger, each
HIGH TIDES would become convertible solely into cash and would no longer be
convertible into securities whose value would vary depending on the future
prospects of Calpine and other factors.
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In Non-Stock Fundamental Change transactions, the foregoing conversion
price adjustments are designed to increase the amount of securities, cash or
other property into which you may convert each HIGH TIDES. In a Non-Stock
Fundamental Change transaction in which the initial value received per share of
our common stock (measured as described in the definition of relevant price) is
lower than the then applicable conversion price of a HIGH TIDES but greater than
or equal to the reference market price, the applicable conversion price will be
adjusted with the effect that you will be able to convert each HIGH TIDES into
securities, cash or other property of the same type received by the holders of
our common stock in the transaction with the applicable conversion price
adjusted as though the initial value had been the adjusted relevant price. In a
Non-Stock Fundamental Change transaction in which the initial value received per
share of our common stock (measured as described in the definition of relevant
price) is lower than both the applicable conversion price of a HIGH TIDES and
the reference market price, the applicable conversion price will be adjusted as
described above but calculated as though the initial value had been the adjusted
reference market price.
In Common Stock Fundamental Change transactions, the foregoing adjustments
are designed to provide in effect that:
- where our common stock is converted partly into common stock and partly
into other securities, cash or property, you will be able to convert each
HIGH TIDES solely into a number of shares of common stock determined so
that the initial value of those shares (measured as described in the
definition of Purchaser Stock Price) equals the value of the shares of
our common stock into which each HIGH TIDES was convertible immediately
before the transaction (measured as aforesaid); and
- where our common stock is converted solely into common stock, you will be
able to convert each HIGH TIDES into the same number of shares of common
stock receivable by a holder of the number of shares of our common stock
into which each HIGH TIDES was convertible immediately before the
transaction.
The term "closing price" of any security on any day means the last reported
sale price of the security on that day, or in case no sale takes place on that
day, the average of the closing bid and asked prices in each case on the
principal national securities exchange on which the securities are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the National Market System of the National Association
of Securities Dealers, Inc. or any successor national automated interdealer
quotation system (the "NNM") or, if the securities are not listed or admitted to
trading on any national securities exchange or quoted on the NNM, the average of
the closing bid and asked prices of the security in the over-the-counter market
as furnished by any New York Stock Exchange member firm selected by Calpine for
that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value, as determined in good faith by our board of
directors, of the consideration received by holders of our common stock consists
of common stock that for each of the ten consecutive trading days immediately
prior to and including the entitlement date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the NNM; provided, however, that a Fundamental Change will
not be a Common Stock Fundamental Change unless either:
- we continue to exist after the occurrence of the Fundamental Change and
the outstanding HIGH TIDES continue to exist as outstanding HIGH TIDES;
or
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- not later than the occurrence of the Fundamental Change, the outstanding
debentures are converted into or exchanged for debentures of a
corporation succeeding to our business, which debentures have terms
substantially similar to those of our debentures.
The term "entitlement date" means the record date for determination of the
holders of our common stock entitled to receive securities, cash or other
property in connection with a Non-Stock Fundamental Change or a Common Stock
Fundamental Change or, if there is no record date, the date upon which holders
of our common stock will have the right to receive those securities, cash or
other property.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with a company transaction pursuant to which all or
substantially all of our common stock will be exchanged for, converted into,
acquired for or constitute solely the right to receive securities, cash or other
property (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise). However, in the case of a company transaction involving more than
one transaction or event, for purposes of adjustment of the applicable
conversion price, the Fundamental Change will be deemed to have occurred when
substantially all of our common stock is exchanged for, converted into, or
acquired for or constitute solely the right to receive securities, cash, or
other property, but the adjustment will be based upon the highest weighted
average per share consideration that a holder of our common stock could have
received in the transactions or events as a result of which more than 50% of all
outstanding shares of our common stock will have been exchanged for, converted
into, or acquired for or constitute solely the right to receive securities, cash
or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "optional redemption ratio" means a fraction of which the
numerator will be $50 and the denominator will be the then current optional
redemption price or, on or prior to October , 2002 and at any time after the
reset date at which the HIGH TIDES are not redeemable at our option, an amount
per HIGH TIDES determined by us in our sole discretion, after consultation with
a nationally recognized investment banking firm, to be the equivalent of the
hypothetical redemption price that would have been applicable if the HIGH TIDES
had been redeemable during that period.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the closing prices for the common stock
received in the Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the entitlement date, as adjusted in good faith by
us to appropriately reflect any of the events referred to in the six bullet
clauses of the first paragraph under "-- Conversion Price Adjustments --
General."
The term "reference market price" will initially mean on the date the trust
originally issues the HIGH TIDES, $ (which is an amount equal to
66 2/3% of the last reported sale price for our common stock on the New York
Stock Exchange Composite Tape on October , 1999). In the event of any
adjustment to the applicable conversion price from such date to, but excluding
the reset date, other than as a result of a Non-Stock Fundamental Change, the
trust will also adjust the reference market price so that the ratio of the
reference market price to the applicable conversion price after giving effect to
any adjustment will be the same as the ratio of $ to the initial
conversion price. If the
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HIGH TIDES are convertible into common stock on and after the reset date, the
reference market price on the reset date will be an amount equal to 66 2/3% of
the closing price of the common stock on the reset date and, in the event of any
adjustment to the applicable conversion price from the reset date and
thereafter, other than as a result of a Non-Stock Fundamental Change, the
reference market price shall also be adjusted so that the ratio of the reference
market price to the applicable conversion price after giving effect to any such
adjustment shall always be the same as the ratio of the closing price of the
common stock on the reset date to the term conversion price.
The term "relevant price" means:
- in the case of a Non-Stock Fundamental Change in which the holder of our
common stock receives only cash, the amount of cash received by the
holder of one share of our common stock; and
- in the event of any other Non-Stock Fundamental Change or any Common
Stock Fundamental Change, the average of the daily closing prices for our
common stock during the ten consecutive trading days prior to and
including the entitlement date, in each case as adjusted in good faith by
us to appropriately reflect any of the events referred to in the six
bullet clauses of the first paragraph under "-- Conversion Price
Adjustments -- General."
MANDATORY REDEMPTION
Upon the repayment in full of the debentures at their stated maturity or a
redemption in whole or in part of the debentures (other than following any
distribution of the debentures to you and the holders of the trust's common
securities), the property trustee will apply the proceeds from the repayment or
redemption to redeem, on a pro rata basis, a like amount of HIGH TIDES and the
trust's common securities, on the redemption date, in an amount per HIGH TIDES
or common security, as applicable, equal to the applicable redemption price. The
redemption price will be equal to:
- the liquidation amount of each HIGH TIDES plus any accrued and unpaid
distributions in the case of (A) the repayment of the debentures at their
stated maturity or (B) the redemption of the debentures in certain
limited circumstances upon the occurrence of a tax event;
- in the case of an optional redemption on or after October , 2002, but
prior to, and excluding, the tender notification date, the initial
redemption price as set forth under "Description of Convertible
Subordinated Debentures -- Redemption -- Optional Redemption"; and
- in the case of an optional redemption after the reset date, in accordance
with the term call protections, if any, established in the remarketing.
REDEMPTION PROCEDURES
The trust will redeem its HIGH TIDES and common securities at the
applicable redemption price with the proceeds from the contemporaneous repayment
or redemption of the debentures. The trust will redeem its HIGH TIDES and common
securities and will pay the applicable redemption price on each redemption date
only to the extent that it has funds on hand available for the payment of the
redemption price. See also "-- Subordination of Common Securities."
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If the trust gives a notice of redemption in respect of the HIGH TIDES,
then, by 10:00 a.m., New York City time, on the redemption date, to the extent
funds are available, with respect to the HIGH TIDES held in global form, the
property trustee will deposit irrevocably with DTC funds sufficient to pay the
applicable redemption price and will give DTC irrevocable instructions and
authority to pay the applicable redemption price to you. See "-- Form,
Book-Entry Procedures and Transfer."
If the HIGH TIDES are no longer in book-entry form, the property trustee,
to the extent funds are available, will irrevocably deposit with the paying
agent for the HIGH TIDES funds sufficient to pay the applicable redemption price
and will give the paying agent irrevocable instructions and authority to pay the
redemption price to the holders of the HIGH TIDES upon surrender of their
certificates evidencing the HIGH TIDES. See "-- Payment and Paying Agency."
Distributions payable on or prior to the redemption date for any HIGH TIDES
called for redemption will be paid to holders of HIGH TIDES as of the relevant
record dates for the related distribution. If the trust has given notice of
redemption and deposited funds as required, then upon the date of the deposit,
all of your rights will cease, except your right to receive the applicable
redemption price, but without interest on the redemption price, and the HIGH
TIDES will cease to be outstanding.
If any redemption date is not a business day, then payment of the
applicable redemption price payable on that date will be made on the next
succeeding day which is a business day, and without any interest or other
payment in respect of any delay. However, if that business day falls in the next
calendar year, the payment will be made on the immediately preceding business
day. In the event that the trust or, pursuant to the guarantee described in
"Description of the Guarantee," we improperly withhold or refuse to make payment
of the applicable redemption price, then distributions on HIGH TIDES will
continue to accrue at the then applicable rate, from the redemption date
originally established by the trust to the date the redemption price is actually
paid. Under these circumstances, the actual payment date will be the date fixed
for redemption for purposes of calculating the redemption price.
Subject to applicable law, we or our subsidiaries may at any time and from
time to time purchase outstanding HIGH TIDES by tender, in the open market or by
private agreement except as provided under "The Remarketing -- Purchases by Us
and Our Affiliates."
If we desire to consummate an optional redemption, we must send a notice to
each holder of HIGH TIDES and the trust's common securities at its registered
address in accordance with the notice procedures set forth under "Description of
Convertible Subordinated Debentures -- Redemption -- Optional Redemption." We
must mail any notice of a tax event redemption at least 30 days but not more
than 60 days before the redemption date to you. We need not provide notice of
repayment at the stated maturity of the debentures.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION OR DISTRIBUTION
If a tax event occurs and is continuing, we will cause the trustees to
dissolve and liquidate the trust and, after satisfaction of liabilities of
creditors of the trust, cause debentures to be distributed to you and us, as
holder of the common securities, on a pro
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rata basis, in liquidation of the trust within 90 days following the occurrence
of the tax event. However, the liquidation and distribution will be conditioned
on:
- the trustees' receipt of an opinion of a nationally recognized
independent tax counsel, reasonably acceptable to the trustees,
experienced in such matters (a "No Recognition Opinion"), which opinion
may rely on published revenue rulings of the Internal Revenue Service, to
the effect that you will not recognize any income, gain or loss for
United States federal income tax purposes as a result of such liquidation
and distribution of debentures; and
- Calpine being unable to avoid such tax event within such 90-day period by
taking some ministerial action or pursuing some other reasonable measure
that, in our sole judgment, will have no adverse effect on us, the trust
or you and will involve no material cost.
Furthermore, if (1) a nationally recognized independent tax counsel,
reasonably acceptable to the trustees, experienced in such matters provides an
opinion (the "Redemption Tax Opinion") to us that, as a result of a tax event,
there is more than an insubstantial risk that we would be precluded from
deducting the interest on the debentures for United States federal income tax
purposes, even after the debentures were distributed to you upon liquidation of
the trust as described above, or (2) such tax counsel informs the trustees that
it cannot deliver a No Recognition Opinion, we will have the right, upon not
less than 30 nor more than 60 days' notice and within 90 days following the
occurrence and continuation of the tax event, to redeem the debentures, in
whole, but not in part, for cash, for the principal amount plus accrued and
unpaid interest and, following such redemption, the trust will redeem all the
HIGH TIDES at the aggregate liquidation amount of the HIGH TIDES plus accrued
and unpaid distributions. However, if at the time there is available to us or
the trust the opportunity to eliminate, within such 90-day period, the tax event
by taking some ministerial action or pursuing some other reasonable measure
that, in our sole judgment, will have no adverse effect on us, the trust or you
and will involve no material cost, we or the trust will pursue that measure in
lieu of redemption. See "-- Mandatory Redemption." In addition to the foregoing
options, we will also have the option of causing the HIGH TIDES to remain
outstanding and pay additional amounts on the debentures. See "Description of
Convertible Subordinated Debentures -- Additional Amounts."
The term "tax event" means the receipt by the property trustee of an
opinion of a nationally recognized independent tax counsel to us, reasonably
acceptable to the trustees, experienced in such matters (a "Dissolution Tax
Opinion") to the effect that as a result of:
- any amendment to or change (including any announced prospective change
(which will not include a proposed change), provided that a tax event
will not occur more than 90 days before the effective date of any
prospective change) in the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority of the
United States or any political subdivision;
- any judicial decision or official administrative pronouncement, ruling,
regulatory procedure, notice or announcement, including any notice or
announcement of intent to adopt such procedures or regulations (an
"Administrative Action"); or
- any amendment to or change in the administrative position or
interpretation of any Administrative Action or judicial decision that
differs from the theretofore generally
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accepted position, in each case, by any legislative body, court,
governmental agency or regulatory body, irrespective of the manner in
which such amendment or change is made known, which amendment or change
is effective or such Administrative Action or decision is announced, in
each case, on or after the date of original issuance of the debentures or
the issue date of the HIGH TIDES;
there is more than an insubstantial risk that one of the following will occur:
- if the debentures are held by the property trustee, (1) the trust is, or
will be within 90 days of the date of such opinion, subject to United
States federal income tax with respect to interest accrued or received on
the debentures or subject to more than a de minimis amount of other
taxes, duties or other governmental charges as determined by counsel, or
(2) any portion of interest payable by us to the trust (or original issue
discount accruing) on the debentures is not, or within 90 days of the
date of such opinion will not be, deductible by us in whole or in part
for United States federal income tax purposes; or
- with respect to debentures which are no longer held by the property
trustee, any portion of interest payable by us (or original issue
discount accruing) on the debentures is not, or within 90 days of the
date of such opinion will not be, deductible by us in whole or in part
for United States federal income tax purposes.
If an investment company event occurs and is continuing, we will cause the
trustees to dissolve and liquidate the trust and, after satisfaction of
liabilities of creditors of the trust, cause a like amount of the debentures to
be distributed to you in liquidation of the trust within 90 days following the
occurrence of the investment company event.
An investment company event occurs if there is a change in law or
regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority to the effect that the trust is or will be considered an "investment
company" required to be registered under the Investment Company Act of 1940, as
amended. In order to be an investment company event, the change in law must be
effective on or after the date of this prospectus.
The distribution by us of the debentures will effectively result in the
cancellation of the HIGH TIDES.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF CONVERTIBLE SUBORDINATED DEBENTURES
We, as the holder of the trust's outstanding common securities, will have
the right at any time including, without limitation, upon the occurrence of a
tax event or an investment company event, to dissolve the trust and, after
satisfaction of liabilities of creditors of the trust as provided by applicable
law, cause a like amount of the debentures to be distributed to you and the
holders of the trust's common securities upon liquidation of the trust. However,
we may not dissolve the trust during the period beginning on the business day
following a tender notification date and ending on the reset date (other than
upon the occurrence of a tax event or an investment company event). In addition,
the declaration trustees shall have received a No Recognition Opinion prior to
the dissolution of the trust.
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The trust will automatically dissolve upon the first to occur of:
(A) our bankruptcy, dissolution or liquidation;
(B) the distribution of a like amount of the debentures to the holders of
the HIGH TIDES and the trust's common securities if we, as depositor,
have given our written direction to the property trustee to dissolve
the trust (which direction is optional and, except as described above,
wholly within our discretion, as depositor);
(C) redemption of all the HIGH TIDES and the trust's common securities as
described under "-- Mandatory Redemption" above;
(D) conversion of all outstanding HIGH TIDES and the trust's common
securities as described under "-- Conversion Rights" above;
(E) expiration of the term of the trust; or
(F) entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
If an early dissolution occurs as described in clause (A), (B), (E) or (F)
above, the declaration trustees will liquidate the trust as expeditiously as
they determine to be possible by distributing, after satisfaction of liabilities
to the creditors of the trust as provided by applicable law, to you and the
holders of the trust's common securities a like amount of the debentures, unless
the distribution would not be practical. In that event, you and the holders of
the trust's common securities will be entitled to receive out of the trust's
assets available for distribution to holders, after satisfaction of liabilities
to the trust's creditors as provided by applicable law, an amount equal to, in
the case of holders of HIGH TIDES, the aggregate liquidation amount of the HIGH
TIDES plus accrued and unpaid distributions, to the date of payment (that amount
being the "liquidation distribution"). If the liquidation distribution can be
paid only in part because the trust has insufficient assets available to pay in
full the aggregate liquidation distribution, then the trust will pay the amounts
directly payable by it on the HIGH TIDES on a pro rata basis. We, as the holder
of the trust's common securities, will be entitled to receive distributions upon
any liquidation pro rata with you, except that if an event of default under the
debentures (or an event that, with notice or passage of time, would become an
event of default under the debentures) has occurred and is continuing, the HIGH
TIDES will have a priority over the trust's common securities with respect to
any of those distributions. See "-- Subordination of Common Securities."
If we do not redeem the debentures prior to maturity, the trust is not
dissolved and liquidated and the debentures are not distributed to you and the
holders of the trust's common securities, the HIGH TIDES will remain outstanding
until the repayment of the debentures at their final stated maturity and the
distribution of the liquidation distribution to you.
On and after the liquidation date fixed for any distribution of debentures
to you and the holders of the trust's common securities:
- the trust will no longer deem the HIGH TIDES to be outstanding;
- DTC or its nominee, as the record holder of the HIGH TIDES, will receive
a registered global certificate or certificates representing the
debentures to be
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delivered upon the distribution with respect to HIGH TIDES held by DTC or
its nominee; and
- the trust will deem any certificates representing HIGH TIDES not held by
DTC or its nominee to represent debentures having a principal amount
equal to the liquidation amount of the HIGH TIDES and bearing accrued and
unpaid interest in an amount equal to the accumulated and unpaid
distributions on the HIGH TIDES until those certificates are presented to
the administrative trustees or their agent for cancellation, whereupon we
will issue to the holder, and the debenture trustee will authenticate, a
certificate representing the debentures.
We cannot assure you as to the market prices for the HIGH TIDES or the
debentures that you may receive in exchange for the HIGH TIDES and/or the
trust's common securities if a dissolution and liquidation of the trust were to
occur. Accordingly, the HIGH TIDES that you may purchase, or the debentures that
you may receive on dissolution and liquidation of the trust, may trade at a
discount to the price that you originally paid to purchase the HIGH TIDES.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the HIGH TIDES
and the trust's common securities generally shall be made pro rata to the
holders of HIGH TIDES and the trust's common securities. The trust will base
those payments on the liquidation amount of the HIGH TIDES and the trust's
common securities. If on any distribution date or redemption date any event of
default under the debentures has occurred and is continuing or an event of
default under the declaration of trust has occurred and is continuing, then the
trust will not pay any distribution on, or applicable redemption price of, any
of the trust's common securities, and the trust will not make any other payment
on account of the redemption, liquidation or other acquisition of the trust's
common securities, unless:
- all accrued and unpaid distributions on all of the outstanding HIGH TIDES
are paid in cash for all distribution periods ending on or prior to any
payment on the common securities, or
- in the case of payment of the applicable redemption price, the full
amount of the redemption price on all of the outstanding HIGH TIDES then
called for redemption shall have been paid or provided for, and all funds
available to the property trustee will first be applied to the payment in
full in cash of all distributions on, or the applicable redemption price
of, the HIGH TIDES then due and payable.
If an event of default occurs under the declaration of trust resulting from
an event of default under the debentures, the trust will deem us, as holder of
the trust's common securities, to have waived any right to act with respect to
any event of default under the declaration of trust until the effect of all
events of default have been cured, waived or otherwise eliminated. Until all
events of default under the declaration of trust have been so cured, waived or
otherwise eliminated, the property trustee will act solely on your behalf and
not on our behalf as holder of the trust's common securities, and only you will
have the right to direct the property trustee to act on your behalf.
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EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "event of default" under the
declaration of trust (whatever the reason for the event of default and whether
it is voluntary or involuntary or is effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
- the occurrence of an event of default under the debentures (see
"Description of Convertible Subordinated Debentures -- Debenture Events
of Default");
- the trust's default in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30 days
(subject to the deferral of any due date in the case of a deferral
period);
- the trust's default in the payment of any redemption price of any HIGH
TIDES or common security of the trust when it becomes due and payable;
- default in the performance, or breach, in any material respect, of any
covenant or warranty of the declaration trustees in the declaration of
trust (other than a covenant or warranty, a default in the performance of
which or the breach of which is addressed in the second or third bullet
points above), and continuation of the default or breach for a period of
60 days after the holders of at least 25% in aggregate liquidation amount
of the outstanding HIGH TIDES have given, by registered or certified
mail, to the defaulting trustee or trustees a written notice specifying
the default or breach and requiring it to be remedied and stating that
the notice is a "Notice of Default" under the declaration of trust; or
- the occurrence of a bankruptcy or insolvency with respect to the property
trustee and the failure by us to appoint a successor property trustee
within 60 days of those events.
Within ten business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to you, the administrative trustees and us, as
depositor, unless the event of default has been cured or waived. Calpine, as
depositor, and the administrative trustees are required to file annually with
the property trustee a certificate as to whether or not we and they are in
compliance with all the conditions and covenants applicable to us and them under
the declaration of trust.
If an event of default under the debentures (or an event that with notice
or the passage of time, would become an event of default under the debentures)
or an event of default under the declaration of trust has occurred and is
continuing, the HIGH TIDES will have a preference over the trust's common
securities. See "-- Liquidation of the Trust and Distribution of Convertible
Subordinated Debentures" and "-- Subordination of Common Securities."
REMOVAL OF TRUSTEES
Unless an event of default under the debentures has occurred and is
continuing, we, as the holder of the trust's common securities, may remove any
declaration trustee at any time. If an event of default under the debentures has
occurred and is continuing, the holders of a majority in liquidation amount of
the outstanding HIGH TIDES may remove
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the property trustee and the Delaware statutory trustee. In no event will you
have the right to vote to appoint, remove or replace the administrative
trustees, which voting rights are vested exclusively in us as the holder of the
trust's common securities. No resignation or removal of the Delaware statutory
trustee or the property trustee and no appointment of a successor trustee will
be effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the declaration of trust.
MERGER OR CONSOLIDATION OF TRUSTEES
Any successor to the property trustee or the Delaware trustee by merger,
conversion or consolidation or which otherwise succeeds to that trustee's
corporate trust business will take the place of that trustee under the
declaration of trust if the successor otherwise is qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may not merge with or into, consolidate, amalgamate or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below or as otherwise set forth in the declaration of trust. The trust
may, with the consent of the administrative trustees but without your consent
and the consent of the property trustee or the Delaware statutory trustee, merge
with or into, consolidate, amalgamate or be replaced by, or convey, transfer or
lease its properties and assets substantially as an entirety to, a trust
organized as such under the laws of any state if:
- the successor entity either (1) expressly assumes all of the trust's
obligations with respect to the HIGH TIDES or (2) substitutes for the
HIGH TIDES other successor securities having substantially the same terms
as the HIGH TIDES so long as the successor securities rank the same as
the HIGH TIDES rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise;
- we expressly appoint a trustee of the successor entity possessing the
same powers and duties as the property trustee as the holder of the
debentures;
- the successor securities are listed or traded, or any successor
securities will be listed or traded upon notification of issuance, on any
national securities exchange, national automated quotation system or
other organization on which the HIGH TIDES are then listed or traded, if
any;
- the transaction does not cause the HIGH TIDES, including any successor
securities, to be downgraded by any nationally recognized statistical
rating organization;
- the transaction does not adversely affect the rights, preferences and
privileges of the holders of the HIGH TIDES, including any successor
securities, in any material respect;
- the successor entity has a purpose substantially identical and limited to
the purpose of the trust;
- prior to the transaction, we receive an opinion from independent counsel
to the trust experienced in such matters to the effect that:
-- the transaction does not adversely affect the limited liability of the
holders of the HIGH TIDES and common securities, including any
successor securities;
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-- following the transaction neither the trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act; and
-- following the transaction, the trust or the successor entity will
continue to be treated as a grantor trust for United States federal
income tax purposes.
- we or any permitted successor or assignee owns all of the common
securities of the successor entity and guarantees the obligations of the
successor entity under the successor securities at least to the extent
provided by the guarantee relating to the HIGH TIDES; and
- the transaction is not a taxable event for you.
Notwithstanding the general provisions described above, the trust will not,
except with the consent of holders of 100% in aggregate liquidation amount of
the HIGH TIDES and the trust's common securities, consolidate, amalgamate, merge
with or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it, if the
transaction would cause the trust or the successor entity to be classified as
other than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
The holders of HIGH TIDES have only the voting rights described below and
under "Description of the Guarantee -- Amendments and Assignment" plus any
voting rights required by law and the declaration of trust.
In addition to your rights with respect to the enforcement of payments by
us to the trust of principal of or interest on the debentures as described under
"Description of Convertible Subordinated Debentures -- Debenture Events of
Default," if either of the following events occurs:
- an event of default under the debentures occurs and is continuing; or
- we default under the guarantee with respect to the HIGH TIDES;
then the holders of the HIGH TIDES, acting as a single class, will be entitled
by a vote of a majority in aggregate stated liquidation amount of the
outstanding HIGH TIDES to appoint a special trustee which shall be called an
appointment event. Any holder of HIGH TIDES, other than Calpine or any of our
affiliates, will be entitled to nominate any person to be appointed as special
trustee. Not later than 30 days after the right to appoint a special trustee
arises, the declaration trustees will convene a meeting of the holders of HIGH
TIDES for the purpose of appointing a special trustee. If the declaration
trustees fail to convene that meeting within the 30-day period, the holders of
not less than 10% of the aggregate stated liquidation amount of the outstanding
HIGH TIDES will be entitled to convene the meeting. The provisions of the
declaration of trust relating to the convening and conduct of the meetings of
the holders will apply with respect to the meeting. Any special trustee so
appointed will cease to be a special trustee if the appointment event pursuant
to which the special trustee was appointed and all other appointment events
cease to be continuing. Notwithstanding the appointment of any special trustee,
we will retain all rights under the indenture, including the right to defer
payments of interest by extending the interest payment period as described under
"Description of Convertible Subordinated Debentures -- Option to Extend Interest
Payment Date." If such an extension occurs, there will be no event of default
under the debentures and, consequently, no event of
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default for failure to make any scheduled interest payment during the deferral
period on the date originally scheduled.
We, along with the property trustee and the administrative trustees, may
amend the declaration of trust from time to time without your consent:
- to cure any ambiguity;
- to correct or supplement any provision in the declaration of trust that
may be inconsistent with any other provision;
- to make any other provisions with respect to ministerial matters or
questions arising under the declaration of trust, which will not be
inconsistent with the other provisions of the declaration of trust; or
- to modify, eliminate or add to any provisions of the declaration of trust
if necessary to ensure that the trust will not be taxable as a
corporation or will be classified for United States federal income tax
purposes as a grantor trust at all times that any HIGH TIDES or the
trust's common securities are outstanding or to ensure that the trust
will not be required to register as an investment company under the
Investment Company Act.
However, no such action may be taken unless the action will not adversely affect
in any material respect the interests of any holder of HIGH TIDES or the trust's
common securities. Any amendments of the declaration of trust will become
effective when notice of the amendment is given to you and the holders of the
trust's common securities.
We, along with the property trustee and the administrative trustees, may
amend the declaration of trust with:
- the consent of holders representing not less than a majority (based upon
liquidation amounts) of the outstanding HIGH TIDES; and
- receipt by the declaration trustees of an opinion of counsel to the
effect that the amendment or the exercise of any power granted to the
trustees in accordance with the amendment will not affect the trust's
status as a grantor trust for United States federal income tax purposes
or the trust's exemption from status as an investment company under the
Investment Company Act.
In addition, without the consent of each holder of HIGH TIDES and the
trust's common securities, no amendment may:
- change the amount or timing of any distribution on the HIGH TIDES or the
trust's common securities or otherwise adversely affect the amount of any
distribution required to be made in respect of the HIGH TIDES or the
trust's common securities as of a specified date; or
- restrict the right of a holder of HIGH TIDES or the trust's common
securities to institute suit for the enforcement of any payment on or
after such date.
So long as any debentures are held by the trust, the declaration trustees
will not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the trustee under the debentures, or execute any
trust or power conferred on the property trustee with respect to the
debentures;
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- waive any past default that is waivable under the indenture governing the
debentures;
- exercise any right to rescind or annul a declaration that the principal
of all the debentures is due and payable; or
- give a required consent to any amendment, modification or termination of
the indenture or the debentures,
unless, in each case, they first obtain the approval of the holders of a
majority in aggregate liquidation amount of all outstanding HIGH TIDES. When the
indenture requires the consent of each holder of debentures, the property
trustee cannot give its consent without the prior consent of each holder of the
HIGH TIDES.
The declaration trustees will not revoke any action previously authorized
or approved by a vote of the holders of the HIGH TIDES except by subsequent vote
of those holders. The property trustee will notify each holder of HIGH TIDES of
any notice of default with respect to the debentures. In addition to obtaining
the foregoing approvals of the holders of the HIGH TIDES, prior to taking any of
the foregoing actions, the property trustee will obtain an opinion of counsel
experienced in those matters to the effect that the action will not affect the
trust's status as a grantor trust for United States federal income tax purposes
on account of the action.
Any required approval of holders of HIGH TIDES may be given either at a
properly convened meeting of those holders or by a written consent without prior
notice. The property trustee must notify holders of HIGH TIDES of any meeting.
Neither your vote nor your consent is required for the trust to redeem and
cancel or remarket the HIGH TIDES in accordance with the declaration of trust.
Notwithstanding that you are entitled to vote or consent under any of the
circumstances described above, any of the HIGH TIDES that are owned by us, the
declaration trustees or any affiliate of Calpine or any declaration trustees,
will, for purposes of such vote or consent, be treated as if they were not
outstanding.
EXPENSES AND TAXES
We will pay all of the costs, expenses or liabilities of the trust, other
than obligations of the trust to pay to the holders of any HIGH TIDES or common
securities the amounts due to the holders under the terms of those securities.
Our foregoing obligations under the indenture governing the debentures are for
the benefit of, and will be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "creditor"), whether or not
the creditor has received notice of those obligations. Any creditor may enforce
our obligations directly against us, and we have irrevocably waived any right or
remedy to require that any creditor take any action against the trust or any
other person before proceeding against us.
FORM, BOOK-ENTRY PROCEDURES AND TRANSFER
The HIGH TIDES will be issued in the form of one or more fully registered
global HIGH TIDES certificates except as described below. The global HIGH TIDES
certificate will be deposited upon issuance with the property trustee as
custodian for DTC, in
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New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant in DTC as
described below.
Except as set forth below, the global HIGH TIDES certificate may be
transferred, in whole but not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the global HIGH TIDES
certificate may not be exchanged for HIGH TIDES in certificated form except in
the limited circumstances described below. See "-- Certificated HIGH TIDES." In
addition, a transfer of beneficial interests in the global HIGH TIDES
certificate will be subject to the applicable rules and procedures of DTC and
its direct or indirect participants which may change from time to time.
DEPOSITARY PROCEDURES
DTC has advised us that it is a limited purpose trust company organized
under the laws of the State of New York, 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
participating organizations and to facilitate the clearance and settlement of
transactions in those securities between its participants through electronic
book-entry changes to accounts of its participants, thereby eliminating the need
for physical movement of certificates. DTC's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to DTC's system is also available to other
indirect participants such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. Persons who are not participants may beneficially own
securities held by or on behalf of DTC only through the participants or the
indirect participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the participants and indirect participants.
DTC has also advised us and the trust that, pursuant to procedures
established by it:
- upon deposit of the global HIGH TIDES certificate, DTC will credit the
accounts of participants designated by Credit Suisse First Boston with
portions of the principal amount of the global HIGH TIDES certificate;
and
- ownership of such interests in the global HIGH TIDES certificate will be
shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC, with respect to the
participants, or by the participants and the indirect participants, with
respect to other owners of beneficial interests in the global HIGH TIDES
certificate.
Investors in the global HIGH TIDES certificate may hold their interests in
the global HIGH TIDES certificate directly through DTC, if they are participants
in DTC, or indirectly through organizations which are participants in DTC's
system. All interests in the global HIGH TIDES certificate will be subject to
the procedures and requirements of DTC. The laws of some states require that
certain persons take physical delivery in certificated form of certain
securities, such as the HIGH TIDES, that they own. Consequently, the ability to
transfer beneficial interests in the global HIGH TIDES certificate to those
persons will be limited to that extent. Because DTC can act only on behalf of
participants, which in turn act on behalf of indirect participants and certain
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banks, the ability of a person having beneficial interests in a global HIGH
TIDES certificate to pledge those interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of those
interests, may be affected by the lack of a physical certificate evidencing
those interests. For certain other restrictions on the transferability of the
HIGH TIDES, see "-- Certificated HIGH TIDES."
EXCEPT AS DESCRIBED BELOW, OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL
HIGH TIDES CERTIFICATE WILL NOT BE ENTITLED TO HAVE HIGH TIDES REGISTERED IN
THEIR NAMES, AND THEY WILL NOT RECEIVE OR BE ENTITLED TO RECEIVE PHYSICAL
DELIVERY OF HIGH TIDES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE DECLARATION OF TRUST FOR ANY
PURPOSE.
Payments in respect of the global HIGH TIDES certificate registered in the
name of DTC or its nominee will be payable by the property trustee to DTC or its
nominee as the registered holder under the declaration of trust by wire transfer
in immediately available funds on each distribution date. Under the terms of the
declaration of trust, the property trustee will treat the persons in whose names
the HIGH TIDES, including the global HIGH TIDES certificate, are registered as
the owners of the global HIGH TIDES certificate for the purpose of receiving
payments and for any and all other purposes. Consequently, neither the property
trustee nor any agent of the property trustee has or will have any
responsibility or liability for:
- any aspect of DTC's records or any participant's or indirect
participant's records relating to, or payments made on account of,
beneficial ownership interests in the global HIGH TIDES certificate, or
for maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the
beneficial ownership interests in the global HIGH TIDES certificate or
- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.
DTC has advised us and the trust that its current practice, upon receipt of
any payment in respect of securities such as the HIGH TIDES, is to credit the
accounts of the relevant participants with the payment on the payment date, in
amounts proportionate to their respective holdings in liquidation amount of
beneficial interests in the global HIGH TIDES certificate, as shown on the
records of DTC, unless DTC has reason to believe it will not receive payment on
the payment date. Payments by the participants and the indirect participants to
the beneficial owners of HIGH TIDES represented by global HIGH TIDES certificate
held through the participants will be governed by standing instructions and
customary practices and will be the responsibility of the participants or the
indirect participants and will not be the responsibility of DTC, the property
trustee or the trust. Neither the trust nor the property trustee will be liable
for any delay by DTC or any of its participants in identifying the beneficial
owners of the HIGH TIDES, and the trust and the property trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Interests in the global HIGH TIDES certificate will trade and settle
according to the rules and procedures of DTC and its participants. Transfers and
settlements between participants in DTC will be effected in accordance with
DTC's procedures.
DTC has advised us and the trust that it will take any action permitted to
be taken by you, including the presentation of HIGH TIDES for exchange as
described below, only at the direction of one or more Participants to whose
account with DTC interests in the
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global HIGH TIDES certificate are credited and only in respect of the portion of
the aggregate liquidation amount of the HIGH TIDES represented by the global
HIGH TIDES certificate as to which the participant or participants has or have
given such direction. However, if there is an event of default under the
declaration of trust, DTC reserves the right to exchange the global HIGH TIDES
certificate for HIGH TIDES in certificated form and to distribute those HIGH
TIDES to its participants.
So long as DTC or its nominee is the registered owner of the global HIGH
TIDES certificate, DTC or the nominee, as the case may be, will be considered
the sole owner or holder of the HIGH TIDES represented by the global HIGH TIDES
certificate for all purposes under the declaration of trust.
Neither DTC nor its nominee will consent or vote with respect to the HIGH
TIDES. Under its usual procedures, DTC would mail an omnibus proxy to the trust
as soon as possible after the record date. The omnibus proxy assigns the
consenting or voting rights of DTC or its nominee to those participants to whose
accounts the HIGH TIDES are credited on the record date (identified in a listing
attached to the omnibus proxy).
The information in this section concerning DTC and its book-entry system
has been obtained from sources that we and the trust believe to be reliable, but
neither we nor the trust takes responsibility for the accuracy of the
information.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the global HIGH TIDES certificate among participants in DTC, it
is under no obligation to perform or to continue to perform those procedures,
and those procedures may be discontinued at any time. Neither the trust nor the
property trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED HIGH TIDES
The HIGH TIDES represented by the global HIGH TIDES certificate will be
exchangeable for certificated HIGH TIDES in definitive form of like tenor as the
HIGH TIDES in denominations of U.S. $50.00 and integral multiples of $50.00 if:
- DTC notifies us or the trust that it is unwilling or unable to continue
as depositary for the global HIGH TIDES certificate, or if at any time
DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934;
- Calpine or the trust in our or its discretion at any time determines not
to have all of the HIGH TIDES evidenced by a global HIGH TIDES
certificate; or
- a default entitling you to accelerate the maturity of the HIGH TIDES has
occurred and is continuing.
Any of the HIGH TIDES that are exchangeable pursuant to the preceding
sentence are exchangeable for certificated HIGH TIDES issuable in authorized
denominations and registered in the names as DTC directs. Subject to the
foregoing, the global HIGH TIDES certificate are not exchangeable, except for a
global HIGH TIDES certificate of the same aggregate denomination to be
registered in the name of DTC or its nominee.
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PAYMENT AND PAYING AGENCY
Payments in respect of the HIGH TIDES held in global form will be made to
DTC. DTC will make payments on the HIGH TIDES by crediting the relevant account
at DTC on the applicable distribution dates. If any HIGH TIDES are not held by
DTC, then the paying agent will mail checks to the registered holders at their
addresses as shown on its register. The paying agent will initially be the
property trustee and any co-paying agent chosen by the property trustee and
acceptable to the administrative trustees and us. The paying agent may resign as
paying agent upon 30 days' written notice to the property trustee, the
administrative trustees and us. If the property trustee resigns as paying agent,
the administrative trustees will appoint a bank or trust company acceptable to
the administrative trustees and us to act as paying agent.
The property trustee has informed the trust that so long as it serves as
paying agent for the HIGH TIDES, it anticipates that information regarding
distributions on the HIGH TIDES, including payment date, record date and
redemption information, will be made available through The Bank of New York.
REGISTRAR, CONVERSION AGENT AND TRANSFER AGENT
The property trustee will act as registrar, conversion agent and transfer
agent for the HIGH TIDES.
The property trustee will act as initial paying agent and transfer agent
for certificated HIGH TIDES and may designate additional or substitute paying
agents and transfer agents at any time. Registration of transfers of
certificated HIGH TIDES will be effected without charge by or on behalf of the
trust, but upon payment (with the giving of such indemnity as the administrative
trustees, the property trustee or we may require) in respect of any tax or other
government charges that may be imposed in connection with any transfer or
exchange. The trust will not be required to register the transfer or exchange of
certificated HIGH TIDES during the period beginning at the opening of business
15 days before any selection of certificated HIGH TIDES to be redeemed and
ending at the close of business on the day of that selection or register the
transfer or exchange of any certificated HIGH TIDES, or portion thereof, called
for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, other than during the occurrence and continuance of
an event of default, is required to perform only the duties that are
specifically set forth in the declaration of trust. During the existence of an
event of default, the property trustee is required to exercise the same degree
of care and skill as a prudent person would exercise or use in the conduct of
his or her own affairs. Subject to this provision, the property trustee has no
obligation to exercise any of its powers under the declaration of trust at the
request of any holder of HIGH TIDES or the trust's common securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities that
it might incur by doing so. If no event of default has occurred and is
continuing and the property trustee is required to decide between alternative
causes of action, construe ambiguous provisions in the declaration of trust or
is unsure of the application of any provision of the declaration of trust, and
the matter is not one on which holders of the HIGH TIDES or the trust's common
securities are entitled under the declaration of trust to vote, then we will
have the right to tell the property trustee which action to take. If we do not
give any directions, the property trustee will take whatever action it deems
advisable and in the best interests of
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the holders of the HIGH TIDES and the trust's common securities. The property
trustee will have no liability except for its own bad faith, negligence or
willful misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
- the trust will not be deemed to be an investment company required to be
registered under the Investment Company Act or classified as an
association taxable as a corporation for United States federal income tax
purposes;
- would cause the trust to be classified for United States federal income
tax purposes as a grantor trust; and
- the debentures will be treated as Calpine's indebtedness for United
States federal income tax purposes.
The administrative trustees are authorized to take any lawful action
consistent with the trust's certificate of trust and the declaration of trust,
that the administrative trustees determine in their discretion to be necessary
or desirable for those purposes, as long as their actions do not materially
adversely affect the interests of the holders of the HIGH TIDES or the trust's
common securities.
You and the holders of the trust's common securities have no preemptive or
similar rights.
The trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
GOVERNING LAW
The declaration of trust and the HIGH TIDES will be governed by and
construed in accordance with the laws of the State of Delaware.
DESCRIPTION OF CONVERTIBLE SUBORDINATED DEBENTURES
We will issue the convertible subordinated debentures under an Indenture
between us and The Bank of New York, as debenture trustee. The indenture
governing the debentures will be qualified under and will be subject to and
governed by the Trust Indenture Act upon effectiveness of the registration
statement of which this prospectus is a part. This summary of certain terms and
provisions of the debentures and the indenture is not complete. For a complete
description of the debentures, we encourage you to read the indenture. The form
of indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part. Unless the context requires otherwise, "Calpine,"
"we," "us," "our" or similar terms in this section refer solely to Calpine
Corporation and not the trust or any of our other consolidated subsidiaries.
GENERAL
Concurrently with the issuance of the HIGH TIDES and the trust's common
securities, the trust will invest the proceeds from issuing those securities in
our % Convertible Subordinated Debentures due 2029. Interest will accrue on
the debentures
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from the date of their original issuance, at the applicable rate of the
principal amount thereof, subject to the deferral rights described below. The
trust will make those payments quarterly in arrears on ,
, and , commencing ,
2000 to the person in whose name each debenture is registered, at the close of
business on the of the month in which the applicable interest
payment date falls.
Each registered holder of debentures on the fifteenth day prior to the
reset date, including any holder which has tendered or is deemed to have
tendered its debentures for remarketing, shall be paid a distribution of
interest and additional amounts, if any, accrued to but excluding the reset
date. Interest and additional amounts, if any, accrued from and after the reset
date to but excluding , shall be paid on
to the person in whose name each debenture is registered on the
preceding , subject to our right to initiate a deferral period.
The applicable rate will be % per annum from the date of original issuance
of the HIGH TIDES to, but excluding, the reset date. From the reset date, the
applicable rate will be the term rate established by the remarketing agent to be
effective on the reset date.
We anticipate that, until the dissolution and liquidation of the trust,
each debenture will be registered in the name of the property trustee and held
by the property trustee for the benefit of the holders of the HIGH TIDES and the
trust's common securities. The amount of interest payable for any period will be
computed on the basis of the number of days elapsed in a 360-day year of twelve
30-day months.
If any interest payment date is not a business day, then payment will be
made on the next succeeding business day except if such business day is in the
next succeeding calendar year, such payment will be made on the immediately
preceeding business day. No additional interest or other payment will accrue
because of this change in the payment date. Accrued interest that is not paid on
the applicable interest payment date will bear additional interest on the amount
of interest (to the extent permitted by law), compounded quarterly from the
relevant interest payment date. The term "interest" as used herein will include
quarterly payments, interest on quarterly interest payments not paid on the
applicable interest payment date and additional amounts described in
"-- Additional Amounts."
If the trust distributes the debentures to you, the description of the
remarketing of the HIGH TIDES and your conversion rights in this prospectus will
apply, with such changes as are necessary, to the remarketing or conversion of
the debentures. See "The Remarketing," "The Remarketing Agent" and "Description
of HIGH TIDES -- Conversion Rights."
Unless we previously redeem or repurchase the debentures in accordance with
the indenture, they will mature on October , 2029. See
"-- Redemption -- Repayment at Maturity; Redemption of Convertible Subordinated
Debentures."
The debentures will be unsecured and will rank junior and subordinate in
right of payment to all of our senior debt. Our right to participate in any
distribution of assets of any of our subsidiaries upon the subsidiary's
liquidation or reorganization or otherwise (and thus the ability of holders of
the HIGH TIDES to benefit indirectly from the distribution) is subject to the
prior claims of creditors of the subsidiary, except to the extent that we may
ourselves be recognized as a creditor of the subsidiary. Accordingly, the
debentures will be subordinated to all of our senior debt and effectively
subordinated to all existing
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and future liabilities of our subsidiaries. Our subsidiaries are separate legal
entities and have no obligations to pay, or make funds available for the payment
of, any amounts due on the debentures, the HIGH TIDES or the guarantee of the
HIGH TIDES. Therefore, holders of debentures should look only to our assets for
payments on the debentures. The indenture governing the debentures does not
limit the incurrence or issuance of other secured or unsecured debt of Calpine,
whether under the indenture, our current credit agreement, or any other existing
or other indenture or any other debt instrument or agreement that we may enter
into in the future or otherwise. See "Risk Factors -- Risks Relating to the HIGH
TIDES" and "-- Subordination."
OPTION TO EXTEND INTEREST PAYMENT DATE
If we are not in default under the indenture governing the debentures, we
have the right to defer the payment of interest on the debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters with
respect to each deferral period. We may not, however, defer the payment of
interest beyond (1) the maturity of the debentures whether at the stated
maturity or by declaration of acceleration, call for redemption or otherwise and
(2) in the case of a deferral period beginning prior to the reset date, the
reset date. At the end of a deferral period, we must pay all interest then
accrued and unpaid on the debentures (together with interest thereon accrued at
an annual rate equal to the applicable rate compounded quarterly from the
relevant interest payment date, to the extent permitted by applicable law).
During a deferral period and for so long as the debentures remain outstanding,
interest will continue to accrue and holders of debentures, and holders of the
HIGH TIDES while HIGH TIDES are outstanding, will be required to accrue interest
income in the form of original issue discount for United States federal income
tax purposes. See "Certain United States Federal Income Tax Consequences --
Interest Income."
During any deferral period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (which includes common and preferred stock) other than stock
dividends paid by us which consist of stock of the same class as that on
which the dividend is being paid;
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any of our debt securities that rank pari passu with
or junior in interest to the debentures; or
- make any guarantee payments with respect to any guarantee by Calpine of
the debt securities of any of our subsidiaries if such guarantee
expressly ranks pari passu with or junior in interest to the debentures,
other than:
- dividends or distributions in our common stock;
- any declaration of a dividend in connection with the implementation of
a stockholders' rights plan, or the issuance of stock under plan in
the future, or the redemption or repurchase of any rights pursuant
thereto;
- payments under the guarantee of the HIGH TIDES;
- purchases or acquisitions of shares of our common stock in connection
with the satisfaction by us of our obligations under any employee
benefit plan or any
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other contractual obligation, other than a contractual obligation
ranking expressly by its terms pari passu with or junior to the
debentures;
- the payment of fractional shares resulting from a reclassification of
our capital stock or the exchange or conversion of one class or series
of our capital stock for another class or series of our capital stock;
or
- the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of the capital stock
or the security being converted or exchanged.
A deferral period will terminate upon the payment by us of all interest
then accrued and unpaid on the debentures, together with interest accrued
thereon at an annual rate equal to the applicable rate, compounded quarterly, to
the extent permitted by applicable law. Prior to the termination of any deferral
period, we may further extend the deferral period. However, the further deferral
cannot cause the deferral period to exceed 20 consecutive quarters or to extend
beyond (1) the maturity of the debentures whether at the stated maturity or by
declaration of acceleration, call for redemption or otherwise and (2) in the
case of a deferral period beginning prior to the reset date, the reset date.
Upon the termination of any deferral period, and subject to the foregoing
limitations, we may elect to begin a new deferral period. We need not pay any
interest during a deferral period, except at the end of the deferral period. We
must give the property trustee and the debenture trustee notice of our election
of any deferral period at least ten days prior to the record date for the
distributions on the HIGH TIDES that would have been payable except for the
election to begin or extend the deferral period. The debenture trustee will give
notice of our election to begin or extend a new deferral period to the holders
of the debentures. There is no limitation on the number of times that we may
elect to begin a deferral period.
We have no current intention of exercising our right to defer payments of
interest on the debentures.
REDEMPTION
Repayment at Maturity; Redemption of Convertible Subordinated Debentures
We must repay the debentures at their stated maturity on
, , unless earlier redeemed. The circumstances in which we
may, or we are required to, redeem the debentures prior to their stated maturity
are described below. Upon the repayment in full at maturity or redemption, in
whole or in part, of the debentures, other than following the distribution of
the debentures to the holders of the HIGH TIDES and the trust's common
securities, the trust will concurrently apply the proceeds from the repayment or
redemption to redeem, at the applicable redemption price, a like amount of HIGH
TIDES and its common securities. See "Description of HIGH TIDES -- Mandatory
Redemption."
Optional Redemption
We will have the right to redeem the debentures (1) in whole or in part, at
any time on or after October , 2002 until, but excluding, the tender
notification date, upon not less than 20 nor more than 60 days' notice, at a
redemption price as set forth below, equal to the following prices per $50
principal amount of debentures plus any accrued but unpaid
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interest on the portion being redeemed, if redeemed during the 12 month period
ending October :
<TABLE>
<CAPTION>
PRICE PER $50
YEAR PRINCIPAL AMOUNT
---- ----------------
<S> <C>
2003........................................ $
2004........................................ $ ;
</TABLE>
(2) after the reset date (except in the event of a failed final remarketing), in
accordance with the term call protections, if any, established in the
remarketing; and (3) in whole or in part, at any time on or after the third
anniversary of the reset date following a failed final remarketing at a
redemption price equal to 100% of the then outstanding aggregate principal
amount of the debentures to be redeemed, plus any accrued and unpaid interest on
the portion being redeemed. The term "term redemption price" means any
redemption price established in the remarketing. The initial redemption price
and the term redemption price are each referred to as an optional redemption
price. The remarketing agent will establish term call protections, if any, in
the remarketing that when taken together with the term rate and the term
conversion ratio, if any, result in a price per HIGH TIDES equal to 101% of the
liquidation amount thereof. However, we may not, at any time, redeem the
debentures for a price less than the aggregate principal amount thereof plus any
accrued and unpaid interest thereon.
In the event of any redemption in part, we will not be required to:
- issue, register the transfer of or exchange any debenture during a period
beginning at the opening of business 15 days before any selection for
redemption of debentures and ending at the close of business on the
earliest date on which the relevant notice of redemption is deemed to
have been given to all holders of debentures to be so redeemed; and
- register the transfer of or exchange any debentures so selected for
redemption, in whole or in part, except the unredeemed portion of any
debenture being redeemed in part.
In no event will we optionally redeem the debentures during a deferral
period. Accordingly, prior to optionally redeeming the debentures, all interest
accrued and unpaid (together, in the case of a deferral period, with interest
thereon, to the extent permitted by law) to the interest payment date
immediately preceding the optional redemption date will be paid in full.
Tax Event Redemption
We may also, under limited circumstances within 90 days of the occurrence
and continuation of a tax event, redeem the debentures in whole, but not in
part, at the aggregate principal amount of the debentures, plus any accrued and
unpaid interest. See "Description of HIGH TIDES -- Tax Event or Investment
Company Event Redemption or Distribution."
If we are permitted to consummate a tax event redemption and we desire to
do so, we must cause a notice to be mailed to each holder of HIGH TIDES and each
holder of debentures at least 30 days but not more than 60 days before the
redemption date. In the event of a tax event redemption, you may convert your
HIGH TIDES, or debentures, if applicable, called for redemption into our common
stock at the applicable conversion ratio prior to 5:00 p.m., New York City time,
on the applicable redemption date.
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ADDITIONAL AMOUNTS
If (A) the property trustee is the sole holder of all the debentures and
(B) the trust is required to pay additional sums equal to any additional taxes,
duties, assessments or other governmental charges as a result of a tax event, we
will pay as additional amounts on the debentures those amounts as required so
that the distributions payable by the trust in respect of the HIGH TIDES and its
common securities will not be reduced as a result of any of those additional
sums.
RESTRICTIONS ON PAYMENTS
If (A) there has occurred an event of default under the debentures, (B) we
are in default with respect to our payment of any obligations under the
guarantee of the HIGH TIDES or (C) we have given notice of our election of a
deferral period as provided in the indenture and have not rescinded that notice,
or the deferral period is continuing, we will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (which includes common and preferred stock) other than stock
dividends paid by us which consist of stock of the same class as that on
which the dividend is being paid;
- make any payment of principal, interest or premium, if any, on or repay
or repurchase or redeem any of our debt securities that rank pari passu
with or junior in interest to the debentures; or
- make any guarantee payments with respect to any guarantee by us of the
debt of any of our subsidiaries if such guarantee expressly ranks pari
passu with or junior in interest to the debentures in each case, other
than:
- dividends or distributions in our common stock;
- any declaration of a dividend in connection with the implementation of
a stockholders' rights plan, or the issuance of stock under any plan
in the future, or the redemption or repurchase of any rights pursuant
thereto;
- payments under the guarantee of the HIGH TIDES;
- purchases or acquisitions of shares of our common stock in connection
with the satisfaction by us of our obligations under any employee
benefit plan or any other contractual obligation, other than a
contractual obligation ranking expressly by its terms pari passu with
or junior in interest to the debentures;
- the purchase of fractional shares resulting from a reclassification of
our capital stock or the exchange or conversion of one class or series
of our capital stock for another class or series of our capital stock;
or
- the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of the capital stock
or the security being converted or exchanged.
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MODIFICATION OF INDENTURE
We and the debenture trustee may amend the indenture from time to time
without the consent of the holders of debentures for several reasons, including
(1) to cure ambiguities, defects or inconsistencies, if such action does not
materially adversely affect the interest of the holders of debentures or the
holders of the HIGH TIDES so long as they remain outstanding; or (2) to qualify
or maintain the qualification of, the indenture under the Trust Indenture Act.
We and the debenture trustee may amend the indenture in other respects with
the consent of the holders representing not less than a majority in principal
amount of debentures. However, without the consent of each holder of the
outstanding debenture as affected, no amendment may:
- change the reset date or any date specified in the indenture on which
interest on, or the principal, together with any accrued and unpaid
interest, of the debentures is due and payable or the stated maturity of
the debentures;
- reduce the principal amount of the debentures;
- reduce the rate or extend the time of payment of interest on the
debentures;
- reduce the percentage of principal amount of outstanding debentures the
consent of whose holders is required to amend, waive or supplement the
indenture; or
- have certain other effects as set forth in the indenture.
DEBENTURE EVENTS OF DEFAULT
Each of the following is an event of default with respect to the
debentures:
- failure for 30 days to pay any interest on the debentures when due,
except in the case of permitted deferrals during a deferral period;
- failure to pay any principal or premium, if any, on the debentures when
due, whether at maturity, upon redemption, by declaration of acceleration
or otherwise;
- our continued failure for 90 days to observe or perform, in any material
respect, certain other covenants contained in the indenture after written
notice to us from the debenture trustee or the holders of at least 25% in
aggregate outstanding principal amount of the debentures;
- failure to issue and deliver shares of our common stock upon an election
by a holder of HIGH TIDES to convert its HIGH TIDES;
- certain events of bankruptcy, insolvency or reorganization of Calpine or
any of its significant subsidiaries; or
- the voluntary or involuntary dissolution, winding-up or termination of
the trust, except in connection with the distribution of the debentures
to the holders of HIGH TIDES and the trust's common securities in
liquidation of the trust, the redemption of all of the HIGH TIDES and the
trust's common securities or certain mergers, consolidations or
amalgamations, each as permitted by the declaration of trust.
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The holders of a majority in aggregate outstanding principal amount of the
debentures have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the debenture trustee. The debenture
trustee or the holders of not less than 25% in aggregate outstanding principal
amount of the debentures may declare the principal due and payable immediately
upon an event of default described above. If the debenture trustee or the
holders of debentures fail to make the declaration, the holders of at least 25%
in aggregate liquidation amount of the HIGH TIDES will have the right to make
the declaration. The holders of a majority in aggregate outstanding principal
amount of the debentures may annul the declaration and waive the default if the
default (other than the non-payment of the principal of the debentures which has
become due solely by the acceleration) has been cured and a sum sufficient to
pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the debenture trustee. If the holders of
debentures fail to annul the declaration and waive the default, the holders of a
majority in aggregate liquidation amount of the HIGH TIDES will have the right
to make a declaration and waive the default.
The holders of a majority in aggregate outstanding principal amount of the
debentures affected may, on behalf of the holders of all the debentures, waive
any past default, except:
- a default in the payment of principal of or premium, if any, or interest
on the debentures unless we have cured the default and deposited with the
debenture trustee an amount sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration; or
- a default under a provision under the indenture that cannot be modified
or amended without the consent of the holder of each outstanding
debenture.
If the holders of the debentures fail to annul the declaration and waive
the default, the holders of a majority in aggregate liquidation amount of the
HIGH TIDES will have the right. We are required to file annually with the
debenture trustee a certificate as to whether or not we are in compliance with
all the conditions and covenants applicable to us under the indenture.
If an event of default under the debentures exists and the property trustee
holds the debentures, then the property trustee has the right to declare the
principal of and the interest on the debentures, and any other amounts payable
under the indenture, to be immediately due and payable and to enforce its other
rights as a creditor with respect to the debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF HIGH TIDES
If an event of default under the debentures exists and the event is
attributable to our failure to pay interest or principal on the debentures on
the date the interest or principal is due, you may institute a direct action
against us for payment. We may not amend the indenture to remove the foregoing
right to bring a direct action against us unless we have received the prior
written consent of the holders of all of the HIGH TIDES. If the right to bring a
direct action against us is removed, the trust may become subject to the
reporting obligations under the Securities Exchange Act of 1934. Our payment to
a holder of HIGH TIDES in connection with a direct action will not affect our
obligation to pay the principal of and interest on the debentures. We will be
subrogated to the rights of the holder of the HIGH TIDES with respect to
payments on the HIGH TIDES to the extent of any payments made by us to the
holder in any direct action.
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You will not be able to exercise directly any remedies, other than those
set forth in the preceding paragraph, available to the holders of the debentures
unless there was an event of default under the declaration of trust. See
"Description of HIGH TIDES -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may not merge, consolidate, transfer or lease our properties and assets
substantially as an entirety to any person other than a wholly owned subsidiary,
and no person may merge, consolidate, or transfer or lease its properties and
assets substantially as an entirety to us, unless:
- in case we consolidate with or merge with or into another person or
convey, transfer or lease our properties and assets substantially as an
entirety to any person other than a wholly owned subsidiary, the
successor person is organized under the laws of the United States or any
state of the United States or the District of Columbia, and the successor
person expressly assumes our obligations on the debentures issued under
the indenture and provides for conversion rights in accordance with the
indenture;
- immediately after giving effect to the transaction, no event of default
under the debentures and no event which, after notice or lapse of time or
both, would become an event of default under the debentures, exists;
- if at the time any HIGH TIDES are outstanding, the transaction is
permitted under the declaration of trust and the guarantee relating to
the HIGH TIDES, and does not give rise to any breach or violation of the
declaration of trust or the guarantee; and
- certain other conditions as prescribed in the indenture are met.
The general provisions of the indenture do not afford holders of the
debentures protection in the event of a highly leveraged or other transaction
involving us that may adversely affect holders of the debentures.
SUBORDINATION
All debentures issued under the indenture will be subordinate and junior in
right of payment to all of our senior debt. Upon any payment or distribution of
our assets to creditors upon any liquidation, dissolution, winding-up,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency or similar proceedings relating to Calpine, the holders of senior
debt will first be entitled to receive payment of the senior debt in full before
the holders of debentures, or the property trustee (or any other person or
entity) on behalf of the holders, will be entitled to receive or retain any
payment or distribution in respect of the debentures.
If the maturity of the debentures is accelerated, the holders of all senior
debt outstanding at the time of the acceleration will first be entitled to
receive payment of the senior debt in full (including any amounts due upon
acceleration) before the holders of the debentures will be entitled to receive
or retain any payment or distribution in respect of the debentures.
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In the event that:
- we default in the payment of any principal of, premium, if any, interest
on, or any other amount with respect to, any senior debt when the same
becomes due and payable (a "payment default"), whether at maturity or at
a date fixed for prepayment or by declaration of acceleration or
otherwise; and
- such payment default continues beyond the period of grace, if any,
specified in the instrument evidencing said senior debt;
then, unless and until the default is cured or waived or ceases to exist or all
senior debt is paid in full, no direct or indirect payment or distribution (in
cash, property, securities, by set-off or otherwise) will be made or agreed to
be made for or in respect of the debentures, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the debentures.
The term "senior debt" means:
(A) indebtedness evidenced by securities, debentures, bonds or other
similar instruments issued by us;
(B) all obligations to make payment pursuant to the terms of financial
instruments, such as (1) securities contracts and foreign currency
exchange contracts, (2) derivative instruments, such as swap
agreements, including interest rate and foreign exchange rate swap
agreements, cap agreements, floor agreements, collar agreements,
interest rate agreements, foreign exchange agreements, options,
commodity futures contracts and commodity options contracts, and (3)
similar financial instruments; except, in the case of (A) and (B)
above, the indebtedness and obligations that are expressly stated to
rank junior in right of payment to, or pari passu in right of payment
with, the debentures;
(C) indebtedness or obligations of others of the kind described in (A) and
(B) above for the payment of which we are responsible or liable as
guarantor or otherwise; and
(D) any deferrals, renewals or extensions of any senior debt.
However, senior debt will not be deemed to include:
- any of our debt which, when incurred and without respect to any election
under Section 1111(b) of the United States Bankruptcy Code of 1978, was
without recourse to us;
- trade accounts payable in the ordinary course of business, which will not
constitute debt for purposes of the HIGH TIDES;
- any of our debt to any of our subsidiaries, except to the extent incurred
for the benefit of third parties;
- debt to any of our employees; or
- debt which expressly provides that it is not senior in right of payment
to the HIGH TIDES.
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The term "debt" means:
- the principal of, and premium and interest, if any, on indebtedness for
money borrowed;
- purchase money and similar obligations;
- obligations under capital leases;
- guarantees, assumptions or purchase commitments relating to, or other
transactions as a result of which we are responsible for the payment of
the indebtedness of others;
- renewals, extensions and refunding of any indebtedness;
- interest or obligations in respect of any indebtedness accruing after the
commencement of any insolvency or bankruptcy proceedings; and
- obligations associated with derivative products such as interest rate and
currency exchange contracts, foreign exchange contracts, commodity
contracts and similar arrangements.
The indenture places no limitation on the amount of senior debt that may be
incurred by us. We expect from time to time to incur additional indebtedness
constituting senior debt. As of June 30, 1999, our aggregate outstanding senior
debt was approximately $1.5 billion. The indenture also places no limitation on
the debt of our subsidiaries, which effectively ranks senior in right of payment
to the debentures. As of June 30, 1999, our subsidiaries had debt and other
liabilities of approximately $79.2 million.
REGISTRATION AND TRANSFER
The debentures will be represented by one or more global certificates
registered in the name of Cede & Co. as the nominee of DTC if, and only if,
distributed to the holders of the HIGH TIDES and the trust's common securities.
Until that time, the debentures will remain registered in the name of and held
by the property trustee. If the debentures are distributed to holders of the
HIGH TIDES and the trust's common securities, beneficial interests in the
debentures will be shown on, and transfers of debentures will be effected only
through, records maintained by participants in DTC. Except as described below,
debentures in certificated form will not be issued in exchange for the global
certificates.
A global security will be exchangeable for debentures in certificated form
registered in the names of persons other than Cede & Co. only if:
- DTC notifies us that it is unwilling or unable to continue as a
depositary for the global security and no successor depositary has been
appointed, or if at any time DTC ceases to be a "clearing agency"
registered under the Securities Exchange Act of 1934, at a time when DTC
is required to be so registered to act as the depositary;
- we, in our sole discretion, determine that the global security will be so
exchangeable; or
- there has occurred and is continuing an event of default under the
debentures.
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Any global security that is exchangeable pursuant to the preceding sentence
will be exchangeable for certificates registered in those names as DTC directs.
It is expected that the instructions will be based upon directions received by
DTC from its participants with respect to ownership of beneficial interests in
the global security.
Payments on debentures held in global form will be made to DTC, as the
depositary for the debentures. In the case of debentures issued in certificated
form, principal and interest will be payable, the transfer of the debentures
will be registrable, and debentures will be exchangeable for debentures of other
denominations of a like aggregate principal amount, at the corporate office of
the debenture trustee in New York, New York, or at the offices of any paying
agent or transfer agent appointed by us, provided that payment of interest may
be made at our option of by check mailed to the address of the persons entitled
thereto or by wire transfer.
For a description of DTC and the terms of the depositary arrangements
relating to payments, transfers, voting rights, redemptions and other notices
and other matters, see "Description of HIGH TIDES -- Form, Book-Entry Procedures
and Transfer." If the debentures are distributed to the holders of the HIGH
TIDES and the trust's common securities upon the trust's termination, the form,
book-entry and transfer procedures with respect to the HIGH TIDES as described
under "Description of HIGH TIDES -- Form, Book-Entry Procedures and Transfer,"
will apply to the debentures with such changes to the details of the procedures
as are necessary.
PAYMENT AND PAYING AGENTS
Payment of the principal of and interest on the debentures will be made at
the office or agency we maintain for that purpose in New York, New York, in the
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. However, at our option,
payment of interest may be made, except in the case of debentures that are held
in global form, by check mailed to each registered holder or by wire transfer.
Payment of any interest on any debentures will be made to the person in whose
name the debentures are registered at the close of business on the record date
for that interest payment date, except in the case of defaulted interest.
GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The debenture trustee will be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to those provisions, the debenture trustee is under no
obligation to exercise any of the powers vested in it by the indenture at the
request of any holder of debentures, unless offered reasonable indemnity by the
holder against the costs, expenses and liabilities that it might incur by doing
so. The debenture trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the debenture trustee reasonably believes that repayment or adequate indemnity
is not reasonably assured to it.
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DESCRIPTION OF THE GUARANTEE
When the HIGH TIDES are issued, we will execute and deliver a guarantee for
the benefit of the holders of the HIGH TIDES. The Bank of New York will act as
guarantee trustee under the guarantee. The guarantee will be qualified under the
Trust Indenture Act upon the effectiveness of the registration statement of
which this prospectus is a part. This summary of certain provisions of the
guarantee is not complete. For a complete description of the guarantee, we
encourage you to read the guarantee. The guarantee trustee will hold the
guarantee for the benefit of the holders of the HIGH TIDES. We have filed the
form of guarantee as an exhibit to the registration statement of which this
prospectus is a part. Unless the context requires otherwise, "Calpine," "we,"
"us," "our" or similar terms in this section refer solely to Calpine Corporation
and not the trust or any of our other consolidated subsidiaries.
GENERAL
Pursuant to the guarantee, we will irrevocably agree to make guarantee
payments to you, as and when due, regardless of any defense, right of set-off or
counterclaim that the trust may have or assert other than the defense of
payment. The guarantee covers the following payments with respect to the HIGH
TIDES, to the extent not paid by or on behalf of the trust:
- any accrued and unpaid distributions required to be paid on the HIGH
TIDES, to the extent that the trust has funds on hand available at that
time;
- the applicable redemption price of any HIGH TIDES called for redemption,
to the extent that the trust has funds on hand available at that time;
and
- upon a voluntary or involuntary dissolution, winding up or liquidation of
the trust unless the debentures are distributed to you or are redeemed,
the lesser of:
- the liquidation distribution, to the extent the trust has funds
available; or
- the amount of assets of the trust remaining available for
distribution to you upon liquidation of the trust after
satisfaction of liabilities to the trust's creditors as required
by applicable law.
Our obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by us to you or by causing the trust to pay
those amounts to you.
The guarantee will be an irrevocable guarantee on a subordinated basis of
the trust's obligations under the HIGH TIDES, but applies only to the extent
that the trust has funds sufficient to make the required payments. If we do not
make interest payments on the debentures held by the trust, the trust will not
be able to pay distributions on the HIGH TIDES and will not have funds legally
available for the distributions.
The guarantee will rank subordinate and junior in right of payment to all
senior debt. See "-- Status of the guarantee." Our right to participate in any
distribution of assets of any of our subsidiaries, upon the subsidiary's
liquidation or reorganization or otherwise (and thus the ability of the holders
of HIGH TIDES to benefit indirectly from any such distribution), is subject to
the prior claims of creditors of the subsidiary, except to the extent we may
ourselves be recognized as a creditor of that subsidiary. Accordingly, our
obligations under the guarantee will be effectively subordinated to all existing
and future liabilities of our subsidiaries, and
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claimants should look only to our assets for payments thereunder. The guarantee
does not limit our incurrence or issuance of other secured or unsecured debt,
including senior debt.
See "Relationship Among the HIGH TIDES, the Convertible Subordinated
Debentures and the Guarantee" for a discussion of other important terms and
conditions of the guarantee.
STATUS OF THE GUARANTEE
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all senior debt in the same manner
as the debentures.
The guarantee will constitute a guarantee of payment and not of collection
(i.e., you may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
any other person or entity). The guarantee will be held for your benefit. The
guarantee will not be discharged except by payment of the guarantee payments in
full to the extent not paid by the trust or upon distribution to the holders of
the HIGH TIDES or the debentures. The guarantee does not place a limitation on
the amount of additional senior debt that may be incurred by us. We expect from
time to time to incur additional indebtedness constituting senior debt.
AMENDMENTS AND ASSIGNMENT
The guarantee may not be amended without the prior approval of the holders
of not less than a majority of the aggregate liquidation amount of the
outstanding HIGH TIDES, except that no approval is required for changes that do
not materially adversely affect your rights. The manner of obtaining such
approval will be as set forth under "Description of HIGH TIDES -- Voting Rights;
Amendment of the Declaration." All guarantees and agreements contained in the
guarantee will bind our successors, assigns, receivers, trustees and
representatives and will inure to the benefit of the holders of the HIGH TIDES
then outstanding.
EVENTS OF DEFAULT
We will be in default under the guarantee if we do not make required
payments when due or if we fail to perform other obligations and we do not cure
our failure to perform within 60 days after we receive notice of our failure.
The holders of not less than a majority in aggregate liquidation amount of the
HIGH TIDES have the right:
- to direct the time, method and place of conducting any proceeding for any
remedy available to the guarantee trustee in respect of the guarantee; or
- to direct the exercise of any trust or power conferred upon the guarantee
trustee under the guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the trust, the guarantee trustee or any other person or entity.
As guarantor, we are required to file annually with the guarantee trustee a
certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to us under the guarantee.
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INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee undertakes to perform only those duties as are
specifically set forth in the guarantee, unless we are in default in performing
the guarantee. When we are in default under the guarantee, the guarantee trustee
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the guarantee trustee is under no obligation to exercise any of the
powers vested in it by the guarantee at the request of any holder of the HIGH
TIDES unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might incur by doing so.
TERMINATION OF THE GUARANTEE
The guarantee will terminate as to you upon:
- full payment of the redemption price of the HIGH TIDES held by you and
any accrued and unpaid distributions;
- distribution of the debentures held by the trust to you;
- liquidation of the trust; or
- distribution of our common stock to you in respect of the conversion of
your HIGH TIDES into common stock.
The guarantee will terminate completely upon full payment of the amounts
payable in accordance with the declaration of trust. The guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of the HIGH TIDES must restore payment of any sums paid under the HIGH
TIDES or the guarantee.
GOVERNING LAW
The guarantee will be governed by and construed in accordance with the laws
of the State of New York.
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RELATIONSHIP AMONG THE HIGH TIDES, THE CONVERTIBLE
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We will irrevocably guarantee payments of distributions and other amounts
due on the HIGH TIDES (to the extent the trust has funds available for the
payment of those distributions) as and to the extent set forth under
"Description of the Guarantee." Taken together, our obligations under the
debentures, the indenture, the declaration of trust and the guarantee, including
our obligation to pay the trust's costs, expenses and other liabilities (other
than the trust's obligations to the holders of the HIGH TIDES and its common
securities pursuant to the terms of those securities) provide in the aggregate,
a full, irrevocable and unconditional guarantee of all of the trust's
obligations under the HIGH TIDES. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes the full
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the HIGH TIDES and its common securities.
If and to the extent that we do not make payments on the debentures, the
trust will not pay distributions or other amounts due on the HIGH TIDES. The
guarantee does not cover payment of distributions when the trust does not have
sufficient funds to pay those distributions. In that event, your remedy is to
institute a direct action against us. Our obligations under the guarantee are
subordinate and junior in right of payment to all senior debt. Unless the
context requires otherwise, "Calpine," "we," "us," "our" or similar terms in
this section refer solely to Calpine Corporation and not the trust or any of our
other consolidated subsidiaries.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
debentures, the payments will be sufficient to cover distributions and other
payments due on the HIGH TIDES. This is primarily because:
- the aggregate principal amount or applicable redemption price of the
debentures will be equal to the sum of the aggregate liquidation amount
or applicable redemption price, as applicable, of the HIGH TIDES and the
trust's common securities;
- the applicable rate and interest and other payment dates on the
debentures will match the distribution rate and distributions and other
payment dates for the HIGH TIDES;
- we will pay for all of the trust's costs, expenses and liabilities except
the trust's obligations to holders of HIGH TIDES and its common
securities pursuant to the terms of those securities; and
- the declaration of trust provides that the trust will not engage in any
activity that is not consistent with the limited purposes of the
declaration of trust.
We have the right to set off any payment we are otherwise required to make
under the indenture with and to the extent we have already made, or are
concurrently on the
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date of that payment making, any payment under the guarantee used to satisfy the
related payment of indebtedness under the indenture.
ENFORCEMENT RIGHTS OF HOLDERS OF HIGH TIDES
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the guarantee trustee, the trust or any other person or entity.
A default or event of default under any senior debt would not constitute a
default or event of default under the declaration of trust. However, in the
event of payment and certain other defaults under, or acceleration of, senior
debt, the subordination provisions of the indenture provide that no payments may
be made in respect of the debentures until the senior debt has been paid in full
or the payment or other default under any senior debt has been cured or waived.
Failure to make required payments on debentures would constitute an event of
default under the declaration of trust.
LIMITED PURPOSE OF THE TRUST
The HIGH TIDES evidence an undivided beneficial ownership interest in the
assets of the trust, and the trust exists for the sole purpose of issuing the
HIGH TIDES and the trust's common securities and investing the proceeds of the
HIGH TIDES and the trust's common securities in the debentures and engaging in
only those other activities necessary, convenient or incidental to those
purposes.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the trust involving the liquidation of the debentures, after satisfaction of the
liabilities of the creditors of the trust as required by applicable law, you and
the holders of the trust's common securities will be entitled to receive, out of
the trust's assets held, the liquidation distribution in cash. See "Description
of HIGH TIDES -- Liquidation of the Trust and Distribution of Convertible
Subordinated Debentures." If we become subject to any voluntary or involuntary
liquidation or bankruptcy, the property trustee, as holder of the debentures,
would be one of our subordinated creditors. The property trustee would be
subordinated in right of payment to all senior debt as set forth in the
indenture, but entitled to receive payment in full of principal and interest,
before any of our stockholders receive payments or distributions. We are the
guarantor under the guarantee and have agreed to pay for all of the trust's
costs, expenses and liabilities other than the trust's obligations to the
holders of its HIGH TIDES and common securities. Accordingly, in the event of
our liquidation or bankruptcy, the positions of a holder of HIGH TIDES and a
holder of debentures are expected to be substantially the same relative to our
other creditors and to our shareholders.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership, disposition, and conversion of HIGH
TIDES and our common stock by persons that acquire HIGH TIDES pursuant to the
initial offering at their original offering price. This summary represents the
views of Brobeck, Phleger & Harrison LLP, counsel to Calpine and the trust.
Unless otherwise stated, this summary deals only with HIGH TIDES and Calpine's
common stock held as capital assets by United States persons which, as defined
in the Internal Revenue Code of 1986, as amended, include any beneficial owners,
that are, for United States federal income tax purposes, (1) citizens or
residents of the United States, (2) corporations or partnerships created or
organized in or under the laws of the United States, any state thereof or the
District of Columbia (other than partnerships that are not treated as a United
States person under any applicable Treasury regulations), (3) estates, the
income of which is subject to United States federal income taxation regardless
of its source, or (4) trusts if (A) a court within the United States is able to
exercise primary supervision over the administration of the trust and (B) one or
more United States persons have the authority to control all substantial
decisions of the trust. It does not deal with special classes of holders such as
banks, thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, or tax-exempt
investors. This summary also does not address the tax consequences to persons
that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of HIGH
TIDES or Calpine's common stock. Further, it does not include any description of
any alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the HIGH TIDES
or Calpine's common stock. This summary is based on the Internal Revenue Code,
the Treasury regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of which are subject
to change, possibly on a retroactive basis.
In part because of the uncertainties concerning the proper tax treatment of
HIGH TIDES as discussed below, it is particularly important that you consult
with your own tax advisor regarding the federal, state, local and foreign
income, franchise, personal property, and any other tax consequences of the
purchase, ownership, disposition and conversion of the HIGH TIDES and the
ownership and disposition of Calpine's common stock.
CLASSIFICATION OF THE TRUST AS A GRANTOR TRUST
In connection with the issuance of the HIGH TIDES, Brobeck, Phleger &
Harrison LLP will render its opinion that, under then current law and assuming
full compliance with the terms of the declaration of trust (and certain other
documents), and based on certain facts and assumptions contained in such
opinion, the trust will be classified for United States federal income tax
purposes as a grantor trust and not as a partnership, an association or a
publicly traded partnership taxable as a corporation. Accordingly, for United
States federal income tax purposes, each holder of HIGH TIDES generally will be
considered the owner of an undivided interest in the debentures issued by us to
the trust, and each holder will be required to include in its gross income all
income or gain with respect to its allocable share of those debentures.
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CLASSIFICATION OF THE DEBENTURES AS INDEBTEDNESS
In connection with the issuance by us of the debentures, Brobeck, Phleger &
Harrison LLP will render its opinion that, under then current law and assuming
full compliance with the terms of the debentures (and certain other documents),
and based on certain facts and assumptions contained in such opinion, the
debentures will be classified for United States federal income tax purposes as
indebtedness of Calpine. This opinion is not binding on the Internal Revenue
Service and, accordingly, no complete assurance can be given that the Internal
Revenue Service will not challenge the classification of the debentures as debt,
or if the classification were challenged, that such a challenge would not be
successful. The remainder of this discussion assumes that the debentures will be
classified as indebtedness of Calpine for United States federal income tax
purposes.
TAX TREATMENT OF DEBENTURES AS RESET BONDS
Because no debt instrument closely comparable to the debentures has been
the subject of any Treasury regulation, revenue ruling or judicial decision, the
United States federal income tax treatment of debt obligations such as the
debentures is not certain. We intend to treat the debentures for United States
federal income tax purposes as "reset bonds" under Treasury regulations relating
to variable rate debt instruments. Assuming the debentures are reset bonds, they
will be treated, solely for purposes of the original issue discount rules of the
Internal Revenue Code, as maturing on the date immediately preceding the reset
date for the reset price and, if the remarketing agent remarkets the HIGH TIDES,
as being reissued on the reset date at the reset price.
There can be no assurance that the Internal Revenue Service will agree
with, or that a court would uphold, the treatment of the debentures as reset
bonds. In particular, the Internal Revenue Service could instead attempt to
treat the debentures as maturing at their stated maturity on October , 2029. If
the debentures were treated as maturing on such date, the debentures would be
treated as having contingent interest under the Treasury regulations governing
debt instruments that provide for contingent payments. In that event, we would
be required to construct a projected payment schedule for the debentures, based
on our current borrowing costs for comparable noncontingent debt instruments,
from which an estimated yield on the debentures would be calculated. A holder
would be required to include in income original issue discount in an amount
equal to the product of the "adjusted issue price" of the debentures at the
beginning of each interest accrual period and the estimated yield of the
debentures and to make certain adjustments to such income accruals for
differences between actual payments and projected payments. In general, the
"adjusted issue price" of a debenture would be equal to its "issue price" (the
first price at which a substantial amount of the HIGH TIDES are sold to the
public, ignoring sales to bond houses, brokers and similar persons acting as
underwriters, placement agents or wholesalers), increased by the original issue
discount, if any, previously accrued on the debenture, and reduced by any
payments made on the debenture. During the period prior to the reset date, the
original issue discount would accrue at a rate that is greater than the
applicable rate, and holders would have more taxable income than the cash
payable on the HIGH TIDES.
In addition, under the Treasury regulations governing debt instruments that
provide for contingent payments, holders who sold or redeemed their HIGH TIDES
would recognize ordinary loss or reduced gain at that time to reflect any excess
of prior original issue discount accruals over actual interest payments
received. Holders who retain their
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HIGH TIDES following the reset date would reduce their original issue discount
accruals after that date to reflect any such excess prior to the reset date.
Furthermore, under the Treasury regulations, any gain realized with respect to
the HIGH TIDES would generally be treated as ordinary income; any loss realized
would generally be treated as ordinary loss to the extent of the holder's prior
ordinary income inclusions with respect to the HIGH TIDES, and any additional
loss would be capital loss.
The following discussion assumes the debentures are properly treated as
reset bonds rather than as contingent payment debt instruments.
INTEREST INCOME
Under the Treasury regulations, a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with original issue discount. We believe that the likelihood of
interest payments being deferred is remote. Based on the foregoing, we believe
that the debentures will not be considered to be issued with original issue
discount at the time of their original issuance and, accordingly, a holder of
HIGH TIDES should include in gross income such holder's allocable share of
interest on the debentures in accordance with such holder's method of tax
accounting. If it is determined that the possible deferral of interest payments
should not be treated as a remote contingency, interest on the debentures would
not be treated as "qualified stated interest" and, thus, the debentures would be
treated as having been issued with original issue discount. In such case,
holders of HIGH TIDES would be required to include in income their allocable
share of the original issue discount accrued by the trust with respect to the
debentures on an economic accrual basis over the period of time the HIGH TIDES
(and the underlying allocable share of the debentures) are held, regardless of
their regular methods of accounting and regardless of whether interest has been
paid on the debentures or distributions are made on the HIGH TIDES. Actual
payments of interest on the debentures and corresponding distributions or the
HIGH TIDES would not result in additional income being recognized by the holders
of the HIGH TIDES. In such event, the interest income included by the holders of
the HIGH TIDES should not differ from the actual interest paid on the
debentures.
In addition, under the Treasury regulations, if at any time the payment of
interest on the debentures is deferred, the debentures would, solely for
purposes of determining the existence and amount of original issue discount with
respect to the debentures, at that time be treated as retired and reissued with
original issue discount, and all stated interest on the debentures would
thereafter be treated as original issue discount as long as the debentures
remained outstanding. In such event, holders of HIGH TIDES would be required to
include in income their allocable share of the original issue discount accrued
by the trust with respect to the debentures on an economic accrual basis over
the period of time that the HIGH TIDES (and the underlying allocable share of
the debentures) are held, regardless of their regular methods of tax accounting
and regardless of whether interest has been paid on the debentures or
distributions are made on the HIGH TIDES. Assuming that the debentures are
treated as reset bonds (as discussed above), the total original issue discount
that would accrue during the period up to the day before the reset date if we
were to exercise our option to defer payments of interest would be equal to the
excess of (1) the sum of (A) the reset price, plus (B) the total stated interest
payments called for under the debentures prior to the reset date after the date
we exercise our option to defer interest payments on the debentures, over (2)
the adjusted issue price of the debentures as of the date we exercised our
option to defer payments of interest. Because the reset price
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exceeds the principal amount of the debentures, during the period following the
date we exercise our option to defer interest payments on the debentures through
the reset date holders will accrue original issue discount at a rate slightly in
excess of the applicable initial rate.
The following discussion assumes that we will not defer payments of
interest on the debentures, and that the debentures will not be issued with
original issue discount.
Because the income underlying the HIGH TIDES will not be characterized as
dividends for United States federal income tax purposes, corporate holders of
the HIGH TIDES will not be entitled to a dividends received deduction for any
income recognized with respect to the HIGH TIDES.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
HIGH TIDES -- Tax Event or Investment Company Event Redemption or Distribution,"
debentures may be distributed to holders in exchange for the HIGH TIDES and in
liquidation of the trust. Under current law, such a distribution to holders, for
United States federal income tax purposes, would be treated as a nontaxable
event to each holder, and each holder would receive an aggregate tax basis in
the debentures equal to such holder's aggregate tax basis in its HIGH TIDES. A
holder's holding period in the debentures so received in liquidation of the
trust would include the period during which the HIGH TIDES were held by such
holder. If, however, the exchange is caused by a tax event which results in the
trust being treated as an association taxable as a corporation, the distribution
would likely constitute a taxable event to holders of the HIGH TIDES.
Under certain circumstances described herein (see "Description of HIGH
TIDES"), the debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their HIGH TIDES. Under
current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed HIGH TIDES as to
holders, and a holder would recognize gain or loss as if it sold such redeemed
HIGH TIDES for cash. See "-- Sale of HIGH TIDES."
SALE OF HIGH TIDES
A holder that sells its HIGH TIDES will recognize capital gain or loss
equal to the difference between the amount realized on the sale of the HIGH
TIDES and the holder's adjusted tax basis in such HIGH TIDES. A holder's
adjusted tax basis in its HIGH TIDES generally will be the initial purchase
price paid therefor. In the case of a holder other than a corporation, the
maximum marginal United States federal income tax rate applicable to gain
recognized in the sale of HIGH TIDES is 20% if such holder's holding period for
such HIGH TIDES exceeds one year.
To the extent the selling price is less than the holder's adjusted tax
basis, the holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
CONVERSION OF HIGH TIDES INTO COMMON STOCK
A holder of HIGH TIDES will not recognize income, gain or loss upon the
conversion, through the conversion agent, of debentures into common stock. The
holder
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will recognize gain upon the receipt of cash in lieu of a fractional share of
common stock equal to the amount of cash received less the holder's adjusted tax
basis in such fractional share. A holder's tax basis in the common stock
received upon conversion generally will be equal to the holder's tax basis in
the HIGH TIDES delivered to the conversion agent for exchange less the tax basis
allocated to any fractional share for which cash is received, and a holder's
holding period in the common stock received upon conversion generally will
include the period during which the HIGH TIDES were held by such holder.
DIVIDENDS
The amount of any distribution we make in respect of our common stock will
be equal to the amount of cash and the fair market value, on the date of
distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of our
current or accumulated earnings and profits, then as a tax-free return of
capital to the extent of a holder's tax basis in the common stock and thereafter
as gain from the sale or exchange of such stock (as described below).
In general, a dividend distribution to a corporate holder will qualify for
the 70% dividends received deduction if the holder owns less than 20% of the
voting power and value of our stock (other than any non-voting, non-convertible,
non-participating preferred stock). A corporate holder that owns 20% or more of
the voting power and value of our stock (other than any non-voting,
non-convertible, non-participating preferred stock) generally will qualify for
an 80% dividends received deduction. The dividends received deduction is subject
to certain holding period, taxable income and other limitations.
SALE OF COMMON STOCK
Upon the sale or exchange of common stock, a holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (2) such holder's adjusted tax basis in the common stock. In the
case of a holder other than a corporation, the maximum marginal United States
federal income tax rate applicable to such gain is 20% if such holder's holding
period for such common stock exceeds one year. A holder's basis and holding
period in common stock received upon conversion of HIGH TIDES are determined as
discussed above under "-- Conversion of HIGH TIDES into Common Stock."
ADJUSTMENT OF CONVERSION PRICE
Treasury regulations promulgated under Section 305 of the Internal Revenue
Code would treat holders of HIGH TIDES as having received a constructive
distribution from us in the event the applicable conversion ratio of the
debentures were adjusted if (1) as a result of such adjustment, the
proportionate interest (measured by the amount of common stock into which the
debentures are convertible) of the holders of the HIGH TIDES in the assets or
earnings and profits of Calpine were increased, and (2) the adjustment was not
made pursuant to a bona fide, reasonable antidilution formula. An adjustment in
the applicable conversion ratio would not be considered made pursuant to such a
formula if the adjustment was made to compensate for certain taxable
distributions with respect to the common stock. Thus, under certain
circumstances, a reduction in the conversion price for the holders may result in
deemed dividend income to holders to the extent of the current or accumulated
earnings and profits of Calpine. Holders of the HIGH TIDES
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would be required to include their allocable share of such deemed dividend
income in gross income but will not receive any cash related thereto.
We will take the position that the adjustment to the initial conversion
ratio in connection with the remarketing will constitute an "isolated"
recapitalization for United States federal income tax purposes and, therefore,
not be deemed a constructive dividend under Section 305. However, the Internal
Revenue Service might contend that any increase in such initial conversion ratio
on the reset date is a constructive dividend to holders of the HIGH TIDES who
hold the HIGH TIDES immediately before the reset date and that any decrease in
such initial conversion ratio on the reset date (or elimination of the
conversion feature on the reset date) is a constructive dividend to all holders
of common stock at that time. In each case, the amount of the constructive
dividend would be the fair market value on the reset date of the number of
shares of common stock which, if actually distributed to holders of HIGH TIDES
(in the case of an increase in the initial conversion ratio) or to holders of
the common stock (in the case of a decrease in the initial conversion ratio or
elimination of convertibility of HIGH TIDES), would produce the same increase in
the proportionate interests of such holders in the assets or earnings and
profits of Calpine as that produced by the adjustment. The aggregate deemed
dividend is limited to the current or accumulated earnings and profits of
Calpine. Holders of HIGH TIDES would be required to include any such
constructive dividend to them in gross income but would not receive any cash
related thereto.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on HIGH TIDES, payments of dividends on
common stock, payments of the proceeds of the sale of HIGH TIDES and payments of
the proceeds of the sale of common stock, and a 31% backup withholding tax may
apply to such payments if the holder (1) fails to furnish or certify his correct
taxpayer identification number to the payor in the manner required, (2) is
notified by the Internal Revenue Service that he has failed to report payments
of interest and dividends properly, or (3) under certain circumstances, fails to
certify that he has not been notified by the Internal Revenue Service that he is
subject to backup withholding for failure to report interest and dividend
payments. Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a credit against such holder's United States
federal income tax and may entitle the holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
NON-U.S. HOLDERS
The rules governing United States federal income taxation of a beneficial
owner of HIGH TIDES or common stock that, for United States federal income tax
purposes, is a holder who is not a U.S. person as that term is defined in the
Internal Revenue Code are complex and no attempt will be made herein to provide
more than a summary of such rules. Non-U.S. holders should consult with their
own tax advisors to determine the effect of federal, state, local and foreign
income tax laws, as well as treaties, with regard to an investment in the HIGH
TIDES and common stock, including any reporting requirements.
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INTEREST INCOME
Generally, interest income of a non-U.S. holder that is not effectively
connected with a United States trade or business will be subject to a
withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by
a treaty). However, interest income earned on the debentures by a non-U.S.
holder will qualify for the "portfolio interest" exemption and therefore will
not be subject to United States federal income tax or withholding tax, provided
that such interest income is not effectively connected with a United States
trade or business of the non-U.S. holder and provided that (1) the non-U.S.
holder does not actually or constructively (including by virtue of its interest
in the underlying debentures) own 10% or more of the total combined voting power
of all classes of our stock entitled to vote; (2) the non-U.S. holder is not a
controlled foreign corporation that is related to us through stock ownership;
(3) the non-U.S. holder is not a bank which acquired the HIGH TIDES in
consideration for an extension of credit made pursuant to a loan agreement
entered into in the ordinary course of business and (4) either (A) the non-U.S.
holder certifies to the trust or its agent, under penalties of perjury, that it
is not a United States person and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that holds
customer securities in the ordinary course of its trade or business, and holds
HIGH TIDES in such capacity, certifies to the trust or its agent, under
penalties of perjury, that such statement has been received from the beneficial
owner by it or by a financial institution between it and the beneficial owner
and furnishes the trust or its agent with a copy thereof.
Final Treasury regulations would modify the certification requirements on
payments of interest made after December 31, 2000. Prospective investors should
consult their own tax advisors as to the effect, if any, of the final Treasury
regulations on their purchase, ownership and disposition of the HIGH TIDES and
common stock.
Except to the extent that an applicable treaty otherwise provides, a
non-U.S. holder generally will be taxed with respect to interest in the same
manner as a holder that is a United States person if the interest income is
effectively connected with a United States trade or business of the non-U.S.
holder. Effectively connected interest received or accrued by a corporate
non-U.S. holder may also, under certain circumstances, be subject to an
additional "branch profits" tax at a 30% rate (or, if applicable, a lower tax
rate specified by a treaty). Even though such effectively connected interest is
subject to income tax, and may be subject to the branch profits tax, it is not
subject to withholding tax if the non-U.S. holder delivers a properly executed
Internal Revenue Service Form 4224 (or successor form) to the payor.
SALE, EXCHANGE OR REDEMPTION OF HIGH TIDES
A non-U.S. holder of HIGH TIDES generally will not be subject to United
States federal income tax or withholding tax on any gain realized on the sale,
exchange or redemption of the HIGH TIDES (including the receipt of cash in lieu
of fractional shares upon conversion of HIGH TIDES into common stock) unless (1)
the gain is effectively connected with a United States trade or business of the
non-U.S. holder, (2) in the case of a non-U.S. holder who is an individual, such
holder is present in the United States for a period or periods aggregating 183
days or more during the taxable year of the disposition, and either such holder
has a "tax home" in the United States or the disposition is attributable to an
office or other fixed place of business maintained by such holder in the United
States, or
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(3) the non-U.S. holder is subject to tax pursuant to the provisions of the
Internal Revenue Code applicable to certain United States expatriates.
CONVERSION OF HIGH TIDES
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of HIGH TIDES into common stock by a non-U.S. holder
(except with respect to the non-U.S. holder's receipt of cash in lieu of
fractional shares where one of the conditions described above under "-- Sale,
Exchange or Redemption of HIGH TIDES" is satisfied).
SALE OR EXCHANGE OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on the sale or exchange of common stock unless one
of the conditions described above under "-- Sale, Exchange or Redemption HIGH
TIDES" is satisfied.
DIVIDENDS
Distributions by Calpine with respect to the common stock that are treated
as dividends paid (or deemed paid), as described above under "-- Dividends" to a
non-U.S. holder (excluding dividends that are effectively connected with the
conduct of a United States trade or business by such holder and are taxable as
described below), will be subject to United States federal withholding tax at a
30% rate (or a lower rate provided under any applicable income tax treaty).
Except to the extent that an applicable tax treaty otherwise provides, a
non-U.S. holder will be taxed in the same manner as a holder who is a United
States person on dividends paid (or deemed paid) that are effectively connected
with the conduct of a United States trade or business by the non-U.S. holder. If
such non-U.S. holder is a foreign corporation, it may also be subject to a
United States branch profits tax on such effectively connected income at a 30%
rate (or such lower rate as may be specified by an applicable tax treaty). Even
though such effectively connected dividends are subject to income tax, and may
be subject to the branch profits tax, they will not be subject to U.S.
withholding tax if the holder delivers a properly executed Internal Revenue
Service Form 4224 (or successor form) to the payor.
Under current Treasury regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the 30% withholding
discussed above and for purposes of determining the applicability of a tax
treaty rate. Under final Treasury regulations effective with respect to payments
made after December 31, 2000, however, non-U.S. holders of common stock who wish
to claim the benefit of an applicable treaty rate would be required to satisfy
certain certification requirements. Prospective investors should consult their
own tax advisors as to the effect, if any, of the final Treasury regulations on
their purchase, ownership and disposition of the HIGH TIDES and common stock.
CERTAIN UNITED STATES FEDERAL ESTATE TAX CONSIDERATIONS APPLICABLE TO A NON-U.S.
HOLDER
HIGH TIDES held by an individual who is a non-U.S. holder at the time of
death will not be includable in the decedent's gross estate for United States
federal estate tax purposes, provided that such holder or beneficial owner did
not at the time of death
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actually or constructively (including by virtue of its interest in the
underlying debentures) own 10% or more of the combined voting power of all
classes of our stock entitled to vote, and provided that at the time of death,
payments with respect to such HIGH TIDES would not have been effectively
connected with the conduct by such non-U.S. holder of a trade or business within
the United States.
Common stock actually or beneficially held by a non-U.S. holder at the time
of his or her death (or previously transferred subject to certain retained
rights or powers) will be subject to United States federal estate tax unless
otherwise provided by an applicable estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to payments on HIGH TIDES to a non-U.S. holder if the statement
described in "-- Interest Income" is duly provided by such holder, provided that
the payor does not have actual knowledge that the holder is a United States
person.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of HIGH TIDES, or any payment
of the proceeds of the sale of common stock effected outside the United States
by a foreign office of a "broker" as defined in applicable Treasury regulations,
unless such broker (1) is a United States person as defined in the Internal
Revenue Code, (2) is a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States or (3) is a controlled foreign corporation for United States federal
income tax purposes. Payment of the proceeds of any such sale effected outside
the United States by a foreign office of any broker that is described in (1),
(2) or (3) of the preceding sentence will not be subject to backup withholding
tax, but will be subject to information reporting requirements, unless such
broker has documentary evidence in its records that the beneficial owner is a
non-U.S. holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Payment of the proceeds of any such sale to
or through the United States office of a broker is subject to information
reporting and backup withholding requirements unless the beneficial owner of the
HIGH TIDES provides the statement described in "-- Interest Income" or otherwise
establishes an exemption.
If paid to an address outside the United States, dividends on common stock
held by a non-U.S. holder generally will not be subject to the information
reporting and backup withholding requirements described in this section.
However, under final Treasury regulations, dividend payments made after December
31, 2000 will be subject to information reporting and backup withholding unless
certain certification requirements are satisfied. Prospective investors should
consult their own tax advisors as to the effect, if any, of the final Treasury
regulations on their purchase, ownership and disposition of the HIGH TIDES and
common stock.
FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT
Under the Foreign Investment in Real Property Tax Act, any person who
acquires a "United States real property interest" (as described below) from a
foreign person must deduct and withhold a tax equal to 10% of the amount
realized by the foreign transferor. In addition, a foreign person who disposes
of a United States real property interest generally is required to recognize
gain or loss that is subject to United States federal income tax. A
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"United States real property interest" generally includes any interest (other
than an interest solely as a creditor) in a United States corporation unless it
is established under specific procedures that the corporation is not (and was
not for the prior five-year period) a "United States real property holding
corporation." We do not believe that we are or have been a United States real
property holding corporation as of the date hereof, nor do we believe that we
have been a United States real property holding corporation at any time during
the past five years. Further, we do not expect to become a United States real
property holding corporation in the future (although there can be no assurance
that this future expectation will be accurate). Brobeck, Phleger & Harrison LLP
has rendered no opinion as to whether we are, at any time within the past 5
years have been, or will in the future become, a United States real property
holding corporation. If it is determined that we are, have been in the past five
years or in the future become, a United States real property holding
corporation, so long as our stock is regularly traded on an established
securities market, an exemption should apply to the HIGH TIDES and the common
stock except with respect to a non-U.S. holder whose beneficial ownership of
HIGH TIDES or common stock exceeds 5% of the total fair market value of the
common stock.
Any investor that may approach or exceed the 5% ownership threshold
discussed above, either alone or in conjunction with related persons, should
consult its own tax advisor concerning the United States tax consequences that
may result. A non-U.S. holder who sells or otherwise disposes of HIGH TIDES or
common stock may be required to inform its transferee whether such HIGH TIDES or
common stock constitute a United States real property interest.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
HIGH TIDES AND COMMON STOCK, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS.
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. The
information provided below reflects the 2 for 1 stock split declared by us on
September 20, 1999.
COMMON STOCK
There will be 60,569,788 shares of common stock outstanding upon the
completion of the concurrent common stock offering, based on the 54,569,788
shares outstanding as of October 22, 1999. 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
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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 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
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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.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") should consider the fiduciary standards of ERISA in the context of the
plan's particular circumstances before authorizing an investment in the HIGH
TIDES. Accordingly, among other factors, the fiduciary should consider whether
the investment would satisfy the prudence and diversification requirements of
ERISA, whether the investment could result in an improper delegation of
fiduciary authority and whether the investment would be consistent with the
documents and instruments governing the plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
plans, as well as individual retirement accounts and Keogh plans subject to
Section 4975 of the Internal Revenue Code, from engaging in certain transactions
involving "plan assets" with
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persons who are "parties in interest" under ERISA or "disqualified persons"
under the Internal Revenue Code with respect to such plans. A violation of these
"prohibited transaction" rules may result in an excise tax or other liabilities
under ERISA and/or Section 4975 of the Internal Revenue Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as defined in Section
3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) not
subject to Section 401 of the Internal Revenue Code are not subject to the
requirements of ERISA or Section 4975 of the Internal Revenue Code.
Under a regulation relating to plan assets issued by the United States
Department of Labor, the assets of the trust would be deemed to be "plan assets"
of a plan for purposes of ERISA and Section 4975 of the Internal Revenue Code if
"plan assets" of the plan were used to acquire an equity interest in the trust
and no exception were applicable under the plan assets regulation. An "equity
interest" is defined under the plan assets regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the plan assets regulation, the
assets of the trust would not be deemed to be "plan assets" of investing plans
if, immediately after the most recent acquisition of any equity interest in the
trust, less than 25% of the value of each class of equity interests in the trust
were held by plans, other employee benefit plans not subject to ERISA or Section
4975 of the Internal Revenue Code (such as governmental, church and foreign
plans), and entities holding assets deemed to be "plan assets" of any plan. No
assurance can be given that the value of the HIGH TIDES held by benefit plan
investors will be less than 25% of the total value of such HIGH TIDES at the
completion of the initial offering or otherwise. All of the common securities
will be purchased and held by us. If assets of the trust are treated as "plan
assets," the trust trustees could be treated as fiduciaries to plans that
acquired the HIGH TIDES.
Some transactions involving the trust could be deemed to constitute direct
or indirect prohibited transactions under ERISA and Section 4975 of the Internal
Revenue Code with respect to a plan if the HIGH TIDES were acquired with "plan
assets" of such plan and assets of the trust were deemed to be "plan assets" of
plans investing in the trust. For example, if Calpine is a party in interest
with respect to an investing plan (either directly or by reason of its ownership
of its subsidiaries), extensions of credit between Calpine and the trust (as
represented by the convertible junior subordinated debentures and the guarantee)
would likely be prohibited by Section 406(a)(1)(B) of ERISA and Section
4975(c)(1)(B) of the Internal Revenue Code, unless exemptive relief were
available under an applicable administrative exemption (see below). In that
regard, it is noted that Calpine is a party in interest with respect to certain
employee benefit plans covering employees of Calpine and its subsidiaries.
However, Calpine does not currently provide services to plans, or serve as a
fiduciary of plans, other than our plans and accordingly might not be treated as
a party in interest with respect to any plans other than our plans. If Calpine
is not a party in interest with respect to a plan which is not our plan, then a
direct or indirect loan between Calpine and the plan would not appear to
constitute a prohibited transaction.
The Department of Labor has issued five prohibited transaction class
exemptions ("PTCEs") that may provide exemptive relief for direct or indirect
prohibited transactions resulting from the purchase or holding of the HIGH
TIDES, assuming that assets of the
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trust were deemed to be "plan assets" of plans investing in the trust (see
above). Those class exemptions are PTCE 96-23 (for some transactions determined
by in-house asset managers), PTCE 95-60 (for some transactions involving
insurance company general accounts), PTCE 91-38 (for some transactions involving
bank collective investment funds), PTCE 90-1 (for some transactions involving
insurance company separate accounts) and PTCE 84-14 (for some transactions
determined by qualified professional asset managers).
Because the HIGH TIDES may be deemed to be equity interests in the trust
for purposes of applying ERISA and Section 4975 of the Internal Revenue Code,
the HIGH TIDES may not be purchased or held by any plan, any entity whose
underlying assets include "plan assets" by reason of any plan's investment in an
entity or any person investing "plan assets" of any plan, unless such purchaser
or holder is eligible for the exemptive relief available under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14. Any purchaser or holder of the HIGH TIDES or any
interest therein will be deemed to have represented by its purchase and holding
thereof that it either (a) is not a plan or a plan asset entity and is not
purchasing such securities on behalf of or with "plan assets" of any plan or (b)
is eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38,
90-1 or 84-14. Further, the fiduciaries of any plan or plan asset entity which
may purchase or hold HIGH TIDES will be deemed as a result of such acquisition
or holding to have (a) directed the trust to invest in the HIGH TIDES, (b)
authorized and directed any of the actions taken or which may be taken with
respect to the trust and the HIGH TIDES by any of Calpine, the declaration
trustees, the debenture trustee, or the guarantee trustee as contemplated by the
indenture, the debentures or the guarantee and (c) to have appointed the
declaration trustees.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the HIGH
TIDES on behalf of or with "plan assets" of any plan consult with their counsel
regarding the potential consequences if the assets of the trust were deemed to
be "plan assets" and whether Calpine is a party in interest with respect to the
plan and if so, the availability of exemptive relief under PTCE 96-23, 95-60,
91-38, 90-1 or 84-14 with respect to the acquisition or holding of HIGH TIDES.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we and the trust have agreed that the trust
shall sell to the underwriters named below, the following respective number of
HIGH TIDES:
<TABLE>
<CAPTION>
Number of
Underwriter HIGH TIDES
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation................
CIBC World Markets Corp...............................
ING Barings LLC.......................................
---------
Total......................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the HIGH TIDES in the offering if any are purchased, other than
those HIGH TIDES 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 the HIGH TIDES may be terminated.
Since the proceeds of the sale of the HIGH TIDES will be used by the trust
to purchase the debentures, the underwriting agreement provides that we will pay
as compensation to the underwriters a commission of $ per HIGH TIDES or
$ in the aggregate.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 600,000 additional HIGH TIDES from us at the public offering
price, plus accrued distributions. The option may be exercised only to cover any
over-allotments in the sale of HIGH TIDES.
The underwriters propose to offer the HIGH TIDES initially at the public
offering price on the cover page of this prospectus and to selling group members
at a discount of up to $ per HIGH TIDES. The underwriters and selling group
members may allow a discount of $ per HIGH TIDES on sales to other
broker/dealers. After the initial public offering, the public offering price and
other selling terms may be changed by the underwriters.
We estimate that our out of pocket expenses of the offering, excluding
commissions, will be approximately $ .
The HIGH TIDES are new securities for which there currently is no market.
One or more of the underwriters have advised us and the trust that they intend
to make a secondary market for the HIGH TIDES. However, they are not obligated
to do so, and may discontinue making a secondary market for the HIGH TIDES at
any time without notice. No assurance can be given as to how liquid the trading
market for the HIGH TIDES will be.
We, the trust and each of our officers and directors have agreed that we
will not offer, sell, contract 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 (a) any preferred
securities, any preferred stock or any other securities of the trust (other than
the HIGH TIDES offered or the common securities of the trust), (b) any preferred
stock or any other security of Calpine that is substantially similar to the HIGH
TIDES, (c) any shares of common stock of Calpine other than shares of common
148
<PAGE> 235
stock issuable upon conversion of the HIGH TIDES and/or the debentures or (d)
any other securities which are convertible into, or exchangeable or exercisable
for, any of (a) through (c), or publicly disclose the intention to make an
offer, sale, pledge, disposition or filing as described above, 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 option outstanding on the date hereof and the
shares of common stock being offered concurrently with the offering of HIGH
TIDES.
We and the trust have agreed to indemnify the underwriters against
liabilities under the Securities Act of 1933 or contribute to payments which the
underwriters may be required to make in that respect.
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.
- 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 HIGH TIDES in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the HIGH TIDES originally sold by such syndicate
member are purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the HIGH TIDES to be higher than it would otherwise be in
the absence of such transactions. These transactions, if commenced, may be
discontinued at any time.
Credit Suisse First Boston, New York branch expects to be the lead arranger
and a lender for our proposed $1.0 billion revolving construction loan facility
and, in such capacity, expects to receive customary fees for such services. The
decision of Credit Suisse First Boston Corporation to distribute the HIGH TIDES
offered hereby and the common stock being offered concurrently was made
independent of Credit Suisse First Boston, New York branch which lender had no
involvement in determining whether or when to distribute the common stock or
HIGH TIDES under the offerings or the terms of either offering. Credit Suisse
First Boston Corporation will not receive any benefit from the offerings other
than its portion of the underwriting fees as paid by us.
From time to time, certain of the underwriters and their affiliates 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. In addition, Credit
Suisse First Boston Corporation, CIBC World Markets Corp., Donaldson, Lufkin and
Jenrette Securities Corporation, Goldman, Sachs & Co., Salomon Smith Barney Inc.
and Gerard Klauer Mattison & Co., Inc. are acting as underwriters in our
concurrent offering of common stock.
149
<PAGE> 236
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the HIGH TIDES in Canada is being made only on a
private placement basis exempt from the requirement that we and the trust
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the HIGH TIDES are effected. Accordingly, any resale of
the HIGH TIDES 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 HIGH TIDES.
REPRESENTATIONS OF PURCHASERS
Each purchaser of HIGH TIDES in Canada who receives a purchase confirmation
will be deemed to represent to us, the trust and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase such HIGH TIDES without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the 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
Ontario securities law. 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 our directors and officers as well as the experts named herein and
the trust 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
us, the trust or these persons. All or a substantial portion of our assets, the
assets of the trust and the assets of these persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
us, the trust or these persons in Canada or to enforce a judgment obtained in
Canadian courts against us, the trust or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of HIGH TIDES to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any HIGH
TIDES acquired by the purchaser pursuant to this offering. The 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 Calpine. Only one report must be
filed in respect of HIGH TIDES acquired on the same date and under the same
prospectus exemption.
150
<PAGE> 237
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of HIGH TIDES should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the shares of
HIGH TIDES in their particular circumstances and with respect to the eligibility
of the shares of HIGH TIDES for investment by the purchaser under relevant
Canadian legislation.
LEGAL MATTERS
Richards, Layton & Finger, P.A., special Delaware counsel to the trust and
Calpine, will pass on certain matters of Delaware law relating to the validity
of the HIGH TIDES. The validity of the debentures and the guarantee 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 consolidated financial statements and schedules as of December 31,
1998, 1997 and 1996 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 Sumas Cogeneration Company, L.P. its
opinion is based on the reports of other independent public accountants, namely
Moss Adams LLP. The consolidated financial statements 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 as
amended 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 accountant, 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.
151
<PAGE> 238
[CALPINE LOGO]
<PAGE> 239
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 being registered. All amounts are estimates except the
SEC registration fee.
<TABLE>
<S> <C>
SEC Registration Fee....................................... $ 150,439
NASD Filing Fee............................................ $ 30,500
Legal Fees and Expenses.................................... 150,000
Accounting Fees and Expenses............................... 150,000
Printing Fees.............................................. 400,000
Transfer Agent fees........................................ 15,000
Miscellaneous.............................................. 354,061
----------
Total............................................ 1,250,000
==========
</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> 240
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
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (Common Stock)
1.2 Form of Underwriting Agreement (HIGH TIDES)
+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 Indenture dated as of February 17, 1994 between the
Company and Shawmut Bank of Connecticut, National
Association, as Trustee, including form of Notes(b)
+4.2 Indenture dated as of May 16, 1996 between the Company and
Fleet National Bank, as Trustee, including form of
Notes(c)
+4.3 Indenture dated as of July 8, 1997 between the Company and
The Bank of New York, as Trustee, including form of
Notes(d)
+4.4 Indenture dated as of March 31, 1998 between the Company
and The Bank of New York, as Trustee, including form of
Senior Notes(e)
+4.5 Indenture dated as of March 26, 1999 between the Company
and The Bank of New York, as Trustee, including the form
of Senior Notes(f)
+4.6 Indenture dated as of April 21, 1999 between the Company
and The Bank of New York, as Trustee, including the form
of Senior Notes(f)
4.7 Certificate of Trust of Calpine Capital Trust
4.8 Corrected Certificate of the Certificate of Trust of
Calpine Capital Trust
4.9 Declaration of Trust of Calpine Capital Trust
</TABLE>
II-2
<PAGE> 241
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.10 Form of Amended and Restated Declaration of Trust of
Calpine Capital Trust among Calpine Corporation as
Depositor and Debenture Issuer, The Bank of New York as
Delaware Trustee and Property Trustee and Peter
Cartwright, Ann B. Curtis and Thomas R. Mason as
Administrative Trustees
4.11 Form of Indenture for the Convertible Subordinated
Debentures due 2029 among Calpine Corporation and The Bank
of New York as Trustee
4.12 Form of Calpine Capital Trust % Convertible Preferred
Securities (included in Exhibit 4.10)
4.13 Form of Calpine Corporation Convertible Subordinated
Debentures due 2029 (included in Exhibit 4.11)
4.14 Form of Preferred Securities Guarantee Agreement among
Calpine Corporation as Guarantor and The Bank of New York
as Guarantee Trustee
4.15 Form of Remarketing Agreement among Calpine Corporation,
Calpine Capital Trust, The Bank of New York as Tender
Agent, Peter Cartwright, Ann B. Curtis and Thomas R. Mason
as Administrative Trustees and Credit Suisse First Boston
Corporation as Remarketing Agent
5.1 Opinion of Brobeck, Phleger & Harrison LLP as to the
legality of the Common Stock, the % Convertible
Subordinated Debentures, the Preferred Securities
Guarantee and the underlying Common Stock
5.2 Opinion of Richards, Layton & Finger P.A. as to the
legality of the % Convertible Preferred Securities and
as to certain matters of Delaware law
8.1 Opinion of Brobeck, Phleger & Harrison LLP as to certain
tax matters
12.1 Statement Regarding Computation of Ratios
23.1 Consent of Arthur Andersen LLP, independent public
accountants
23.2 Consent of Moss Adams LLP, independent public accountants
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibits 5.1 and 8.1)
23.4 Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2)
+24.1 Power of Attorney (included in signature page of this
Registration Statement)
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Trustee under the Indenture for the Convertible
Subordinated Debentures due 2029
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and Restated
Declaration of Trust
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Guarantee Trustee under the Preferred Securities
Guarantee Agreement
</TABLE>
II-3
<PAGE> 242
- -------------------------
+ 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)
(f) Incorporated by reference to registrant's Registration Statement on Form
S-3 (Registration Statement No. 333-72583)
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, and, where applicable, each filing of an
employee benefit plan's annual report pursuant to
II-4
<PAGE> 243
Section 15(d) of the Securities Exchange Act of 1934, 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-5
<PAGE> 244
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 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 25th day of
October, 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 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, October 25, 1999
- --------------------------------------------- Chief Executive Officer,
Peter Cartwright and Director
(Principal Executive
Officer)
/s/ ANN B. CURTIS Executive Vice President October 25, 1999
- --------------------------------------------- and Director
Ann B. Curtis (Principal Financial and
Accounting Officer)
* Director October 25, 1999
- ---------------------------------------------
Jeffrey E. Garten
* Director October 25, 1999
- ---------------------------------------------
Susan C. Schwab
* Director October 25, 1999
- ---------------------------------------------
George J. Stathakis
* Director October 25, 1999
- ---------------------------------------------
John O. Wilson
* Director October 25, 1999
- ---------------------------------------------
V. Orville Wright
*By: /s/ ANN B. CURTIS Attorney-in-Fact October 25, 1999
---------------------------------------
Ann B. Curtis
</TABLE>
II-6
<PAGE> 245
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 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 25th day of
October, 1999.
CALPINE CAPITAL TRUST
By: /s/ PETER CARTWRIGHT
-----------------------------------
Peter Cartwright
As Administrative Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons on
behalf of Calpine Capital Trust and in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PETER CARTWRIGHT Administrative Trustee October 25, 1999
- ---------------------------------------------
Peter Cartwright
/s/ ANN B. CURTIS Administrative Trustee October 25, 1999
- ---------------------------------------------
Ann B. Curtis
/s/ THOMAS R. MASON Administrative Trustee October 25, 1999
- ---------------------------------------------
Thomas R. Mason
</TABLE>
II-7
<PAGE> 246
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (Common Stock)
1.2 Form of Underwriting Agreement (HIGH TIDES)
+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 Indenture dated as of February 17, 1994 between the
Company and Shawmut Bank of Connecticut, National
Association, as Trustee, including form of Notes(b)
+4.2 Indenture dated as of May 16, 1996 between the Company and
Fleet National Bank, as Trustee, including form of
Notes(c)
+4.3 Indenture dated as of July 8, 1997 between the Company and
The Bank of New York, as Trustee, including form of
Notes(d)
+4.4 Indenture dated as of March 31, 1998 between the Company
and The Bank of New York, as Trustee, including form of
Senior Notes(e)
+4.5 Indenture dated as of March 26, 1999 between the Company
and The Bank of New York, as Trustee, including the form
of Senior Notes(f)
+4.6 Indenture dated as of April 21, 1999 between the Company
and The Bank of New York, as Trustee, including the form
of Senior Notes(f)
4.7 Certificate of Trust of Calpine Capital Trust
4.8 Corrected Certificate of the Certificate of Trust of
Calpine Capital Trust
4.9 Declaration of Trust of Calpine Capital Trust
4.10 Form of Amended and Restated Declaration of Trust of
Calpine Capital Trust among Calpine Corporation as
Depositor and Debenture Issuer, The Bank of New York as
Delaware Trustee and Property Trustee and Peter
Cartwright, Ann B. Curtis and Thomas R. Mason as
Administrative Trustees
4.11 Form of Indenture for the Convertible Subordinated
Debentures due 2029 among Calpine Corporation and The Bank
of New York as Trustee
4.12 Form of Calpine Capital Trust % Convertible Preferred
Securities (included in Exhibit 4.10)
4.13 Form of Calpine Corporation Convertible Subordinated
Debentures due 2029 (included in Exhibit 4.11)
4.14 Form of Preferred Securities Guarantee Agreement among
Calpine Corporation as Guarantor and The Bank of New York
as Guarantee Trustee
4.15 Form of Remarketing Agreement among Calpine Corporation,
Calpine Capital Trust, The Bank of New York as Tender
Agent, Peter Cartwright, Ann B. Curtis and Thomas R. Mason
as Administrative Trustees and Credit Suisse First Boston
Corporation as Remarketing Agent
</TABLE>
<PAGE> 247
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
5.1 Opinion of Brobeck, Phleger & Harrison LLP as to the
legality of the Common Stock, the % Convertible
Subordinated Debentures, the Preferred Securities
Guarantee and the underlying Common Stock
5.2 Opinion of Richards, Layton & Finger P.A. as to the
legality of the % Convertible Preferred Securities and
as to certain matters of Delaware law
8.1 Opinion of Brobeck, Phleger & Harrison LLP as to certain
tax matters
12.1 Statement Regarding Computation of Ratios
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
Exhibits 5.1 and 8.1)
23.4 Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2)
+24.1 Power of Attorney (included in signature page of this
Registration Statement)
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Trustee under the Indenture for the Convertible
Subordinated Debentures due 2029
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and Restated
Declaration of Trust
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Guarantee Trustee under the Preferred Securities
Guarantee Agreement
</TABLE>
- -------------------------
+ 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)
(f) Incorporated by reference to registrant's Registration Statement on Form
S-3 (Registration Statement No. 333-72583)
<PAGE> 1
Exhibit 1.1
6,900,000 SHARES
CALPINE CORPORATION
COMMON STOCK, PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
October __, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
CIBC WORLD MARKETS CORP.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY INC.
GERARD KLAUER MATTISON & CO., INC.
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, par value $.001 per share ("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. 333-87427) 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
<PAGE> 2
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 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
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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 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, or (y) that
is not a corporation is a limited partnership or a limited liability company,
has been duly formed and is validly existing as a limited partnership or a
limited liability company, as the case may be, 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, limited partnership or limited liability company, 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. For purposes of this Agreement,
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"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.
For purposes of the definition of "Subsidiary", "Voting Shares," means with
respect to any corporation, 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).
(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 Company or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with this offering.
(g) Except as set forth on Schedule B hereto, 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 hereof 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.
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(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 all certificates,
authorizations, 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, authorization, 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.
(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
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<PAGE> 6
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,
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 organizational 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
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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.
(y) The Company and its Subsidiaries have implemented a program to
analyze and address the risk that the computer hardware and software used by
them may be unable to recognize and properly execute date sensitive functions
involving certain dates prior to and any dates after December 31, 1999 (the
"Year 2000 Problem"), and reasonably believes based on its assessment to date
that such risk will be remedied on a timely basis without material expense and
will not have a Material Adverse Effect; and the Company has inquired of its
material vendors and suppliers as to their preparedness for the Year 2000
Problem and has disclosed in the Registration Statement any issues that might
reasonably be expected to have a Material Adverse Effect. The Company is in
compliance with the Commission Release No. 33-7609 related to Year 2000
compliance, as amended to date.
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 the Company at the office of Skadden, Arps, Slate, Meagher
& Flom LLP, at 9:00 A.M., New York time, on [__________], 1999, 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 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
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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 the Company, 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 supplement 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
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<PAGE> 9
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
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 [six] 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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(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 (i) grants of employee stock options pursuant to the terms of a plan in
effect on the date hereof, (ii) issuances of Securities pursuant to the exercise
of such options, (iii) the exercise of any other employee stock options
outstanding on the date hereof or (iv) the issuance and sale of convertible
preferred securities of a subsidiary trust of the Company pursuant to an
Underwriting Agreement, dated as of the date hereof, between the Company, CSFBC
and the other underwriters party thereto.
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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(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) [the unaudited consolidated net sales, net operating
income and summary of earnings, net income and net income per share
amounts for the 3-month periods ended September 30, 1999 and 1998
included in the Prospectus do not agree with the amounts set forth
in the unaudited consolidated financial statements for those same
periods or were not determined on a basis substantially consistent
with that of the corresponding amounts in the audited statements of
income;]
(C) 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
(D) 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, selected consolidated financial data and ratio of
earnings to fixed charges 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, selected consolidated financial data and ratio of
earnings to fixed charges statements included in the Registration
Statement do not each 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
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<PAGE> 12
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 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
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<PAGE> 13
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 and 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 material
suspension or material 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) Except as set forth on Schedule B hereto, 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
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<PAGE> 14
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 consummation 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
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
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<PAGE> 15
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 Lisa Bodensteiner, Assistant 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 or a limited liability company, has been duly formed and is
validly existing as a limited partnership or a limited liability company,
as the case may be, 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", "Business - Project
Development and Acquisitions", "Business - Legal Proceedings" and
"Business - Governmental Regulation", insofar as such statements
constitute summaries of the legal matters, documents and
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<PAGE> 16
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.
(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
16
<PAGE> 17
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 three 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
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, 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 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
17
<PAGE> 18
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 [ninth] 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 (i) includes
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of an indemnified party.
(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
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<PAGE> 19
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). Notwithstanding 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 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
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<PAGE> 20
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.
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.
20
<PAGE> 21
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
CIBC WORLD MARKETS CORP.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY INC.
GERARD KLAUER MATTISON & CO., INC.
Acting on behalf of themselves and as the
Representative of the several Underwriters.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:
------------------------------------
Name:
Title:
<PAGE> 22
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM SECURITIES
- ----------- -------------------------
<S> <C>
Credit Suisse First Boston Corporation
CIBC World Markets Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Salomon Smith Barney Inc.
Gerard Klauer Mattison & Co., Inc.
---------
Total 6,000,000
=========
</TABLE>
<PAGE> 23
SCHEDULE B
I. SUBSIDIARY LIENS
The Company has pledged the capital stock of certain Subsidiaries owned by
the Company in connection with the project financings related to such
Subsidiaries.
II. REGISTRATION RIGHTS
CCNG Investments, L.P., a Texas limited partnership ("CCNG"), has demand
registration rights with respect to 50,000 shares of the Company's Common
Stock pursuant to the Stock Purchase Agreement dated as of May 1, 1998 by
and between the Company and CCNG.
<PAGE> 1
EXHIBIT 1.2
4,600,000 HIGH TIDES(SM)
Calpine Capital Trust
[___]% Convertible Preferred Securities
Remarketable Term Income Deferrable Equity Securities (HIGH TIDES)(sm)
(Liquidation Preference $50 per HIGH TIDES)
Guaranteed to the Extent Set Forth in the
Preferred Securities Guarantee Agreement
by, and convertible into
Common Stock of,
Calpine Corporation
UNDERWRITING AGREEMENT
October [___], 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
CIBC WORLD MARKETS CORP.
ING BARINGS LLC,
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 Capital Trust, a statutory business trust
formed under the laws of the State of Delaware (the "TRUST"), and Calpine
Corporation, a Delaware Corporation, as sponsor of the Trust and as guarantor
(the "COMPANY"), propose that the Trust issue and sell 4,000,000 [___]%
Convertible Preferred Securities Remarketable Term Income Deferrable Equity
Securities (HIGH TIDES)(sm) (the "FIRM SECURITIES") and also propose that the
Trust issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than 600,000 additional HIGH TIDES ("OPTIONAL SECURITIES")
as set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "OFFERED SECURITIES". The Offered Securities represent
undivided beneficial interests in the assets of the Trust, guaranteed by the
Company as to the payment of distributions, and as to payments on liquidation or
<PAGE> 2
redemption, to the extent set forth in a guarantee agreement (the "GUARANTEE")
between the Company and The Bank of New York, as trustee (the "GUARANTEE
TRUSTEE"). The proceeds of the sale by the Trust of the Offered Securities and
its common securities in an aggregate liquidation amount equal to at least 3% of
the total capital of the Trust (the "COMMON SECURITIES") are to be invested in
the Convertible Subordinated Debentures due 2029 (the "DEBENTURES") of the
Company, to be issued pursuant to an Indenture (the "INDENTURE") between the
Company and The Bank of New York, as trustee (the "PROPERTY TRUSTEE"). The
Offered Securities are convertible into Debentures, which are convertible into
shares of common stock, par value $.001 per share, of the Company ("COMPANY
COMMON STOCK"). The Company and the Trust agree with the several Underwriters
named in Schedule A hereto (the "UNDERWRITERS") as follows:
2. Representations and Warranties of the Company and the Trust. Each
of the Trust and the Company jointly and severally represents and warrants to,
and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-87427) relating to the
Offered Securities and the shares of Company common stock ("UNDERLYING SHARES")
into which the Offered Securities are convertible, 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 and the Underlying Securities into which the Offered
Securities are convertible 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 and such Underlying
Shares 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 and such
Underlying Shares will all have been duly registered under the Act pursuant to
the initial registration statement and such additional registration statement.
If the Company does not propose to amend the initial registration statement or
if an additional registration statement has been filed and the Company does not
propose to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the execution
and delivery of this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the
Act or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial
registration statement or, if filed prior to the execution and delivery of this
Agreement, the additional registration statement means (i) if the Company and
the Trust have advised the Representatives that they do 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 or the Trust have advised the Representatives that they
propose 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
and the Trust have advised the Representatives that they propose 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).
2
<PAGE> 3
"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 herein
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, 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 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, and on
each Closing Date (as hereinafter defined) 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 and the Trust 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.
3
<PAGE> 4
(c) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Delaware Business Trust Act
(the "TRUST ACT") with the power and authority to own property and conduct its
business as described in the Prospectus, and has conducted and will conduct no
business other than the transactions contemplated by this Agreement and as
described in the Prospectus; the Trust is not a party to or bound by any
agreement or instrument other than this Agreement, the Amended and Restated
Declaration of Trust (the "DECLARATION") among the Company, the Bank of New
York, as Delaware trustee (the "DELAWARE TRUSTEE"), the Bank of New York, as
Property trustee (the "PROPERTY TRUSTEE"), the administrative trustees named
therein (the "ADMINISTRATIVE TRUSTEES" and, collectively with the Delaware
Trustee and the Property Trustee, the "ISSUER TRUSTEES") and the holders from
time to time, of the Offered Securities and the Common Securities, the
Remarketing Agreement (the "REMARKETING AGREEMENT") among the Company, the
Trust, The Bank of New York, as Tender Agent, and Credit Suisse First Boston
Corporation, as Remarketing Agent, and the agreements and instruments
contemplated by the Declaration, the Remarketing Agreement and the Prospectus;
the Trust has no liabilities or obligations other than those arising out of the
transactions contemplated by this Agreement and the Declaration, the Remarketing
Agreement and described in the Prospectus; and the Trust is not a party to or
subject to any action, suit or proceeding of any nature.
(d) 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.
(e) 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; or (y) that is not a corporation is a limited partnership, a limited
liability company or business trust, has been duly formed and is validly
existing as a limited partnership, a limited liability company or a business
trust, as the case may be, in good standing under the laws of the jurisdiction
of its formation, and has full power and authority to own its properties and
conduct its business as described in the Prospectus; each Subsidiary of the
Company is duly qualified to do business as a foreign corporation, limited
partnership limited liability company or business trust, 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. For purposes of this agreement, "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 herein, of such
person is, at any time, directly or indirectly, owned by such person and/or one
or more subsidiaries of such person, including with respect to the Company, the
Trust. For purposes of the definition of "Subsidiary", "VOTING SHARES," means
with respect to any corporation, 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).
4
<PAGE> 5
(f) The Offered Securities have been duly authorized by the
Trust, 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
preferred undivided beneficial interests in the assets of the Trust and will
conform to the description thereof contained in the Prospectus; the issuance of
the Offered Securities is not subject to preemptive or other similar rights; the
Offered Securities will have the rights set forth in the Declaration, and the
Offered Securities when issued and delivered against payment therefor as
provided herein will be, and the Declaration, when duly executed and delivered,
will be, valid and binding obligations of the Trust.
(g) The Common Securities have been duly and validly authorized
by the Trust and upon delivery by the Trust to the Company against payment
therefor as described in the Prospectus, will be duly and validly issued and
fully paid undivided beneficial interests in the assets of the Trust and will
conform to the description thereof contained in the Prospectus; the issuance of
the Common Securities is not subject to preemptive or other similar rights; and
all of the issued and outstanding Common Securities of the Trust will be
directly owned by the Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(h) The Guarantee, the Debentures, the Declaration, the
Indenture, the Remarketing Agreement, the Common Securities Purchase Agreement
between the Trust and the Company (the "COMMON SECURITIES PURCHASE AGREEMENT")
and the Common Securities Guarantee Agreement by the Company for the benefit of
the holders of the Common Securities (the "COMMON SECURITIES GUARANTEE
AGREEMENT", and collectively with the Guarantee, the Debentures, the
Declaration, the Indenture, the Remarketing Agreement and the Common Securities
Purchase Agreement, the "COMPANY AGREEMENTS") have each been duly authorized and
when validly executed and delivered by the Company and, in the case of the
Guarantee, by the Guarantee Trustee, in the case of the Declaration, by the
Issuer Trustees, in the case of the Indenture, by the Debenture Trustee, in the
case of the [Common Securities Purchase Agreement], by the Trust and, in the
case of the Debentures, when validly issued by the Company and validly
authenticated and delivered by the Debenture Trustee and paid for by the Trust,
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective 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; the Debentures are entitled to the benefits of the Indenture;
and the Company Agreements will conform in all material respects to the
descriptions thereof in the Prospectus.
(i) When the Offered Securities are delivered and paid for
pursuant to this Agreement on each Closing Date, such Offered Securities will be
exchangeable for Debentures which will be convertible into the Underlying Shares
of the Company in accordance with their terms and the terms of the Declaration;
the Underlying Shares initially issuable upon conversion of such Offered
Securities have been duly authorized and reserved for issuance upon such
conversion and, when issued upon such conversion, will be validly issued, fully
paid and nonassessable; the outstanding shares of Company Common Stock and the
Underlying Shares conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive rights with
respect to the Offered Securities, the Debentures or the Underlying Shares.
(j) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Trust or the Company and any
person that would give rise to a valid claim
5
<PAGE> 6
against the Trust, the Company or any Underwriter for a brokerage commission,
finder's fee or other like payment in connection with this offering.
(k) Except as set forth on Schedule B hereto, there are no
contracts, agreements or understandings between the Trust or the Company and any
person granting such person the right to require the Trust or the Company to
file a registration statement under the Act with respect to any securities of
the Trust or 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.
(l) The Underlying Shares will be approved for listing on The
New York Stock Exchange prior to the Closing Date subject to official notice of
issuance.
(m) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement or the Company
Agreements in connection with the issuance and sale of the Offered Securities by
the Trust, the distribution of the Debentures pursuant to or upon liquidation of
the Trust, the conversion of the Debentures into the Underlying Shares, the
issuance by the Company of the Debentures and the Guarantee or the purchase of
the Debentures by the Trust, except such as have been obtained and made under
the Act and Trust Indenture Act and such as may be required under state
securities laws.
(n) The execution, delivery and performance of this Agreement
and the Company Agreements by the Trust and the Company, as applicable, the
issuance and sale of the Offered Securities by the Trust and the Debentures by
the Company and compliance with the terms and provisions of each of the
foregoing by the Trust and the Company, as applicable, the distribution of the
Debentures pursuant to or upon dissolution or liquidation of the Trust; the
purchase of the Debentures by the Trust the conversion of Debentures into common
stock of the Company and the consummation by the Company and Trust of the
transactions contemplated herein and therein 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, the Trust
or any Subsidiary of the Company or any of their properties, or any agreement or
instrument to which the Company, the Trust or any such Subsidiary is a party or
by which the Company, the Trust or any such Subsidiary is bound or to which any
of the properties of the Company, the Trust or any such Subsidiary is subject,
or the organizational documents of the Company, the Trust or any such
Subsidiary, and the Trust has full power and authority to authorize, issue and
sell the Offered Securities, and the Company has full corporate power and
authority to authorize and issue the Debentures and the Guarantee, as
contemplated by this Agreement.
(o) This Agreement has been duly authorized, executed and
delivered by the Company and the Trust.
(p) Except as disclosed in the Prospectus, 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.
6
<PAGE> 7
(q) Except as disclosed in the Prospectus, the Trust will on the
Closing Date have good and valid title to all the Debentures, 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 the Trust.
(r) The Company and its Subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authority 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").
(s) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company or the Trust, is imminent
that might have a Material Adverse Effect.
(t) 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.
(u) 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.
(v) 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 or the Trust to perform their respective
obligations under, or contemplated by, this Agreement, the Company Agreements,
or which are otherwise material in the context of the sale of the Offered
Securities or the Debentures; and no such actions, suits or proceedings are
threatened or, to the knowledge of the Company or the Trust, contemplated.
(w) 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
7
<PAGE> 8
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.
(x) 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.
(y) 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 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.
(z) The Trust and the Company are not and, after giving effect
to the offering, the sale of the Offered Securities and the Debentures, and the
application of the proceeds thereof as described in the Prospectus, and the
consummation of the transactions contemplated by the Company Agreements, will
not be an "INVESTMENT COMPANY" as defined in the Investment Company Act of 1940.
(aa) 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 organizational regulation of electric
utilities, other than as contemplated by 18 C.F.R. Section 292.602(c).
(bb) 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.
(cc) The Company is subject to Section 13 or 15(d) of the
Exchange Act.
(dd) The Company and its Subsidiaries have implemented a program
to analyze and address the risk that the computer hardware and software used by
them may be unable to recognize and properly execute date sensitive functions
involving certain dates prior to and any dates after December 31, 1999 (the
"YEAR 2000 PROBLEM"), and reasonably believes based on its assessment to date
that such risk will be remedied on a timely basis without material expense and
will not have a Material Adverse Effect; and the
8
<PAGE> 9
Company has inquired of its material vendors and suppliers as to their
preparedness for the Year 2000 Problem and has disclosed in the Registration
Statement any issues that might reasonably be expected to have a Material
Adverse Effect. The Company is in compliance with the Commission Release No.
33-7609 related to Year 2000 compliance, as amended to date.
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 Trust and the Company agree
that the Trust shall sell to the Underwriters, and the Underwriters agree,
severally and not jointly, to purchase from the Trust, at a purchase price of
$50 per Offered Security plus accumulated distributions from [ ] to the First
Closing Date (as hereinafter defined), the respective number of Firm Securities
set forth opposite the names of the Underwriters in Schedule A hereto.
The Trust will deliver against payment of the purchase price the Firm
Securities in the form of one or more permanent global Securities in definitive
form (the "FORM GLOBAL SECURITIES") deposited with the Property 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 Firm 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 Calpine Corporation at
the office of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New
York, NY 10022-3897, 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",
against delivery to the Trustee as custodian for DTC of the Firm Global
Securities representing all of the Firm Securities. The Firm Global Securities
will be made available for checking at the above 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 liquidation amount of Offered Securities (including any
accumulated distributions thereon to the related Optional Closing Date) to be
paid for the Firm Securities. The Trust and the Company agree that the Trust
shall sell to the Underwriters the number of Optional Securities specified in
such notice and the Underwriters agree, severally and not jointly, to purchase
such Optional Securities. Such Optional Securities shall be purchased for the
account of each Underwriter in the same proportion as the number of Firm
Securities set forth opposite such Underwriter's name bears to the total number
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 Trust and 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
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<PAGE> 10
Securities is given. The Company will deliver against payment of the purchase
price the Optional Securities being purchased on each Optional Closing Date in
the form of one or more permanent global securities in definitive form (each, an
"OPTIONAL GLOBAL SECURITY") deposited with the Trustee as custodian for DTC and
registered in the name of Cede & Co., as nominee for DTC. Payment for such
Optional 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 CSFBC drawn to the order of Calpine Corporation at the office of
Skadden, Arps, Slate, Meagher & Flom LLP., against delivery to the Property
Trustee as custodian for DTC of the Optional Global Securities representing all
of the Optional Securities being purchased on such Optional Closing Date.
As compensation for the Underwriters' commitments, the Company will
pay to CSFBC the sum of $[___] per Offered Security times the total number of
Offered Securities purchased by the Underwriters on each Closing Date as
commissions for the sale of the Offered Securities under this Agreement. Such
payment will be made on each Closing Date with respect to the Offered Securities
purchased on such 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 Trust and the Company. Each of the Trust
and the Company, jointly and severally, 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 Trust and 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 and the Trust 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 and the Trust 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 Trust and 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 Trust 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
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<PAGE> 11
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 Trust and the Company will promptly notify CSFBC of such event
and will promptly prepare and file with the Commission, at their 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 [((1)] 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
Trust and the Company will pay the expenses of printing and distributing to the
Underwriters all such documents.
(f) The Trust and 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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(1) Number to include one copy for each Representative and one copy for
counsel for the Underwriters.
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<PAGE> 12
(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 and related securities
for sale 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 and related 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, and will not permit
its Subsidiaries to, 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 (A) any preferred securities, any preferred stock or any
other securities of the trust (other than the Offered Securities or the Common
Securities), (B) any preferred stock or any other security of Calpine that is
substantially similar to the Offered Securities, (C) any shares of common stock
of Calpine other than shares of common stock issuable upon conversion of the
Offered Securities and/or the Debentures or (D) any other securities which are
convertible into, or exchangeable or exercisable for, any of (A) through (D), or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC except (i)
grants of employee stock options pursuant to the terms of a plan in effect on
the date hereof, (ii) issuances of Company Common Stock pursuant to the exercise
of such options, (iii) the exercise of any other employee stock options
outstanding on the date hereof or (iv) the issuance and sale of Company Common
Stock pursuant to an Underwriting Agreement, dated as of the date hereof,
between the Company, CSFBC and the other underwriters party thereto.
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 Trust and the Company herein, to the accuracy of
the statements of officers of the Trust and the Company made pursuant to the
provisions hereof, to the performance by the Trust and 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
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<PAGE> 13
in all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified
by the American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii)on the basis of the review referred to in
clause (ii) above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe
that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) the unaudited consolidated net sales, net operating
income and summary of earnings, net income and net income per
share amounts for the 3-month periods ended September 30, 1999
and 1998 included in the Prospectus, if any, do not agree with
the amounts set forth in the unaudited consolidated financial
statements for those same periods or were not determined on a
basis substantially consistent with that of the corresponding
amounts in the audited statements of income;
(C) 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
(D) 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
corresponding 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 or in the ratio of earnings
to fixed charges and preferred stock dividends combined, 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
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<PAGE> 14
(iv) on the basis of their review of the unaudited pro
forma financial statements, selected consolidated financial data and ratio
of earnings to fixed charges 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, selected consolidated financial data and ratio of
earnings to fixed charges statements included in the Registration
Statement do not each 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(2) 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
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(2) If no schedules included in material incorporated by reference, delete
"and schedules".
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<PAGE> 15
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 and 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 or preferred stock 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
or preferred stock of the Company or the Trust (other than an announcement with
positive implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any material suspension or material
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;
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<PAGE> 16
(ii) (A) The Indenture has been duly authorized,
executed and delivered and has been duly qualified under the Trust
Indenture Act; (B) the Offered Securities and the Debentures delivered on
such Closing Date and the Guarantee have been duly authorized, executed,
authenticated, issued and delivered and conform to the description thereof
contained in the Prospectus; (C) the Indenture, the Debentures delivered
on such Closing Date and the Guarantee constitute valid and legally
binding obligations of the Company enforceable in accordance with their
terms, and (D) assuming the due authorization, execution and
authentication of the Declaration and the Offered Securities, the
Declaration and the Offered Securities constitute valid and legally
binding obligations of the Trust enforceable in accordance with their
terms, subject, in the case of clauses (C) and (D), 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) The Offered Securities delivered on such
Closing Date have been duly authorized and validly issued, are fully paid
and nonassessable and conform to the description thereof contained in the
Prospectus;
(iv) The Offered Securities delivered on such
Closing Date are exchangeable for Debentures which will be convertible
into the Underlying Shares of the Company in accordance with the
Declaration and the Indenture; the Underlying Shares initially issuable
upon conversion of such Offered Securities have been duly authorized and
reserved for issuance upon such conversion and, when issued upon such
conversion, will be validly issued, fully paid and nonassessable; the
outstanding Underlying Shares 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 Offered Securities, the
Debentures or the Underlying Shares;
(v) Except as set forth on Schedule B hereto, 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;
(vi) The Trust and the Company are not and, after
giving effect to the offering and sale of the Offered Securities and the
Debentures 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.
(vii) 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
Trust or the Debentures by the Company,
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<PAGE> 17
except such as have been obtained and made under the Act, the Trust
Indenture Act and such as may be required under state securities laws;
(viii) The execution, delivery and performance of this
Agreement, the Declaration, the Indenture, the Guarantee, the Common
Securities Purchase Agreement and the Remarketing Agreement, and the
issuance and sale of the Offered Securities, the Debentures and the
Guarantee 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 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, by-laws or other governing document of the
Company or any such Subsidiary, and the Trust has full power and authority
to authorize, issue and sell the Offered Securities, and the Company has
full power and authority to authorize, issue and sell the Debentures, each
as contemplated by this Agreement;
(ix) 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, 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 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;
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 "The
Remarketing," "The Remarketing Agent," "Description of HIGH TIDES,"
"Description of Convertible Subordinated Debentures," "Description of the
Guarantee," and "Description of Capital Stock," insofar as such statements
constitute summaries of the legal matters, documents and governmental
proceedings referred to therein, fairly summarize and the descriptions in
the Registration Statements and Prospectus of statutes, legal and
governmental proceedings and contracts and other documents are accurate
and fairly present the information required to be shown; and such counsel
do not know of any legal or
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<PAGE> 18
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
Statements or the Prospectus; and
(x) 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 Lisa Bodensteiner, General Counsel of the Company, to the
effect that:
(i) Each Subsidiary of the Company (x) other than the
Trust and 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 or a limited liability company, has
been duly formed and is validly existing as a limited partnership or a
limited liability company, as the case may be, 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 - Project Development and Acquisitions", "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;
18
<PAGE> 19
(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.
(g) The Representatives shall have received an opinion, dated
such Closing Date, of Richard, Layton & Finger, P.A., special Delaware counsel
to the Trust and the Company, to the effect that:
(i) The Trust has been duly created and is validly
existing as a business trust in good standing under the laws of the State
of Delaware. All filings required under the Business Trust Act with
respect to the creation and valid existence of the Trust as a Delaware
business trust have been made. Under the Business Trust Act and the
Declaration, the Trust has all requisite trust power and authority to own
its property and conduct its business as described in the Prospectus.
(ii) Under the Business Trust Act and the
Declaration, the Trust has requisite trust power and authority to
authorize, issue and sell the Offered Securities and the Common Securities
as contemplated by this Agreement, the Common Securities Purchase
Agreement, the Prospectus and the Declaration and to execute, deliver and
perform its obligations under this Agreement and the Common Securities
Purchase Agreement.
(iii) The Offered Securities have been duly authorized
for issuance by the Declaration and, when issued, executed, authenticated,
delivered and paid for in accordance with the terms of the Declaration and
the terms of this
19
<PAGE> 20
Agreement, will be fully paid and, subject to the limitation set forth in
paragraph (iv) below, non-assessable undivided beneficial interests in the
assets of the Trust and will entitle the holders thereof to the benefits
of the Declaration except to the extent that enforcement of the
Declaration may be limited by (a) bankruptcy, insolvency, moratorium,
receivership, reorganization, liquidation, fraudulent conveyance or
transfer and other similar laws relating to or affecting the rights and
remedies of creditors generally, (b) principles of equity, including
applicable law relating to fiduciary duties (regardless of whether
considered and applied in a proceeding in equity or at law), and (c) the
effect of applicable public policy on the enforceability of provisions
relating to indemnification or contribution. Under the Declaration and the
Business Trust Act, the issuance of the Offered Securities and the Common
Securities is not subject to preemptive rights.
(iv) Each holder of Offered Securities, in such
capacity, will be entitled to the same limitation of personal liability as
that extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware, provided,
however, we express no opinion with respect to the liability of any holder
of Offered Securities who is, was or may become a named Trustee of the
Trust. We note, however, that the holders of the Offered Securities may be
required to make payment or provide indemnity or security as set forth in
the Declaration.
(v) Under the Declaration and the Business Trust Act,
the execution and delivery by the Trust of this Agreement and the Common
Securities Purchase Agreement, and the performance of its obligations
thereunder, have been duly authorized by all necessary trust action on the
part of the Trust.
(h) The Representatives shall have received an opinion, dated
such Closing Date, of [TO COME], special counsel to the Property Trustee,
Guarantee Trustee and Debenture Trustee, to the effect that:
(i) The Property Trustee, Guarantee Trustee and
Debenture is each a banking corporation duly incorporated and validly
existing under the laws of the State of New York.
(ii) The execution, delivery and performance by the
Property Trustee of the Amended and Restated Declaration of Trust, the
execution, delivery of performance by the Guarantee Trustee of the
Guarantee Agreement and the execution, delivery and performance by the
Debenture Trustee of the Indenture have been duly authorized by all
necessary corporate action on the part of the Property Trustee, the
Guarantee Trustee and the Debenture Trustee, respectively. The Amended and
Restated Declaration of Trust, the Guarantee Agreement and the Indenture
have been duly executed and delivered by the Property Trustee, the
Guarantee Trustee and the Debenture Trustee, respectively, and the
Declaration constitutes the legal, valid and binding obligation of the
Property Trustee, enforceable against the Property Trustee in accordance
with its terms, except as enforcement thereof may be limited by (a)
bankruptcy, insolvency, receivership, liquidation, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and remedies, (b) general
principles of equity (regardless of whether considered and applied in a
proceeding in equity or at law),
20
<PAGE> 21
and (c) considerations of public policy and the effect of applicable law
relating to fiduciary duties.
(iii) The execution, delivery and performance of the
Amended and Restated Declaration of Trust, the Guarantee Agreement and the
Indenture by the Property Trustee, the Guarantee Trustee and the Debenture
Trustee, respectively, do not violate or constitute a breach of the
Articles of Organization or Bylaws of the Property Trustee, the Guarantee
Trustee or the Debenture Trustee, respectively, or the terms of any
indenture or other agreement or instrument actually known to such counsel
and to which the Property Trustee, the Guarantee Trustee or the Debenture
Trustee, respectively, is a party or is bound or any judgment, order or
decree actually known to such counsel to be applicable to the Property
Trustee, the Guarantee Trustee or the Debenture Trustee, respectively, of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Property Trustee, the Guarantee
Trustee or the Debenture Trustee, respectively.
(iv) No consent, approval or authorization of, or
registration with or notice to any federal or state banking authority is
required for the execution, delivery or performance by the Property
Trustee, the Guarantee Trustee or the Debenture Trustee of the Amended and
Restated Declaration of Trust, the Guarantee Agreement and the Indenture,
respectively.
(i) 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.
(j) 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 and an Administrative Trustee of
the Trust in which such officers and trustee, to the best of their knowledge
after reasonable investigation, shall state that: the representations and
warranties of the Company and the Trust in this Agreement are true and correct;
the Company and the Trust have each 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 or of the Trust except as set
forth in or contemplated by the Prospectus or as described in such certificate.
(k) The Representatives shall have received a letter, dated such
Closing Date, of Arthur Anderson LLP which meets the requirements of subsection
(a) of this Section, except that the
21
<PAGE> 22
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.
(l) 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 three 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 request. CSFBC may in its sole discretion waive on
behalf of the Underwriters compliance with any conditions to the obligations of
the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Trust and 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 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 Trust and 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 Trust and 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 Trust and the Company by such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Trust and 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
22
<PAGE> 23
Underwriter: the concession and reallowance figures appearing in the [ ]
paragraph under the caption "Underwriting" and the information contained in the
[ ] 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 the indemnifying party 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 (i)
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action and (ii) does not
include a statement as to, or an admission of, fault, culpability or a failure
to act by or on behalf of an indemnified party.
(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 Trust and the Company on the one hand and the Underwriters on the other from
the offering of the Offered 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 Trust and 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
Trust and 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 Trust and 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
Trust and 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). Notwithstanding 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 [offered] 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.
23
<PAGE> 24
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 Trust and the Company under this
Section shall be in addition to any liability which the Trust and 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 Trust and 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 liquidation amount of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total liquidation amount 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 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 liquidation amount
of Offered Securities with respect to which such default or defaults occur
exceeds 10% of the total liquidation amount 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 Trust and the Company or their 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 Trust and 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 Trust and 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 Trust and 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 Trust and the Company will
24
<PAGE> 25
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 or the
Trust, 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.
Each of the Trust and 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.
[Signature page follows.]
25
<PAGE> 26
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 CAPITAL TRUST
By:
-------------------------------------
Name:
------------------------------
Title:
------------------------------
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
CIBC WORLD MARKETS CORP.
ING BARINGS LLC
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:
------------------------------------
Title:
------------------------------
26
<PAGE> 27
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER FIRM SECURITIES
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation......................... [$ ]
CIBC World Markets Corp. ......................................
ING Barings LLC ...............................................
----------
Total............................ $4,000,000
==========
</TABLE>
27
<PAGE> 28
SCHEDULE B
I. Subsidiary Liens
The Company has pledged the capital stock of certain Subsidiaries owned by
the Company in connection with the project financings related to such
Subsidiaries.
II. Registration Rights
CCNG Investment, L.P., a Texas limited partnership ("CCNG"), has demand
registration rights with respect to 50,000 shares of the Company's Common
Stock pursuant to the Stock Purchase Agreement dated as of May 1, 1998 by
and between the Company and CCNG.
28
<PAGE> 1
EXHIBIT 4.7
CERTIFICATE OF TRUST
OF
CALPINE CAPITAL TRUST
This Certificate of Trust is being executed as of September 29, 1999 for
the purpose of creating a business trust pursuant to Delaware Business Trust
Act, 12 Del. C. Sections 3801 et seq. ("the Act").
The undersigned hereby certify as follows:
1. Name. The name of the business trust is Calpine Capital Trust (the
"Trust").
2. Delaware Trustee. The name and business address of the Delaware
resident trustee of the Trust meeting the requirements of Section 3807 of the
Act are as follows:
The Bank of New York (Delaware)
White Clay Center, Route 273
Newark, Delaware 19711
3. Effective. This Certificate of Trust shall be effective immediately
upon filing in the Office of the Secretary of State of the State of Delaware.
<PAGE> 2
4. Counterparts. This Certificate of Trust may be executed in one
or more counterparts.
IN WITNESS WHEREOF, the undersigned, being all of the trustees of the
Trust, have duly executed this Certificate of Trust as of the day and year
first above written.
The Bank Of New York (Delaware),
As Delaware Trustee
By: /s/ Walter N. Gitlin
-------------------------------
Name: Walter N. Gitlin
Title: Authorized Signatory
2
<PAGE> 1
EXHIBIT 4.8
CORRECTED CERTIFICATE
OF
THE CERTIFICATE OF TRUST
OF
CALPINE CAPITAL TRUST
THIS Corrected Certificate of the Certificate of Trust of
Calpine Capital Trust (the "Trust"), is being duly executed and filed on behalf
of the Trust by the undersigned, as trustees, to correct the Certificate of
Trust of the Trust, which was filed on October 4, 1999 (the "Certificate of
Trust"), with the Secretary of State of the State of Delaware under the Delaware
Business Trust Act (12 Del. C. Section 3801 et seq.) (the "Act").
1. As permitted under the Act (12 Del. C. Section 3810(e)), the
Certificate of Trust is hereby corrected to cause the Certificate of Trust,
which was not executed by all of the trustees of the Trust as required by the
Act (12 Del. C. Section 3811(a)(1)), to be executed by all of the trustees of
the Trust.
2. The Certificate of Trust is hereby corrected in its entirety
as follows:
<PAGE> 2
CERTIFICATE OF TRUST
OF
CALPINE CAPITAL TRUST
This Certificate of Trust is being executed as of September 29,
1999 for the purpose of creating a business trust pursuant to the Delaware
Business Trust Act, 12 Del. C. Section 3801, et seq. (the "Act").
The undersigned hereby certify as follows:
1. Name. The name of the business trust formed hereby is Calpine
Capital Trust (the "Trust").
2. Delaware Trustee. The name and business address of the
Delaware trustee of the Trust meeting the requirements of Section 3807 of the
Act are as follows:
The Bank of New York (Delaware)
White Clay Center, Route 273
Newark, Delaware 19711
3. Effective Date. This Certificate of Trust shall be effective
immediately upon filing in the Office of the Secretary of State of the State of
Delaware.
4. Counterparts. This Certificate of Trust may be executed in
one or more counterparts.
IN WITNESS WHEREOF, the undersigned, being all of the trustees
of the Trust, have duly executed this Certificate of Trust as of the day and
year first above written.
[Signature page to follow]
<PAGE> 3
THE BANK OF NEW YORK, not in its
individual capacity but solely as
trustee
By: /s/ Thomas C. Knight
---------------------------------
Name: Thomas C. Knight
Title: Assistant Vice President
THE BANK OF NEW YORK
(DELAWARE), not in its individual
capacity but solely as trustee
By: /s/ Walter N. Gitlin
---------------------------------
Name: Walter N. Gitlin
Title: Authorized Signatory
PETER CARTWRIGHT, not in his
individual capacity, but solely as
trustee
/s/ Peter Cartwright
------------------------------------
ANN B. CURTIS, not in her individual
capacity, but solely as trustee
/s/ Ann B. Curtis
------------------------------------
THOMAS R. MASON, not in his
individual capacity, but solely as
trustee
/s/ Thomas R. Mason
------------------------------------
<PAGE> 1
EXHIBIT 4.9
================================
DECLARATION OF TRUST
CALPINE CAPITAL TRUST
Dated as of October 4, 1999
================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.......................................................... 1
ARTICLE II
ORGANIZATION
SECTION 2.1 Name................................................................. 4
SECTION 2.2 Office............................................................... 4
SECTION 2.3 Purpose.............................................................. 4
SECTION 2.4 Authority............................................................ 5
SECTION 2.5 Title to Property of the Trust....................................... 5
SECTION 2.6 Powers of the Trustees............................................... 5
SECTION 2.7 Filing of Certificate of Trust....................................... 6
SECTION 2.8 Duration of Trust.................................................... 7
SECTION 2.9 Responsibilities of the Depositor.................................... 7
SECTION 2.10 Declaration Binding on Securities Holders............................ 7
ARTICLE III
TRUSTEES
SECTION 3.1 Trustees............................................................. 8
SECTION 3.2 Administrative Trustees.............................................. 8
SECTION 3.3 Delaware Trustee..................................................... 8
SECTION 3.4 Property Trustee..................................................... 9
SECTION 3.5 Not Responsible for Recitals or Sufficiency of Declaration.......... 9
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 4.1 Exculpation.......................................................... 9
SECTION 4.2 Fiduciary Duty....................................................... 10
SECTION 4.3 Indemnification...................................................... 11
SECTION 4.4 Outside Businesses................................................... 14
ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 5.1 Amendments........................................................... 15
SECTION 5.2 Termination of Trust................................................. 15
SECTION 5.3 Governing Law........................................................ 16
SECTION 5.4 Headings............................................................. 16
SECTION 5.5 Successors and Assigns............................................... 16
</TABLE>
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<TABLE>
<S> <C>
SECTION 5.6 Partial Enforceability............................................... 16
SECTION 5.7 Counterparts......................................................... 16
</TABLE>
ii
<PAGE> 4
DECLARATION OF TRUST
OF
Calpine Capital Trust
October 4, 1999
DECLARATION OF TRUST ("Declaration") dated and effective as of
October 4, 1999 by the Trustees (as defined herein), the Depositor (as defined
herein), and by the holders, from time to time, of undivided beneficial
interests in the Trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees and the Depositor desire to establish a
trust (the "Trust") pursuant to the Delaware Business Trust Act for the purpose
of issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Debentures of the Debenture Issuer;
NOW, THEREFORE, it being the intention of the parties hereto
that the Trust constitute a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the exclusive benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration of Trust as modified, supplemented or amended
from time to time;
<PAGE> 5
(d) all references in this Declaration to Articles and Sections are
to Articles and Sections of this Declaration unless otherwise
specified; and
(e) a reference to the singular includes the plural and vice versa.
"Administrative Trustee" means any Trustee other than the
Delaware Trustee and the Property Trustee (as hereinafter defined).
"Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in New York, New York are authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. Section 3801 et seq., as it may be amended from time
to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities" means securities representing undivided
beneficial ownership interests in the assets of the Trust with such terms as may
be set out in any amendment to this Declaration.
"Covered Person" means (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates and (b) any holder of Securities.
"Debenture Issuer" means the Parent in its capacity as the
issuer of the Debentures under the Indenture.
"Debentures" means the series of Debentures to be issued by the
Debenture Issuer and acquired by the Trust.
"Debenture Trustee" means the trustee under the Indenture until
a successor is appointed thereunder, and thereafter means such successor
trustee.
"Delaware Trustee" has the meaning set forth in Section 3.3.
"Depositor" means the Parent in its capacity as Depositor of the
Trust.
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<PAGE> 6
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 4.3(b).
"Indemnified Person" means a Parent Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the indenture to be entered into between the
Parent and the Debenture Trustee and any indenture supplemental thereto pursuant
to which the Debentures are to be issued.
"Parent" means Calpine Corporation, a Delaware corporation or
any successor entity in a merger.
"Parent Indemnified Person" means (a) any Administrative
Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers,
directors, shareholders, members, partners, employees, representatives or agents
of any Administrative Trustee; or (d) any employee or agent of the Trust or its
Affiliates.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Securities" means securities representing undivided
beneficial ownership interests in the assets of the Trust with such terms as may
be set out in any amendment to this Declaration.
"Property Trustee" has the meaning set forth in Section 3.4.
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
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<PAGE> 7
ARTICLE II
ORGANIZATION
SECTION 2.1 Name.
The Trust created by this Declaration is named "Calpine Capital
Trust." The Trust's activities may be conducted under the name of the Trust or
any other name deemed advisable by the Administrative Trustees.
SECTION 2.2 Office.
The address of the principal office of the Trust is c/o Calpine
Corporation, 50 West San Fernando Street, San Jose, California 95113. At any
time, the Administrative Trustees may designate another principal office.
SECTION 2.3 Purpose.
The Depositor hereby assigns, transfers, conveys and sets over
to the Trustees the sum of $10. The Trustees hereby acknowledge receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustees hereby declare that they will hold the trust estate
in trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under the Business Trust Act,
and that this Declaration constitute the governing instrument of the Trust. The
Trustees are hereby authorized and directed to execute and file a certificate of
trust in the office of the Secretary of State of the State of Delaware in the
form attached hereto. The Trust is hereby established by the Depositor and the
Trustees for the purposes of (i) issuing Preferred Securities representing
undivided beneficial interests in the assets of the Trust in exchange for cash
and investing the proceeds thereof in Debentures, (ii) issuing and selling
Common Securities to the Depositor representing undivided beneficial interests
in the assets of the Trust in exchange for cash and investing the proceeds
thereof in additional Debentures and (iii) engaging in such other activities as
are necessary, convenient or incidental thereto. The Trust shall not borrow
money, issue debt or reinvest proceeds derived from investments, pledge any of
its assets, or otherwise undertake (or permit to be undertaken) any activity
that would cause the Trust not to be classified for United States federal income
tax purposes as a grantor trust.
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<PAGE> 8
Concurrent with the first issuance of any Securities by the
Trust, the Depositor and the Trustees intend to enter into an amended and
restated Declaration of Trust, satisfactory to each such party and substantially
in the form included as an exhibit to the 1933 Act Registration Statement
referred to below at the time such registration statement becomes effective
under the Securities Act, to provide for the contemplated operation of the Trust
created hereby and the issuance of the Preferred Securities and the Common
Securities referred to therein. Prior to the execution and delivery of such
amended and restated Declaration of Trust, the Trustees shall not have any duty
or obligation hereunder or with respect to the trust estate, except as otherwise
required by applicable law or as may be necessary to obtain, prior to such
execution and delivery, any licenses, consents or approvals required by
applicable law or otherwise.
SECTION 2.4 Authority.
Subject to the limitations provided in this Declaration, the
Administrative Trustees shall have exclusive and complete authority to carry out
the purposes of the Trust. An action taken by the Administrative Trustees in
accordance with their powers shall constitute the act of and serve to bind the
Trust. In dealing with the Administrative Trustees acting on behalf of the
Trust, no person shall be required to inquire into the authority of the
Administrative Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Administrative
Trustees as set forth in this Declaration.
SECTION 2.5 Title to Property of the Trust.
Legal title to all assets of the Trust shall be vested in the
Trust.
SECTION 2.6 Powers of the Trustees.
The Administrative Trustees shall have the exclusive power and
authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that
the Trust may issue no more than one series of Preferred Securities and
no more than one series of Common Securities, and, provided further,
that there shall be no interests in the Trust other than the Securities
and the issuance of the Securities shall be limited to a one-time,
simultaneous issuance of both Preferred Securities and Common
Securities;
5
<PAGE> 9
(b) in connection with the issue and sale of the Preferred
Securities, at the direction of the Depositor, to:
(i) execute and file with the Commission a registration
statement on Form S-3 prepared by the Depositor (the
"Registration Statement"), including any amendments thereto in
relation to the registration of the Preferred Securities under
the Securities Act;
(ii) execute and file any documents prepared by the
Depositor, or take any acts as determined by the Depositor to be
necessary in order to qualify or register all or part of the
Preferred Securities in any State in which the Depositor has
determined to qualify or register such Preferred Securities for
sale;
(iii) execute and file on behalf of the Trust, with the
New York Stock Exchange or any other national stock exchange or
the Nasdaq National Market for listing upon notice of issuance
of any Preferred Securities a listing application and all other
applications, statements, certificates, agreements and other
instruments as shall be necessary or desirable to cause the
Preferred Securities to be listed on such exchange or national
market, as the case may be;
(iv) execute and file with the Commission a registration
statement on Form 8-A, including any amendments thereto,
prepared by the Depositor relating to the registration of the
Preferred Securities under Section 12(b) or 12(g) of the
Exchange Act; and
(v) execute and enter into, on behalf of the Trust, an
underwriting agreement and pricing agreement providing for the
sale of the Preferred Securities substantially in the form
included as an exhibit to the Registration Statement at the time
it becomes effective under the Securities Act;
(c) to employ or otherwise engage employees and agents (who may
be designated as officers with titles) and managers, contractors,
advisors and consultants and provide for reasonable compensation for
such services;
(d) to incur expenses that are necessary or incidental to carry
out any of the purposes of this Declaration; and
(e) to execute all documents or instruments, perform all duties
and powers, and do all things for and on behalf of the Trust in all
matters necessary or incidental to the foregoing.
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<PAGE> 10
SECTION 2.7 Filing of Certificate of Trust.
On or after the date of execution of this Declaration, the
Trustees shall cause the filing of the Certificate of Trust for the Trust in the
form attached hereto as Exhibit A with the Secretary of State of the State of
Delaware.
SECTION 2.8 Duration of Trust.
The Trust, absent termination pursuant to the provisions of
Section 5.2, shall have existence for fifty-five (55) years from the date
hereof.
SECTION 2.9 Responsibilities of the Depositor.
In connection with the issue and sale of the Preferred
Securities, the Depositor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 in relation to the Preferred
Securities, including any amendments thereto;
(b) to determine the States in which to take appropriate action
to qualify or register for sale all or part of the Preferred Securities
and to do any and all such acts, other than actions which must be taken
by the Trust, and advise the Trust of actions it must take, and prepare
for execution and filing any documents to be executed and filed by the
Trust, as the Depositor deems necessary or advisable in order to comply
with the applicable laws of any such States;
(c) to prepare for filing by the Trust an application to the New
York Stock Exchange or any other national stock exchange or the Nasdaq
National Market for listing or quotation upon notice of issuance of any
Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the
class of Preferred Securities under Section 12(b) or 12(g) of the
Exchange Act, including any amendments thereto; and
(e) to negotiate the terms of an underwriting agreement and
pricing agreement providing for the sale of the Preferred Securities.
SECTION 2.10 Declaration Binding on Securities Holders.
Every Person by virtue of having become a holder of a Security or
any interest therein in accordance with the terms of
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<PAGE> 11
this Declaration, shall be deemed to have expressly assented and agreed to the
terms of, and shall be bound by, this Declaration.
ARTICLE III
TRUSTEES
SECTION 3.01 Trustees.
The number of Trustees initially shall be five (5), and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Depositor. The Depositor is
entitled to appoint or remove without cause any Trustee at any time; provided,
however that the number of Trustees shall in no event be less than two (2);
provided further that one Trustee, in the case of a natural person, shall be a
person who is a resident of the State of Delaware or that, if not a natural
person, is an entity that has its principal place of business in the State of
Delaware (the "Delaware Trustee"); provided further that there shall be at least
one trustee who is an employee or officer of, or is affiliated with the Parent
(an "Administrative Trustee").
SECTION 3.02 Administrative Trustees.
The initial Administrative Trustees shall be:
Peter Cartwright
Ann B. Curtis
Thomas R. Mason
(a) Except as expressly set forth in this Declaration, any power
of the Administrative Trustees may be exercised by, or with the consent of, any
one such Administrative Trustee.
(b) Unless otherwise determined by the Administrative Trustees,
and except as otherwise required by the Business Trust Act, any Administrative
Trustee is authorized to execute on behalf of the Trust any documents that the
Administrative Trustees have the power and authority to cause the Trust to
execute pursuant to Section 2.6; and
(c) an Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purposes of signing any documents that the
Administrative Trustees have power and authority to cause the Trust to execute
pursuant to Section 2.6.
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<PAGE> 12
SECTION 3.03 Delaware Trustee.
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
Notwithstanding any other provision of this Declaration, the
Delaware Trustee shall not be entitled to exercise any of the powers, nor shall
the Delaware Trustee have any of the duties and responsibilities of the Trustees
(except as required by the Business Trust Act) described in this Declaration.
The Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Business Trust Act.
Notwithstanding anything herein to the contrary, the Delaware Trustee shall not
be liable for the acts or omissions to act of the Trust or of the Administrative
Trustees except such acts as the Delaware Trustee is expressly obligated or
authorized to undertake under this Declaration or the Business Trust Act and
except for the negligence or willful misconduct of the Delaware Trustee.
SECTION 3.04 Property Trustee.
The Depositor hereby appoints The Bank of New York as the
Property Trustee, as the trustee meeting the requirements of an eligible trustee
of the Trust Indenture Act of 1939, as amended.
Notwithstanding any other provision of this Declaration, the
Property Trustee shall not be entitled to exercise any of the powers, nor shall
the Property Trustee have any of the duties and responsibilities of the Trustees
(except as required by the Business Trust Act) described in this Declaration.
Notwithstanding anything herein to the contrary, the Property Trustee shall not
be liable for the acts or omissions to act of the Trust or of the Administrative
Trustees except such acts as the Property Trustee is expressly obligated or
authorized to undertake under this Declaration or the Business Trust Act and
except for the negligence or willful misconduct of the Property Trustee.
SECTION 3.05 Not Responsible for Recitals or Sufficiency of Declaration.
The recitals contained in this Declaration shall be taken as the
statements of the Depositor, and the Trustees do not assume any responsibility
for their correctness. The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make no
representations as to the validity or sufficiency of this Declaration.
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<PAGE> 13
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 4.01 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions; and
(b) an Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which distributions to holders of Securities might properly be paid.
SECTION 4.02 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities relating thereto
to the Trust or to any other Covered Person, an Indemnified Person acting under
this Declaration shall not be liable to the Trust or to any other Covered Person
for its good faith reliance on the provisions of this Declaration. The
provisions of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity, are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person;
(b) unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that
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<PAGE> 14
an Indemnified Person shall act in a manner that is, or provides
terms that are, fair and reasonable to the Trust or any holder
of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise; and
(c) whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider
such interests and factors as it desires, including its own
interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Trust
or any other Person; or
(ii) in its "good faith" or under another express
standard, the Indemnified Person shall act under such express
standard and shall not be subject to any other or different
standard imposed by this Declaration or by applicable law.
SECTION 4.03 Indemnification.
(a) (i) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Parent Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Parent Indemnified Person against
expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
set-
11
<PAGE> 15
tlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Parent
Indemnified Person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Trust, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full
extent permitted by law, any Parent Indemnified Person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Trust to procure a judgment in its favor by reason
of the fact that he is or was a Parent Indemnified Person
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or
matter as to which such Parent Indemnified Person shall have
been adjudged to be liable to the Trust unless and only to the
extent that the Court of Chancery of Delaware or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses that such
Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Parent Indemnified Person
shall be successful on the merits or otherwise (including
dismissal of an action without prejudice or the settlement of an
action without admission of liability) in defense of any action,
suit or proceeding referred to in paragraphs (i) and (ii) of
this Section 4.3(a), or in defense of any claim, issue or matter
therein, he shall be indemnified, to the full extent permitted
by law, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii)
of this Section 4.3(a) (unless ordered by a court) shall be made
by the Debenture Issuer only as authorized in the specific case
upon a determination that indemnification of the Parent
Indemnified Person is proper in the circumstances because he has
met the applicable standard of conduct set forth in paragraphs
(i) and (ii). Such determination shall be made (1) by the
Administrative Trustees by a majority vote of a quorum
consisting of such Administrative Trustees who were not parties
to such action, suit or proceeding, (2)
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<PAGE> 16
if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion, or (3) by the
holder(s) of the Common Securities of the Trust.
(v) Expenses (including attorneys' fees) incurred by a
Parent Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 4.3(a)
shall be paid by the Debenture Issuer in advance of the final
disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such Parent Indemnified Person
to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Debenture Issuer as
authorized in this Section 4.3(a). Notwithstanding the
foregoing, no advance shall be made by the Debenture Issuer if a
determination is reasonably and promptly made (i) by the
Administrative Trustees by a majority vote of a quorum of
disinterested Administrative Trustees, (ii) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of
disinterested Administrative Trustees so directs, by independent
legal counsel in a written opinion or (iii) the holder(s) of the
Common Securities of the Trust, that, based upon the facts known
to the Administrative Trustees, counsel or the holder(s) of the
Common Securities of the Trust at the time such determination is
made, such Parent Indemnified Person acted in bad faith or in a
manner that such person did not believe to be in or not opposed
to the best interests of the Trust, or, with respect to any
criminal proceeding, that such Parent Indemnified Person
believed or had reasonable cause to believe his conduct was
unlawful. In no event shall any advance be made in instances
where the Administrative Trustees, independent legal counsel or
the holder(s) of the Common Securities of the Trust reasonably
determine that such person deliberately breached his duty to the
Trust or to the holder(s) of its Common Securities or Preferred
Securities.
(vi) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of
this Section 4.3(a) shall not be deemed exclusive of any other
rights to which those seeking indemnification and advancement of
expenses may be entitled under any agreement, vote of
shareholders or disinterested directors of the Debenture Issuer
or of the holder(s) of the Preferred Securities of the Trust or
otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. All rights
to indemnification under this Section 4.3(a) shall be deemed to
be provided by a contract between the Debenture Issuer and each
Parent Indemnified Person who serves in such capacity at any
time while
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this Section 4.3(a) is in effect. Any repeal or modification of
this Section 4.3(a) shall not affect any rights or obligations
then existing.
(vii) The Debenture Issuer or the Trust may purchase and
maintain insurance on behalf of any person who is or was a
Parent Indemnified Person against any liability asserted against
him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Debenture Issuer would
have the power to indemnify him against such liability under the
provisions of this Section 4.3(a).
(viii) For purposes of this Section 4.3(a), references
to "the Trust" shall include, in addition to the resulting or
surviving entity, any constituent entity (including any
constituent of a constituent) absorbed in a consolidation or
merger, so that any person who is or was a director, trustee,
officer or employee of such constituent entity, or is or was
serving at the request of such constituent entity as a director,
trustee, officer, employee or agent of another entity, shall
stand in the same position under the provisions of this Section
4.3(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its
separate existence had continued.
(ix) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 4.3(a) shall,
unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a Parent Indemnified Person
and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(b) The Debenture Issuer agrees to indemnify (i) the Delaware Trustee
and the Property Trustee, (ii) any Affiliate of the Delaware Trustee or the
Property Trustee, and (iii) any officers, directors, stockholders, members,
partners, employees, representatives, nominees, custodians or agents of the
Delaware Trustee or the Property Trustee (each of the Persons in (i) through
(iii) being referred to as a "Fiduciary Indemnified Person") for, and to hold
each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The provisions of this Section 4.3(b) shall survive the termination
of this Declaration or the resignation or removal of the Delaware Trustee or
Property Trustee.
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SECTION 4.04 Outside Businesses.
Any Covered Person, the Depositor, the Delaware Trustee and the
Property Trustee may engage in or possess an interest in other business ventures
of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the holders of
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. None of any Covered Person, the Depositor,
the Delaware Trustee or the Property Trustee shall be obligated to present any
particular investment or other opportunity to the Trust even if such opportunity
is of a character that, if presented to the Trust, could be taken by the Trust,
and any Covered Person, the Depositor, the Delaware Trustee and the Property
Trustee shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Covered Person, the Delaware Trustee and the Property
Trustee may engage or be interested in any financial or other transaction with
the Depositor or any Affiliate of the Depositor, or may act as depositary,
trustee or agent for, or may act on any committee or body of holders of,
securities or other obligations of the Depositor or its Affiliates.
ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 5.01 Amendments.
At any time before the issue of any Securities, this Declaration
may be amended by, and only by, a written instrument executed by all of the
Administrative Trustees and the Depositor.
SECTION 5.2 Termination of Trust.
(a) The Trust shall dissolve and be of no further force or
effect:
(i) upon the bankruptcy of the Depositor;
(ii) upon the filing of a certificate of dissolution or
its equivalent with respect to the Depositor or the revocation
of the Depositor's charter or of the Trust's certificate of
trust;
(iii) upon the entry of a decree of judicial dissolution
of the Depositor, or the Trust; and
15
<PAGE> 19
(iv) before the issue of any Securities, with the
consent of all of the Administrative Trustees and the Depositor;
and
(b) As soon as is practicable after the occurrence of an event
referred to in Section 5.2(a), the Trustees shall file, after satisfaction of
all liabilities of the Trust in accordance with applicable law, a certificate of
cancellation with the Secretary of State of the State of Delaware and the Trust
shall terminate.
SECTION 5.03 Governing Law.
This Declaration and the rights of the parties hereunder shall
be governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
SECTION 5.04 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 5.05 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named
or referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Depositor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether or not so expressed.
SECTION 5.06 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 5.07 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
16
<PAGE> 20
IN WITNESS WHEREOF, the undersigned have caused these presents
to be executed as of the day and year first above written.
/s/ Peter Cartwright
------------------------------------
Administrative Trustee
/s/ Ann B. Curtis
------------------------------------
Administrative Trustee
/s/ Thomas R. Mason
------------------------------------
Administrative Trustee
THE BANK OF NEW YORK (DELAWARE), as
Delaware Trustee
By: /s/ Walter N. Gitlin
---------------------------------
Authorized Signatory
THE BANK OF NEW YORK, as
Property Trustee
By: /s/ Thomas C. Knight
---------------------------------
Authorized Signatory
CALPINE CORPORATION as Depositor
By: /s/ Ann B. Curtis
---------------------------------
Name: Ann B. Curtis
Title: Executive Vice President
17
<PAGE> 21
EXHIBIT A
(begins on next page)
<PAGE> 22
CERTIFICATE OF TRUST
The undersigned, the trustees of Calpine Capital Trust, desiring
to form a business trust pursuant to Delaware Business Trust Act, 12 Del. C.
Section 3810 et seq., hereby certify as follows:
(a) The name of the business trust being formed hereby (the
"Trust") is "Calpine Capital Trust."
(b) The name and business address of the trustee of the
Trust which has its principal place of business in the
State of Delaware is as follows:
The Bank of New York (Delaware)
White Clay Center, Route 273
Newark, Delaware 19711
(c) This Certificate of Trust shall be effective as of the
date of filing.
Dated: October 4, 1999
------------------------------------
Administrative Trustee
------------------------------------
Administrative Trustee
------------------------------------
Administrative Trustee
THE BANK OF NEW YORK (DELAWARE), as
Delaware Trustee
By:
---------------------------------
Authorized Signatory
THE BANK OF NEW YORK, as
Property Trustee
By:
---------------------------------
Authorized Signatory
<PAGE> 1
Exhibit 4.10
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
CALPINE CAPITAL TRUST
_________, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
Interpretation and Definitions
<S> <C> <C>
Section 1.01 Definitions........................................................... 2
ARTICLE II
Trust Indenture Act
Section 2.01 Trust Indenture Act; Application......................................11
Section 2.02 Lists of Holders of Securities........................................11
Section 2.03 Reports by the Property Trustee.......................................11
Section 2.04 Periodic Reports to Property Trustee..................................12
Section 2.05 Evidence of Compliance with Conditions Precedent......................12
Section 2.06 Events of Default; Waiver.............................................12
Section 2.07 Event of Default; Notice..............................................14
ARTICLE III
Organization
Section 3.01 Name..................................................................14
Section 3.02 Office................................................................14
Section 3.03 Purpose...............................................................14
Section 3.04 Authority.............................................................15
Section 3.05 Title to Property of the Trust........................................15
Section 3.06 Powers and Duties of the Administrative Trustees......................15
Section 3.07 Prohibition of Actions by the Trust and the Trustees..................18
Section 3.08 Powers and Duties of the Property Trustee.............................19
Section 3.09 Certain Duties and Responsibilities of the Property Trustee...........21
Section 3.10 Certain Rights of Property Trustee....................................23
Section 3.11 Delaware Trustee......................................................25
Section 3.12 Execution of Documents................................................25
Section 3.13 Not Responsible for Recitals or Issuance of Securities................25
Section 3.14 Duration of Trust.....................................................25
Section 3.15 Mergers...............................................................25
ARTICLE IV
Depositor
Section 4.01 Depositor's Purchase of Common Securities.............................27
Section 4.02 Responsibilities of the Depositor.....................................27
Section 4.03 Guarantee of Payment of Trust Obligations.............................28
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE V
Trustees
<S> <C> <C>
Section 5.01 Number of Trustees....................................................29
Section 5.02 Delaware Trustee......................................................29
Section 5.03 Property Trustee; Eligibility.........................................29
Section 5.04 Qualifications of Administrative Trustees and Delaware Trustee
Generally.............................................................30
Section 5.05 Initial Trustees......................................................30
Section 5.06 Appointment, Removal and Resignation of Trustees......................31
Section 5.07 Vacancies among Trustees..............................................34
Section 5.08 Effect of Vacancies...................................................34
Section 5.09 Meetings..............................................................34
Section 5.10 Delegation of Power...................................................34
Section 5.11 Merger, Conversion, Consolidation or Succession to Business...........35
ARTICLE VI
Distributions
Section 6.01 Distributions.........................................................35
ARTICLE VII
Issuance of Securities
'
Section 7.01 General Provisions Regarding Securities...............................35
Section 7.02 Execution and Authentication..........................................36
Section 7.03 Form and Dating.......................................................37
Section 7.04 Registrar, Paying Agent, Conversion Agent and Tender Agent...........39
Section 7.05 Paying Agent to Hold Money in Trust...................................40
Section 7.06 Replacement Securities................................................40
Section 7.07 Outstanding Preferred Securities......................................41
Section 7.08 Preferred Securities in Treasury......................................41
Section 7.09 Temporary Securities..................................................41
Section 7.10 Cancellation..........................................................41
ARTICLE VIII
Termination of Trust
Section 8.01 Dissolution of Trust..................................................42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE IX
Transfer and Exchange
<S> <C> <C>
Section 9.01 General...............................................................43
Section 9.02 Transfer Procedures and Restrictions..................................44
Section 9.03 Deemed Security Holders...............................................46
Section 9.04 Notices to Depositary.................................................46
Section 9.05 Appointment of Successor Depositary...................................46
ARTICLE X
Limitation of Liability of Holders of Securities, Trustees or Others
Section 10.01 Liability.............................................................47
Section 10.02 Exculpation...........................................................47
Section 10.03 Fiduciary Duty........................................................47
Section 10.04 Indemnification.......................................................48
Section 10.05 Outside Businesses....................................................49
ARTICLE XI
Accounting
Section 11.01 Fiscal Year...........................................................49
Section 11.02 Certain Accounting Matters............................................49
Section 11.03 Banking...............................................................50
Section 11.04 Withholding...........................................................50
ARTICLE XII
Amendments and Meetings
Section 12.01 Amendments............................................................51
Section 12.02 Meetings of the Holders of Securities; Action by Written Consent......51
ARTICLE XIII
Representations of Property Trustee and Delaware Trustee
Section 13.01 Representations and Warranties of Property Trustee....................53
Section 13.02 Representations and Warranties of Delaware Trustee....................53
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE XIV
Miscellaneous
<S> <C> <C>
Section 14.01 Notices...............................................................54
Section 14.02 Governing Law.........................................................55
Section 14.03 Intention of the Parties..............................................55
Section 14.04 Headings..............................................................56
Section 14.05 Successors and Assigns................................................56
Section 14.06 Partial Enforceability................................................56
Section 14.07 Counterparts..........................................................56
</TABLE>
iv
<PAGE> 6
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
CALPINE CAPITAL TRUST
_________, 1999
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration"), dated
and effective as of [ ______], 1999, by the undersigned trustees (together with
all other Persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), Calpine
Corporation, a Delaware corporation, as trust Depositor (the "Depositor"), and
by the holders, from time to time, of undivided beneficial interests in the
assets of the Trust (as defined below) issued pursuant to this Declaration;
WHEREAS, the Trustees and the Depositor established Calpine Capital
Trust (the "Trust") under the Business Trust Act (as hereinafter defined)
pursuant to a Declaration of Trust dated as of October 4, 1999 (the "Original
Declaration"), and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on October 4, 1999, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures of
the Debenture Issuer (as hereinafter defined);
WHEREAS, as of the date hereof, no interests of the Trust have been
issued;
WHEREAS, all of the Trustees and the Depositor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration;
and
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
<PAGE> 7
ARTICLE I
Interpretation and Definitions
Section 1.01 Definitions. Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to them in this
Declaration, and any capitalized term not defined in this Declaration shall have
the meaning assigned thereto in the Indenture;
(b) a term defined anywhere in this Declaration or the Indenture has
the same meaning throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles, Sections,
Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration or
unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Additional Amounts" has the meaning specified in the Indenture.
"Administrative Action" has the meaning set forth in the definition
of "Tax Event" in this Section 1.01.
"Administrative Trustee" means any Trustee other than the Property
Trustee and the Delaware Trustee.
"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 specified 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;
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
2
<PAGE> 8
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Appointment Event" means an event defined in the terms of the
Preferred Securities, as set forth in Annex I, which entitles the Holders of a
Majority in liquidation amount of the Preferred Securities to appoint a Special
Trustee.
"Authorized Officer" of a Person means any Person that is authorized
to bind such Person.
"Beneficiaries" has the meaning set forth in Section 4.03(a).
"Book Entry Interest" means a beneficial interest in a Global
Preferred Securities Certificate, ownership and transfers of which shall be
maintained and made through book entries by a Depositary as described in Section
9.02.
"Business Day" means any day other than a Saturday or a Sunday, a
day on which banking institutions in New York, New York are authorized or
required by law to close, or a day on which the corporate trust office of the
Property Trustee or the Debenture Trustee is closed for business.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time,
or any successor legislation.
"Certificate" means a certificate in global or definitive form
representing a Common Security or a Preferred Security.
"Change in 1940 Act Law" has the meaning specified in paragraph 4(d)
of Annex I.
"Closing Date" means ______, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities" has the meaning specified in Section 7.01(a).
"Common Securities Guarantee" means the guarantee agreement to be
dated as of _____, 1999 of the Depositor in respect of the Common Securities.
"Common Stock" has the meaning specified in the Indenture.
"Compounded Interest" has the meaning specified in the Indenture.
"Conversion Agent" has the meaning set forth in Section 7.04.
3
<PAGE> 9
"Conversion Date" has the meaning specified in paragraph 5(b) of
Annex I.
"Conversion Request" has the meaning specified in paragraph 5(b) of
Annex I.
"Covered Person" means: (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Event of Default" in respect of the Securities means an
Event of Default (as defined in the Indenture) has occurred and is continuing in
respect of the Debentures.
"Debenture Issuer" means the Depositor in its capacity as issuer of
the Debentures.
"Debentures" means the series of Debentures to be issued by the
Debenture Issuer under the Indenture to be held by the Property Trustee, in the
form attached to the Indenture as Exhibit A.
"Debenture Trustee" means The Bank of New York, a New York banking
corporation, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"Declaration" means this Amended and Restated Declaration of Trust
as originally executed or as it may from time to time be supplemented or
amended.
"Declaration Trustees" means collectively, the Administrative
Trustees, the Property Trustee and the Delaware Trustee.
"Deferral Period" has the meaning specified in paragraph 2(b) of
Annex I.
"Definitive Preferred Securities" means any Preferred Securities in
definitive form issued by the Trust.
"Delaware Trustee" has the meaning set forth in Section 5.02.
"Depositary" means The Depository Trust Company, the initial
clearing agency, until a successor shall be appointed pursuant to Section 9.05,
and thereafter means such successor Depositary.
"Depositor" means Calpine Corporation, a Delaware corporation, or
any successor entity in a merger, consolidation or amalgamation, in its capacity
as Depositor of the Trust.
"Direct Action" has the meaning specified in Section 3.08(e).
4
<PAGE> 10
"Disclosure Documents" has the meaning specified in the Remarketing
Agreement.
"Dissolution Tax Opinion" has the meaning specified in the
definition of Tax Event in this Section 1.01.
"Distribution" means a distribution payable to Holders of Securities
in accordance with Section 6.01.
"Event of Default" means:
(i) a Debenture Event of Default; or
(ii) default by the Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days (subject to the deferral of any due date in the case
of a Deferral Period); or
(iii) default by the Trust in the payment of any Redemption
Price of any Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Trustees in the Declaration
(other than a covenant or warranty, a default in the performance of
which or the breach of which is addressed in clause (ii) or (iii)
above), and continuation of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
defaulting Declaration Trustee or Declaration Trustees by the holders of
at least 25% in aggregate liquidation amount of the outstanding
Preferred Securities, a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the Declaration; or
(v) the failure of the Depositor to appoint a successor
Property Trustee in the manner required by Section 5.06(c).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"Failed Final Remarketing" has the meaning specified in the
Remarketing Agreement.
"Fiscal Year" shall have the meaning specified in Section 11.01.
"Global Preferred Security" has the meaning specified in Section
7.03(a).
5
<PAGE> 11
"Holder" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"Indemnified Person" means (a) any Trustee; (b) any Affiliate of any
Trustee; (c) any officers, directors, shareholders, members, partners,
employees, representatives or agents of any Trustee; or (d) any employee or
agent of the Trust or its Affiliates.
"Indenture" means the Indenture dated as of ________, 1999, between
the Debenture Issuer and the Debenture Trustee, as it may be amended from time
to time.
"Initial Conversion Price" has the meaning specified in paragraph
5(a) of Annex I.
"Initial Rate" has the meaning specified in paragraph 2(a) of Annex
I.
"Initial Redemption Price" has the meaning specified in the
Indenture.
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940,
as amended from time to time, or any successor legislation.
"Investment Company Event" has the meaning specified in paragraph
4(d) of Annex I.
"Legal Action" has the meaning set forth in Section 3.06(g).
"Like Amount" means (i) with respect to a redemption of Securities,
Securities having an aggregate liquidation amount equal to that portion of the
principal amount of Debentures to be contemporaneously redeemed in accordance
with the Indenture, allocated to such Securities based upon the relative
liquidation amounts of such classes and the proceeds of which will be used to
pay the applicable Redemption Price of such Securities and (ii) with respect to
a distribution of Debentures to Holders of the Securities in connection with a
dissolution and liquidation of the Trust, Debentures having a principal amount
equal to the aggregate liquidation amount of the Securities of the Holder to
whom such Debentures are distributed.
"Liquidation Distribution" has the meaning specified in paragraph 3
of Annex I.
"List of Holders" has the meaning set forth in Section 2.02(a).
"Majority in liquidation amount of the Securities" means, except as
provided in the terms of the Securities and by the Trust Indenture Act,
Holder(s) of
6
<PAGE> 12
outstanding Securities voting together as a single class or, as the context may
require, Holders of outstanding Preferred Securities or Holders of outstanding
Common Securities voting separately as a class, who are the record owners of
more than 50% of the aggregate liquidation amount (including the stated amount
that would be paid on redemption, liquidation or otherwise, plus accrued and
unpaid Distributions to the date upon which the voting percentages are
determined) of all outstanding Securities of the relevant class.
"Ministerial Action" has the meaning set forth in paragraph 4(d) in
Annex I.
"No Recognition Opinion" has the meaning specified in paragraph 4(d)
of Annex I.
"Obligations" means any costs, expenses or liabilities of the Trust,
other than obligations of the Trust to pay to Holders of any Securities or other
similar interests in the Trust the amounts due such Holders pursuant to the
terms of the Securities or such other similar interests, as the case may be.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that each officer signing the Certificate has read
the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
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, in the opinion of each such officer,
such condition or covenant has been complied with.
"OID" means original issue discount.
"Optional Closing Date" has the meaning assigned to such term in the
Underwriting Agreement.
"Optional Redemption" has the meaning specified in the Indenture.
"Participants" has the meaning set forth in Section 7.03(b).
"Paying Agent" has the meaning specified in Section 7.04.
7
<PAGE> 13
"Payment Amount" has the meaning specified in Section 6.01.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Securities" has the meaning specified in Section 7.01(a).
"Preferred Securities Guarantee" means the guarantee agreement to be
dated as of _____, 1999, between the Depositor and The Bank of New York, as
Guarantee Trustee, in respect of the Preferred Securities.
"Preferred Security Beneficial Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Depositary, or on the books of a
Person maintaining an account with such Depositary (directly as a Participant or
as an indirect participant, in each case in accordance with the rules of such
Depositary).
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.03.
"Property Trustee Account" has the meaning set forth in Section
3.08(c).
"Pro Rata" has the meaning specified in paragraph 9 of Annex I.
"Prospectus" means the prospectus, dated as of _______, 1999,
relating to the issuance by the Trust of Preferred Securities.
"Quorum" means a majority of the Administrative Trustees or, if
there are only two Administrative Trustees, both of them.
"Redemption Price" has the meaning specified in the Indenture.
"Redemption Tax Opinion" has the meaning specified in paragraph 4
(d) of Annex I.
"Registrar" has the meaning set forth in Section 7.04.
"Registration Statement" means the registration statement filed by
the Trust and the Depositor with the Commission relating to the offer and sale
by the Trust of Preferred Securities.
"Related Party" means, with respect to the Depositor, any direct or
indirect wholly owned subsidiary of the Depositor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Depositor.
8
<PAGE> 14
"Remarketing" has the meaning specified in the Remarketing
Agreement.
"Remarketing Agent" has the meaning specified in the Indenture.
"Remarketing Agreement" means the Remarketing Agreement, dated
_______, 1999 among the Depositor, the Trust, the Tender Agent and the
Remarketing Agent.
"Responsible Officer" means, with respect to the Property Trustee,
any vice-president, any assistant vice-president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer or any other officer in
the Corporate Trust Department of the Property Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933 or any successor
legislation.
"Securities Guarantee" means the Common Securities Guarantee and the
Preferred Securities Guarantee.
"Special Trustee" means a trustee appointed by the Holders of a
Majority in liquidation amount of the Preferred Securities in accordance with
Section 5.06(ii)(B).
"Successor Delaware Trustee" has the meaning set forth in Section
5.06(c).
"Successor Entity" has the meaning specified in Section 3.15(b)
"Successor Property Trustee" has the meaning set forth in Section
5.06(a).
"Successor Securities" has the meaning specified in Section 3.15(b).
"Super Majority" has the meaning set forth in Section 2.06(a)(ii).
"Tax Event" means the receipt by the Property Trustee of an opinion
of nationally recognized independent tax counsel to the Depositor (reasonably
acceptable to the Trustees) experienced in such matters (a "Dissolution Tax
Opinion") to the effect that, as a result of (i) any amendment to or change
(including any announced prospective change (which shall not include a proposed
change), provided that a Tax Event shall not occur more than 90 days before the
effective date of any such prospective change) in the laws (or any regulations
thereunder) of the United States or any
9
<PAGE> 15
political subdivision or taxing authority thereof or therein, (ii) any judicial
decision or official administrative pronouncement, ruling, regulatory procedure,
notice or announcement, including any notice or announcement of intent to adopt
such procedures or regulations (an "Administrative Action") or (iii) any
amendment to or change in the administrative position or interpretation of any
Administrative Action or judicial decision that differs from the theretofore
generally accepted position, in each case, by any legislative body, court,
governmental agency or regulatory body, irrespective of the manner in which such
amendment or change is made known, which amendment or change is effective or
such Administrative Action or decision is announced, in each case, on or after
the date of original issuance of the Debentures or the issue date of the
Preferred Securities issued by the Trust, there is more than an insubstantial
risk that (a) if the Debentures are held by the Property Trustee, (x) the Trust
is, or will be within 90 days of the date of such opinion, subject to United
States federal income tax with respect to interest accrued or received on the
Debentures or subject to more than a de minimis amount of other taxes, duties or
other governmental charges as determined by such counsel, or (y) any portion of
interest payable by the Depositor to the Trust (or OID accruing) on the
Debentures is not, or within 90 days of the date of such opinion will not be,
deductible by the Depositor in whole or in part for United States federal income
tax purposes or (b) with respect to Debentures which are no longer held by the
Property Trustee, any portion of interest payable by the Depositor (or OID
accruing) on the Debentures is not, or within 90 days of the date of such
opinion will not be, deductible by the Depositor in whole or in part for United
States federal income tax purposes, provided, however, that clauses (a)(y) and
(b) shall not apply if the reason for nondeductibility of such interest (or OID)
is based on the particular use (or deemed use) by the Depositor or an affiliate
of the proceeds of such issuance of Debentures.
"Tender Agent" means the Property Trustee if any Preferred
Securities are outstanding and the Debenture Trustee if the Debentures have been
distributed to the Holders of the Preferred Securities.
"Tender Notification Date" has the meaning specified in the
Indenture.
"10% in liquidation amount of the Securities" means, except as
provided in the terms of the Securities or by the Trust Indenture Act, Holders
of outstanding Securities voting together as a single class or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities, voting separately as a class, representing 10% of
the aggregate liquidation amount (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid Distributions
to the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
"Term Provisions" has the meaning specified in the Remarketing
Agreement.
"Term Call Protections" has the meaning specified in the Remarketing
Agreement.
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"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trust" has the meaning specified in the first recital of this
Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Underwriting Agreement" has the meaning set forth in Section 7.03.
ARTICLE II
Trust Indenture Act
Section 2.01 Trust Indenture Act; Application. (a) This Declaration
is subject to the provisions of the Trust Indenture Act that are required to be
part of this Declaration, which are incorporated by reference in and made part
of this Declaration and shall, to the extent applicable, be governed by such
provisions.
(b) The Property Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
Section 2.02 Lists of Holders of Securities. (a) Each of the
Depositor and the Administrative Trustees on behalf of the Trust shall provide
the Property Trustee (i) within 14 days after each record date for payment of
Distributions, a list, in such form as the Property Trustee may reasonably
require, of the names and addresses of the Holders of the Securities ("List of
Holders") as of such record date, provided that neither the Depositor nor the
Administrative Trustees on behalf of the Trust shall be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Property Trustee by the
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Depositor and the Administrative Trustees on behalf of the Trust, and (ii) at
any other time, within 30 days of receipt by the Trust of a written request for
a List of Holders as of a date no more than 14 days before such List of Holders
is given to the Property Trustee. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in Lists
of Holders given to it or which it receives in its capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
Section 2.03 Reports by the Property Trustee. Within 60 days after
_________ of each year, commencing _______, ______, the Property Trustee shall
provide to the Holders of the Preferred Securities such reports as are required
by Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Property Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.04 Periodic Reports to Property Trustee. Each of the
Depositor and the Administrative Trustees on behalf of the Trust shall provide
to the Property Trustee such documents, reports and information as required by
Section 314 of the Trust Indenture Act (if any) and the compliance certificate
required by Section 314 of the Trust Indenture Act in the form, in the manner
and at the times required by Section 314 of the Trust Indenture Act, such
compliance certificate to be delivered annually on or before 120 days after the
end of each fiscal year of the Depositor.
Section 2.05 Evidence of Compliance with Conditions Precedent. Each
of the Depositor and the Administrative Trustees on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with any conditions
precedent, if any, provided for in this Declaration that relate to any of the
matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate
or opinion required to be given by an officer pursuant to Section 314(c)(1) may
be given in the form of an Officers' Certificate.
Section 2.06 Events of Default; Waiver. (a) The Holders of a
Majority in liquidation amount of Preferred Securities may, by vote, on behalf
of the Holders of all of the Preferred Securities, waive any past Event of
Default in respect of the Preferred Securities and its consequences, provided
that, if the Event of Default:
(i) is caused by a Debenture Event of Default that is not
waivable under the Indenture, the Event of Default under the Declaration
shall also not be waivable;
(ii) is caused by a Debenture Event of Default that requires the
consent or vote of greater than a majority in principal amount of the
holders of the Debentures (a "Super Majority") to be waived under the
Indenture, the Event of Default under the Declaration
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may only be waived by the vote of the Holders of at least the proportion
in liquidation amount of the Preferred Securities that the relevant
Super Majority represents of the aggregate principal amount of the
Debentures outstanding;
(iii) is the result of a default by the Trust in the payment of
any Distribution when it becomes due and payable, which default has
continued for 30 days (subject to the deferral of any due date in the
case of a Default Period), the Event of Default shall not be waivable;
or
(iv) is the result of a default by the Trust in the payment of
any Redemption Price of any Preferred Security when it becomes due and
payable, the Event of Default shall not be waivable.
The foregoing provisions of this Section 2.06(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of
the Trust Indenture Act is hereby expressly excluded from this Declaration and
the Securities, as permitted by the Trust Indenture Act.
Upon such waiver, any such default shall cease to exist, and any
Event of Default with respect to the Preferred Securities arising therefrom
shall be deemed to have been cured for every purpose of this Declaration, but no
such waiver shall extend to any subsequent or other default or an Event of
Default with respect to the Preferred Securities or impair any right consequent
thereon. Any waiver by the Holders of the Preferred Securities of an Event of
Default with respect to the Preferred Securities shall also be deemed to
constitute a waiver by the Holders of the Common Securities of any such Event of
Default with respect to the Common Securities for all purposes of this
Declaration without any further act, vote, or consent of the Holders of the
Common Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the Event of Default is
caused by a Debenture Event of Default that:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of
Default under the Declaration as provided below in this Section 2.06(b),
the Event of Default under the Declaration shall also not be waivable;
or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to
have waived such Event of Default under the Declaration as provided
below in this Section 2.06(b), the Event of Default under the
Declaration may only be waived by the vote of the Holders of at least
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the proportion in liquidation amount of the Preferred Securities that
the relevant Super Majority represents of the aggregate principal amount
of the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences until the effects of all Events of Default with
respect to the Preferred Securities have been cured, waived or otherwise
eliminated, and until such Events of Default have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of the Preferred Securities and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of the Securities. The foregoing provisions of this
Section 2.06(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B)
of the Trust Indenture Act and such Section 316(a)(1)(A) and 316(a)(1)(B) of the
Trust Indenture Act are hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Subject to the foregoing
provisions of this Section 2.06(b), upon such waiver, any such default shall
cease to exist and any Event of Default with respect to the Common Securities
arising therefrom shall be deemed to have been cured for every purpose of this
Declaration, but no such waiver shall extend to any subsequent or other default
or Event of Default with respect to the Common Securities or impair any right
consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee at the direction of the Holders of the Preferred Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.06(c) shall be in lieu
of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Securities, as permitted by the Trust Indenture Act.
Section 2.07 Event of Default; Notice. (a) The Property Trustee
shall, within ten Business Days after the occurrence of an Event of Default
actually known to the Property Trustee, (i) transmit by mail, first-class
postage prepaid, to the Holders of the Securities, and (ii) transmit by any
means provided for in this Declaration to the Administrative Trustees and the
Depositor, notices of all defaults actually known to the Property Trustee,
unless such defaults have been cured or waived before the giving of such notice
(the term "defaults" for the purposes of this Section 2.07(a) being hereby
defined to be an Event of Default, not including any periods of grace and
irrespective of the giving of any notice); provided that, except for a default
in the payment of principal of (or premium, if any) or interest on any of the
Debentures or in the payment of any sinking fund installment established for the
Debentures, the Property Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee, or a trust
committee of directors and/or Responsible Officers of the Property Trustee in
good faith determines that the withholding of such notice is in the interests
of the Holders of the Securities.
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(b) The Property Trustee shall not be deemed to have knowledge of
any default except:
(i) a default under Sections 5.01(1) and 5.01(2) of the
Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice.
ARTICLE III
Organization
Section 3.01 Name. The Trust is named "Calpine Capital Trust," as
such name may be modified from time to time by the Administrative Trustees
following written notice to the Holders of Securities. The Trust's activities
may be conducted under the name of the Trust or any other name deemed advisable
by the Administrative Trustees.
Section 3.02 Office. The address of the principal office of the
Trust is c/o Calpine Corporation, 50 West San Fernando Street, San Jose,
California 95113, Attention: [___________]. On ten Business Days' written notice
to the Holders of Securities, the Administrative Trustees may designate another
principal office.
Section 3.03 Purpose. The exclusive purposes and functions of the
Trust are (a) to issue and sell the Securities and use the proceeds from such
sale to acquire the Debentures, and (b) except as otherwise limited herein, to
engage in only those other activities necessary or incidental thereto. The Trust
shall not borrow money, issue debt or reinvest proceeds derived from
investments, pledge any of its assets, or otherwise undertake (or permit to be
undertaken) any activity that would cause the Trust not to be classified for
United States Federal income tax purposes as a grantor trust.
Section 3.04 Authority. (a) Subject to the limitations provided in
this Declaration and to the specific duties of the Property Trustee, the
Administrative Trustees shall have exclusive and complete authority to carry out
the purposes of the Trust. An action taken by the Administrative Trustees in
accordance with their powers shall constitute the act of and serve to bind the
Trust and an action taken by the Property Trustee in accordance with its powers
shall constitute the act of and serve to bind the Trust. In dealing with the
Trustees acting on behalf of the Trust, no Person shall be required to inquire
into the authority of the Trustees to bind the Trust. Persons dealing with the
Trust are entitled to rely conclusively on the power and authority of the
Trustees as set forth in this Declaration.
(b) Except as expressly set forth in this Declaration and except if
a meeting of the Administrative Trustees is called with respect to any matter
over which the Administrative Trustees have power to act, any power of the
Administrative
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Trustees may be exercised by, or with the consent of, any one such
Administrative Trustee.
(c) An Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purposes of signing any documents which the Administrative
Trustees have power and authority to cause the Trust to execute pursuant to
Section 3.06.
Section 3.05 Title to Property of the Trust. Except as provided in
Section 3.08 with respect to the Debentures and the Property Trustee Account or
as otherwise provided in this Declaration, legal title to all assets of the
Trust shall be vested in the Trust. The Holders shall not have legal title to
any part of the assets of the Trust, but shall have an undivided beneficial
interest in the assets of the Trust.
Section 3.06 Powers and Duties of the Administrative Trustees. The
Administrative Trustees shall have, together (except in the case of paragraphs
(a), (b) and (c) of this Section 3.06) with any Special Trustee holding office
pursuant to Section 5.06, if any, the exclusive power, duty and authority to
cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that the
Trust may issue no more than one series of Preferred Securities and no more than
one series of Common Securities, and, provided further, that there shall be no
interests in the Trust other than the Securities, and the issuance of Securities
shall be limited to simultaneous issuances of both Preferred Securities and
Common Securities on the Closing Date and any Optional Closing Date;
(b) in connection with the issue and sale of the Preferred
Securities, at the direction of the Depositor, to:
(i) assist in the preparation of the Prospectus and preliminary
prospectus, in each case prepared by the Depositor, in relation to the
offering and sale of the Preferred Securities; execute and file with the
Commission the Registration Statement on Form S-3 prepared by the
Depositor, including any amendments thereto in relation to the
Preferred Securities;
(ii) execute and file any documents prepared by the Depositor,
or take any acts as determined by the Depositor to be necessary in
order to qualify or register all or part of the Preferred Securities in
any State or foreign jurisdiction in which the Depositor has determined
to qualify or register such Preferred Securities for sale;
(iii) execute and file an application, prepared by the
Depositor, to the New York Stock Exchange, Inc. or any other national
stock exchange or the NASDAQ National Market for listing or quotation
upon notice of issuance of any Preferred Securities, but if and only
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if the Depositor has so instructed the Administrative Trustees to make
such filing;
(iv) to execute and deliver letters, documents, or instruments
with The Depository Trust Company relating the Preferred Securities;
(v) execute and file with the Commission a registration
statement on Form 8-A, including any amendments thereto, prepared by
the Depositor relating to the registration of the Preferred Securities
under Section 12 of the Exchange Act, but if and only if the Depositor
has so instructed the Administrative Trustees to make such filing; and
(vi) execute and enter into the Remarketing Agreement and the
Underwriting Agreement and other related agreements providing for the
sale of the Preferred Securities; and
(vii) and to execute and file any agreement, certificate or
other document which such Administrative Trustee deems necessary or
appropriate in connection with the issuance and sale of the Preferred
Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; provided, however, that the
Administrative Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders of the
Preferred Securities and the Holders of Common Securities;
(d) to give the Depositor and the Property Trustee prompt written
notice of the occurrence of a Tax Event or an Investment Company Event; provided
that the Administrative Trustees (and Special Trustee, if any) shall consult
with the Depositor and the Property Trustee before taking or refraining from
taking any Ministerial Action in relation to a Tax Event or Investment Company
Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of Common Securities
as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required
of the Administrative Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the Trust
("Legal
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Action"), unless pursuant to Section 3.08(e), the Property Trustee has the
exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be executed
by any Administrative Trustee;
(k) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, Registrar,
Conversion Agent, Paying Agent, Tender Agent and transfer agent for the
Securities;
(m) to give prompt written notice to the Holders of the Securities
of any notice received from the Debenture Issuer of its election to defer
payments of interest on the Debentures by extending the interest payment period
under the Indenture;
(n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(p) to take any action, not inconsistent with this Declaration or
with applicable law, that the Administrative Trustees determine in their
discretion to be necessary or desirable in carrying out the activities of the
Trust as set out in this Section 3.06, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust and not as an association
taxable as a corporation or partnership; and
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(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes,
provided that such action does not adversely affect the interests of Holders;
and
(q) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Administrative Trustees, on behalf of
the Trust.
The Administrative Trustees must exercise the powers set forth in
this Section 3.06 in a manner that is consistent with the purposes and functions
of the Trust set out in Section 3.03, and the Administrative Trustees shall not
take any action that is inconsistent with the purposes and functions of the
Trust set forth in Section 3.03.
Subject to this Section 3.06, the Administrative Trustees shall have
none of the powers or the authority of the Property Trustee set forth in Section
3.08.
Any expenses incurred by the Administrative Trustee (or the Special
Trustee, if any) pursuant to this Section 3.06 shall be reimbursed by the
Debenture Issuer.
The Administrative Trustees shall take all action on behalf of the
Trust that are not specifically required by this Declaration to be taken by any
other Trustee.
Section 3.07 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the Property Trustee) on
behalf of the Trust shall not, engage in any activity other than as required or
authorized by this Declaration. In particular, the Trust shall not and the
Trustees (including the Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of
Securities pursuant to the terms of this Declaration and of the
Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
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(v) possess any power or otherwise act in such a way as to vary
the Trust assets or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities; or
(vii) other than as provided in the Declaration or Annex I
hereto, (A) direct the time, method and place of exercising any trust or
power conferred upon the Debenture Trustee with respect to the
Debentures, (B) waive any past default that is waivable under Section
5.14 of the Indenture, (C) exercise any right to rescind or annul any
declaration that the principal of all the Debentures shall be due and
payable, or (D) consent to any amendment, modification or termination of
the Indenture or the Debentures where such consent shall be required
unless, in the case of each action described in clause (A), (B), (C) or
(D), the Trust shall have received an opinion of a nationally recognized
independent counsel experienced in such matters to the effect that such
modification will not cause more than an insubstantial risk that for
United States federal income tax purposes the Trust will not be
classified as a grantor trust.
Section 3.08 Powers and Duties of the Property Trustee. (a) The
legal title to the Debentures shall be owned by and held of record in the name
of the Property Trustee in trust for the benefit of the Holders of the
Securities. The right, title and interest of the Property Trustee to the
Debentures shall vest automatically in each Person who may hereafter be
appointed as Property Trustee in accordance with Section 5.06. Such vesting and
cessation of title shall be effective whether or not conveyancing documents with
regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under
the exclusive control of the Property Trustee on behalf of the Holders
of the Securities and, upon the receipt of payments of funds made in
respect of the Debentures held by the Property Trustee, deposit such
funds into the Property Trustee Account and make payments to the Holders
of the Preferred Securities and Holders of the Common Securities from
the Property Trustee Account in accordance with Section 6.01. Funds in
the Property Trustee Account shall be held uninvested until disbursed in
accordance with this Declaration.
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(ii) engage in such ministerial activities as so directed and
as shall be necessary or appropriate to effect the redemption of the
Preferred Securities and the Common Securities to the extent the
Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as so directed as shall be
necessary or appropriate to effect the distribution of the Debentures to
Holders of Securities upon the occurrence of certain special events (as
may be defined in the terms of the Securities) arising from a change in
law or a change in legal interpretation or other specified circumstances
pursuant to the terms of the Securities.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities.
(e) The Property Trustee shall take any Legal Action which arises
out of or in connection with an Event of Default or the Property Trustee's
duties and obligations under this Declaration or the Trust Indenture Act;
provided, however, that if a Debenture Event of Default has occurred and is
continuing and such event is attributable to the failure of the Depositor to pay
interest or principal on the Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, on the redemption date),
then a Holder of Preferred Securities may institute a legal proceeding directly,
subject to the terms of the Indenture (including the subordination provisions
set forth in Article XII thereof), for enforcement of payment to such Holder of
the principal of or interest on the Debentures having a principal amount equal
to the aggregate liquidation amount of the Preferred Securities of such Holder
(a "Direct Action") on or after the respective due date specified in the
Securities. In connection with such Direct Action, the Holders of the Common
Securities will be subrogated to the rights of such Holder of Preferred
Securities to the extent of any payment made by the Depositor to such Holder of
Preferred Securities in such Direct Action. In addition, if the Property Trustee
fails to enforce its rights under the Debentures (other than rights arising from
an Event of Default described in the immediately preceding sentence) after any
Holder of Preferred Securities shall have made a written request to the Property
Trustee to enforce such rights, such Holder of Preferred Securities may, to the
fullest extent permitted by law, institute a Direct Action to enforce the rights
of the Property Trustee or any other Person. Except as provided in the preceding
sentences, the Holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Debentures.
(f) The Property Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely liquidated and the proceeds of
the liquidation distributed to the Holders of Securities pursuant to the
terms of the Securities; or
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(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.06.
(g) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default occurs and is continuing, the Property
Trustee shall, for the benefit of Holders of the Securities, enforce its rights
as holder of the Debentures subject to the rights of the Holders pursuant to the
terms of such Securities.
(h) The Property Trustee shall act as the initial Paying Agent and
Registrar to pay Distributions, redemption payments or liquidation payments on
behalf of the Trust with respect to all Securities and any such Paying Agent
shall comply with Section 317(b) of the Trust Indenture Act. Any Paying Agent
may be removed by the Administrative Trustees at any time and a successor Paying
Agent or additional Paying Agents may be appointed at any time by the
Administrative Trustees. The Paying Agent may resign upon 30 days' written
notice to the Property Trustee, the Administrative Trustees and the Depositor.
(i) Subject to this Section 3.08, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.06.
The Property Trustee must exercise the powers set forth in this
Section 3.08 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.03, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.03.
Section 3.09 Certain Duties and Responsibilities of the Property
Trustee. (a) The Property Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Declaration and no implied covenants shall be read into this Declaration against
the Property Trustee. In case an Event of Default has occurred (that has not
been cured or waived pursuant to Section 2.06), the Property Trustee shall
exercise such of the rights and powers vested in it by this Declaration, and use
the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions of
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this Declaration and in the Securities and the Property Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Declaration and
in the Securities, and no implied covenants or obligations shall
be read into this Declaration or the Securities against the
Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely, as
to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Property Trustee and conforming to the
requirements of this Declaration; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Property Trustee,
the Property Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of
this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority
in liquidation amount of the Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon the
Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and
the Property Trustee Account shall be to deal with such property in a
similar manner as the Property Trustee deals with similar property for
its own account, subject to the protections and limitations on liability
afforded to the Property Trustee under this Declaration and the Trust
Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or
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sufficiency of the Debentures or the payment of any taxes or assessments
levied thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree with the
Depositor. Money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Property Trustee
Account maintained by the Property Trustee pursuant to Section
3.08(c)(i) and except to the extent otherwise required by law; and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the
Depositor with their respective duties under this Declaration, nor shall
the Property Trustee be liable for the default or misconduct of the
Administrative Trustees or the Depositor.
Section 3.10 Certain Rights of Property Trustee. (a) Subject to the
provisions of Section 3.09:
(i) the Property Trustee may rely conclusively and shall be
fully protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Declaration shall be sufficiently
evidenced by an Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
rely upon an Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Depositor or the Administrative
Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel of its choice
or other experts and the advice or opinion of such counsel and experts
with respect to legal matters or advice within the scope of
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such experts' area of expertise shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion,
such counsel may be counsel to the Depositor or any of its Affiliates,
and may include any of its employees. The Property Trustee shall have
the right at any time to seek instructions concerning the administration
of this Declaration from any court of competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at
the request or direction of any Holder, unless such Holder shall have
provided to the Property Trustee security satisfactory to the Property
Trustee, against the costs, expenses (including its attorneys' fees and
expenses) and liabilities that might be incurred by it in complying with
such request or direction, including such reasonable advances as may be
requested in writing by the Property Trustee, provided, that, nothing
contained in this Section 3.10(a)(vi) shall be taken to relieve the
Property Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, security, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Property
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Property Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and
the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Property Trustee
to so act or as to its compliance with any of the terms and provisions
of this Declaration, both of which shall be conclusively evidenced by
the Property Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder the Property Trustee (i) may request instructions from the
Holders of the Securities which instructions may only be given by the
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Holders of the same proportion in liquidation amount of the Securities
as would be entitled to direct the Property Trustee under the terms of
the Securities in respect of such remedy, right or action, (ii) may
refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be protected in
acting in accordance with such instructions;
(xi) except as otherwise expressly provided by this Declaration,
the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Declaration;
and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and
reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
Section 3.11 Delaware Trustee. Notwithstanding any other provision
of this Declaration other than Section 5.02, the Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities of the Administrative Trustees or the Property
Trustee described in this Declaration. Except as set forth in Section 5.02, the
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Business Trust Act.
Section 3.12 Execution of Documents. Except as otherwise required by
applicable law, any Administrative Trustee is authorized to execute on behalf of
the Trust any documents that the Administrative Trustees have the power and
authority to execute pursuant to Section 3.06; provided that, the registration
statement referred to in Section 3.06(b)(i), including any amendments thereto,
shall be signed by a majority of the Administrative Trustees.
Section 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be taken as
the statements of the Depositor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration, the Debentures or the Securities.
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Section 3.14 Duration of Trust. The Trust, unless dissolved pursuant
to the provisions of Article VIII hereof, shall exist until _______, 20__.
Section 3.15 Mergers. (a) The Trust may not consolidate, amalgamate,
merge with or into, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, except as
described in Section 3.15(b) and (c) of this Declaration or paragraph 3 of Annex
I.
(b) The Trust may, with the consent of a majority of the
Administrative Trustees and without the consent of the Holders of the
Securities,the Delaware Trustee or the Property Trustee, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State or the District of Columbia; provided that:
(i) if the Trust is not the surviving entity, the successor
entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities; or
(B) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") as long as the Successor
Securities rank, with respect to participation in the profits
and distributions or in the assets of the Successor Entity at
least as high as the Preferred Securities rank with respect to
participation in the profits and dividends or in the assets of
the Trust;
(ii) the Debenture Issuer expressly acknowledges a trustee of
the Successor Entity that possesses the same powers and duties as the
Property Trustee as the Holder of the Debentures;
(iii) to the extent the Preferred Securities are listed on any
national securities exchange or with another organization for listing or
quotation, the Preferred Securities or any Successor Securities shall be
so listed, or any Successor Securities will be listed upon notification
of issuance, on any national securities exchange or with any other
organization on which the Preferred Securities are then listed or
quoted;
(iv) such merger, consolidation, amalgamation or replacement
does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical
rating organization;
(v) such merger, consolidation, amalgamation or replacement does
not adversely affect the powers, preferences and other
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special rights of the Holders of the Preferred Securities (including any
Successor Securities) in any material respect;
(vi) such Successor Entity has a purpose substantially identical
and limited to that of the Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Depositor has received an opinion of a nationally
recognized independent counsel (reasonably acceptable to the Property
Trustee) to the Trust experienced in such matters to the effect that:
(A) following such merger, consolidation, amalgamation
or replacement, the Trust or the Successor Entity will continue
to be treated as a grantor trust for United States federal
income tax purposes;
(B) following such merger, consolidation, amalgamation
or replacement, neither the Depositor nor the Successor Entity
will be required to register as an Investment Company;
(C) such merger, consolidation, amalgamation or
replacement will not adversely affect the limited liability of
the Holders of the Securities (including any Successor
Securities);
(viii) the Depositor or any permitted successor or assignee
directly or indirectly owns all the Common Securities and provides a
guarantee to the Holders of the Successor Securities with respect to the
Successor Entity having substantially the same terms as the Preferred
Securities Guarantee; and
(ix) such merger, consolidation, amalgamation, replacement or
lease is not a taxable event for the Holders of the Preferred
Securities.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except
with the consent of Holders of 100% in liquidation amount of the Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger or
replacement would cause the Trust or Successor Entity to be classified as other
than a grantor trust for United States federal income tax purposes.
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ARTICLE IV
Depositor
Section 4.01 Depositor's Purchase of Common Securities. On the
Closing Date and any Optional Closing Date the Depositor will purchase an amount
of Common Securities issued by the Trust such that the aggregate liquidation
amount of such Common Securities purchased by the Depositor shall at such date
equal at least 3% of the total capital of the Trust.
Section 4.02 Responsibilities of the Depositor. In connection with
the issue and sale of the Preferred Securities, the Depositor shall have the
exclusive right and responsibility to engage in the following activities:
(a) to prepare the Prospectus and to prepare for filing by the Trust
with the Commission the Registration Statement on Form S-3 in relation to the
Preferred Securities, including any amendments thereto;
(b) to determine the States and foreign jurisdictions in which to
take appropriate action to qualify or register for sale all or part of the
Preferred Securities and to do any and all such acts (including at the time of
the Remarketing), other than actions which must be taken by the Trust, and
advise the Trust of actions it must take, and prepare for execution and filing
any documents to be executed and filed by the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of any such
States and foreign jurisdictions;
(c) if so determined by the Depositor, to prepare for filing by the
Trust an application to the New York Stock Exchange or any other national stock
exchange or the NASDAQ National Market for listing or quotation upon notice of
issuance or any Preferred Securities(including at the time of the Remarketing);
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the Preferred
Securities (both at the time of their original issuance and at the time of the
Remarketing, if required) under Section 12 of the Exchange Act, including any
amendments thereto, if the Depositor in its sole discretion determines such a
filing is necessary or appropriate; and
(e) to negotiate the terms of and execute the Underwriting
Agreement, and to negotiate the terms of the Remarketing Agreement and other
related agreements providing for the sale of the Preferred Securities (both at
the time of their original issuance and at the time of the Remarketing).
Section 4.03 Guarantee of Payment of Trust Obligations.
(a) Subject to the terms and conditions of this Section 4.03, the
Depositor hereby irrevocably and unconditionally guarantees, to the extent set
forth in the Securities Guarantees and subject to the terms of the Indenture
(including the
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subordination provisions set forth in Article XII thereof), to each Person to
whom the Trust is now or hereafter becomes indebted or liable (the
"Beneficiaries") the full payment, when and as due, of any and all Obligations
to such Beneficiaries.
(b) The agreement of the Depositor in Section 4.03(a) is intended to
be for the benefit of, and to be enforceable by, all such Beneficiaries, whether
or not such Beneficiaries have received notice hereof.
(c) The agreement of the Depositor set forth in Section 4.03(a)
shall terminate and be of no further force and effect upon the later of (a) the
date on which full payment has been made of all amounts payable to all Holders
of all the Preferred Securities (whether upon redemption, liquidation, exchange
or otherwise) and (b) the date on which there are no Beneficiaries remaining;
provided, however, that such agreement shall continue to be effective or shall
be reinstated, as the case may be, if at any time any Holder of Preferred
Securities or any Beneficiary must restore payment of any sums paid under the
Preferred Securities, under any Obligation, under the Preferred Securities
Guarantee or under this Agreement for any reason whatsoever. Such agreement is
continuing, irrevocable, unconditional and absolute.
ARTICLE V
Trustees
Section 5.01 Number of Trustees. The number of Trustees shall
initially be five (5), consisting of three (3) Administrative Trustees, the
Delaware Trustee and the Property Trustee, and:
(a) at any time before the issuance of any Securities, the Depositor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities:
(i) the number of Trustees may be increased or decreased, except
as provided in Sections 5.01(b)(ii) and 5.06(a)(ii)(B) with respect to
the Special Trustee, by vote of the Holders of a Majority in liquidation
amount of the Common Securities voting as a class at a meeting of the
Holders of the Common Securities; provided, however, that, the number of
Trustee shall in no event be less than two (2); provided, further, that
(1) one Trustee, in the case of a natural person, shall be a person who
is a resident of the State of Delaware or that, if not a natural person,
is an entity which has its principal place of business in the State of
Delaware; (2) there shall be at least one Trustee who is an employee or
officer of, or is affiliated with the Depositor (an "Administrative
Trustee"); and (3) one Trustee shall be the Property Trustee for so long
as this Declaration is required to qualify as an indenture under the
Trust Indenture Act, and such Trustee may also serve as Delaware Trustee
if it meets the applicable requirements.
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(ii) the number of Trustees shall be increased automatically by
one (1) if an Appointment Event has occurred and is continuing and the
Holders of a Majority in liquidation amount of the Preferred Securities
appoint a Special Trustee in accordance with Section 5.06(a)(ii).
Section 5.02 Delaware Trustee. If required by the Business Trust
Act, one Trustee (the "Delaware Trustee") shall be (a) a natural person who is a
resident of the State of Delaware; or (b) if not a natural person, an entity
which has its principal place of business in the State of Delaware, and
otherwise meets the requirements of applicable law, provided that, if the
Property Trustee has its principal place of business in the State of Delaware
and otherwise meets the requirements of applicable law, then the Property
Trustee shall also be the Delaware Trustee and Section 3.11 shall have no
application. The initial Delaware Trustee shall be The Bank of New York
(Delaware).
Section 5.03 Property Trustee; Eligibility. (a) There shall at all
times be one Trustee which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Depositor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted by
the Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least fifty million
U.S. dollars ($50,000,000), and subject to supervision or examination by
federal, state, territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority
referred to above, then for the purposes of this Section 5.03(a)(ii),
the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Property Trustee shall cease to be eligible
to so act under Section 5.03(a), the Property Trustee shall immediately resign
in the manner and with the effect set forth in Section 5.06(e).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
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(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be The Bank of New York.
Section 5.04 Qualifications of Administrative Trustees and Delaware
Trustee Generally. Each Administrative Trustee and the Delaware Trustee (unless
the Property Trustee also acts as Delaware Trustee) shall be either a natural
person who is at least 21 years of age or a legal entity that shall act through
one or more Authorized Officers.
Section 5.05 Initial Trustees. The initial Administrative Trustees
shall be:
Peter Cartwright
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Ann B. Curtis
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Thomas R. Mason
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
White Clay Center
Route 273
Attention: [ ]
The initial Property Trustee shall be:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: [ ]
Section 5.06 Appointment, Removal and Resignation of Trustees.
Except as provided otherwise in this Section 5.06, Trustees may be appointed or
removed without cause at any time:
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(i) until the issuance of any Securities, by written instrument
executed by the Depositor; and
(ii) after the issuance of any Securities:
(A) other than in respect to a Special Trustee, by vote
of the Holders of a Majority in liquidation amount of the Common
Securities voting as a class at a meeting of the Holders of the
Common Securities, unless a Debenture Event of Default shall
have occurred and be continuing, in which event the Property
Trustee and the Delaware Trustee may only be removed by the
Holders of a Majority in liquidation amount of the Preferred
Securities, voting as a class at a meeting of the Holders of the
Preferred Securities; and
(B) if an Appointment Event has occurred and is
continuing, one (1) additional trustee (the "Special Trustee"),
who shall have the same rights, powers and privileges as an
Administrative Trustee, may be appointed by vote of the Holders
of a Majority in liquidation amount of the Preferred Securities,
voting as a class at a meeting of the Holders of the Preferred
Securities, and such Special Trustee may only be removed
(otherwise than by the operation of Section 5.06(e)), by vote of
the Holders of a Majority in liquidation amount of the Preferred
Securities voting as a class at a meeting of the Holders of the
Preferred Securities.
(a) The Trustee that acts as Property Trustee shall not be removed
in accordance with Section 5.06 until a successor Property Trustee meeting the
requirements of Section 5.03 (a "Successor Property Trustee") has been appointed
and has accepted such appointment by written instrument executed by such
Successor Property Trustee and delivered to the Administrative Trustees and the
Depositor.
(b) The Depositor shall remove the Property Trustee by written
instrument upon:
(i) the entry or a decree or order by a court having
jurisdiction in the premises adjudging the Property Trustee as bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect
of the Property Trustee under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Property Trustee or of any substantial
part of its property or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
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(ii) the institution by the Property Trustee of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or the consent by it to the filing
of any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Property Trustee or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due and its willingness to be adjudicated a bankrupt, or
the taking of corporate action by the Property Trustee in furtherance of
any such action.
The Depositor shall appoint a Successor Property Trustee within 60 days of such
an event.
(c) The Trustee that acts as Delaware Trustee shall not be removed
in accordance with Section 5.06(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.02 and 5.04 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Trustees and the Depositor.
(d) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation,
provided that a Special Trustee shall only hold office while an Appointment
Event is continuing and shall cease to hold office immediately after the
Appointment Event pursuant to which the Special Trustee was appointed and all
other Appointment Events cease to be continuing. Any Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing signed by the Trustee and delivered to the Depositor and the Trust,
which resignation shall take effect upon such delivery or upon such later date
as is specified therein; provided, however, that:
(i) No such resignation of the Trustee that acts as the Property
Trustee shall be effective:
(A) until a Successor Property Trustee has been
appointed and has accepted such appointment by instrument
executed by such Successor Property Trustee and delivered to
the Trust, the Depositor and the resigning Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the Holders
of the Securities;
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(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the Trust,
the Depositor and the resigning Delaware Trustee; and
(iii) no such resignation of a Special Trustee shall be
effective until the 60th day following delivery of the instrument of
resignation of the Special Trustee to the Depositor and the Trust or
such later date specified in such instrument during which period the
Holders of the Preferred Securities shall have the right to appoint a
successor Special Trustee as provided in this Section 5.06.
(e) The Holders of the Common Securities shall use their best
efforts to promptly appoint a Successor Property Trustee or Successor Delaware
Trustee, as the case may be, if the Property Trustee or the Delaware Trustee
delivers an instrument of resignation in accordance with this Section 5.06.
(f) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.06 within 60 days after delivery to the Depositor and the Trust of an
instrument of resignation or removal, the resigning Property Trustee or Delaware
Trustee, resigning or being removed as applicable, may petition any court of
competent jurisdiction for appointment of a Successor Property Trustee or
Successor Delaware Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper and prescribe, appoint a Successor
Property Trustee or Successor Delaware Trustee, as the case may be.
(g) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
Section 5.07 Vacancies among Trustees. If a Trustee ceases to hold
office for any reason and the number of Trustees is not reduced pursuant to
Section 5.01, or if the number of Trustees is increased pursuant to Section
5.01, a vacancy shall occur. A resolution certifying the existence of such
vacancy by a majority of the Administrative Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.06.
Section 5.08 Effect of Vacancies. The death, resignation,
retirement, removal, bankruptcy, dissolution, liquidation, incompetence or
incapacity to perform the duties of a Trustee shall not operate to dissolve,
terminate or annul the Trust. Whenever a vacancy in the number of Administrative
Trustees shall occur, until such vacancy is filled by the appointment of a
Administrative Trustee in accordance with Section 5.06, the Administrative
Trustees in office, regardless of their number, shall have all the powers
granted to the Administrative Trustees and shall discharge all the duties
imposed upon the Administrative Trustees by this Declaration.
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Section 5.09 Meetings. Meetings of the Administrative Trustees shall
be held from time to time upon the call of any Administrative Trustee. Regular
meetings of the Administrative Trustees may be held at a time and place fixed by
resolution of the Administrative Trustees. Notice of any meetings of the
Administrative Trustees shall be hand delivered or otherwise delivered in
writing (including by facsimile or overnight courier) not less than 24 hours
before such meeting. Notices shall contain a brief statement of the time, place
and anticipated purposes of the meeting. The presence (whether in person or by
telephone) of a Administrative Trustee at a meeting shall constitute a waiver of
notice of such meeting except where a Administrative Trustee attends a meeting
for the express purpose of objecting to the transaction of any activity on the
ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
and without prior notice by the unanimous written consent of the Administrative
Trustees.
In the event there is only one Administrative Trustee, any and all
action of such Administrative Trustee shall be evidenced by a written consent of
such Administrative Trustee. In the event a Special Trustee is holding office
pursuant to Section 5.06, such Special Trustee shall have the same rights as an
Administrative Trustee with respect to notice and participation in a meeting of
the Administrative Trustees.
Section 5.10 Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
3.06, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) the Administrative Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of the Trust, as set
forth herein.
Section 5.11 Merger, Conversion, Consolidation or Succession to
Business. Any Person into which the Property Trustee or the Delaware Trustee, as
the case may be, may be merged or converted or with which either may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of the Property Trustee or the Delaware Trustee, as
the case may be, shall be the successor of the Property Trustee or the Delaware
Trustee, as the case may be, hereunder, provided
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such Person shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto other than as required by applicable law.
ARTICLE VI
Distributions
Section 6.01 Distributions. Holders shall receive Distributions in
accordance with the applicable terms of the relevant Holder's Securities.
Distributions shall be made on the Preferred Securities and the Common
Securities in accordance with the preferences set forth in the terms attached as
Annex I hereto. If and to the extent that the Debenture Issuer makes a payment
of interest (including Compounded Interest (as defined in the Indenture) and
Additional Amounts (as defined in the Indenture)) premium and principal on the
Debentures held by the Property Trustee (the amount of any such payment being a
"Payment Amount"), the Property Trustee shall and is directed, to the extent
funds are available for that purpose, to make a distribution (a "Distribution")
of the Payment Amount to Holders.
ARTICLE VII
Issuance of Securities
Section 7.01 General Provisions Regarding Securities.
(a) The Administrative Trustees shall on behalf of the Trust issue
one class of convertible preferred securities, designated as Remarketable Term
Income Deferrable Equity Securities (HIGH TIDES)(sm), representing undivided
beneficial interests in the assets of the Trust (the "Preferred Securities"),
having such terms as are set forth in Annex I (including as such terms may be
modified in accordance with the provisions of the Remarketing Agreement) and one
class of convertible common securities, liquidation amount $50, representing
undivided beneficial interests in the assets of the Trust (the "Common
Securities"), having such terms as are set forth in Annex I. On the Reset Date
and as contemplated by the Remarketing Agreement, the Trust may also issue
securities having Term Provisions to be set by the Remarketing Agent in
accordance with the terms of the Remarketing Agreement. The Trust shall have no
securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities. The Trust shall issue no
Securities in bearer form.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
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(c) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable, subject to Section 10.01 with respect to the Common Securities.
(d) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
(e) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have covenanted to treat the Debentures as indebtedness and
the Securities as evidence of an indirect beneficial ownership interest in the
Debentures.
Section 7.02 Execution and Authentication.
(a) The Securities shall be signed on behalf of the Trust by one
Administrative Trustee. In case any Administrative Trustee who shall have signed
any of the Securities shall cease to be such Administrative Trustee before the
Securities so signed shall be delivered by the Trust, such Securities
nevertheless may be delivered as though the person who signed such Securities
had not ceased to be such Administrative Trustee; and any Securities may be
signed on behalf of the Trust by such persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees, although at
the date of the execution and delivery of the Declaration any such person was
not such an Administrative Trustee.
(b) One Administrative Trustee shall sign the Preferred Securities
for the Trust by manual or facsimile signature. Unless otherwise determined by
the Trust, such signature shall, in the case of Common Securities, be a manual
signature.
A Preferred Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Preferred Security has been
authenticated under this Declaration.
Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Preferred Securities for
original issue by executing the Property Trustee's certificate of authentication
contained in the form of Preferred Securities attached hereto as Exhibit A-1.
The aggregate number of Preferred Securities outstanding at any time shall not
exceed the number set forth in the terms in Annex I hereto except as provided in
Sections 7.06 and 7.07.
The Property Trustee may appoint an authenticating agent acceptable
to the Trust to authenticate Preferred Securities. An authenticating agent may
authenticate Preferred Securities whenever the Property Trustee may do so. Each
reference in this Declaration to authentication by the Property Trustee includes
authentication by such agent. An authenticating agent has the same rights as the
Property Trustee to deal with the Depositor or an Affiliate.
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Section 7.03 Form and Dating. The Preferred Securities and the
Property Trustee's certificate of authentication shall be substantially in the
form of Exhibit A-1 and the Common Securities shall be substantially in the form
of Exhibit A-2, each of which is hereby incorporated in and expressly made a
part of this Declaration. Certificates may be printed, lithographed or engraved
or may be produced in any other manner as is reasonably acceptable to the
Administrative Trustees, as evidenced by their execution thereof. The Securities
may have letters, numbers, notations or other marks of identification or
designation and such legends or endorsements required by law, stock exchange
rule, agreements to which the Trust is subject, if any, or usage (provided that
any such notation, legend or endorsement is in a form acceptable to the Trust).
The Trust at the direction of the Depositor shall furnish any such legend not
contained in Exhibit A-1 to the Property Trustee in writing. Each Preferred
Security shall be dated the date of its authentication. The terms and provi-
sions of the Securities set forth in Annex I and the forms of Securities set
forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and to
the extent applicable, the Property Trustee and the Depositor, by their
execution and delivery of this Declaration, expressly agree to such terms and
provisions and to be bound thereby.
The Preferred Securities are being offered and sold by the Trust
pursuant to an Underwriting Agreement relating to the Preferred Securities,
dated ______, 1999, among the Trust, the Depositor and the underwriters named
therein (the "Underwriting Agreement").
(a) Global Securities. Preferred Securities offered and sold as
provided in the Underwriting Agreement, shall be initially issued in the form of
one or more permanent global Securities in definitive, fully registered form
without distribution coupons with the appropriate global legends set forth in
Exhibit A-1 hereto (each, a "Global Preferred Security"), which shall be
deposited on behalf of the purchasers of the Preferred Securities represented
thereby with the Property Trustee, at its New York office, as custodian for the
Depositary, and registered in the name of the Depositary or a nominee of the
Depositary, duly executed by the Trust and authenticated by the Property Trustee
as provided herein. The number of Preferred Securities represented by the Global
Preferred Security may from time to time be increased or decreased by
adjustments made on the records of the Property Trustee and the Depositary or
its nominee as hereinafter provided.
(b) Book-Entry Provisions. The Preferred Securities, on original
issuance, will be issued in the form of one or more, fully registered, Global
Preferred Securities, to be delivered to the Depositary, or its custodian, by,
or on behalf of, the Trust.
An Administrative Trustee on behalf of the Trust shall execute and
the Property Trustee shall, in accordance with this Section 7.03, authenticate
and deliver initially one or more Global Preferred Securities that (a) shall be
registered in the name of Cede & Co. or other nominee of such Depositary and (b)
shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's written instructions or held by the Trustee as custodian for the
Depositary.
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Unless and until definitive, fully registered certificated Preferred
Securities have been issued to the Preferred Security Beneficial Owners pursuant
to Section 7.03:
(i) the provisions of this Section 7.03 shall be in full force
and effect;
(ii) the Trust, the Trustees, the Registrar and the Paying Agent
shall be entitled to deal with the Depositary for all purposes of this
Declaration (including the payment of Distributions on the Global
Preferred Security and receiving approvals, votes or consents hereunder)
as the Holder of the Preferred Securities and the sole holder of the
Global Preferred Security and shall have no obligation to the Preferred
Security Beneficial Owners;
(iii) to the extent that the provisions of this Section 7.03
conflict with any other provisions of this Declaration, the provisions
of this Section 7.03 shall control; and
(iv) the rights of the Preferred Security Beneficial Owners
shall be exercised only through the Depositary and shall be limited to
those established by law and agreements between such Preferred Security
Beneficial Owners and the Depositary and/or the Participants and the
Depositary shall receive and transmit payments of Distributions on the
Global Preferred Securities to such Participants. The Depositary will
make book-entry transfers among the Participants and receive and
transmit payments of Distributions on the Global Preferred Securities to
such Participants; provided, that solely for the purposes of determining
whether the Holders of the requisite amount of Preferred Securities have
voted on any matter provided for in this Declaration, so long as
Definitive Preferred Security Certificates have not been issued, the
Trustees may conclusively rely on, and shall be protected in relying on,
any written instrument (including a proxy) delivered to the Trustees by
the Depositary setting forth the Preferred Security Beneficial Owners'
votes or assigning the right to vote on any matter to any other Persons
either in whole or in part.
Members of, or participants in, the Depositary ("Participants")
shall have no rights under this Declaration with respect to any Global Preferred
Security held on their behalf by the Depositary or by the Property Trustee as
the custodian of the Depositary or under such Global Preferred Security, and the
Depositary may be treated by the Trust, the Property Trustee and any agent of
the Trust or the Property Trustee as the absolute owner of such Global Preferred
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Trust, the Property Trustee or any agent of the Trust
or the Property Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or impair, as between the
Depositary and its Participants, the operation of customary
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practices of such Depositary governing the exercise of the rights of a holder of
a beneficial interest in any Global Preferred Security.
(c) Certificated Securities. Except as provided in Section 7.03(d),
owners of beneficial interests in the Global Preferred Security will not be
entitled to receive physical delivery of certificated Preferred Securities.
(d) Subject to Section 9.05, a Global Preferred Security deposited
with the Depositary or with the Property Trustee as custodian for the Depositary
pursuant to this Section 7.03 shall be transferred to the beneficial owners
thereof in the form of certificated Preferred Securities only if such transfer
complies with Section 9.02 and (i) the Depositary notifies the Depositor that it
is unwilling or unable to continue as Depositary for such Global Preferred
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act, at a time when the Depositary is required to
be so registered to act as such depositary, (ii) the Administrative Trustees
decide in their sole discretion determines that such Global Preferred Security
shall be so exchangeable, or (iii) an Event of Default has occurred and is
continuing.
(e) Any Global Preferred Security that is transferable to the
beneficial owners thereof in the form of certificated Preferred Securities
pursuant to this Section 7.03 shall be surrendered by the Depositary to the
Property Trustee located in the Borough of Manhattan, City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Property Trustee shall authenticate and deliver, upon such transfer of each
portion of such Global Preferred Security, an equal aggregate liquidation amount
of Preferred Securities of authorized denominations in the form of certificated
Preferred Securities. Any portion of a Global Preferred Security transferred
pursuant to this Section shall be registered in such names and such amounts as
the Depositary shall direct.
(f) Subject to the provisions of Section 7.03(e), the registered
holder of a Global Preferred Security may grant proxies and otherwise authorize
any Person, including Participants and Persons that may hold interests through
Participants, to take any action which a holder is entitled to take under this
Declaration or the Securities.
(g) In the event of the occurrence of any of the events specified in
Section 7.03(d), the Trust will promptly make available to the Property Trustee
a reasonable supply of certificated Securities in definitive, fully registered
form without distribution coupons.
Section 7.04 Registrar, Paying Agent, Conversion Agent and Tender
Agent. The Administrative Trustees shall maintain in the Borough of Manhattan,
City of New York, State of New York (i) an office or agency where Preferred
Securities may be presented for registration of transfer or for exchange
("Registrar"), (ii) an office or agency where Preferred Securities may be
presented for payment ("Paying Agent") and (iii) an office or agency where
Securities may be presented for conversion ("Conversion Agent"). The Registrar
shall keep a register of the Preferred Securities
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and of their transfer and exchange. The Administrative Trustees may appoint the
Registrar, the Paying Agent and the Conversion Agent and may appoint one or more
co-registrars, one or more additional paying agents and one or more additional
conversion agents in such other locations as it shall determine. The term
"Paying Agent" includes any additional paying agent and the term "Conversion
Agent" includes any additional conversion agent. The Administrative Trustees may
change any Paying Agent, Registrar, co-registrar or Conversion Agent without
prior notice to any Holder; provided that the Administrative Trustees shall
provide notice of such change to all Holders promptly thereafter. The
Administrative Trustees shall notify the Property Trustee of the name and
address of any Agent not a party to this Declaration. If the Administrative
Trustees fail to appoint or maintain another entity as Registrar, Paying Agent
or Conversion Agent, the Property Trustee shall act as such. The Trust or any of
its Affiliates may act as Paying Agent, Registrar, or Conversion Agent. The
Trust shall act as Paying Agent, Registrar, co-registrar, and Conversion Agent
for the Common Securities.
The Trust initially appoints the Property Trustee as Registrar,
Paying Agent, and Conversion Agent for the Preferred Securities. The Property
Trustee shall also serve as Tender Agent and shall have the responsibilities of
such described in the Remarketing Agreement for so long as the Debentures are
held by the Property Trustee.
Section 7.05 Paying Agent to Hold Money in Trust. The Trust shall
require each Paying Agent other than the Property Trustee to agree in writing
that the Paying Agent will hold in trust for the benefit of Holders or the
Property Trustee all money held by the Paying Agent for the payment of principal
or distribution on the Securities, and will notify the Property Trustee if there
are insufficient funds. While any such insufficiency continues, the Property
Trustee may require a Paying Agent to pay all money held by it to the Property
Trustee. The Administrative Trustees at any time may require a Paying Agent to
pay all money held by it to the Property Trustee and to account for any money
disbursed by it. Upon payment over to the Property Trustee, the Paying Agent (if
other than the Trust or an Affiliate of the Trust) shall have no further
liability for the money. If the Trust or the Depositor or an Affiliate of the
Trust or the Depositor acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent.
Section 7.06 Replacement Securities. If the Holder of a Security
claims that the Security has been lost, destroyed or wrongfully taken or if such
Security is mutilated and is surrendered to the Trust or in the case of the
Preferred Securities to the Property Trustee, an Administrative Trustee on
behalf of the Trust shall issue and the Property Trustee shall authenticate a
replacement Security if the Property Trustee's and such Administrative Trustee's
requirements, as the case may be, are met. If required by the Property Trustee
or such Administrative Trustee, an indemnity bond must be sufficient in the
judgment of both to protect the Trustees, the Depositor or any authenticating
agent from any loss which any of them may suffer if a Security is replaced. The
Depositor may charge for its expenses in replacing a Security.
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In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be purchased by the
Depositor pursuant to Article IV hereof, the Depositor in its discretion may,
instead of the Trust's issuing a new Security, pay or purchase such Security, as
the case may be.
Every replacement Security is an additional obligation of the Trust.
Section 7.07 Outstanding Preferred Securities. The Preferred
Securities outstanding at any time are all the Preferred Securities
authenticated by the Property Trustee except for those canceled by it, those
delivered to it for cancellation, and those described in this Section as not
outstanding.
If a Preferred Security is replaced, paid or purchased pursuant to
Section 7.06 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Preferred
Security is held by a protected purchaser (as such term is used in Section 8-405
of the Delaware Uniform Commercial Code).
If Preferred Securities are considered paid in full in accordance
with the terms of this Declaration, they cease to be outstanding and
Distribution on them ceases to accumulate.
A Preferred Security does not cease to be outstanding because one of
the Trust, the Depositor or an Affiliate of the Depositor holds the Security.
Section 7.08 Preferred Securities in Treasury. In determining
whether the Holders of the required amount of Securities have concurred in any
direction, waiver or consent, Preferred Securities owned by the Trust, the
Depositor or an Affiliate of the Depositor, as the case may be, shall be
disregarded and deemed not to be outstanding, except that for the purposes of
determining whether the Property Trustee shall be fully protected in relying on
any such direction, waiver or consent, only Securities which the Property
Trustee knows are so owned shall be so disregarded.
Section 7.09 Temporary Securities. Until definitive Securities are
ready for delivery, the Trust may prepare and, in the case of the Preferred
Securities, the Property Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Trust considers appropriate for temporary
Securities. Without unreasonable delay, the Trust shall prepare and deliver to
the Property Trustee Preferred Securities in certificated form (other than in
the case of Preferred Securities in global form) and thereupon any or all
temporary Preferred Securities (other than any such Preferred Securities in
global form) may be surrendered in exchange therefor, at the office of the
Registrar, and the Property Trustee shall authenticate and deliver an equal
aggregate liquidation amount of definitive Preferred Securities in certificated
form in exchange for temporary Preferred Securities (other than any such
Preferred Securities in global form).
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Section 7.10 Cancellation. Any Administrative Trustee on behalf of
the Trust at any time may deliver Preferred Securities to the Property Trustee
for cancellation. The Registrar, Paying Agent and Conversion Agent shall forward
to the Property Trustee any Preferred Securities surrendered to them for
registration of transfer, redemption, conversion, exchange or payment. The
Property Trustee shall promptly cancel all Preferred Securities, surrendered for
registration of transfer, redemption, conversion, exchange, payment, replacement
or cancellation and shall return such canceled Preferred Securities to the
Administrative Trustees. The Trust may not issue new Preferred Securities to
replace Preferred Securities that it has paid or that have been delivered to the
Property Trustee for cancellation or that any Holder has converted.
ARTICLE VIII
Termination of Trust
Section 8.01 Dissolution of Trust. (a) The Trust shall dissolve upon
the earliest to occur of the following:
(i) the bankruptcy of the Holder of the Common Securities or the
Depositor;
(ii) the filing of a certificate of dissolution or its
equivalent with respect to the Holder of the Common Securities or the
Depositor; the revocation of the charter of the Holder of the Common
Securities or the Depositor and the expiration of 90 days after the date
of revocation without a reinstatement thereof;
(iii) a written direction of the Depositor to dissolve the Trust
and distribute a Like Amount of Debentures to Holders of the Securities
in accordance with the terms of the Securities;
(iv) all of the Securities shall have been called for redemption
and the amounts necessary for redemption thereof shall have been paid to
the Holders in accordance with the terms of the Securities;
(v) the expiration of the term of the Trust as set forth in
Section 3.14 hereof;
(vi) the entry of a decree of judicial dissolution of the Holder
of the Common Securities, the Depositor or the Trust;
(vii) upon distribution of the Common Stock of the Depositor to
Holders of all outstanding Securities upon conversion of all such
Securities; or
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(viii) before the issuance of any Securities, with the consent
of all the Administrative Trustees and the Depositor.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.01(a), and after the completion of the winding up of
the affairs of the Trust, the Trustees shall file a certificate of cancellation
with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.09 and Article X shall survive the
termination of the Trust.
ARTICLE IX
Transfer and Exchange
Section 9.01 General.
(a) When Preferred Securities are presented to the Registrar or a
co-registrar with a request to register a transfer or to exchange them for an
equal number of Preferred Securities represented by different certificates, the
Registrar shall register the transfer or make the exchange if its requirements
for such transactions are met. To permit registrations of transfers and
exchanges, the Administrative Trustees shall prepare and one Administrative
Trustee shall execute and the Property Trustee shall authenticate Preferred
Securities at the Registrar's request.
(b) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. To the fullest extent permitted by law, any
transfer or purported transfer of any Security not made in accordance with this
Declaration shall be null and void.
Subject to this Article IX, Preferred Securities shall be freely
transferable.
Subject to this Article IX, the Depositor and any Related Party may
only transfer Common Securities to the Depositor or a Related Party of the
Depositor; provided that, any such transfer is subject to the condition
precedent that the transferor obtain the written opinion of nationally
recognized independent counsel experienced in such matters that such transfer
would not cause more than an insubstantial risk that:
(i) the Trust would not be classified for United States federal
income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company or the transferee
would become an Investment Company.
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(c) The Administrative Trustees shall provide for the registration
of Securities and of transfers of Securities, which will be effected without
charge but only upon payment (with such indemnity as the Administrative Trustees
may require) in respect of any tax or other governmental charges that may be
imposed in relation to it. Upon surrender for registration of transfer of any
Securities, the Administrative Trustees shall cause one or more new Securities
to be issued and authenticated by the Property Trustee in the name of the
designated transferee or transferees. Every Security surrendered for
registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Administrative Trustees duly executed by
the Holder or such Holder's attorney duly authorized in writing. Each Security
surrendered for registration of transfer shall be cancelled in accordance with
Section 7.10. A transferee of a Security shall be entitled to the rights and
subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Security. By acceptance of a Security, each transferee shall be
deemed to have agreed to be bound by this Declaration.
(d) The Trust shall not be required (i) to issue, register the
transfer of, or exchange, Preferred Securities during a period beginning at the
opening of business 15 days before the day of any selection of Preferred
Securities for redemption set forth in the terms of the Securities as set forth
in Annex I hereto and ending at the close of business on the day of selection,
or (ii) to register the transfer or exchange of any Preferred Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Preferred Security being redeemed in part.
(e) All Preferred Securities issued upon any transfer or exchange
pursuant to the terms of this Declaration shall evidence the same security and
shall be entitled to the same benefits under this Declaration as the Preferred
Securities surrendered upon such transfer or exchange.
Section 9.02 Transfer Procedures and Restrictions.
(a) Transfer and Exchange of Definitive Preferred Securities. When
Definitive Preferred Securities are presented to the Registrar or co-Registrar
(x) to register the transfer of such Definitive Preferred
Securities; or
(y) to exchange such Definitive Preferred Securities for an
equal number of Definitive Preferred Securities of another denomination;
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Preferred Securities surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Administrative
Trustees and the Registrar or co-registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing.
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(b) [Reserved]
(c) Transfer and Exchange of Global Preferred Securities. The
transfer and exchange of Global Preferred Securities or beneficial interests
therein shall be effected through the Depositary, in accordance with this
Declaration (including applicable restrictions on transfer set forth herein, if
any) and the procedures of the Depositary therefor.
(d) [Reserved]
(e) Restrictions on Transfer and Exchange of Global Preferred
Securities. Notwithstanding any other provisions of this Declaration (other than
the provisions set forth in Section 7.03), a Global Preferred Security may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or another nominee of the Depositary or by the Depositary or any such
nominee to a successor Depositary or a nominee of such successor Depositary.
(f) Cancellation or Adjustment of Global Preferred Security. At such
time as all beneficial interests in a Global Preferred Security have either been
exchanged for Definitive Preferred Securities to the extent permitted by the
Declaration or redeemed, repurchased or cancelled in accordance with the terms
of this Declaration, such Global Preferred Security shall be returned to the
Depositary for cancellation or retained and cancelled by the Property Trustee.
At any time prior to such cancellation, if any beneficial interest in a Global
Preferred Security is exchanged for Definitive Preferred Securities, Preferred
Securities represented by such Global Preferred Security shall be reduced and an
adjustment shall be made on the books and records of the Property Trustee (if it
is then the Registrar for such Global Preferred Security) with respect to such
Global Preferred Security, by the Property Trustee or the Registrar, to reflect
such reduction.
(g) No Obligation of the Property Trustee.
(i) The Property Trustee shall have no responsibility or
obligation to any Preferred Security Beneficial Owner, a Participant in
the Depositary or other Person with respect to the accuracy of the
records of the Depositary or its nominee or of any Participant thereof,
with respect to any ownership interest in the Preferred Securities or
with respect to the delivery to any Participant, Preferred Security
Beneficial Owner or other Person (other than the Depositary) of any
notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Preferred Securities. All notices
and communications to be given to the Holders and all payments to be
made to Holders under the Preferred Securities shall be given or made
only to or upon the order of the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Preferred Security).
The rights of Preferred Security Beneficial Owners in any Global
Preferred Security shall be exercised only through the Depositary
subject to the applicable rules and procedures of the Depositary. The
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Property Trustee may conclusively rely and shall be fully protected in
relying upon information furnished by the Depositary or agent thereof
with respect to its Participants and any Preferred Security Beneficial
Owners.
(ii) The Property Trustee and Registrar shall have no obligation
or duty to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Declaration or under
applicable law with respect to any transfer of any interest in any
Preferred Security (including any transfers between or among Depositary
Participants or Preferred Security Beneficial Owners in any Global
Preferred Security) other than to require delivery of such certificates
and other documentation or evidence as are expressly required by, and to
do so if and when expressly required by, the terms of this Declaration,
and to examine the same to determine substantial compliance as to form
with the express requirements hereof.
Section 9.03 Deemed Security Holders. The Trustees may treat the
Person in whose name any Certificate shall be registered on the books and
records of the Trust as the sole holder of such Certificate and of the
Securities represented by such Certificate for purposes of receiving
Distributions and for all other purposes whatsoever and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
Certificate or in the Securities represented by such Certificate on the part of
any Person, whether or not the Trust, the Property Trustee, the Registrar or a
co-registrar shall have actual or other notice thereof.
Section 9.04 Notices to Depositary. Whenever a notice or other
communication to the Preferred Security Holders is required under this
Declaration, the Administrative Trustees shall, in the case of any Global
Preferred Security, give all such notices and communications specified herein to
be given to the Preferred Security Holders to the Depositary and shall have no
notice obligations to the Preferred Security Beneficial Owners.
Section 9.05 Appointment of Successor Depositary. If the Depositary
elects to discontinue its services as securities depositary with respect to the
Preferred Securities, the Administrative Trustees may, in their sole discretion,
appoint a successor Depositary with respect to such Preferred Securities.
ARTICLE X
Limitation of Liability of Holders of Securities, Trustees or Others
Section 10.01 Liability. (a) Except as expressly set forth in this
Declaration, the Securities Guarantee and the terms of the Securities, the
Depositor shall not be:
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(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; or
(ii) required to pay to the Trust or to any Holder of Securities
any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of
the debts and obligations of the Trust (other than with respect to the
Securities) to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Preferred Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
Section 10.02 Exculpation. (a) No Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Trust or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Declaration or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's gross
negligence (or, in the case of the Property Trustee, negligence) or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
Section 10.03 Fiduciary Duty. (a) To the extent that, at law or in
equity, an Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to any other Covered Person, an
Indemnified Person acting under this Declaration shall not be liable to the
Trust or to any other Covered Person for its good faith reliance on the
provisions of this Declaration. The provisions of this Declaration, to the
extent that they restrict the duties and liabilities of an Indemnified Person
otherwise existing at law or in equity (other than the duties imposed on the
Property Trustee under the Trust Indenture Act), are agreed by the parties
hereto to replace such other duties and liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
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(i) whenever a conflict of interest exists or arises between an
Indemnified Person and any Covered Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person shall
act in a manner that is, or provides terms that are, fair and reasonable
to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no
duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this
Declaration or by applicable law.
Section 10.04 Indemnification. (a) To the fullest extent permitted
by applicable law, the Debenture Issuer shall indemnify and hold harmless each
Indemnified Person from and against any loss, damage, liability, tax, penalty,
expense or claim of any kind or nature whatsoever incurred by such Indemnified
Person by reason of the creation, operation or termination of the Trust or any
act or omission performed or omitted by such Indemnified Person in good faith on
behalf of the Trust and in a manner such Indemnified Person reasonably believed
to be within the scope of authority conferred on such Indemnified Person by this
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of gross negligence (or, in the case of the Property Trustee,
negligence) or willful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including legal fees and expenses) incurred by an Indemnified Person in
defending
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any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Debenture Issuer prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Debenture Issuer of an
undertaking by or on behalf of the Indemnified Person to repay such amount if it
shall be determined that the Indemnified Person is not entitled to be
indemnified as authorized in Section 10.4(a). The indemnification shall survive
the termination of this Declaration.
Section 10.05 Outside Businesses. Any Covered Person, the Depositor,
the Delaware Trustee and the Property Trustee (subject to Section 5.03(c)) may
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Trust, and the Trust and the Holders of Securities shall have no rights
by virtue of this Declaration in and to such independent ventures or the income
or profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. None of the Depositor, any Covered Person, the Delaware Trustee, the
Administrative Trustees or the Property Trustee shall be obligated to present
any particular investment or other opportunity to the Trust even if such
opportunity is of a character that, if presented to the Trust, could be taken by
the Trust, and any Covered Person, the Depositor, the Delaware Trustee and the
Property Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity. Any Covered Person, the Delaware Trustee and
the Property Trustee may engage or be interested in any financial or other
transaction with the Depositor or any Affiliate of the Depositor, or may act as
depositary for, trustee or agent for, or act on any committee or body of holders
of, securities or other obligations of the Depositor or its Affiliates.
ARTICLE XI
Accounting
Section 11.01 Fiscal Year. The fiscal year ("Fiscal Year") of the
Trust shall be the calendar year, or such other year as is required by the Code.
Section 11.02 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Administra-
tive Trustees shall keep, or cause to be kept, full books of account, records
and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year by a firm of independent certified public accountants
selected by the Administrative Trustees.
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(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss;
(c) The Administrative Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States federal
income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the Code
to deliver any such statement at a later date, the Administrative Trustees shall
endeavor to deliver all such statements within 30 days after the end of each
Fiscal Year of the Trust.
(d) The Administrative Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.
Section 11.03 Banking. The Administrative Trustees on behalf of the
Trust shall maintain one or more bank accounts in the name and for the sole
benefit of the Trust; provided, however, that all payments of funds in respect
of the Debentures held by the Property Trustee shall be made directly to the
Property Trustee Account and no other funds of the Trust shall be deposited in
the Property Trustee Account. The sole signatories for such accounts shall be
designated by the Administrative Trustees; provided, however, that the Property
Trustee shall designate the signatories for the Property Trustee Account.
Section 11.04 Withholding. The Trust and the Administrative Trustees
on behalf of the Trust shall comply with all withholding requirements under
United States federal, state and local law. The Administrative Trustees on
behalf of the Trust shall request, and the Holders shall provide to the
Administrative Trustees, such forms or certificates as are necessary to
establish an exemption from withholding with respect to each Holder, and any
representations and forms as shall reasonably be requested by the Administrative
Trustees on behalf of the Trust to assist it in determining the extent of, and
in fulfilling the Trust's withholding obligations. The Administrative Trustees
shall file required forms with applicable jurisdictions and, unless an exemption
from withholding is properly established by a Holder, shall remit amounts
withheld with respect to the Holder to applicable jurisdictions. To the extent
that the Trust is required to withhold and pay over any amounts to any authority
with respect to distributions or allocations to any Holder, the amount withheld
shall be deemed to be a distribution in the amount of the withholding to the
Holder. In the event of any claimed overwithholding, Holders shall be limited to
an action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Administrative
Trustees on behalf of the Trust may reduce subsequent Distributions by the
amount of such withholding.
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ARTICLE XII
Amendments and Meetings
Section 12.01 Amendments. (a) Except as otherwise provided in this
Declaration or by any applicable terms of the Securities, this Declaration may
be amended from time to time by the Depositor, the Property Trustee and the
Administrative Trustees, without the consent of the Holders of the Securities,
(i) to cure any ambiguity, correct or supplement any provision in the
Declaration that may be inconsistent with any other provision, or to make any
other provisions with respect to ministerial matters or questions arising under
the Declaration, which shall not be inconsistent with the other provisions of
the Declaration, or (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
not be taxable as a corporation or will be classified for United States federal
income tax purposes as a grantor trust at all times that any Securities are
outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
in the case of clause (i), such action shall not adversely affect in any
material respect the interests of any Holder of Securities, and any such
amendments of the Declaration shall become effective when notice thereof is
given to the Holders of the Securities.
(b) Except as provided in (c) below, and the terms of the
Securities, this Declaration may be amended by the Trustees and the Depositor
with (i) the consent of Holders representing not less than a Majority in
liquidation amount of the outstanding Preferred Securities, and (ii) receipt by
the Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with such amendment
will not affect the Trust's status as a grantor trust for United States federal
income tax purposes or the Trust's exemption from status as an "investment
company" under the Investment Company Act.
(c) Without the consent of each Holder of Securities, the Declara-
tion may not be amended to (i) change the amount or timing of any Distribution
on the Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Securities of a specified date or (ii)
restrict the right of a Holder of Securities to institute suit for the
enforcement of any such payment on or after such date.
Section 12.02 Meetings of the Holders of Securities; Action by
Written Consent. (a) Meetings of the Holders of any class of Securities may be
called at any time by the Administrative Trustees (or as provided in the terms
of the Securities) to consider and act on any matter on which Holders of such
class of Securities are entitled to act under the terms of this Declaration, the
terms of the Securities or the rules of any stock exchange on which the
Preferred Securities are listed or admitted for trading. Except as otherwise set
forth in the terms of the Securities, the Administrative Trustees shall call a
meeting of the Holders of such class if directed to do so by the Holders of at
least 25% in liquidation amount of such class of Securities. Such direction
shall be given by delivering to the Administrative Trustees one or more requests
in a writing stating that the signing Holders of Securities wish to call a
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meeting and indicating the general or specific purpose for which the meeting is
to be called. Any Holders of Securities calling a meeting shall specify in
writing the Certificates held by the Holders of Securities exercising the right
to call a meeting and only those Securities represented by the Certificates so
specified shall be counted for purposes of determining whether the required
percentage set forth in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the Holders
of Securities having a right to vote thereat at least 7 days and not
more than 60 days before the date of such meeting. Whenever a vote,
consent or approval of the Holders of Securities is permitted or
required under this Declaration or the rules of any stock exchange on
which the Preferred Securities are listed or admitted for trading, such
vote, consent or approval may be given at a meeting of the Holders of
Securities. Any action that may be taken at a meeting of the Holders of
Securities may be taken without a meeting and without prior notice if a
consent in writing setting forth the action so taken is signed by the
Holders of Securities owning not less than the minimum aggregate
liquidation amount of Securities that would be necessary to authorize or
take such action at a meeting at which all Holders of Securities having
a right to vote thereon were present and voting. Prompt notice of the
taking of action without a meeting shall be given to the Holders of
Securities entitled to vote who have not consented in writing. The
Administrative Trustees may specify that any written ballot submitted to
the Holders for the purpose of taking any action without a meeting shall
be returned to the Trust within the time specified by the Administrative
Trustees;
(ii) each Holder of a Security may authorize any Person to act
for it by proxy on all matters in which a Holder of Securities is
entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
Holder of Securities executing it. Except as otherwise provided herein,
all matters relating to the giving, voting or validity of proxies shall
be governed by the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations thereunder, as if the
Trust were a Delaware corporation and the Holders of the Securities were
stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Administrative Trustees or by such other Person that
the Administrative Trustees may designate; and
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(iv) unless the Business Trust Act, this Declaration, the terms
of the Securities, the Trust Indenture Act or the listing rules of any
stock exchange on which the Preferred Securities are then listed or
trading, provide otherwise, the Administrative Trustees, in their sole
discretion, shall establish all other provisions relating to meetings of
Holders of Securities, including notice of the time, place or purpose of
any meeting at which any matter is to be voted on by any Holders of
Securities, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements, voting
in person or by proxy or any other matter with respect to the exercise
of any such right to vote.
ARTICLE XIII
Representations of Property Trustee and Delaware Trustee
Section 13.01 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents and warrants to the
Trust and to the Depositor at the date of this Declaration, at the Closing Date
and at each Optional Closing Date, if any, and each Successor Property Trustee
represents and warrants to the Trust and the Depositor at the time of the
Successor Property Trustee's acceptance of its appointment as Property Trustee
that:
(a) The Property Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with corporate power and authority to execute
and deliver, and to carry out and perform its obligations under the terms of,
the Declaration.
(b) The execution, delivery and performance by the Property Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee. The Declaration has been duly executed and
delivered by the Property Trustee, and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law).
(c) The execution, delivery and performance of the Declaration by
the Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee.
(d) No consent, approval or authorization of, or registration with
or notice to, any New York or federal banking authority is required for the
execution, delivery or performance by the Property Trustee, of the Declaration.
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(e) The Property Trustee satisfies the qualifications set forth in
Section 5.03 and shall not create, incur or assume or suffer to exist any
mortgage, pledge, hypothecation, encumbrance, lien or other change or security
interest upon the Debentures.
Section 13.02 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and warrants to the
Trust and to the Depositor at the date of this Declaration, at the Closing Date
and at each Optional Closing Date, if any, and each Successor Delaware Trustee
represents and warrants to the Trust and the Depositor at the time of the
Successor Property Trustee's acceptance of its appointment as Delaware Trustee
that:
(a) The Delaware Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with corporate power and authority to execute
and deliver, and to carry out and perform its obligations under the terms of,
the Declaration.
(b) The execution, delivery and performance by the Delaware Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee. The Declaration has been duly executed and
delivered by the Delaware Trustee, and constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law).
(c) The execution, delivery and performance of the Declaration by
the Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(d) No consent, approval or authorization of, or registration with
or notice to, any Delaware or federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee, of the Declaration.
(e) The Delaware Trustee is an entity which has its principal place
of business in the State of Delaware.
(f) The Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and the Declaration.
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ARTICLE XIV
Miscellaneous
Section 14.01 Notices. All notices provided for in this Declaration
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the
Administrative Trustees may give notice of to the Holders of the Securities):
Calpine Capital Trust
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Secretary
(b) if given to the Property Trustee, at the mailing address set
forth below (or such other address as the Property Trustee may give notice of to
the Holders of the Securities):
The Bank of New York
101 Barclay Street
New York, New York 10285
Attention: [ ]
(c) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as the Delaware Trustee may give notice of to
the Holders of the Securities):
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: [ ]
(d) if given to the Holder of the Common Securities, at the mailing
address of the Depositor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Secretary
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust or the Registrar, as applicable.
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All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
Section 14.02 Governing Law. This Declaration and the rights of the
parties hereunder shall be governed by and interpreted in accordance with the
laws of the State of Delaware and all rights and remedies shall be governed by
such laws without regard to principles of conflict of laws. Sections 3540 and
3561 of Title 12 of the Delaware Code shall not apply to the Trust; provided,
however, that there shall not be applicable to the parties hereunder or this
Declaration any provision of the laws (statutory or common) of the State of
Delaware pertaining to trusts that relate to or regulate, in a manner
inconsistent with the terms hereof (A) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges, (B)
affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (C) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (D) fees or other sums payable to trustees, officers,
agents, or employees of a trust, (E) the allocation of receipts and expenditures
to income or principal, (F) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding or investing trust assets or (G)
the establishment of fiduciary or other standards of responsibility or
limitations on the acts or powers of trustees that are inconsistent with the
limitations or liabilities or authorities and powers of the trustees hereunder
as set forth or referenced in this Declaration.
Section 14.03 Intention of the Parties. It is the intention of the
parties hereto that the Trust be classified for United States federal income tax
purposes as a grantor trust. The provisions of this Declaration shall be
interpreted to further this intention of the parties.
Section 14.04 Headings. Headings contained in this Declaration are
inserted for convenience of reference only and do not affect the interpretation
of this Declaration or any provision hereof.
Section 14.05 Successors and Assigns. Whenever in this Declaration
any of the parties hereto is named or referred to, the successors and assigns of
such party shall be deemed to be included, and all covenants and agreements in
this Declaration by the Depositor and the Trustees shall bind and inure to the
benefit of their respective successors and assigns, whether so expressed.
Section 14.06 Partial Enforceability. If any provision of this
Declaration, or the application of such provision to any Person or
circumstance, shall be held invalid, the remainder of this Declaration, or the
application of such provision to
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Persons or circumstances other than those to which it is held invalid, shall not
be affected thereby.
Section 14.07 Counterparts. This Declaration may contain more than
one counterpart of the signature page and this Declaration may be executed by
the affixing of the signature of each of the Trustees to one of such counterpart
signature pages. All of such counterpart signature pages shall be read as though
one, and they shall have the same force and effect as though all of the signers
had signed a single signature page.
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IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
Peter Cartwright,
as Administrative Trustee
------------------------------------------------
Ann B. Curtis,
as Administrative Trustee
------------------------------------------------
Thomas R. Mason,
as Administrative Trustee
------------------------------------------------
Calpine Corporation,
as Depositor and Debenture Issuer
By:
---------------------------------------------
Name:
Title:
The Bank of New York,
as Delaware Trustee
By:
---------------------------------------------
Name:
Title:
The Bank of New York,
as Property Trustee
By:
---------------------------------------------
Name:
Title:
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ANNEX I
TERMS OF
Remarketable Term Income Deferrable
Equity Securities (HIGH TIDES(SM)) and
HIGH TIDES Common Securities
Pursuant to Section 7.01 of the Amended and Restated Declaration of
Trust, dated as of ____, 1999 (as amended from time to time, the "Declaration"),
the designation, rights, privileges, restrictions, preferences and other terms
and provisions of the Preferred Securities and the Common Securities are set out
below (each capitalized term used but not defined herein has the meaning set
forth in the Declaration or the Indenture (as defined in the Declaration) or, if
not defined in the Declaration, Indenture or Remarketing Agreement, as defined
in the Prospectus (as defined in the Declaration):
1. Designation and Number.
(a) "Preferred Securities." 4,000,000 (or up to 4,600,000 to the extent
the over-allotment option is exercised in full) Preferred Securities of the
Trust with an aggregate liquidation preference with respect to the assets of the
Trust of TWO HUNDRED MILLION Dollars ($200,000,000) (or up to TWO HUNDRED AND
THIRTY MILLION Dollars ($230,000,000) to the extent the over-allotment option is
exercised in full), and a liquidation amount with respect to the assets of the
Trust of $50 per Preferred Security, are hereby designated for the purposes of
identification only as "Remarketable Term Income Deferrable Equity Securities
(HIGH TIDES(SM))" (the "Preferred Securities"). The Preferred Security
Certificates evidencing the Preferred Securities shall be substantially in the
form attached hereto as Exhibit A-1, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or practice or
to conform to the rules of any stock exchange or other organization on which the
Preferred Securities are listed, if any.
(b) "Common Securities." 123,712 (or up to 142,269 to the extent the
over-allotment option is exercised in full) Common Securities of the Trust with
an aggregate liquidation amount with respect to the assets of the Trust of SIX
MILLION ONE HUNDRED EIGHTY FIVE THOUSAND SIX HUNDRED Dollars ($6,185,600) (or up
to SEVEN MILLION ONE HUNDRED THIRTEEN THOUSAND AND FOUR HUNDRED AND FIFTY
Dollars ($7,113,450) to the extent the over-allotment option is exercised in
full) and a liquidation amount with respect to the assets of the Trust of $50
per Common Security, are hereby designated for the purposes of identification
only as "HIGH TIDES Common Securities" (the "Common Securities"). The Common
Security Certificates evidencing the Common Securities shall be substantially in
the form attached hereto as Exhibit A-2, with such changes and additions thereto
or deletions therefrom as may be required by ordinary usage, custom or practice.
A-1
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2. Distributions.
(a) Distributions payable on each Security will accrue at the Applicable
Rate applied to the stated liquidation amount of $50 per Security, such rate
being the rate of interest payable on the Debentures to be held by the Property
Trustee. The Applicable Rate will be [ ]% per annum (the "Initial Rate") from
the date of original issuance of the Securities to but excluding the Reset Date.
From the Reset Date, the Applicable Rate will be the Term Rate established by
the Remarketing Agent to be effective on the Reset Date. Distributions in
arrears for more than one quarter will bear interest thereon compounded
quarterly at the Applicable Rate (to the extent permitted by applicable law) as
described in the Declaration. The term "Distributions" as used herein includes
such quarterly distributions, additional distributions on quarterly
distributions not paid on the applicable Distribution Date and Additional
Amounts, as applicable. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee and
to the extent the Property Trustee has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
(b) Distributions on the Securities will be cumulative, will accrue from
the date of their original issuance and will be payable quarterly in arrears, on
the following dates, which dates correspond to the interest payment dates on the
Debentures: [ ],[ ], [ ] and [ ] of each year, commencing on [ ] ,
2000, except as otherwise described below. Each registered Holder of Securities
on the fifteenth day prior to the Reset Date (including any Holder which has
tendered or is deemed to have tendered its Preferred Securities for remarketing)
shall be paid a Distribution of interest and Additional Amounts, if any, accrued
to (but excluding) the Reset Date. The Reset Date is any date (1) not later than
October __, 2004 (or, if such day is not a Business Day, the next succeeding
Business Day), and (2) not earlier than 70 Business Days prior to October __,
2004, as may be determined by the Remarketing Agent, in its sole discretion, for
settlement of a successful remarketing. Distributions and Additional Amounts, if
any, accrued from and after the Reset Date to (but excluding) [ ] shall be
paid on [ ](or, if such day is not a Business Day, the next succeeding
Business Day) to the Person whose name each Security is registered on the
preceding [ ], subject to the right of the Depositor to initiate a Deferral
Period (as described below). So long as no Debenture Event of Default has
occurred and is continuing, the Depositor has the right under the Indenture to
defer payments of interest by extending the interest payment period from time to
time on the Debentures for a period not exceeding 20 consecutive quarters (each
a "Deferral Period") and, as a consequence of such deferral, Distributions will
also be deferred. Despite such deferral, quarterly Distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at
the Applicable Rate compounded quarterly during any such Deferral Period. Prior
to three Business Days before a Regular Record Date fixed for a Payment
Resumption Date (as defined in the Indenture), the Depositor may further extend
such Deferral Period; provided that such Deferral Period together with all such
previous and further extensions thereof may not exceed 20 consecutive quarters
or
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extend beyond (i) the maturity (whether at the stated maturity or by declaration
of acceleration, call for redemption or otherwise) of the Debentures under the
Indenture and (ii) in the case of a Deferral Period which begins prior to the
Reset Date, the Reset Date. Payments of accrued Distributions will be payable to
Holders as they appear on the books and records of the Trust on the Regular
Record Date for the relevant Payment Resumption Date. Upon the termination of
any Deferral Period and the payment of all amounts then due, the Depositor may
commence a new Deferral Period, subject to the above requirements.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust at the close of
business on the relevant record dates. The relevant record dates shall be on the
[ ] day of each [ ],[ ], [ ] and [ ] next preceding the relevant payment dates,
except as otherwise described in this Annex I to the Declaration. Subject to
any applicable laws and regulations and the provisions of the Declaration, each
such payment in respect of Preferred Securities being held in book-entry form
through The Depository Trust Company (the "Depositary"), or any successor
Depositary appointed pursuant to the Declaration, will be made as described
under the heading "Description of HIGH TIDES -- Form, Book-Entry Procedures and
Transfer" in the Prospectus. The relevant record dates for the Common Securities
shall be the same record dates as for the Preferred Securities. Distributions
payable on any Securities that are not punctually paid on any Distribution
payment date, as a result of the Depositor having failed to make a payment under
the Debentures, will cease to be payable to the Person in whose name such
Securities are registered on the relevant record date, and such defaulted
Distribution will instead be payable to the Person in whose name such Securities
are registered on the special record date or other specified date determined in
accordance with the Indenture. If any date on which Distributions are payable on
the Securities is not a Business Day, then payment of the Distribution payable
on such date will be made on the next succeeding day that is a Business Day (and
without any additional Distributions or other payment in respect of any such
delay) except that, with respect to any Redemption Date, if such Business Day is
in the next succeeding calendar year, such Redemption Date shall be the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
(d) In the event of an election by the Holder to convert its Securities
through the Conversion Agent into Common Stock pursuant to the terms of the
Securities as forth in this Annex I to the Declaration, no payment, allowance or
adjustment shall be made with respect to accumulated and unpaid Distributions on
such Securities, or be required to be made; provided that Holders of Securities
at the close of business on any record date for the payment of Distributions
will be entitled to receive the Distributions payable on such Securities on the
corresponding payment date notwithstanding the conversion of such Securities
into Common Stock following such record date.
(e) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the Securities.
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3. Liquidation Distribution Upon Dissolution.
In the event of any voluntary or involuntary dissolution of the Trust,
the Trust shall be liquidated by the Trustees as expeditiously as the Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to the Holders of the
Securities a Like Amount of Debentures, unless such distribution would not be
practical, in which event such Holders will be entitled to receive out of the
assets of the Trust available for distribution to Holders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, an amount
equal to the aggregate liquidation amount thereof plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Securities shall be paid on a Pro Rata basis in accordance with paragraph 9. The
Holder of the Common Securities will be entitled to receive distributions upon
any such liquidation Pro Rata with the Holders of the Preferred Securities,
except as provided in paragraph 10.
4. Redemption and Distribution.
(a) Upon the repayment or payment of the Debentures in whole or in part,
whether at maturity or upon redemption or otherwise (other than following any
distribution of the Debentures to the Holders), the proceeds from such repayment
or redemption shall be simultaneously applied to redeem, on a Pro Rata basis, a
Like Amount of Securities, on the redemption date, in an amount per Security
equal to the applicable Redemption Price, payable in cash, which Redemption
Price will be equal to (i) the liquidation amount of each of the Securities plus
any accrued and unpaid Distributions thereon (A) in the case of the repayment of
the Debentures at stated maturity, or (B) in the case of a redemption of the
Debentures in certain limited circumstances set forth in the Indenture upon the
occurrence of a Tax Event, or (ii) (A) in the case of an Optional Redemption
after October __, 2002 until but excluding the Tender Notification Date, the
Initial Redemption Price, (B) in the case of an Optional Redemption on or after
the Reset Date (except in the event of a Failed Final Remarketing), in
accordance with the Term Call Protections or (C) in the event of a Failed Final
Remarketing, 100% of the then outstanding aggregate principal amount of the
Securities being redeemed, plus accrued and unpaid interest thereon.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Preferred Securities will be redeemed Pro Rata and
the Preferred Securities to be redeemed will be as described in Paragraph
4(f)(ii) below.
(c) The Depositor, as the Holder of the outstanding Common Securities,
shall have the right at any time (including, without limitation, upon the
occurrence of a Tax Event or Investment Company Act Event) to dissolve the Trust
and, after satisfaction of the creditors of the Trust, cause a Like Amount of
the Debentures to be distributed to the Holders of the Securities in liquidation
of the Trust, provided that neither the Depositor nor the Administrative
Trustees may cause the dissolution of the Trust during the period beginning on
the Business Day following the Tender Notification Date and ending on the Reset
Date (other than upon the occurrence of a Tax Event or an Investment Company
Event), provided that the Administrative Trustees shall
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have received a No Recognition Opinion (as defined below) prior to the
dissolution of the Trust.
(d) If, at any time, a Tax Event shall occur and be continuing the
Depositor shall cause the Trustees to dissolve the Trust and, after satisfaction
of the creditors of the Trust, cause a Like Amount of Debentures to be
distributed to the Holders of the Securities in liquidation of the Trust within
90 days following the occurrence of such Tax Event; provided, however, that such
liquidation and distribution shall be conditioned on (i) the Trustees' receipt
of an opinion of a nationally recognized independent tax counsel (reasonably
acceptable to the Trustees) experienced in such matters (a "No Recognition
Opinion"), which opinion may rely on published revenue rulings of the Internal
Revenue Service, to the effect that the Holders of the Preferred Securities will
not recognize any income, gain or loss for United States federal income tax
purposes as a result of such dissolution and distribution of Debentures, and
(ii) the Depositor being unable to avoid such Tax Event within such 90-day
period by taking some ministerial action or pursuing some other reasonable
measure that, in the sole judgment of the Depositor, will have no adverse
effect on the Trust, the Depositor or the Holders of the Preferred Securities
and will involve no material cost ("Ministerial Action").
If (i) the Depositor has received an opinion (a "Redemption Tax
Opinion") of a nationally recognized independent tax counsel (reasonably
acceptable to the Trustees) experienced in such matters that, as a result of a
Tax Event, there is more than an insubstantial risk that the Depositor would be
precluded from deducting the interest on the Debentures for United States
federal income tax purposes, even after the Debentures were distributed to the
Holders of Securities upon liquidation of the Trust as described in this
paragraph 4(d), or (ii) the Trustees shall have been informed by such tax
counsel that it cannot deliver a No Recognition Opinion, the Depositor shall
have the right, upon not less than 30 nor more than 60 days' notice, and within
90 days following the occurrence and continuation of such Tax Event, to redeem
the Debentures in whole, but not in part, for cash, for the principal amount
plus accrued and unpaid interest thereon and, following such redemption, all the
Securities will be redeemed by the Trust at the liquidation amount of $50 per
Security plus accrued and unpaid Distributions thereon; provided, however, that,
if at the time there is available to the Depositor or the Trust the opportunity
to eliminate, within such 90-day period, the Tax Event by taking some
Ministerial Action, the Trust or the Depositor will pursue such Ministerial
Action in lieu of redemption.
In lieu of the foregoing options, the Depositor shall also have the
option of causing the Securities to remain outstanding and pay Additional
Amounts on the Debentures.
"Tax Event" means that the Property Trustee shall have received an
opinion of a nationally recognized independent tax counsel to the Depositor
(reasonably acceptable to the Trustees) experienced in such matters (a
"Dissolution Tax Opinion") to the effect that, as a result of (i) any amendment
to, or change (including any announced prospective change (which shall not
include a proposed change), provided that a Tax Event shall not occur more than
90 days before the effective date of any such prospec-
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tive change) in the laws (or any regulations thereunder) of the United States or
any political subdivision or taxing authority therefor or therein, (ii) any
judicial decision or official administrative pronouncement, ruling, regulatory
procedure, notice or announcement, including any notice or announcement of
intent to adopt such procedures or regulations (an "Administrative Action") or
(iii) any amendment to or change in the administrative position or
interpretation of any Administrative Action or judicial decision that differs
from the theretofore generally accepted position, in each case, by any
legislative body, court, governmental agency or regulatory body, irrespective of
the manner in which such amendment or change is made known, which amendment or
change is effective or such Administrative Action or decision is announced, in
each case, on or after the date of original issuance of the Debentures or the
issue date of the Preferred Securities issued by the Trust, there is more than
an insubstantial risk that (a) if the Debentures are held by the Property
Trustee, (x) the Trust is, or will be within 90 days of the date of such
opinion, subject to United States federal income tax with respect to interest
accrued or received on the Debentures or subject to more than a de minimis
amount of other taxes, duties or other governmental charges as determined by
such counsel, or (y) any portion of interest payable by the Depositor to the
Trust (or OID accruing) on the Debentures is not, or within 90 days of the date
of such opinion will not be, deductible by the Depositor in whole or in part for
United States federal income tax purposes or (b) with respect to Debentures
which are no longer held by the Property Trustee, any portion of interest
payable by the Depositor (or OID accruing) on the Debentures is not, or within
90 days of the date of such opinion will not be, deductible by the Depositor in
whole or in part for United States federal income tax purposes.
If an Investment Company Event (as hereinafter defined) shall occur and
be continuing, the Depositor shall cause the Trustees to dissolve the Trust and,
after satisfaction to creditors of the Trust, cause a Like Amount of the
Debentures to be distributed to the Holders of the Securities in liquidation of
the Trust within 90 days following the occurrence of such Investment Company
Event.
"Investment Company Event" means the occurrence of a change in law or
regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), to the effect that the Trust is or will
be considered an Investment Company which is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes effective on or
after the date of the Prospectus.
After the date fixed for any distribution of Debentures: (i) the
Securities will no longer be deemed to be outstanding, (ii) the Depositary or
its nominee (or any successor Depositary or its nominee), as record Holder of
Preferred Securities represented by global certificates, will receive a
registered global certificate or certificates representing the Debentures to be
delivered upon such distribution and (iii) any certificates representing
Securities, except for certificates representing Preferred Securities held by
the Depositary or its nominee (or any successor Depositary or its nominee), will
be deemed to represent Debentures having an aggregate principal amount equal to
the aggregate stated liquidation amount of such Securities, with
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accrued and unpaid interest equal to accrued and unpaid Distributions on such
Securities until such certificates are presented to the Depositor or its agent
for transfer or reissuance.
(e) The Securities will not be redeemed unless all accrued and unpaid
Distributions have been paid on all Securities for all quarterly Distribution
periods terminating on or before the date of redemption.
(f) Redemption, Distribution and Remarketing Procedures.
(i) Holders will be given not less than 20 nor more than 60 days
notice of an Optional Redemption. Holders will be given at least 30 days
but not more than 60 days notice of a redemption pursuant to paragraph
4(d). Notice of distribution of Debentures in exchange for the
Securities will be given by the Administrative Trustees on behalf of
the Trust by mail to each Holder of Securities to be exchanged not fewer
than 30 nor more than 60 days before the date fixed for exchange
thereof. For purposes of the calculation of the date of redemption or
exchange and the dates on which notices are given pursuant to this
paragraph 4(f)(i) (other than notices in connection with a Remarketing,
the terms of which shall be governed by the Remarketing Agreement), a
redemption or distribution notice shall be deemed to be given on the day
such notice is first mailed by first-class mail, postage prepaid, to
Holders of Securities. Each redemption or distribution notice shall be
addressed to the Holders of Securities at the address of each such
Holder appearing in the books and records of the Trust. No defect in the
redemption or distribution notice or in the mailing of either thereof
with respect to any Holder shall affect the validity of the redemption
or exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Securities
are to be redeemed, the Securities to be redeemed shall be redeemed Pro
Rata from each Holder of Securities, it being understood that, in
respect of Preferred Securities registered in the name of and held of
record by the Depositary (or any successor Depositary) or any nominee,
the distribution of the proceeds of such redemption will be made to each
Participant (or Person on whose behalf such nominee holds such
securities) in accordance with the procedures applied by such agency or
nominee.
(iii) If Securities are to be redeemed and the Administrative
Trustees on behalf of the Trust gives a redemption or distribution
notice, which notice may only be issued if the Debentures are redeemed
as set out in this paragraph 4 (which notice will be irrevocable), then
(A) with respect to Preferred Securities held in book-entry form, by
10:00 a.m., New York City time, on the redemption date, to the extent
funds are available, with respect to Preferred Securities held
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in global form, the Property Trustee will deposit irrevocably with the
Depositary (or successor Depositary) funds sufficient to pay the amount
payable on redemption with respect to such Preferred Securities and will
give the Depositary irrevocable instructions and authority to pay the
amount payable on redemption to the Holders of such Preferred
Securities, and (B) with respect to Preferred Securities issued in
certificated form and Common Securities, to the extent funds are
available, the Property Trustee will irrevocably deposit with the Paying
Agent funds sufficient to pay the amount payable on redemption to the
Holders of such Securities and will give the Paying Agent irrevocable
instructions and authority to pay the amount payable on redemption to
the Holders thereof upon surrender of their certificates. If a
redemption or distribution notice shall have been given and funds
deposited as required, then on the date of such deposit, all rights of
Holders of such Securities so called for redemption will cease, except
the right of the Holders of such Securities to receive the Redemption
Price, but without interest on such Redemption Price, and such
Securities will cease to be outstanding. Neither the Administrative
Trustees nor the Trust shall be required to register or cause to be
registered the transfer of any Securities that have been so called for
redemption. If any date fixed for redemption of Securities is not a
Business Day, then payment of the amount payable on such date will be
made on the next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay) except that, if
such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date fixed for redemption. If
payment of the Redemption Price in respect of any Securities is
improperly withheld or refused and not paid either by the Trust or by
the Depositor as guarantor pursuant to the relevant Securities
Guarantee, Distributions on such Securities will continue to accrue at
the then applicable rate, from the original redemption date to the date
of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the amount
payable upon redemption (other than for purposes of calculating any
premium).
(iv) Redemption and/or distribution notices, as applicable,
shall be sent by the Administrative Trustees on behalf of the Trust to
(A) in the case of Preferred Securities held in book-entry form, the
Depositary and, in the case of Preferred Securities held in
certificated form, the Holders of such certificates and (B) in respect
of the Common Securities, the Holder thereof.
(v) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws), the
Depositor or any of its subsidiaries may at any time and from time to
time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement; provided that neither the Depositor nor
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any of its Affiliates may purchase Preferred Securities on the Reset
Date or submit orders in the Remarketing.
5. Conversion Rights.
The Holders of Securities shall have the right at any time prior to 5:00
p.m., New York City time, on the Tender Notification Date and, in the event of a
Convertible Remarketing or a Final Failed Remarketing, from and after the Reset
Date to and including October __, 2029 (except that Securities called for
redemption by the Depositor will be convertible at any time prior to 5:00 p.m.,
New York City time on any Redemption Date), at their option, to cause the
Conversion Agent to convert Securities, on behalf of the converting Holders,
into shares of Common Stock (as defined in the Indenture) in the manner
described herein on and subject to the following terms and conditions:
(a) The Securities will be convertible at the office of the Conversion
Agent into fully paid and nonassessable shares of Common Stock pursuant to the
Holder's direction to the Conversion Agent to exchange such Securities for a
portion of the Debentures theretofore held by the Trust on the basis of one
Security per $50 principal amount of Debentures, and immediately convert such
amount of Debentures into fully paid and nonassessable shares of Common Stock on
or prior to the Tender Notification Date, into [ ] shares of Common Stock per
$50 principal amount of Debentures (which is equivalent to a conversion price of
$[ ] per share of Common Stock, subject to certain adjustments set forth in the
Indenture (as so adjusted, "Initial Conversion Price")). On and after the Reset
Date, the Securities may, at the option of the Trust and subject to the results
of the Remarketing, become nonconvertible or convertible into a different number
of shares of Common Stock.
(b) In order to convert Securities into Common Stock the Holder shall
submit to the Conversion Agent at the office referred to above an irrevocable
request to convert Securities on behalf of such Holder (the "Conversion
Request"), together, if the Securities are in certificated form, with such
certificates. The Trust shall not cause the conversion of any Debentures except
pursuant to such a Conversion Request. The Conversion Request shall (i) set
forth the number of Securities to be converted and the name or names, if other
than the Holder, in which the shares of Common Stock should be issued and (ii)
direct the Conversion Agent (a) to exchange such Securities for a portion of the
Debentures held by the Trust (at the rate of exchange specified in the preceding
paragraph) and (b) to immediately convert such Debentures on behalf of such
Holder, into Common Stock (at the conversion rate specified in the preceding
paragraph). The Conversion Agent shall notify the Property Trustee of the
Holder's election to exchange Securities for a portion of the Debentures held by
the Trust and the Property Trustee shall, upon receipt of such notice, deliver
to the Conversion Agent the appropriate principal amount of Debentures for
exchange in accordance with this Section 5. The Conversion Agent shall thereupon
notify the Depositor of the Holder's election to convert such Debentures into
shares of Common Stock. Holders of Securities at the close of business on a
Distribution record date will be entitled to receive the Distribution payable on
such Securities on the corresponding Distribution payment date notwithstanding
the conversion of such Securities following such record
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date but prior to such distribution payment date. Except as provided above,
neither the Trust nor the Depositor will make, or be required to make, any
payment, allowance or adjustment upon any conversion on account of any
accumulated and unpaid Distributions accrued on the Securities, whether or not
in arrears, (including any Additional Amounts accrued thereon) surrendered for
conversion, or on account of any accumulated and unpaid dividends on the shares
of Common Stock issued upon such conversion, except to the extent that such
shares are held of record on the record date for any such distributions.
Securities shall be deemed to have been converted immediately prior to the close
of business on the day on which a Notice of Conversion relating to such
Securities is received by the Trust in accordance with the foregoing provision
(the "Conversion Date"). The Person or Persons entitled to receive the Common
Stock issuable upon conversion of the Debentures shall be treated for all
purposes as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the Conversion Date, the Depositor shall
issue and deliver at the office of the Conversion Agent a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conversion, together with the cash payment, if any, in lieu of any fraction of
any share to the Person or Persons entitled to receive the same, unless
otherwise directed by the Holder in the notice of conversion and the Conversion
Agent shall distribute such certificate or certificates to such Person or
Persons.
(c) Each Holder of a Security by his acceptance thereof appoints [ ]
"Conversion Agent" for the purpose of effecting the conversion of Securities in
accordance with this Section 5. In effecting the conversion and transactions
described in this Section 5, the Conversion Agent shall be acting as agent of
the Holders of Securities directing it to effect such conversion transactions.
The Conversion Agent is hereby authorized (i) to exchange Securities from time
to time for Debentures held by the Trust in connection with the conversion of
such Securities in accordance with this Section 5 and (ii) to convert all or a
portion of the Debentures into Common Stock and thereupon to deliver such shares
of Common Stock in accordance with the provisions of this Section and to deliver
to the Trust a new Debenture or Debentures for any resulting unconverted
principal amount.
(d) No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof, such fractional interest will be paid in cash
by the Depositor to the Trust, which in turn will make such payment to the
Holder or Holders of Securities so converted.
(e) The Depositor shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance upon the
conversion of the Debentures, free from any preemptive or other similar rights,
such number of shares of Common Stock as shall from time to time be issuable
upon the conversion of all the Debentures then outstanding. Notwithstanding the
foregoing, the Depositor shall be entitled to deliver upon conversion of
Debentures, shares of Common Stock reacquired and held in the treasury of the
Depositor (in lieu of the issuance of authorized and unissued shares of Common
Stock), so long as any such treasury shares are free and clear of all liens,
charges, security interests or encumbrances. Any shares of Common Stock issued
upon conversion of the Debentures shall be duly authorized,
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validly issued and fully paid and nonassessable. The Property Trustee shall
deliver the shares of Common Stock received upon conversion of the Debentures to
the converting Holder free and clear of all liens, charges, security interests
and encumbrances, except for United States withholding taxes. Each of the
Depositor and the Administrative Trustees on behalf of the Trust shall prepare
and shall use its best efforts to obtain and keep in force such governmental or
regulatory permits or other authorizations as may be required by law, and shall
comply with all applicable requirements as to registration or qualification of
the Common Stock (and all requirements to list the Common Stock issuable upon
conversion of Debentures that are at the time applicable), in order to enable
the Depositor to lawfully issue Common Stock to the Trust upon conversion of the
Debentures and the Trust to lawfully deliver the Common Stock to each Holder
upon conversion of the Securities.
(f) The Depositor will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Common Stock on conversion of
Debentures and the delivery of the shares of Common Stock by the Trust upon
conversion of the Securities. The Depositor shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
the Securities so converted were registered, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the Trust
the amount of any such tax, or has established to the satisfaction of the Trust
that such tax has been paid.
(g) Nothing in the preceding Paragraph (f) shall limit the requirement
of the Trust to withhold taxes pursuant to the terms of the Securities set forth
in this Annex I to the Declaration or in the Declaration itself or otherwise
require the Property Trustee or the Trust to pay any amounts on account of such
withholdings.
6. Voting Rights - Securities.
(a) Except as provided under paragraphs 6(b) and as otherwise required
by law, the Declaration and the Indenture, the Holders of the Preferred
Securities will have no voting rights.
(b) In addition to the rights of the Holders of the Preferred Securities
with respect to the enforcement of payment of principal and interest on the
Debentures set forth herein, in the Declaration or in the Indenture, if (i) a
Debenture Event of Default occurs and is continuing or (ii) the Depositor
defaults under the Preferred Securities Guarantee (each of (i) and (ii) being an
"Appointment Event"), then the Holders of the Preferred Securities, acting as a
single class, will be entitled by the vote of a Majority in liquidation amount
of the Preferred Securities to appoint a Special Trustee in accordance with
Section 5.06(a)(ii)(B) of the Declaration. Any Holder of Preferred Securities
(other than the Depositor, or any entity directly or indirectly controlling or
controlled by or under direct or indirect common control with the Depositor)
will be entitled to nominate any Person to be appointed as Special Trustee. Not
later than 30 days after such right to appoint a Special Trustee arises, the
Trustees will convene a meeting for the purpose of appointing a Special Trustee.
If the Trustees fail to convene such meeting within such 30-day period, the
Holders of not less than 10% in
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aggregate liquidation amount of the Preferred Securities will be entitled to
convene such meeting in accordance with Section 12.02 of the Declaration. The
record date for such meeting will be the close of business on the Business Day
that is one Business Day before the day on which notice of the meeting is sent
to the Holders. The provisions of the Declaration relating to the convening and
conduct of the meetings of the Holders will apply with respect to any such
meeting.
Any Special Trustee so appointed shall cease to be a Special Trustee if
the Appointment Event pursuant to which the Special Trustee was appointed and
all other Appointment Events cease to be continuing. A Special Trustee may be
removed without cause at any time by vote of the Holders of a Majority in
liquidation amount of the Preferred Securities at a meeting of the Holders of
the Preferred Securities in accordance with Section 5.06(ii)(B) of the
Declaration. The Holders of 10% in liquidation amount of the Preferred
Securities will be entitled to convene such a meeting in accordance with Section
12.02 of the Declaration. The record date for such meeting will be the close of
business on the Business Day which is one Business Day before the day on which
the notice of meeting is sent to Holders. Notwithstanding the appointment of a
Special Trustee, the Depositor shall retain all rights under the Indenture,
including the right to defer payments of interest by extending the interest
payment period on the Debentures.
Subject to the requirements set forth in this paragraph and as long as
the Debentures are held by the Trust, the Holders of a majority in liquidation
amount of the outstanding Preferred Securities, voting separately as a class
may, and the Trustees shall not, without obtaining the prior approval of the
Holders of a Majority in aggregate liquidation amount of all Preferred
Securities (i) direct the time, method, and place of conducting any proceeding
for any remedy available to the Property Trustee under the Indenture, or
executing any trust or power conferred upon the Property Trustee with respect to
the Debentures, (ii) waive any past default and its consequences that is
waivable under Section 5.14 of the Indenture or otherwise, (iii) exercise any
right to rescind or annul a declaration that the principal of all the Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures, where such consent shall be
required, [provided, however, that, where a consent under the Indenture would
require the consent or act of the Holders of greater than a majority in
principal amount of Debentures affected thereby (a "Super Majority"), the
Property Trustee may only give such consent or take such action at the direction
of the Holders of at least the proportion in liquidation preference of the
Preferred Securities which the relevant Super Majority represents of the
aggregate principal amount of the Debentures outstanding.] The Property Trustee
shall not, and none of the other Trustees shall in any event, revoke any action
previously authorized or approved by a vote of the Holders of the Preferred
Securities, except by a subsequent vote of the Holders of the Preferred
Securities. Other than with respect to directing the time, method and place of
conducting any remedy available to the Property Trustee or the Debenture Trustee
as set forth above, the Property Trustee shall not take any action in accordance
with the directions of the Holders of the Preferred Securities under this
paragraph unless the Property Trustee has obtained an opinion of tax counsel
experienced in such matters to the effect that, as a result of such
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<PAGE> 78
action, the Trust will not fail to be classified as a grantor trust for United
States federal income tax purposes.
If an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay interest or principal on the Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption on the redemption
date), then a Holder of Preferred Securities may directly institute a
proceeding, subject to the terms of the Indenture (including the subordination
provisions set forth in Article XII thereof), for enforcement of payment to
such Holder (a "Direct Action") of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such Holder on or after the respective due date
specified in the Debentures. Except as provided in the preceding sentence, the
Holders of Preferred Securities will not be able to exercise directly any other
remedy available to the Holders of the Debentures. In connection with any Direct
Action, the Holder of the Common Securities will be subrogated to the rights of
such Holder of Preferred Securities under the Declaration to the extent of any
payment made by the Debenture Issuer to such Holder of Preferred Securities in
such Direct Action. In addition, the Holders of at least 25% in aggregate
liquidation preference of Preferred Securities outstanding shall, to the fullest
extent permitted by law, have the right to institute suit on behalf of the Trust
for the enforcement of the right to receive payment of the principal of and
interest on the Debentures on or after the Stated Maturity (as defined in the
Indenture) of such Debentures or, in the case of redemption, on the Redemption
Date (as defined in the Indenture), in the event the Debenture Trustee or the
Property Trustee fails to do so in accordance with the terms of the Indenture.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of Holders of Preferred Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which Holders without prior notice of Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
Holders is to be taken, to be mailed to each Holder of record of Preferred
Securities. Each such notice will include a statement setting forth the
following information (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Depositor, the Trustees or any
Affiliate of the Depositor or the Trustee shall not be entitled to vote or
consent and shall, for purposes of such vote or consent, be treated as if they
were not outstanding, except that for the purposes of
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<PAGE> 79
determining whether the Property Trustee shall be fully protected in relying on
any such direction, waiver or consent, only Securities which the Property
Trustee knows are so owned shall be so disregarded.
7. Voting Rights - Common Securities.
(a) Except as provided under paragraphs 7(b), (c) and 8, in the Business
Trust Act and as otherwise required by law and the Declaration, the Holders of
the Common Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance
with Article V of the Declaration, to vote to appoint, remove or replace any
Trustee, subject to the exclusive right of the Holders of the Preferred
Securities to appoint, remove or replace a Special Trustee unless a Debenture
Event of Default shall have occurred and be continuing, in which event the
Property Trustee and the Delaware Trustee may only be removed by the Holders of
a Majority in liquidation amount of the Preferred Securities, voting as a class
at a meeting of the Holders of the Preferred Securities; and
(c) Subject to Section 2.06 of the Declaration and only after the Event
of Default with respect to the Preferred Securities has been cured, waived, or
otherwise eliminated and subject to the requirements of the second to last
sentence of this paragraph, the Holders of a Majority in liquidation amount of
the Common Securities, voting separately as a class, may direct the time,
method, and place of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon the Property
Trustee under the Declaration, including (i) directing the time, method, place
of conducting any proceeding for any remedy available to the Debenture Trustee,
or exercising any trust or power conferred on the Debenture Trustee with respect
to the Debentures, (ii) waive any past default and its consequences that is
waivable under Section 5.14 of the Indenture, or (iii) exercise any right to
rescind or annul a declaration that the principal of all the Debentures shall be
due and payable, provided that, where a consent or action under the Indenture
would require the consent or act of the Holders of greater than a majority in
principal amount of Debentures affected thereby (a "Super Majority"), the
Property Trustee may only give such consent or take such action at the direction
of the Holders of at least the proportion in liquidation amount of the Common
Securities which the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding. Pursuant to this paragraph 7(c),
the Property Trustee shall not revoke any action previously authorized or
approved by a vote of the Holders of the Preferred Securities, except by a
subsequent vote of the Holders of the Preferred Securities. Other than with
respect to directing the time, method and place of conducting any remedy
available to the Property Trustee or the Debenture Trustee as set forth above,
the Property Trustee shall not take any action in accordance with the directions
of the Holders of the Common Securities under this paragraph unless the Property
Trustee has obtained an opinion of tax counsel to the effect that, as a result
of such action the Trust will not fail to be classified as a grantor trust for
United States federal income tax purposes. If the Property Trustee fails to
enforce its rights, as holder of the Debentures, under the Indenture, any Holder
of Common Securities may, after a period of 30 days has elapsed from such
Holder's written request to the Property Trustee to enforce such
A-14
<PAGE> 80
rights and to the fullest extent permitted by law, institute a legal proceeding
directly against the Depositor, to enforce the Property Trustee's rights, as
holder of the Debentures, under the Indenture, without first instituting any
legal proceeding against the Property Trustee or any other Person.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent without prior notice. The Administrative Trustees will cause a
notice of any meeting at which Holders of Common Securities are entitled to vote
to be mailed to each Holder of record of Common Securities. Each such notice
will include a statement setting forth (i) the date of such meeting, (ii) a
description of any resolution proposed for adoption at such meeting on which
such Holders are entitled to vote and (iii) instructions for the delivery of
proxies.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
8. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.01 of the
Declaration, if any proposed amendment to the Declaration provides for, or the
Administrative Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or rights of the Securities, whether by
way of amendment to the Declaration or otherwise, or (ii) the dissolution,
winding-up or termination of the Trust, other than as described in Section 8.01
of the Declaration, then the Holders of outstanding Securities will be entitled
to vote on such amendment or proposal (but not on any other amendment or
proposal) and such amendment or proposal shall not be effective except with the
approval of the Holders of at least a Majority in liquidation amount of the
Securities, voting together as a single class, provided, however, that, the
rights of Holders of Preferred Securities under Article V of the Declaration to
appoint, remove or replace a Special Trustee shall not be amended without the
consent of each Holder of Preferred Securities; and provided further that if any
amendment or proposal referred to in clause (i) above would adversely affect
only the Preferred Securities or only the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of at
least a Majority in liquidation amount of such class of Securities.
(b) In the event the consent of the Property Trustee as the holder of
the Debentures is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the Property
Trustee shall request the direction of the Holders of the Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by at least
the same proportion in aggregate stated liquidation preference of the
Securities; provided, however, that the Property Trustee shall not take any
action in accordance with the directions of the Holders of the
A-15
<PAGE> 81
Securities under this paragraph 8(b) unless the Property Trustee has obtained an
opinion of tax counsel to the effect that for the purposes of United States
federal income tax the Trust will not be classified as other than a grantor
trust on account of such action.
9. Pro Rata.
A reference in these terms of the Securities to any payment,
Distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, on any Distribution Date or redemption date
an Event of Default under the Declaration has occurred and is continuing, in
which case no payment of any Distribution on, or amount payable upon redemption
of, any Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all
outstanding Preferred Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the amount payable upon redemption
of the Preferred Securities, the full amount of such amount in respect of all
outstanding Preferred Securities shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or the amount payable upon redemption of
Preferred Securities then due and payable.
10. Ranking.
The Preferred Securities rank pari passu and payment thereon shall be
made Pro Rata with the Common Securities except that, where a Debenture Event of
Default occurs and is continuing in respect of the Debentures held by the
Property Trustee, the rights of Holders of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption and otherwise
are subordinated to the rights to payment of the Holders of the Preferred
Securities.
11. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein, and to the provisions of the Indenture
including the subordination provisions therein, which are each incorporated by
reference herein and which include, among other things, provisions relating to
certain rights of the Holders of the Preferred Securities all as set forth
therein.
12. No Preemptive Rights.
The Holders of the Securities shall have no preemptive or similar rights
to subscribe for any additional securities.
A-16
<PAGE> 82
13. Miscellaneous.
These terms constitute a part of the Declaration.
The Depositor will provide a copy of the Declaration, the Preferred
Securities Guarantee or the Common Securities Guarantee, as may be appropriate,
and the Indenture to a Holder without charge on written request to the Depositor
at its principal place of business.
A-17
<PAGE> 83
EXHIBIT A-1
FORM OF
PREFERRED SECURITY
[FORM OF FACE OF SECURITY]
[Include if Preferred Security is in global form and The Depository
Trust Company is the Depository -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE 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.]
[Include if Preferred Security is in global form -- TRANSFERS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE DECLARATION REFERRED TO
BELOW.]
A-1-1
<PAGE> 84
Certificate Number
Number of Preferred Securities
Aggregate Liquidation Value $
[CUSIP NO. [ ]]
Preferred Securities
of
Calpine Capital Trust
Remarketable Term Income Deferrable Equity Securities (HIGH
TIDES)(SM)* (liquidation amount $50 per HIGH TIDE)
Calpine Capital Trust, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that
________________________ the "Holder") is the registered owner of preferred
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the Remarketable Term Income Deferrable Equity
Securities (HIGH TIDES)(SM)*(liquidation amount $50 per HIGH TIDE) (the
"Preferred Securities"). Subject to the restrictions set forth in the
Declaration (as defined below), the Preferred Securities are transferable on the
books and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer. The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities represented hereby are issued and shall
in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust, dated as of [ ], 1999, as the same may be
amended from time to time (the "Declaration"), including the designation of the
terms of the Preferred Securities as set forth in Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Preferred
Securities Guarantee to the extent provided therein. The Depositor will provide
a copy of the Declaration, the Preferred Securities Guarantee and the Indenture
to a Holder without charge upon written request to the Trust at its principal
place of business.
Reference is hereby made to select provisions of the Preferred
Securities set forth on the reverse hereof, which select provisions shall for
all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
- --------
* The terms Remarketable Term Income Deferrable Equity Securities (HIGH
TIDES)(SM) and HIGH TIDES(SM) are registered servicemarks of Credit Suisse
First Boston Corporation.
A-1-2
<PAGE> 85
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
Unless the Property Trustee's Certificate of Authentication hereon
has been properly executed, these Preferred Securities shall not be entitled to
any benefit under the Declaration or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Trust has executed this certificate this ___
day of [ ], 1999.
Calpine Capital Trust
By: _____________________________
Name:
Title: Administrative Trustee
[CONTINUED ON NEXT PAGE]
A-1-3
<PAGE> 86
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Declaration.
Dated: [ ], 1999
The Bank of New York,
as Property Trustee
By: _______________________
Authorized Signatory
A-1-4
<PAGE> 87
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will accrue at the
Applicable Rate applied to the stated liquidation amount of $50 per Preferred
Security, such rate being the rate of interest payable on the Debentures to be
held by the Property Trustee. The Applicable Rate will be [ ]% per annum (the
"Initial Rate") from the date of original issuance of the Securities to be
excluding the Reset Date, and the Term Rate from the Reset Date and thereafter.
The Term Rate will be the rate established by the Remarketing Agent to be
effective on the Reset Date. Distributions in arrears for more than one quarter
will bear interest thereon compounded quarterly at the Applicable Rate (to the
extent permitted by applicable law). The term "Distributions" as used herein
includes such quarterly distributions, additional distributions on quarterly
distributions not paid on the applicable Distribution Date and Additional
Amounts, as applicable. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee and
to the extent the Property Trustee has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
Except as otherwise described below, Distributions on the Preferred
Securities will be cumulative, will accrue from the date of their original
issuance and will be payable quarterly in arrears on [ ], [ ], [ ] and [ ]
of each year (except as provided below), commencing on [ ], 2000 to Holders of
record at the close of business on the ____ of each [ ], [ ], [ ] and [ ]
next preceding the applicable payment date, which payment dates shall correspond
to the interest payment dates (each an "Interest Payment Date") on the
Debentures. Each registered Holder of Preferred Securities on the fifteenth day
prior to the Reset Date (including any Holder which has tendered or is deemed to
have tendered its Preferred Securities for remarketing), shall be paid a
Distribution of interest and Additional Amounts, if any, accrued to (but
excluding) the Reset Date. The Reset Date is any date (1) not later than October
__, 2004 (or, if such day is not a Business Day, the next succeeding Business
Day), and (2) not earlier than 70 Business Days prior to October __, 2004, as
may be determined by the Remarketing Agent, in its sole discretion, for
settlement of a successful remarketing. Distributions and Additional Amounts, if
any, accrued from and after the Reset Date to (but excluding) ___________, 20__
shall be paid on [ ], 20__ (or if such day is not a Business Day, the next
succeeding Business Day) to the person in whose name each Preferred Security is
registered on the preceding [ ], subject to the right of the Depositor to
initiate a Deferral Period (as described below). So long as no Debenture Event
of Default has occurred and is continuing, the Debenture Issuer has the right
under the Indenture to defer payments of interest by extending the interest
payment period from time to time on the Debentures for a period not exceeding 20
consecutive quarters (each a "Deferral Period") and, as a consequence of such
deferral, Distributions will also be deferred. Despite such deferral, quarterly
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Applicable Rate compounded quarterly during
any such Deferral Period. Prior to the termination of any such Deferral Period,
the Debenture Issuer may
1
<PAGE> 88
further extend such Deferral Period; provided that such Deferral Period together
with all such previous and further deferrals thereof may not exceed 20
consecutive quarters or extend beyond (i) the maturity (whether at the stated
maturity or by declaration of acceleration, call for redemption or otherwise) of
the Debentures under the Indenture or (ii) in the case of a Deferral period
which begins prior to the Reset Date, the Reset Date. Payments of accrued
Distributions will be payable on an Interest Payment Date elected by the Company
to Holders as they appear on the books and records of the Trust on the record
date fixed for such Interest Payment Date. Upon the termination of any Deferral
Period and the payment of all amounts then due, the Debenture Issuer may
commence a new Deferral Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in the
Declaration.
The Preferred Securities shall be convertible into shares of Common
Stock, through (i) the exchange of Preferred Securities for a portion of the
Debentures and (ii) the immediate conversion of such Debentures into Common
Stock, in the manner and according to the terms set forth in the Declaration.
2
<PAGE> 89
CONVERSION REQUEST
To: The Bank of New York,
as Property Trustee of
Calpine Capital Trust
The undersigned owner of these Preferred Securities hereby
irrevocably exercises the option to convert these Preferred Securities, or the
portion below designated, into Common Stock (as such term is defined in the
Indenture, dated [ ], 1999, between Calpine Corporation and The Bank of New
York, as Debenture Trustee) of CALPINE CORPORATION in accordance with the terms
of the Amended and Restated Declaration of Trust (as amended from time to time,
the "Declaration"), dated as of [ ], 1999, by Peter Cartwright, Ann B. Curtis
and Thomas R. Mason, as Administrative Trustees, The Bank of New York
(Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee,
Calpine Corporation, as Depositor, and by the Holders, from time to time, of
undivided beneficial interests in the assets of the Trust to be issued pursuant
to the Declaration. Pursuant to the aforementioned exercise of the option to
convert these Preferred Securities, the undersigned hereby directs the
Conversion Agent (as that term is defined in the Declaration) to (i) exchange
such Preferred Securities for a portion of the Debentures (as that term is
defined in the Declaration) held by the Trust (at the rate of exchange specified
in the terms of the Securities set forth as Annex I to the Declaration) and (ii)
immediately convert such Debentures on behalf of the undersigned, into Common
Stock (at the conversion rate specified in the terms of the Securities set forth
as Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that
the shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
1
<PAGE> 90
Date: ____________, ____
in whole __ in part
Number of Preferred Securities to be
converted:
-------------------
If a name or names other than the
undersigned, please indicate in the spaces
below the name or names in which the shares
of Common Stock are to be issued, along with
the address or addresses of such person or
persons
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Signature Guarantee:**
- --------
** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents 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.)
2
<PAGE> 91
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Preferred Security on the books of the Trust. The agent
may substitute another to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate) Signature Guarantee:***
- --------
*** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents 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.)
1
<PAGE> 92
EXHIBIT A-2
FORM OF
COMMON SECURITY
[FORM OF FACE OF SECURITY]
[THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN EFFECTIVE REGISTRATION
STATEMENT.]
[OTHER THAN AS PROVIDED IN THE DECLARATION (AS DEFINED HEREIN), THIS
SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT TO A
RELATED PARTY (AS DEFINED IN THE DECLARATION) OF CALPINE CORPORATION]
Certificate Number Number of Common Securities
Common Securities
of
Calpine Capital Trust
HIGH TIDES Common Securities
(liquidation amount $50 per HIGH TIDES Common Security)
Calpine Capital Trust, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that
- --------------------------------------------------------------------------------
(the "Holder") is the registered owner of common securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the HIGH TIDES Common Securities (liquidation amount $50 per
Remarketable Common Security) (the "Common Securities"). Subject to the
restrictions set forth in the Declaration (as defined below), the Common
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities represented hereby are issued and shall in all respects be subject to
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of [ ], 1999, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Common Securities
as set forth in Annex I to the Declaration. Capitalized terms used herein but
not defined shall have the meaning given them in the Declaration. The Depositor
will provide a copy of the Declaration
A-2-1
<PAGE> 93
and the Indenture to a Holder without charge upon written request to the
Depositor at its principal place of business.
Reference is hereby made to select provisions of the Common Securi-
ties set forth on the reverse hereof, which select provisions shall for all
purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Depositor is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat for United States federal
income tax purposes the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this
[ ] day of [ ], 1999.
Calpine Capital Trust
By: ______________________
Name:
Title: Administrative Trustee
A-2-2
<PAGE> 94
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will accrue at the
Applicable Rate applied to the stated liquidation amount of $50 per Common
Security, such rate being the rate of interest payable on the Debentures to be
held by the Property Trustee. The Applicable Rate will be ___% per annum (the
"Initial Rate") from the date of original issuance of the Securities to be
excluding the Reset Date, and the Term Rate from the Reset Date and thereafter.
The Term Rate will be the rate established by the Remarketing Agent to be
effective on the Reset Date. Distributions in arrears for more than one quarter
will bear interest thereon compounded quarterly at the Applicable Rate (to the
extent permitted by applicable law). The term "Distributions" as used herein
includes quarterly distributions, additional distributions on quarterly
distributions not paid on the applicable Distribution Date and Additional
Amounts, as applicable. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee and
to the extent the Property Trustee has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
Except as otherwise described below, Distributions on the Common
Securities will be cumulative, will accrue from the date of their original
issuance and will be payable quarterly in arrears on [ ], [ ], [ ] and
[ ] of each year (except as provided below), commencing on [ ],2000 to
Holders of record at the close of business on the _____ day of each [ ],
[ ], [ ]and [ ] next preceding the applicable payment date, which payment
dates shall correspond to the interest payment dates (each, an "Interest Payment
Date") on the Debentures. Each registered Holder of Common Securities on the
fifteenth day before the Reset Date shall be paid a Distribution of interest
and Additional Amounts, if any, accrued to (but excluding) the Reset Date (or,
if such day is not a Business Day, the next succeeding Business Day). The Reset
Date is any date (1) not later than October __ , 2004, or if the day is not a
Business Day, the next succeeding Business Day, and (2) not earlier than 70
Business Days prior to October __, 2004, as may be determined by the Remarketing
Agent, in its sole discretion, for settlement of a successful remarketing.
Distributions and Additional Amounts, if any, accrued from and after the Reset
Date to (but excluding) [ ], 20[ ] shall be paid on [ ] (or if such day is
not a Business Day, the next succeeding Business Day) to the person in whose
name each Common Security is registered on the preceding [ ], subject to the
right of the Depositor to initiate a Deferral Period (as described below). So
long as no Debenture Event of Default has occurred and is continuing, the
Debenture Issuer has the right under the Indenture to defer payments of interest
by extending the interest payment period from time to time on the Debentures for
a period not exceeding 20 consecutive quarters (each a "Deferral Period") and,
as a consequence of such deferral, Distributions will also be deferred. Despite
such deferral, quarterly Distributions will continue to accrue with interest
thereon (to the extent permitted by applicable law) at the Applicable Rate
compounded quarterly during any such Deferral Period. Prior to the termination
of any such Deferral Period, the Debenture Issuer may further extend such
Deferral Period; provided that such
<PAGE> 95
Deferral Period together with all such previous and further deferrals thereof
may not exceed 20 consecutive quarters or extend beyond (i) the maturity
(whether at the stated maturity or by declaration of acceleration, call for
redemption or otherwise) of the Debentures under the Indenture or (ii) in the
case of a Deferral Period which begins prior to the Reset Date, the Reset Date.
Payments of accrued Distributions will be payable on an Interest Payment Date
elected by the Company to Holders as they appear on the books and records of the
Trust on the record date fixed for such Interest Payment Date. Upon the
termination of any Deferral Period and the payment of all amounts then due, the
Debenture Issuer may commence a new Deferral Period, subject to the above
requirements.
The Common Securities shall be redeemable as provided in the
Declaration.
The Common Securities shall be convertible into shares of Common
Stock, through (i) the exchange of Common Securities for a portion of the
Debentures and (ii) the immediate conversion of such Debentures into Common
Stock, in the manner and according to the terms set forth in the Declaration;
provided that no Common Securities may be converted into Common Stock unless all
outstanding Common Securities are converted into Common Stock, which conversion
will result in the dissolution of the Trust.
2
<PAGE> 96
CONVERSION REQUEST
To: The Bank of New York,
as Property Trustee of
Calpine Capital Trust
The undersigned owner of these Common Securities hereby irrevocably
exercises the option to convert these Common Securities, or the portion below
designated, into Common Stock (as such term is defined in the Indenture, dated
[ ], 1999, between Calpine Corporation and The Bank of New York, as Debenture
Trustee) of CALPINE CORPORATION in accordance with the terms of the Amended and
Restated Declaration of Trust (as amended from time to time, the "Declaration"),
dated as of [ ], 1999, by Peter Cartwright, Ann B. Curtis and Thomas R. Mason,
as Administrative Trustees, The Bank of New York (Delaware), as Delaware
Trustee, The Bank of New York, as Property Trustee, Calpine Corporation, as
Depositor, and by the Holders, from time to time, of undivided beneficial
interests in the assets of the Trust to be issued pursuant to the Declaration.
Pursuant to the aforementioned exercise of the option to convert these Common
Securities, the undersigned hereby directs the Conversion Agent (as that term is
defined in the Declaration) to (i) exchange such Common Securities for a portion
of the Debentures (as that term is defined in the Declaration) held by the Trust
(at the rate of exchange specified in the terms of the Securities set forth as
Annex I to the Declaration) and (ii) immediately convert such Debentures on
behalf of the undersigned, into Common Stock (at the conversion rate specified
in the terms of the Securities set forth as Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that
the shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
<PAGE> 97
Date: ____________, ____
in whole in part
Number of Common Securities to be converted:
-------------------
If a name or names other than the
undersigned, please indicate in the spaces
below the name or names in which the shares
of Common Stock are to be issued, along with
the address or addresses of such person or
persons
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
--------------------------------------------
--------------------------------------------
--------------------------------------------
Signature Guarantee:****
--------------------
- --------
**** (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
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.)
2
<PAGE> 98
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------
- --------------------------------------------------------------------------------
__________________________________________ agent to transfer this Common
Security Certificate on the books of the Trust. The agent may substitute another
to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate) Signature Guarantee*****: _________________________________________
- --------
***** (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
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.)
<PAGE> 1
EXHIBIT 4.11
CALPINE CORPORATION
TO
THE BANK OF NEW YORK,
as Trustee
-----------------
Indenture
Dated as of November __, 1999
-----------------
$206,185,600
(subject to increase to up to $237,113,450 in
the event and to the extent an over-allotment
option is exercised)
Convertible Subordinated Debentures due 2029
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<S> <C> <C>
Definitions and Other Provisions of General Application........ 2
SECTION 1.01 Definitions.................................................... 2
SECTION 1.02 Compliance Certificates and Opinions........................... 11
SECTION 1.03 Form of Documents Delivered to Trustee......................... 12
SECTION 1.04 Acts of Holders; Record Dates.................................. 12
SECTION 1.05 Notices, Etc., to Trustee and the Company...................... 14
SECTION 1.06 Notice to Holders; Waiver...................................... 14
SECTION 1.07 Conflict with Trust Indenture Act.............................. 14
SECTION 1.08 Effect of Headings and Table of Contents....................... 14
SECTION 1.09 Successors and Assigns......................................... 15
SECTION 1.10 Separability Clause............................................ 15
SECTION 1.11 Benefits of Indenture.......................................... 15
SECTION 1.12 Governing Law.................................................. 15
SECTION 1.13 Legal Holidays................................................. 15
ARTICLE II
Security Forms................................................. 15
SECTION 2.01 Forms Generally................................................ 15
SECTION 2.02 Provisions Required in Global Security......................... 16
SECTION 2.03 Issuance of Global Securities to Holders....................... 16
ARTICLE III
The Securities................................................. 16
SECTION 3.01 Title and Terms................................................ 16
SECTION 3.02 Denominations.................................................. 18
SECTION 3.03 Execution, Authentication, Delivery and Dating................. 18
SECTION 3.04 Temporary Securities........................................... 18
SECTION 3.05 Global Securities.............................................. 19
SECTION 3.06 Registration, Transfer and Exchange Generally; Certain
Transfers and Exchanges...................................... 19
SECTION 3.07 Mutilated, Destroyed, Lost and Stolen Securities............... 21
SECTION 3.08 Payment of Interest; Interest Rights Preserved................. 22
SECTION 3.09 Persons Deemed Owners.......................................... 23
SECTION 3.10 Cancelation.................................................... 23
SECTION 3.11 Right of Set Off............................................... 23
SECTION 3.12 CUSIP Numbers.................................................. 23
SECTION 3.13 Extension of Interest Payment Period; Notice of
Extension.................................................... 24
SECTION 3.14 Paying Agent, Security Registrar and Conversion Agent.......... 25
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
Satisfaction and Discharge..................................... 25
SECTION 4.01 Satisfaction and Discharge of Indenture........................ 25
SECTION 4.02 Application of Trust Money..................................... 26
ARTICLE V
Remedies....................................................... 26
SECTION 5.01 Events of Default.............................................. 26
SECTION 5.02 Acceleration of Maturity; Rescission and Annulment............. 27
SECTION 5.03 Collection of Indebtedness and Suits for Enforcement
by Trustee................................................... 28
SECTION 5.04 Trustee May File Proofs of Claim............................... 29
SECTION 5.05 Trustee May Enforce Claims Without Possession of
Securities................................................... 29
SECTION 5.06 Application of Money Collected................................. 29
SECTION 5.07 Limitation on Suits............................................ 30
SECTION 5.08 Unconditional Right of Holders to Receive Principal
and Interest and Convert..................................... 30
SECTION 5.09 Restoration of Rights and Remedies............................. 31
SECTION 5.10 Rights and Remedies Cumulative................................. 31
SECTION 5.11 Delay or Omission Not Waiver................................... 31
SECTION 5.12 Control by Holders............................................. 31
SECTION 5.13 Waiver of Past Defaults........................................ 31
SECTION 5.14 Undertaking for Costs.......................................... 32
SECTION 5.15 Waiver of Stay or Extension Laws............................... 32
SECTION 5.16 Enforcement by Holders of Preferred Securities................. 32
ARTICLE VI
The Trustee.................................................... 32
SECTION 6.01 Certain Duties and Responsibilities............................ 32
SECTION 6.02 Notice of Defaults............................................. 33
SECTION 6.03 Certain Rights of Trustee...................................... 33
SECTION 6.04 Not Responsible for Recitals or Issuance of Securities......... 34
SECTION 6.05 May Hold Securities............................................ 34
SECTION 6.06 Money Held in Trust............................................ 34
SECTION 6.07 Compensation and Reimbursement................................. 34
SECTION 6.08 Disqualification; Conflicting Interests........................ 35
SECTION 6.09 Corporate Trustee Required; Eligibility........................ 35
SECTION 6.10 Resignation and Removal; Appointment of Successor.............. 35
SECTION 6.11 Acceptance of Appointment by Successor......................... 36
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business.... 36
SECTION 6.13 Preferential Collection of Claims Against Company.............. 37
ARTICLE VII
Holders' Lists and Reports by Trustee and Company.............. 37
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 7.01 Company to Furnish Trustee Names and Addresses of Holders ..... 37
SECTION 7.02 Preservation of Information; Communications to Holders......... 37
SECTION 7.03 Reports by Trustee............................................. 37
SECTION 7.04 Reports by Company............................................. 38
SECTION 7.05 Tax Reporting.................................................. 38
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease........... 38
SECTION 8.01 Company May Consolidate, Etc., Only on Certain Terms........... 38
SECTION 8.02 Successor Substituted.......................................... 39
ARTICLE IX
Supplemental Indentures........................................ 39
SECTION 9.01 Supplemental Indentures Without Consent of Holders............. 39
SECTION 9.02 Supplemental Indentures with Consent of Holders................ 40
SECTION 9.03 Execution of Supplemental Indentures........................... 41
SECTION 9.04 Effect of Supplemental Indentures.............................. 41
SECTION 9.05 Conformity with Trust Indenture Act............................ 41
SECTION 9.06 Reference in Securities to Supplemental Indentures............. 41
ARTICLE X
Covenants; Representations and Warranties...................... 41
SECTION 10.01 Payment of Principal and Interest.............................. 41
SECTION 10.02 Maintenance of Office or Agency................................ 41
SECTION 10.03 Money for Security Payments to Be Held in Trust................ 42
SECTION 10.04 Statement by Officers as to Default............................ 42
SECTION 10.05 Limitation on Dividends; Transactions with Affiliates;
Covenants as to the Trust.................................... 43
SECTION 10.06 Payment of Expenses of the Trust............................... 43
ARTICLE XI
Redemption of Securities....................................... 44
SECTION 11.01 Optional Redemption............................................ 44
SECTION 11.02 [Reserved]..................................................... 45
SECTION 11.03 Tax Event Redemption........................................... 45
SECTION 11.04 Redemption at Stated Maturity.................................. 45
SECTION 11.05 Selection by Trustee of Securities to Be Redeemed.............. 45
SECTION 11.06 Notice of Redemption........................................... 46
SECTION 11.07 Deposit of Redemption Price.................................... 46
SECTION 11.08 Securities Payable on Redemption Date.......................... 47
SECTION 11.09 Securities Redeemed in Part.................................... 47
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XII
Subordination of Securities.................................... 47
SECTION 12.01 Agreement to Subordinate....................................... 47
SECTION 12.02 Default on Senior Debt......................................... 48
SECTION 12.03 Liquidation; Dissolution; Bankruptcy........................... 48
SECTION 12.04 Subrogation.................................................... 49
SECTION 12.05 Trustee to Effectuate Subordination............................ 50
SECTION 12.06 Notice by the Company.......................................... 50
SECTION 12.07 Rights of the Trustee; Holders of Senior Debt.................. 51
SECTION 12.08 Subordination May Not Be Impaired.............................. 51
ARTICLE XIII
Conversion of Securities....................................... 52
SECTION 13.01 Conversion Rights.............................................. 52
SECTION 13.02 Conversion Procedures.......................................... 52
SECTION 13.03 Conversion Price Adjustments................................... 54
SECTION 13.04 Reclassification, Consolidation, Merger or Sale of Assets...... 58
SECTION 13.05 Notice of Adjustments of Conversion Price...................... 58
SECTION 13.06 Prior Notice of Certain Events................................. 59
SECTION 13.07 Adjustments in Case of Fundamental Changes..................... 59
SECTION 13.08 Dividend or Interest Reinvestment Plans........................ 62
SECTION 13.09 Certain Additional Rights...................................... 62
SECTION 13.10 Trustee Not Responsible for Determining Conversion Price or
Adjustments.................................................. 62
</TABLE>
v
<PAGE> 6
INDENTURE, dated as of November __, 1999, between Calpine Corporation, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company") having its principal office at 50 West San
Fernando Street, San Jose, California 95113, and The Bank of New York, a New
York banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, Calpine Capital Trust, a Delaware business trust (the
"Trust"), governed by the Amended and Restated Declaration of Trust among the
Company, as sponsor, The Bank of New York, as property trustee (the "Property
Trustee"), and The Bank of New York (Delaware), as Delaware trustee (the
"Delaware Trustee"), and [ ], [ ] and [ ], as trustees
(together with the Property Trustee and the Delaware Trustee, the "Issuer
Trustees"), and the holders, from time to time, of undivided beneficial
interests in the assets of the Trust, dated as of November ___, 1999 (the
"Declaration"), pursuant to the Underwriting Agreement (the "Underwriting
Agreement") dated October ___, 1999, among the Company, the Trust and the
Initial Underwriters named therein, will issue and sell up to 4,000,000 of its
__% Convertible Preferred Securities Remarketable Term Income Deferrable Equity
Securities (HIGH TIDES)(SM) (or up to 4,600,000 to the extent the over-allotment
option is exercised in full) (the "Preferred Securities") with a liquidation
preference of $50 per Preferred Security, having an aggregate liquidation amount
with respect to the assets of the Trust of up to $200,000,000 (or up to
$230,000,000 to the extent the over-allotment option is exercised in full);
WHEREAS, the trustees of the Trust, on behalf of the Trust, will
execute and deliver to the Company Common Securities evidencing an ownership
interest in the Trust, registered in the name of the Company, in an aggregate
amount equal to at least three percent of the capitalization of the Trust,
equivalent to up to 123,712 Common Securities (or up to 142,269 Common
Securities to the extent the over-allotment option is exercised in full), with a
liquidation preference of $50 per Common Security, having an aggregate
liquidation amount with respect to the assets of the Trust of up to $6,185,600
(or up to $7,113,450 to the extent the over-allotment option is exercised in
full) (the "Common Securities");
WHEREAS, the Trust will use the proceeds from the sale of the
Preferred Securities and the Common Securities to purchase Securities (as
defined below) from the Company in an aggregate principal amount of up to
$206,185,600 (or $237,113,450 to the extent the over-allotment option is
exercised in full);
WHEREAS, the Company is guaranteeing the payment of distributions
on the Preferred Securities (as defined herein), and payment of the Redemption
Price (as defined herein) and payments on liquidation with respect to the
Preferred Securities, to the extent provided in the Guarantee (the "Guarantee")
between the Company and The Bank of New York, as Guarantee Trustee, for the
benefit of the Holders of the Trust Securities from time to time;
WHEREAS, the Company has duly authorized the creation of an issue
of its Convertible Subordinated Debentures Due 2029 (the "Securities"), of
substantially the tenor and amount hereinafter set forth and to provide therefor
the Company has duly authorized the execution and delivery of this Indenture;
<PAGE> 7
WHEREAS, so long as the Trust is a Holder of Securities, and any
Preferred Securities are outstanding, the Declaration provides that the Holders
of Preferred Securities may cause the Conversion Agent (as defined herein) to
(i) exchange such Preferred Securities for Securities held by the Trust and (ii)
immediately convert such Securities into Common Stock (as defined herein);
WHEREAS, the Company and the Remarketing Agent (as defined
herein) have entered into a Remarketing Agreement (as defined herein) dated as
of the date hereof pursuant to which such Remarketing Agent has agreed to use
its best efforts to (i) remarket all Preferred Securities tendered for
remarketing (the "Remarketing") and (ii) establish, beginning on the Reset Date
(as defined herein), (a) the rate at which distributions will accrue on the
Preferred Securities, (b) the number of shares of Common Stock, if any, into
which each Preferred Security may be converted and (c) the price, manner and
time, if any, at which the Preferred Securities may be redeemed; and
WHEREAS, all things necessary to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as defined herein) thereof, it is mutually agreed,
for the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
Definitions and Other
Provisions of General Application
SECTION 1.01 Definitions. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles; and
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning
specified in Section 1.04.
2
<PAGE> 8
"Additional Amounts" has the meaning specified in Section 3.01.
"Additional Payments" means Compounded Interest and Additional
Amounts, if any.
"Additional Sums" has the meaning specified in Section 3.01.
"Adjusted Reference Market Price" has the meaning specified in
Section 13.07(a)(i).
"Adjusted Relevant Price" has the meaning specified in Section
13.07(a)(i).
"Administrative Action" has the meaning specified in the
definition of "Tax Event" in this Section 1.01.
"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 specified 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;
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Security Registrar, co-registrar, Paying Agent
or Conversion Agent.
"Agent Member" means any member of, or participant in, the
Depositary.
"Applicable Conversion Price" has the meaning specified in
Section 13.01.
"Applicable Conversion Ratio" has the meaning specified in
Section 13.01.
"Applicable Rate" means the rate at which the Securities accrue
interest and the corresponding Trust Securities accrue distributions. From the
date of original issuance of the Securities to (but excluding) the Reset Date,
the Applicable Rate shall be [ ]% per annum (the "Initial Rate"). Beginning with
and after the Reset Date, the Applicable Rate shall be the Term Rate (as defined
herein).
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day other than a Saturday or a Sunday,
or a day on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed, or a day on which the
corporate trust office of the Property Trustee or the Trustee is closed for
business.
3
<PAGE> 9
"Closing Price" has the meaning specified in Section 13.07(b).
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Securities" has the meaning specified in the Second
Recital to this Indenture.
"Common Securities Guarantee" the Common Securities Guarantee
Agreement dated of even date herewith delivered by the Company for the benefit
of the holders of the Common Securities from time to time.
"Common Stock" includes any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company. However,
subject to the provisions of Article XIII, shares issuable on conversion of
Securities shall include only shares of the class designated as the Common
Stock, par value $.001 per share, of the Company at the date of this Indenture
or shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to redemption
by the Company; provided, that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable on conversion
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
"Common Stock Fundamental Change" has the meaning specified in
Section 13.07(b).
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Company Transaction" has the meaning specified in Section 13.04.
"Compounded Interest" has the meaning specified in Section 3.13.
"Conversion Agent" means the Person appointed to act on behalf of
the Holders of Preferred Securities in effecting the conversion of Preferred
Securities as and in the manner set forth in the Declaration and Section 13.02
hereof.
"Conversion Date" has the meaning specified in Section 13.02.
4
<PAGE> 10
"Convertible Remarketing" means the remarketing of the Preferred
Securities in the Remarketing as securities which will be convertible into
Common Stock.
"Corporate Trust Office" means the principal office of the
Trustee in New York, New York, at which at any particular time its corporate
trust business shall be administered and which at the date of this Indenture is
101 Barclay Street, New York, New York 10286.
"Declaration" has the meaning specified in the First Recital to
this Indenture.
"Debt" means (i) the principal of and premium and interest, if
any, on indebtedness for money borrowed, (ii) purchase money and similar
obligations, (iii) obligations under capital leases, (iv) guarantees,
assumptions or purchase commitments relating to, or other transactions as a
result of which the Company is responsible for the payment of such indebtedness
of others, (v) renewals, extensions and refunding of any such indebtedness, (vi)
interest or obligations in respect of any such indebtedness accruing after the
commencement of any insolvency or bankruptcy proceedings and (vii) obligations
associated with derivative products such as interest rate and currency exchange
contracts, foreign exchange contracts, commodity contracts and similar
arrangements.
"Defaulted Interest" has the meaning specified in Section 3.08.
"Deferral Notice" has the meaning specified in Section 3.13.
"Deferral Period" has the meaning specified in Section 3.13.
"Delaware Trustee" has the meaning given it in the First Recital
to this Indenture.
"Depositary" means the Depository Trust Company, or any successor
thereto.
"Direct Action" has the meaning specified in Section 5.16.
"Dissolution Tax Opinion" has the meaning specified in the
definition of "Tax Event" in this Section 1.01.
"Entitlement Date" has the meaning specified in Section 13.07(b).
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"ex" date has the meaning specified in Section 13.03(vii).
"Expiration Date" has the meaning specified in Section 1.04(d).
"Expiration Time" has the meaning specified in Section 13.03(vi).
5
<PAGE> 11
"Failed Final Remarketing" has the meaning specified in Section
2(d) of the Remarketing Agreement.
"Fundamental Change" has the meaning specified in Section
13.07(b).
"Global Security" means a Security issued in the form prescribed
in Section 2.03, issued to the Depositary or its nominee, and registered in the
name of the Depositary or its nominee.
"Guarantee" has the meaning specified in the Fourth Recital to
this Indenture.
"Holder" means a Person in whose name a Security is registered in
the Security Register or a Person in whose name a Preferred Security is
registered in the List of Holders, as the case may be.
"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Initial Conversion Price" has the meaning specified in Section
13.01.
"Initial Conversion Ratio" has the meaning specified in Section
13.01.
"Initial Rate" has the meaning specified in the definition of
"Applicable Rate" in this Section 1.01.
"Initial Redemption Price" has the meaning specified in Section
11.01.
"Initial Underwriters," with respect to the Preferred Securities,
means Credit Suisse First Boston Corporation, CIBC World Markets Corp. and ING
Barings LLC.
"Interest Payment Date" has the meaning specified in Section
3.01.
"Investment Company Event" has the meaning specified in the
Declaration.
"Issuer Trustees" has the meaning specific in the First Recital
to this Indenture.
"List of Holders" has the meaning specified in the Declaration.
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"90 Day Period" has the meaning specified in Section 11.03.
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"NNM" means the National Market System of the National
Association of Securities Dealers, Inc., or any successor national automated
interdealer quotation system.
"Non-Stock Fundamental Change" has the meaning specified in
Section 13.07(b).
"No Recognition Opinion" means the receipt by the Property
Trustee of an opinion of a nationally recognized independent tax counsel
(reasonably acceptable to the Issuer Trustees) experienced in such matters,
which opinion may rely on published revenue rulings of the Internal Revenue
Service, to the effect that the Holders of the Preferred Securities will not
recognize any income, gain or loss for United States federal income tax purposes
as a result of the liquidation of the Trust and the distribution of the
Securities to the Holders of the Preferred Securities.
"Notice of Conversion" means the notice to be given by a Holder
of Preferred Securities to the Conversion Agent directing the Conversion Agent
to exchange such Preferred Securities for Securities and to convert such
Securities into Common Stock on behalf of such Holder.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under, or with respect to, any Debt (including claims for
rescission).
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the Vice Chairman of the Board, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company, and delivered to the Trustee. One of the
officers signing an Officers' Certificate given pursuant to Section 10.04 shall
be the principal executive, financial or accounting officer of the Company.
"OID" means original issue discount.
"Opinion of Counsel" means a written opinion of counsel, who may
be counsel for the Company, and who shall be reasonably acceptable to the
Trustee.
"Optional Redemption" has the meaning specified in Section
11.01(a).
"Optional Redemption Date" means the date which is not less than
20, nor more than 60, days following the date on which the Optional Redemption
Notice is sent, as specified in the Optional Redemption Notice (or if such date
is not a Business Day, the next succeeding Business Day).
"Optional Redemption Notice" has the meaning specified in
Section 11.01(b).
"Optional Redemption Price" has the meaning specified in
Section 11.01(a).
"Optional Redemption Ratio" has the meaning specified in
Section 13.07(a)(i).
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"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except: (i) Securities theretofore canceled by
the Trustee or delivered to the Trustee for cancelation; (ii) Securities for
whose payment or redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Securities; provided, that if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee has
been made; and (iii) Securities that have been paid pursuant to Section 3.08,
converted into Common Stock pursuant to Section 13.01, or in exchange for or in
lieu of which other Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such Securities
are held by a bona fide purchaser in whose hands such Securities are valid
obligations of the Company.
"Paying Agent" means any Person authorized by the Company to pay
the principal of or interest on any Securities on behalf of the Company.
"Payment Resumption Date" has the meaning specified in Section
3.13(b).
"Person" means any individual, corporation, limited liability
company, company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.07 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the First
Recital to this Indenture.
"Primary Treasury Dealer" has the meaning specified in the
Remarketing Agreement.
"Property Trustee" has the meaning specified in the First Recital
to this Indenture.
"Purchased Shares" has the meaning specified in Section
13.03(vi).
"Purchaser Stock Price" has the meaning specified in Section
13.07(b).
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture, including without limitation, the Optional Redemption Date with
respect to an Optional Redemption.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture,
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including without limitation, the Optional Redemption Price with respect to an
Optional Redemption.
"Redemption Tax Opinion" means the receipt by the Property
Trustee of an opinion of a nationally recognized independent tax counsel
(reasonably acceptable to the Issuer Trustees) experienced in such matters that,
as a result of a Tax Event, there is more than an insubstantial risk that the
Company would be precluded from deducting the interest on the Securities for
United States federal income tax purposes, even after the Trust was liquidated
and the Securities were distributed to the Holders of the Preferred Securities.
"Reference Date" has the meaning specified in Section 13.03(iv).
"Reference Market Price" has the meaning specified in Section
13.07(b).
"Reference Treasury Dealer" has the meaning specified in the
Remarketing Agreement.
"Reference Treasury Dealer Quotations" has the meaning specified
in the Remarketing Agreement.
"Regular Record Date" has the meaning specified in Section 3.01.
"Relevant Price" has the meaning specified in Section 13.07(b).
"Remarketing" has the meaning specified in the Seventh Recital to
this Indenture.
"Remarketing Agent" means an investment bank, broker, dealer, or
other organization which, in the opinion of the Company, is qualified to
remarket the Preferred Securities substantially in accordance with the terms of
the Remarketing Agreement. The initial Remarketing Agent shall be Credit Suisse
First Boston Corporation. The term "Remarketing Agent" shall also include any
successor Person appointed as such by the Company.
"Remarketing Agreement" means the Remarketing Agreement with the
Remarketing Agent dated the date hereof substantially in the form set forth in
Exhibit B to this Indenture and any substantially similar agreement entered into
by the Company with any successor Remarketing Agent.
"Reset Date" means any date that is (i) not later than October
[__], 2004 (or, if such day is not a Business Day, the next succeeding Business
Day), and (ii) not earlier than 70 days prior to October [__], 2004, as may be
determined by the Remarketing Agent, in its sole discretion, for settlement of a
successful remarketing.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the treasurer, any assistant treasurer, any trust
officer or assistant trust officer, the controller or any assistant controller
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers, and having direct
responsibility for the administration of this Indenture, and also means, with
respect to a
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particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Securities" has the meaning specified in the Fifth Recital to
this Indenture.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.06(a).
"Senior Debt" means (i) all indebtedness of the Company evidenced
by securities, debentures, bonds or other similar instruments issued by the
Company, (ii) all obligations to make payment pursuant to the terms of financial
instruments, such as (a) securities contracts and foreign currency exchange
contracts, (b) derivative instruments, such as swap agreements (including
interest rate and foreign exchange rate swap agreements), cap agreements, floor
agreements, collar agreements, interest rate agreements, foreign exchange
agreements, options, commodity futures contracts and commodity options
contracts, and (c) similar financial instruments; except, in the case of (i)
above, such indebtedness and obligations that are expressly stated to rank
junior in right of payment to, or pari passu in right of payment with, the
Securities, (iii) and indebtedness or obligations of others of the kind
described in (i) and (ii) above for the payment of which the Company is
responsible or liable as guarantor or otherwise and (iv) deferrals, renewals or
extensions of any such Senior Debt; provided, however, that Senior Debt shall
not be deemed to include (a) any Debt of the Company which, when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, was without recourse to the Company, (b) trade accounts
payable and accrued liabilities arising in the ordinary course of business,
which will not constitute Debt for purposes of the Preferred Securities (c) any
Debt of the Company to any of its subsidiaries, except to the extent incurred
for the benefit of third parties, (d) Debt to any employee of the Company and
(e) Debt that expressly provides that it is not senior in right of payment to
the Securities.
"Significant Subsidiary" of any Person means a Subsidiary of such
Person meeting the requirements set forth in Rule 1-02(w) of Regulation S-X of
the Securities Act.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.08.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest or Additional Payments thereon,
means the date specified in such Security as the fixed date on which the
principal, together with any accrued and unpaid interest (and Additional
Payments, if any), of such Security or such installment of interest or
Additional Payments is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50%
of the outstanding Voting Stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries of such Person or by such
Person and one or more Subsidiaries thereof or (ii) any other Person (other than
a corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more
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other Subsidiaries thereof, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
"Tax Event" means the receipt by the Property Trustee of an
opinion of a nationally recognized independent tax counsel to the Company
(reasonably acceptable to the Issuer Trustees) experienced in such matters (a
"Dissolution Tax Opinion") to the effect that, as a result of (a) any amendment
to or change (including any announced prospective change (which shall not
include a proposed change), provided that a Tax Event shall not occur more than
90 days before the effective date of any such prospective change) in the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, (b) any judicial decision or
official administrative pronouncement, ruling, regulatory procedure, notice or
announcement, including any notice or announcement of intent to adopt such
procedures or regulations (an "Administrative Action") or (c) any amendment to
or change in the administrative position or interpretation of any Administrative
Action or judicial decision that differs from the theretofore generally accepted
position, in each case, by any legislative body, court, governmental agency or
regulatory body, irrespective of the manner in which such amendment or change is
made known, which amendment or change is effective or such Administrative Action
or decision is announced, in each case, on or after the date of the date of
original issuance of the Securities or the issue date of the Preferred
Securities issued by the Trust, there is more than an insubstantial risk that
(x) if the Securities are held by the Property Trustee, (i) the Trust is, or
will be within 90 days of the date of such opinion, subject to United States
federal income tax with respect to interest accrued or received on the
Securities or subject to more than a de minimis amount of other taxes, duties or
other governmental charges as determined by such counsel, or (ii) any portion of
interest payable by the Company to the Trust (or OID accruing) on the Securities
is not, or within 90 days of the date of such opinion will not be, deductible by
the Company in whole or in part for United States federal income tax purposes or
(y) with respect to Securities which are no longer held by the Property Trustee,
any portion of interest payable by the Company (or OID accruing) on the
Securities is not, or within 90 days of the date of such opinion will not be,
deductible by the Company in whole or in part for United States federal income
tax purposes.
"Tender Notification Date" means [ ], or if such day is
not a Business Day, the next succeeding Business Day.
"Term Call Protections" means the price, manner and time, if any,
at which the Securities may be redeemed at the option of the Company after the
Reset Date. The Term Call Protections, if any, will be established in connection
with the Remarketing.
"Term Provisions" shall have the meaning specified in the
Remarketing Agreement.
"Term Rate" means the rate established by the Remarketing Agent
in connection with the Remarketing at which distributions shall accrue on the
Securities from and after the Reset Date.
"Term Redemption Price" has the meaning specified in Section
11.01(a).
"Trading Day" has the meaning specified in Section 13.07(b).
"Trust" has the meaning specified in the First Recital to this
Indenture.
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"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this Indenture was executed; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Trust Securities" means Common Securities and Preferred
Securities.
"Underwriting Agreement" has the meaning specified in the First
Recital to this Indenture.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" of any Person means capital stock of such Person
which ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
SECTION 1.02 Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee such
certificates and opinions as may be required under the Trust Indenture Act or
reasonably requested by the Trustee in connection with such application or
request. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
applicable requirements of the Trust Indenture Act and any other applicable
requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) 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;
(3) a statement that, in the opinion of each such individual, he
has made or caused to be made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
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SECTION 1.03 Form of Documents Delivered to Trustee. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04 Acts of Holders; Record Dates. (a) Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given to or taken by Holders may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by an agent duly appointed in writing; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments is or are delivered to the Trustee and, where it
is hereby expressly required, to the Company. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 6.01) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee or the Company, as the case may be, deems
sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders of Outstanding Securities entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver or other action, or to
vote on any action, authorized or permitted to be given or taken by Holders. If
not set by the Company prior
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to the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 7.01)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
(d) The Trustee may set any day as a record date for the purpose
of determining the Holders of Outstanding Securities entitled to join in the
giving or making of (i) any notice of default, (ii) any declaration of
acceleration referred to in Section 5.02, (iii) any request to institute
proceedings referred to in Section 5.07(2) or (iv) any direction referred to in
Section 5.12. If any record date is set pursuant to this paragraph, the Holders
of Outstanding Securities on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the date set by
the Trustee by which any such determination shall be made (the "Expiration
Date") by Holders of the requisite principal amount of Outstanding Securities on
such record date. Nothing in this paragraph shall be construed to prevent the
Trustee from setting a new record date for any action for which a record date
has previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be canceled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities of the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Trustee, at the Company's
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Company in writing and to
each Holder of Securities in the manner set forth in Section 1.06.
(e) The ownership of Securities shall be proved by the Security
Register.
(f) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
(g) Without limiting the foregoing, a Holder entitled hereunder
to give or take any such action with regard to any particular Security may do so
with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
SECTION 1.05 Notices, Etc., to Trustee and the Company. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Administration-21W, or
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(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 1.06 Notice to Holders; Waiver. Where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at such
Holder's address as it appears in the Security Register, not later than the
latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Any notice when mailed to a Holder in the
aforesaid manner shall be conclusively deemed to have been received by such
Holder whether or not actually received by such Holder. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 1.07 Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with a provision of the Trust Indenture
Act that is required under such Act to be a part of and govern this Indenture,
the latter provision shall control. If any provision of this Indenture modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
SECTION 1.08 Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.09 Successors and Assigns. All covenants and agreements
in this Indenture by the Company shall bind its successors and assigns, whether
so expressed or not.
SECTION 1.10 Separability Clause. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.11 Benefits of Indenture. Nothing in this Indenture or
in the Securities, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, the holders of Senior Debt, the
Holders of Preferred
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Securities (to the extent provided herein) and the Holders of Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12 GOVERNING LAW. THIS INDENTURE AND THE SECURITIES
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.
SECTION 1.13 Legal Holidays. In any case where any Interest
Payment Date, Redemption Date or Stated Maturity of any Security or the last
date on which a Holder has the right to convert his Securities shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Securities) payment of interest (and Additional Payments, if any) or
principal or conversion of the Securities need not be made on such date, but may
be made on the next succeeding Business Day (except that, if such Business Day
is in the next succeeding calendar year, such Interest Payment Date, Redemption
Date or Stated Maturity, as the case may be, shall be the immediately preceding
Business Day) with the same force and effect as if made on the Interest Payment
Date or Redemption Date, or at the Stated Maturity or on such last day for
conversion, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
ARTICLE II
Security Forms
SECTION 2.01 Forms Generally. The Securities and the Trustee's
certificates of authentication shall be substantially in the form of Exhibit A
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). The Company shall furnish any such legend not contained in
Exhibit A to the Trustee in writing. Each Security shall be dated the date of
its authentication. The terms and provisions of the Securities set forth in
Exhibit A are part of the terms of this Indenture and 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 definitive Securities shall be typewritten or printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders 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 2.02 Provisions Required in Global Security. Any Global
Security issued hereunder shall bear a legend in substantially the following
form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY
TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS
SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITARY OR ITS
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NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE,
AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY
AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK) TO CALPINE
CORPORATION 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 REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.,
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN."
SECTION 2.03 Issuance of Global Securities to Holders. The
Securities will be represented by one or more Global Securities registered in
the name of the Depositary or its nominee if, and only if, the Securities are
distributed to the holders of the Trust Securities. Until such time, the
Securities shall be registered in the name of and held by the Property Trustee.
Securities distributed to holders of book-entry Trust Securities shall be
distributed in the form of one or more Global Securities registered in the name
of the Depositary or its nominee, and deposited with the Security Registrar, as
custodian for such Depositary, or held by such Depositary for credit by the
Depositary to the respective accounts of the beneficial owners of the Securities
represented thereby (or such other accounts as they may direct). Securities
distributed to holders of Trust Securities other than book-entry Trust
Securities shall not be issued in the form of a Global Security or any other
form intended to facilitate book-entry trading in beneficial interests in such
Securities.
ARTICLE III
The Securities
SECTION 3.01 Title and Terms. The aggregate principal amount of
Securities that may be authenticated and delivered under this Indenture is
limited to the sum of (a) $206,185,600 and (b) such aggregate principal amount
(which may not exceed $30,927,850 aggregate principal amount) of Securities, if
any, as shall be purchased by the Trust pursuant to an over-allotment option in
accordance with the terms and provisions of the Underwriting Agreement, except
for Securities authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities pursuant to Section 3.04, 3.05,
3.06, 3.07, 9.06, 11.09 or 13.01.
The Securities shall be known and designated as the "Convertible
Subordinated Debentures Due 2029" of the Company. Their Stated Maturity shall be
October [ ], 2029, and they shall bear interest at the Applicable Rate, from
[ ], 1999, or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or duly provided for, as the case may be,
payable quarterly (subject to
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deferral as set forth herein), in arrears, on [ ], [ ], [ ] and
[ ] (each an "Interest Payment Date") of each year, commencing [ ], 2000
until the principal thereof is paid or made available for payment, and they
shall be paid to the Person in whose name the Security is registered at the
close of business on the regular record date for such interest installment,
which shall be the close of business on the [first] day of each [ ], [ ],
[ ] and [ ] next preceding the applicable Interest Payment Date (the
"Regular Record Date"). Each registered Holder of Securities on the fifteenth
day prior to the Reset Date (including any Holder which has tendered or is
deemed to have tendered its Securities for remarketing) shall be paid interest
and Additional Payments, if any, accrued to (but excluding) the Reset Date (or,
if such day is not a Business Day, the next succeeding Business Day). Interest
and Additional Payments, if any, accrued from and after the Reset Date to (but
excluding) [ ], 20[ ] shall be paid on [ ] (or, if such day is not a
Business Day, the next succeeding Business Day) to the Person in whose name each
Security is registered on the preceding [ ], subject to the right of the
Company to initiate a Deferral Period. Interest will compound quarterly and will
accrue at the Applicable Rate on any interest installment in arrears for more
than one quarter or during an extension of an interest payment period as set
forth in Section 3.13 hereof.
The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest is computed, will be computed on the
basis of the actual number of days elapsed in such a 30-day month. In the event
that any date on which interest is payable on the Securities is not a Business
Day, then payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
If at any time (including upon the occurrence of a Tax Event)
while the Property Trustee is the Holder of all the Securities, the Trust or the
Property Trustee is required to pay any taxes, duties, assessments or
governmental charges of whatever nature ("Additional Sums") (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company will pay as additional amounts on the Securities
held by the Property Trustee, such additional amounts ("Additional Amounts") as
shall be required so that the net amounts received and retained by the Trust and
the Property Trustee after paying such taxes, duties, assessments or other
governmental charges will be equal to the amounts the Trust and the Property
Trustee would have received had no such taxes, duties, assessments or other
governmental charges been imposed.
The principal of and interest (and Additional Payments, if any)
on the Securities shall be payable at the office or agency of the Company in New
York, New York maintained for such purpose and at any other office or agency
maintained by the Company for such purpose in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that at any time that the
Property Trustee is not the sole holder of the Securities, payment of interest
may, at the option of the Company, be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register or
by wire transfer.
The Securities shall be redeemable as provided in Article XI
hereof.
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The Securities shall be subordinated in right of payment to
Senior Debt as provided in Article XII hereof.
The Securities shall be convertible as provided in Article XIII
hereof.
SECTION 3.02 Denominations. The Securities shall be issuable only
in registered form without coupons and only in denominations of $50 and integral
multiples thereof.
SECTION 3.03 Execution, Authentication, Delivery and Dating. The
Securities shall be executed on behalf of the Company by its Chairman of the
Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such Securities
or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as in this Indenture provided and not otherwise.
No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security
a certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered here under.
SECTION 3.04 Temporary Securities. Pending the preparation of
definitive Securities, the Company may execute, and upon Company Order the
Trustee shall authenticate and make available for delivery, temporary Securities
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of such
Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to Section
10.02, without charge to the Holder. Upon surrender for cancelation of any one
or more temporary Securities the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities.
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SECTION 3.05 Global Securities. (a) Each Global Security issued
under this Indenture shall be registered in the name of the Depositary
designated by the Company for such Global Security or a nominee thereof and
delivered to such Depositary or a nominee thereof or custodian therefor, and
each such Global Security shall constitute a single Security for all purposes of
this Indenture.
(b) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or a
nominee thereof unless (i) such Depositary advises the Trustee in writing that
such Depositary is no longer willing or able to continue as a Depositary with
respect to such Global Security, and no successor depositary shall have been
appointed, or if at any time the Depositary ceases to be a "clearing agency"
registered under the Exchange Act, at a time when the Depositary is required to
be so registered to act as such depositary, (ii) the Company in its sole
discretion determines that such Global Security shall be so exchangeable or
(iii) there shall have occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other
Securities or canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Security Registrar for exchange or cancelation
as provided in this Article III. If any Global Security is to be exchanged for
other Securities or canceled in part, or if another Security is to be exchanged
in whole or in part for a beneficial interest in any Global Security, then
either (i) such Global Security shall be so surrendered for exchange or
cancelation as provided in this Article III or (ii) the principal amount thereof
shall be reduced or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the principal amount of such other Security
to be so exchanged for a beneficial interest therein, as the case may be, by
means of an appropriate adjustment made on the records of the Security
Registrar, whereupon the Trustee shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Security by the Depositary, accompanied by
registration instructions, the Trustee shall, subject to Section 3.05(b) and as
otherwise provided in this Article III, authenticate and make available for
delivery any Securities issuable in exchange for such Global Security (or any
portion thereof) in accordance with the instructions of the Depositary. The
Trustee shall not be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be fully protected in relying on, such
instructions.
(d) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interest pursuant to the rules and procedures of
the Depositary. Accordingly, any such owner's beneficial interests in a Global
Security shall be shown only on, and the transfer of such interest shall be
effected only through, records maintained by the Depositary or its nominee or
its Agent Members. Neither the Trustee nor the Security Registrar shall have any
liability in respect of any transfers effected by the Depositary.
(e) The rights of the beneficial interests in a Global Security
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Agent Members.
SECTION 3.06 Registration, Transfer and Exchange Generally;
Certain Transfers and Exchanges. (a) The Company shall cause to be kept at the
Corporate Trust
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Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 10.02 being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers of Securities. The Trustee
is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 10.02 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount and bearing such restrictive legends as may be required by this
Indenture.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations and of a like aggregate
principal amount and bearing such restrictive legends as may be required by this
Indenture, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.04, 3.05, 9.06, 11.09 or 13.01 not
involving any transfer.
Neither the Company nor the Trustee shall be required (i) in the
case of a partial redemption of the Securities, to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 11.05 and ending at the close of business
on the day of such mailing or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
(b) Transfer and Exchange Procedures and Restrictions. Upon any
distribution of the Securities to the holders of the Trust Securities in
accordance with the Declaration, the Company and the Trustee shall enter into a
supplemental indenture pursuant to Section 9.01(6) to provide for transfer
procedures and restrictions with respect to the Securities substantially similar
to those contained in the Declaration to the
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extent applicable in the circumstances existing at the time of such
distribution. Notwithstanding any other provision of the Indenture, transfers
and exchanges of Securities and beneficial interests in a Global Security of the
kinds specified in this Section 3.06(b) shall be made only in accordance with
this Section 3.06(b).
(1) Non-Global Security to Global Security. If the Holder of a
Security (other than a Global Security) wishes at any time to transfer
all or any portion of such Security to a Person who wishes to take
delivery thereof in the form of a beneficial interest in a Global
Security, such transfer may be effected only in accordance with the
provisions of this clause (b)(1) and subject to the rules and procedures
of the Depositary. Upon receipt by the Security Registrar of (A) such
Security as provided in Section 3.06(a) and instructions satisfactory to
the Security Registrar directing that a beneficial interest in the
Global Security in a specified principal amount not greater than the
principal amount of such Security be credited to a specified Agent
Member's account and (B) a Securities Certificate duly executed by such
Holder or such Holder's attorney duly authorized in writing, then the
Security Registrar shall cancel such Security (and issue a new Security
in respect of the untransferred portion thereof) as provided in Section
3.06(a) and increase the aggregate principal amount of the Global
Security by the specified principal amount as provided in Section
3.05(c).
(2) Non-Global Security to Non-Global Security. A Security that
is not a Global Security may be transferred, in whole or in part, to a
Person who takes delivery in the form of another Security that is not a
Global Security as provided in Section 3.06(a).
(3) Exchanges Between Global Security and Non-Global Security. A
beneficial interest in a Global Security may be exchanged for a Security
that is not a Global Security as provided in Section 3.05.
SECTION 3.07 Mutilated, Destroyed, Lost and Stolen Securities. If
any mutilated Security is surrendered to the Trustee, the Company shall execute
and the Trustee shall authenticate and make available for delivery in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
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Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.08 Payment of Interest; Interest Rights Preserved.
Interest (and Additional Payments, if any) on any Security which is payable, and
is punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date (as defined below) for the payment of
such Defaulted Interest, which shall be fixed in the following manner.
The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of
the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a special
record date (the "Special Record Date") for the payment of such
Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at his address as it appears in the Security Register,
not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if so
listed, upon such notice
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as may be required by such exchange (or by the Trustee if the Securities
are not listed), if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner of payment
shall be deemed practicable by the Trustee; provided that any such
payment shall be made in coin or currency of the United States of
America which at the time of payment is a legal tender for payment of
public and private debt.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue (including in each such case Additional
Payments), which were carried by such other Security.
In the case of any Security which is converted after any Regular
Record Date and on or prior to the next succeeding Interest Payment Date (other
than any Security whose Maturity is prior to such Interest Payment Date),
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion, and such interest
(and Additional Payments, if any) (whether or not punctually paid or duly
provided for) shall be paid to the Person in whose name that Security (or one or
more Predecessor Securities) is registered at the close of business on such
Regular Record Date. Except as otherwise expressly provided in the immediately
preceding sentence, interest whose Stated Maturity is after the date of
conversion of such Security shall not be payable, and the Company shall not make
nor be required to make any other payment, adjustment or allowance with respect
to accrued but unpaid interest (and Additional Payments, if any) on the
Securities being converted, which shall be deemed to be paid in full.
SECTION 3.09 Persons Deemed Owners. The Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name any
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and (subject to Section 3.08) interest (and
Additional Payments, if any) on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary. No holder of any beneficial interest in any Global
Security held on its behalf by a Depositary shall have any rights under this
Indenture with respect to such Global Security, and such Depositary may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company or the
Trustee from giving effect to any written certification, proxy, or other
authorization furnished by a Depositary or impair, as between the Depositary and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depositary (or its nominee) as
Holder of any Security.
SECTION 3.10 Cancelation. All Securities surrendered for payment,
redemption, registration of transfer or exchange or conversion shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by it. The Company may at any time deliver to the
Trustee for cancelation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly canceled by the Trustee. No Securities
shall be authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section, except as expressly permitted by this Indenture. All
canceled Securities held by the Trustee shall be disposed of as directed by a
Company
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Order; provided, however, that the Trustee shall not be required to destroy the
certificates representing such canceled Securities.
SECTION 3.11 Right of Set Off. Notwithstanding anything to the
contrary in this Indenture, the Company shall have the right to set off any
payment it is otherwise required to make hereunder to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
SECTION 3.12 CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, that any such notice may state that no representation is made as to
the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
SECTION 3.13 Extension of Interest Payment Period; Notice of
Extension. (a) So long as no Event of Default has occurred and is continuing,
the Company shall have the right, at any time during the term of this Security,
from time to time to defer payments of interest by extending for successive
periods not exceeding 20 consecutive quarters for each such period (a "Deferral
Period"); provided that no Deferral Period may extend beyond (i) the maturity
(whether at October [ ], 2029 or by declaration of acceleration, call for
redemption or otherwise) or (ii) in the case of a Deferral Period that begins
prior to the Reset Date, the Reset Date. To the extent permitted by applicable
law, interest, the payment of which has been deferred because of the extension
of the interest payment period pursuant to this Section 3.13, will bear interest
thereon at the Applicable Rate compounded quarterly for each quarter of the
Deferral Period ("Compounded Interest"). On the applicable Payment Resumption
Date, the Company shall pay all interest then accrued and unpaid on the
Securities, including any Compounded Interest that shall be payable to the
Holders of the Securities in whose names the Securities are registered in the
Security Register on the Regular Record Date fixed for such Payment Resumption
Date. A Deferral Period shall terminate upon the payment by the Company of all
interest then accrued and unpaid on the Securities (together with Additional
Payments), to the extent permitted by applicable law. Before the termination of
any Deferral Period, the Company may further extend such period as provided in
paragraph (b) of this Section 3.13, provided that such period together with all
such further extensions thereof shall not exceed 20 consecutive quarters or
extend beyond (i) the maturity (whether at October [ ], 2029 or by declaration
of acceleration, call for redemption or otherwise) or (ii) in the case of a
Deferral Period that begins prior to the Reset Date, the Reset Date. Upon the
termination of any Deferral Period, and subject to the foregoing requirements,
the Company may elect to begin a new Deferral Period. No interest shall be due
and payable during a Deferral Period except on the Payment Resumption Date as
determined pursuant to paragraph (b) of this Section 3.13. There is no
limitation on the number of times that the Company may elect to begin a Deferral
Period.
(b) The Company shall give the Holder of the Security and the
Trustee written notice (a "Deferral Notice") of its selection of a Deferral
Period at least ten days prior to the record date for any distributions that
would have been payable on the Trust Securities except for the decision to begin
or extend a Deferral Period. On or prior to the Regular Record Date immediately
preceding the Interest Payment Date on which the Company elects to pay all
interest then accrued and unpaid on the Securities, including
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Compounded Interest (the "Payment Resumption Date"), the Company shall give the
Holder of the Security and the Trustee written notice that the Deferral Period
will end on such Payment Resumption Date. Notwithstanding the provision of such
notice, the Company may elect to further extend the Deferral Period, subject to
the limitations set forth in Section 3.13(a), by providing the Holder of the
Security and the Trustee with a new Deferral Notice not less than three Business
Days prior to the Regular Record Date immediately preceding the previously
scheduled Payment Resumption Date. The Company may elect to pay all interest
then accrued and unpaid on the Securities, including Compounded Interest, on an
Interest Payment Date prior to its most recently established Payment Resumption
Date; provided that the Company gives the Holder of the Security and the Trustee
a new Deferral Notice setting forth the revised Payment Resumption Date at least
three Business Days prior to the Regular Record Date for such revised Payment
Resumption Date.
(c) The quarter in which any Deferral Notice is given pursuant to
paragraph (b) hereof shall be counted as one of the 20 quarters permitted in
the maximum Deferral Period permitted under paragraph (a) hereof.
SECTION 3.14 Paying Agent, Security Registrar and Conversion
Agent. The Trustee will initially act as Paying Agent, Security Registrar and
Conversion Agent. The Company may change any Paying Agent, Security Registrar,
co-registrar or Conversion Agent without prior notice. The Company or any of its
Affiliates may act in any such capacity.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01 Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect (except as to any surviving rights
of conversion, registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 3.06 and (ii) Securities for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.03) have
been delivered to the Trustee for cancelation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancelation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
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(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancelation, for
principal and interest (and Additional Payments, if any) to the
date of such deposit (in the case of Securities which have become
due and payable) or to the Stated Maturity or Redemption Date, as
the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 4.02 and the last
paragraph of Section 10.03 shall survive.
SECTION 4.02 Application of Trust Money. Subject to the
provisions of the last paragraph of Section 10.03, all money deposited with the
Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal and interest (and Additional Payments, if
any) for whose payment such money has been deposited with the Trustee. All
moneys deposited with the Trustee pursuant to Section 4.01 (and held by it or
any Paying Agent) for the payment of Securities subsequently converted shall be
returned to the Company upon Company Request.
ARTICLE V
Remedies
SECTION 5.01 Events of Default. "Event of Default," wherever used
herein, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Default and whether it shall
be occasioned by the provisions of Article XI or Article XII or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Security,
including any Additional Payments, when it becomes due and payable, and
continuance of such
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default for a period of 30 days (subject to the deferral of any due date
in the case of a Deferral Period); or
(2) default in the payment of the principal or premium, if any,
of any Security when due, whether at its Maturity upon redemption, by
declaration of acceleration or otherwise; or
(3) default in the observation or performance in any material
respect of any covenant of the Company in this Indenture (other than a
covenant a default in the performance of which or the breach of which is
elsewhere in this Section specifically dealt with), and continuance of
such default for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
outstanding principal amount of the Securities a written notice
specifying such default and requiring it to be remedied; or
(4) failure by the Company to issue and deliver Common Stock upon
an election to convert the Securities into Common Stock; or
(5) the entry or a decree or order by a court having jurisdiction
in the premises adjudging the Company or any of its Significant
Subsidiaries as bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any of its Significant Subsidiaries,
as the case may be, under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any of its Significant Subsidiaries or of
any substantial part of their property or ordering the winding up or
liquidation of their affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(6) the institution by the Company or any of its Significant
Subsidiaries of proceedings to be adjudicated a bankrupt or insolvent,
or the consent by the Company or such Significant Subsidiary to the
institution of bankruptcy or insolvency proceedings against the Company
or such Significant Subsidiary, or the filing by the Company or such
Significant Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law, or the
consent by the Company or such Significant Subsidiary to the filing of
any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Company or such Significant Subsidiary or of any substantial part of
any their respective property, or the making by any of them of an
assignment for the benefit of creditors, or the admission by any of them
in writing of its inability to pay its debts generally as they become
due and its willingness to be adjudicated a bankrupt, or the taking of
corporate action by the Company or any of its Significant Subsidiaries
in furtherance of any such action; or
(7) the voluntary or involuntary dissolution, winding up or
termination of the Trust, except in connection with (i) the distribution
of Securities to Holders of Preferred Securities in liquidation or
redemption of their interests in the Trust, (ii) the redemption of all
of the outstanding Preferred Securities of the Trust or (iii) certain
mergers, consolidations or amalgamations, each as permitted by the
Declaration.
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SECTION 5.02 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Outstanding
Securities and any other amounts payable hereunder (including any Additional
Payments) to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders); provided that, if the Property
Trustee is the sole Holder of the Securities and if upon an Event of Default,
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities fail to declare the principal of all the Securities to be
immediately due and payable, the Holders of at least 25% in aggregate
liquidation amount of Preferred Securities then outstanding shall have such
right by a notice in writing to the Company and the Trustee, and upon any such
declaration such principal and all accrued interest (and Additional Payments, if
any) shall become immediately due and payable. The Holders of a majority in
aggregate principal amount of the Outstanding Securities of a series may annul
such declaration and waive the default by written notice to the Property
Trustee, the Company and the Trustee if the default (other than the nonpayment
of the principal of these Securities which has become due solely by such
acceleration) has been cured and a sum sufficient to pay all matured
installments of interest (and Additional Payments, if any) and principal due
otherwise than by acceleration has been deposited with the Trustee. Should the
Holders of the Securities of such a series fail to annul such declaration and
waive such default, the Holders of a majority in aggregate liquidation amount of
the Preferred Securities shall have such right. Upon the effectiveness of any
such declaration such principal amount (or specified amount) of and the accrued
interest (including any Additional Payments) on all the Securities of such
series shall then become immediately due and payable; provided that the payment
of principal and interest on, and all other Obligations relating to, such
Securities (including Additional Payments) shall remain subordinated to the
extent provided in Article XII.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as provided in this Article hereinafter, the Holders of
a majority in aggregate principal amount of the Outstanding Securities, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest and Additional Payments on all
Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and interest
(and Additional Payments, if any) thereon at the rate borne by
the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 5.13.
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The Company is required to file annually with the Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under this Indenture.
No such rescission shall affect any subsequent default or impair
any right consequent thereon.
Upon receipt by the Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, with respect to Securities
all or part of which are represented by a Global Security, a record date shall
be established for determining Holders of such Outstanding Securities entitled
to join in such notice, which record date shall be at the close of business on
the day the Trustee receives such notice. The Holders on such record date, or
their duly designated proxies, and only such Persons, shall be entitled to join
in such notice, whether or not such Holders remain Holders after such record
date; provided, however, that, unless such declaration of acceleration, or
rescission and annulment, as the case may be, shall have become effective by
virtue of the requisite percentage having joined in such notice prior to the day
which is 90 days after such record date, such notice of declaration of
acceleration, or rescission and annulment, as the case may be, shall
automatically and without further action by any Holder be canceled and of no
further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of
a Holder, from giving, after expiration of such 90-day period, a new written
notice of declaration of acceleration, or rescission and annulment thereof, as
the case may be, that is identical to a written notice which has been canceled
pursuant to the proviso to the preceding sentence, in which event a new record
date shall be established pursuant to the provisions of this Section 5.02.
SECTION 5.03 Collection of Indebtedness and Suits for Enforcement
by Trustee. The Company covenants that if
(1) default is made in the payment of any interest or any
Additional Payments on any Security when such interest or Additional
Payments become due and payable and such default continues for a period
of 30 days, or
(2) default is made in the payment of the principal of any
Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest (including any Additional Payments) and,
to the extent that payment thereof shall be legally enforceable, interest on any
overdue principal and on any overdue interest (including any Additional
Payments), at the rate borne by the Securities, and, in addition thereto, all
amounts owing to the Trustee under Section 6.07.
If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04 Trustee May File Proofs of Claim. In case of any
judicial proceeding relative to the Company (or any other obligor upon the
Securities), its property or its creditors, the Trustee shall be entitled and
empowered, by intervention in
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such proceeding or otherwise, to take any and all actions authorized under the
Trust Indenture Act in order to have claims of the Holders and the Trustee
allowed in any such proceeding. In particular, the Trustee shall be authorized
to collect and receive any moneys or other property payable or deliverable on
any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
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, and any predecessor Trustee under Section 6.07.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 5.05 Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of all the amounts owing to the Trustee and any
predecessor Trustee under Section 6.07, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
SECTION 5.06 Application of Money Collected. Subject to Article
XII, any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest
(including any Additional Payments), upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.07;
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest (including any Additional Payments) on the
Securities in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal and interest (including any Additional Payments),
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 5.07 Limitation on Suits. Subject to Section 5.08, no
Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
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(2) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities shall have made written request to
the Trustee to institute proceedings in respect of such Event of
Default, in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 5.08 Unconditional Right of Holders to Receive Principal
and Interest and Convert. Notwithstanding any other provision in this Indenture,
the Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of and (subject to Section
3.08) interest (including any Additional Payments) on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to convert such Security in accordance
with Article XIII and to institute suit for the enforcement of any such payment
and right to convert, and such rights shall not be impaired without the consent
of such Holder. If the Property Trustee is the sole Holder of the Securities,
any Holder of the Preferred Securities shall have the right to institute suit on
behalf of the Trust for the enforcement of any such payment and right to
convert.
SECTION 5.09 Restoration of Rights and Remedies. If the Trustee
or any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 5.10 Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 3.07, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
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SECTION 5.11 Delay or Omission Not Waiver. No delay or omission
of the Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12 Control by Holders. The Holders of a majority in
principal amount of the Outstanding Securities shall have the right to 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;
provided, that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture; and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 5.13 Waiver of Past Defaults. Subject to Section 9.02
hereof, the Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of, premium, if any, or
interest (including any Additional Payments) on any Security (unless
such default has been cured and a sum sufficient to pay all matured
installments of interest (and Additional Payments, if any) and principal
due otherwise than by acceleration has been deposited with the Trustee);
or
(2) in respect of a covenant or provision hereof which under
Article IX cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14 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, suffered or omitted by it as Trustee, a court
may require any party litigant in such suit to file an undertaking to pay the
costs of such suit, and may assess costs against any such party litigant, in the
manner and to the extent provided in the Trust Indenture Act; provided, that
neither this Section nor the Trust Indenture Act shall be deemed to authorize
any court to require such an undertaking or to make such an assessment in any
suit instituted by the Company or the Trustee or in any suit for the enforcement
of the right to receive the principal of and interest (and Additional Payments,
if any) on any Security or to convert any Security in accordance with Article
XIII.
SECTION 5.15 Waiver of Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon,
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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 (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 5.16 Enforcement by Holders of Preferred Securities.
Notwithstanding anything to the contrary contained herein, but subject to
Article XII, if an Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest, Additional
Payments or principal on the Securities on the date such interest, Additional
Payments or principal is otherwise payable, the Company acknowledges that, in
such event, a Holder of Preferred Securities may institute a legal proceeding
directly for enforcement of payment to such Holder of the principal of, interest
or Additional Payments on the Securities having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such Holder (a
"Direct Action") on or after the due date specified in the Securities. The
Company may not amend this Indenture to remove the foregoing right to bring a
Direct Action without the prior written consent of all the Holders of Preferred
Securities. Notwithstanding any payment made to such Holder of Preferred
Securities by the Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of and interest (and Additional Payments,
if any) on the Securities held by the Trust or the Property Trustee, and the
Company shall be subrogated to the rights of the Holders of such Preferred
Securities with respect to payments on the Preferred Securities to the extent of
any payments made by the Company to such Holders in any Direct Action. The
Holders of Preferred Securities will not be able to exercise directly any other
remedy available to the Holders of the Securities.
ARTICLE VI
The Trustee
SECTION 6.01 Certain Duties and Responsibilities. (a) Except
during the continuance of an Event of Default, the Trustee undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
(b) In case 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.
(c) At the direction of the Remarketing Agent, the Trustee shall
(i) select the Primary Treasury Dealer to be a Reference Treasury Dealer and
(ii) determine the Reference Treasury Dealer Quotations, both in accordance with
the terms of the Remarketing Agreement. In addition, if the Securities are no
longer held by the Property Trustee, the Trustee shall act as Tender Agent in
accordance with the provisions of the Remarketing Agreement.
(d) Notwithstanding the foregoing, (i) the duties and
responsibilities of the Trustee shall be as provided by the Trust Indenture Act
and (ii) no provision of this
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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, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 6.02 Notice of Defaults. The Trustee shall give the
Holders notice of any default hereunder as and to the extent provided by the
Trust Indenture Act; provided, however, that in the case of any default of the
character specified in Section 5.01(3), no such notice to Holders shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default.
SECTION 6.03 Certain Rights of Trustee. Subject to the provisions
of Section 6.01:
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) 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 any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound 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, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further
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inquiry or investigation, it shall be entitled to reasonable examination
of the books, records and premises of the Company, personally or by
agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due
care by it hereunder; and
(h) the Trustee shall not be liable for any action taken,
suffered, or omitted to be taken by it in good faith, without negligence
or willful misconduct, and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture.
SECTION 6.04 Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of the Securities or the proceeds thereof.
SECTION 6.05 May Hold Securities. The Trustee, any Paying Agent,
any Security Registrar or any other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee of Securities and, subject
to Sections 6.08 and 6.13, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar,
or such other agent.
SECTION 6.06 Money Held in Trust. Money held by the Trustee in
trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.
SECTION 6.07 Compensation and Reimbursement. The Company
agrees:
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time
agree in writing for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, fees,
disbursements and advances incurred or made by the Trustee in accordance
with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee for, and
to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust,
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.
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SECTION 6.08 Disqualification; Conflicting Interests. If the
Trustee has or shall acquire a conflicting interest within the meaning of the
Trust Indenture Act, the Trustee shall either eliminate such interest or resign,
to the extent and in the manner provided by, and subject to the provisions of,
the Trust Indenture Act and this Indenture.
SECTION 6.09 Corporate Trustee Required; Eligibility. There shall
at all times be a Trustee hereunder which shall be a Person that is eligible
pursuant to the Trust Indenture Act to act as such and has a combined capital
and surplus of at least $50,000,000 and has its Corporate Trust Office in New
York, New York. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 6.10 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders
of a majority in principal amount of the Outstanding Securities, delivered to
the Trustee and to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of removal or resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.08 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months; or
(2) the Trustee shall cease to be eligible under Section 6.09 and
shall fail to resign after written request therefor by the Company or by
any such Holder; or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, (i) the Company may remove the Trustee, or (ii) subject
to Section 5.14, any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of
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competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give written notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 1.06. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 6.11 Acceptance of Appointment by Successor. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; provided, that on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments required to more fully and
certainly vest in and confirm to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
SECTION 6.12 Merger, Conversion, Consolidation or Succession to
Business. Any Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder; provided such
Person shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
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SECTION 6.13 Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
SECTION 7.01 Company to Furnish Trustee Names and Addresses of
Holders. The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not later than [January 15] and [July 15] in
each year, a list, in such form as the Trustee may reasonably require,
of the names and addresses of the Holders as of a date not more than 15
days prior to the delivery thereof, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 7.02 Preservation of Information; Communications to
Holders. (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.01 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of information as to names and addresses of Holders made pursuant
to the Trust Indenture Act.
SECTION 7.03 Reports by Trustee. (a) Within 60 days after [May
15] of each year, commencing [May 15, 2000], the Trustee shall transmit by
first-class mail to Holders such reports concerning the Trustee and its actions
under this Indenture as may be required pursuant to the Trust Indenture Act in
the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
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SECTION 7.04 Reports by Company. The Company shall file with the
Trustee and the Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant to such
Trust Indenture Act; provided, that any such information, documents or reports
required to be filed with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 7.05 Tax Reporting. The Company shall provide to the
Trustee on a timely basis such information as the Trustee requires to enable the
Trustee to prepare and file any form required to be submitted by the Company
with the Internal Revenue Service and the Holders relating to original issue
discount, including, without limitation, Form 1099-OID or any successor form.
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.01 Company May Consolidate, Etc., Only on Certain
Terms. The Company shall not consolidate with or merge with or into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person (other than a wholly owned Subsidiary of the Company),
and no Person shall consolidate with or merge with or into the Company or
convey, transfer or lease its properties and assets substantially as an entirety
to the Company, unless:
(1) in case the Company shall consolidate with or merge with or
into another Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, the Person formed by
such consolidation or into which the Company is merged or the Person
which acquires by conveyance, transfer or lease, such properties and
assets substantially as an entirety shall be a corporation, limited
liability company, partnership or trust, shall be organized and validly
existing under the laws of the United States of America, 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 reasonably satisfactory to the Trustee, the due and punctual
payment of the principal of and interest (including any Additional
Payments) on all the Securities and the performance or observance of
every covenant of this Indenture on the part of the Company to be
performed or observed and shall have provided for conversion rights in
accordance with Article XIII;
(2) immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be continuing;
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(3) if at the time any Preferred Securities are outstanding, such
consolidation or merger or conveyance, transfer or lease of assets of
the Company is permitted under, and does not give rise to any breach or
violation of, the Declaration or the Guarantee; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 8.02 Successor Substituted. Upon any consolidation of the
Company with, or merger of the Company into, any other Person or any conveyance,
transfer or lease of all or substantially all the properties and assets of the
Company on a consolidated basis in accordance with Section 8.01, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this
Indenture and the Securities.
ARTICLE IX
Supplemental Indentures
SECTION 9.01 Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the Company
herein and in the Securities; or
(2) 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; or
(3) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Article XIII; or
(4) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions
of this Indenture; provided, that such action pursuant to this clause
(4) shall not materially adversely affect the interests of the Holders
of the Securities or, so long as any of the Preferred Securities shall
remain outstanding, the Holders of the Preferred Securities; or
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<PAGE> 47
(5) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(6) to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities legends, if
any, to be placed on Securities, and all other matters required pursuant
to Section 3.06(b) or otherwise necessary, desirable or appropriate in
connection with the issuance of Securities to Holders of Preferred
Securities in the event of a distribution of Securities by the Trust if
a Tax Event or Investment Company Event occurs and is continuing.
SECTION 9.02 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal amount
of the Outstanding Securities, by Act of said Holders delivered to the Company
and the Trustee, the Company, when authorized by a Board Resolution, and the
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(1) extend the Stated Maturity of the principal of, or any
installment of interest (including any Additional Payments) on, any
Security, or reduce the principal amount thereof, or reduce the rate or
extend the time for payment of interest thereon, or reduce any premium
payable upon the redemption thereof, or change the place of payment
where, or the coin or currency in which, any Security or interest or any
Additional Payments thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or adversely affect the right to convert any Security
as provided in Article XIII (except as permitted by Section 9.01(3)), or
modify the provisions of this Indenture with respect to the
subordination of the Securities in a manner adverse to the Holders,
(2) change the Reset Date,
(3) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture, or
(4) modify any of the provisions of this Section or Section 5.13,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
Notwithstanding anything to the contrary in this Indenture or the
Declaration, if the Property Trustee is the sole holder of the Securities, so
long as any of the Preferred Securities remains outstanding, no amendment shall
be made that adversely affects the Holders of such Preferred Securities, and no
termination of this Indenture shall occur, and no waiver of any Event of Default
or compliance with any covenant under this Indenture shall be effective, without
the prior consent of the Holders of the percentage of the aggregate principal
amount of such Preferred Securities then outstanding which is at
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least equal to the percentage of aggregate stated liquidation amount of
Outstanding Securities as shall be required under this Indenture to effect any
such amendment, termination or waiver.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date,
or their duly designated proxies, and only such Persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided, that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
canceled and of no further effect.
SECTION 9.03 Execution of Supplemental Indentures. In executing,
or accepting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts created by
this Indenture, the Trustee shall be entitled to receive, and (subject to
Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04 Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article, this Indenture shall
be modified in accordance therewith, and such supplemental indenture shall form
a part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby. No such supplemental indenture shall directly or indirectly modify the
provisions of Article XII in any manner which might terminate or impair the
rights of the Senior Debt pursuant to such subordination provisions.
SECTION 9.05 Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act.
SECTION 9.06 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
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ARTICLE X
Covenants; Representations and Warranties
SECTION 10.01 Payment of Principal and Interest. The Company
will duly and punctually pay the principal of, interest and Additional Payments,
if any, on the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 10.02 Maintenance of Office or Agency. The Company will
maintain in the United States an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer, exchange or conversion 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
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in the United States) 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 United States 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.
SECTION 10.03 Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or
before each due date of the principal of, interest or Additional Payments, if
any, on any of the Securities, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal, interest or
Additional Payments, if any, so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of, interest or Additional
Payments, if any, on any Securities, deposit with a Paying Agent a sum
sufficient to pay the principal, interest or Additional Payments, if any, so
becoming due, such sum to be held as provided by the Trust Indenture Act, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
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The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, interest or
Additional Payments, if any, on any Security and remaining unclaimed for two
years after such principal, interest or Additional Payments, if any, has become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of any
such Security shall thereafter, as an unsecured general creditor, look only to
the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease.
SECTION 10.04 Statement by Officers as to Default. The Company
will deliver to the Trustee, within 120 days after the end of each fiscal year
of the Company ending after the date hereof, an Officers' Certificate, stating
whether or not to the best knowledge of the signers thereof the Company is in
default in the performance and observance of any of the material terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 10.05 Limitation on Dividends; Transactions with
Affiliates; Covenants as to the Trust. (a) If at such time (x) there shall have
occurred an Event of Default, (y) the Company shall be in default with respect
to its payment of any obligations under the Guarantee or (z) the Company shall
have given notice of its election to begin a Deferral Period as provided herein
and shall not have rescinded such notice, or such Deferral Period, or any
extension thereof, shall be continuing the Company covenants that the Company
shall not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock (which includes common and preferred stock) other than
stock dividends or distributions which consist of stock of the same class as
that on which the dividend or distribution is being paid, (ii) make any payment
of principal, interest or premium, if any, on or repay or repurchase or redeem
any debt securities of the Company that rank pari passu with or junior in
interest to the Securities or (iii) make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any Subsidiary of the
Company if such guarantee expressly ranks pari passu with or junior in interest
to the Securities (in each case, other than (A) dividends or distributions in
Common Stock, (B) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (C) payments under the Guarantee or the Common Securities
Guarantee, (D) purchases or acquisitions of shares of Common Stock in connection
with the satisfaction by the Company of its obligations under any employee
benefit plan or any other contractual obligation of the Company (other than a
contractual obligation ranking pari passu with or junior in interest to the
Securities), (E) the payment of fractional shares resulting from a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's
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<PAGE> 51
capital stock or (F) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged).
(b) The Company also covenants and agrees (i) that it shall
directly or indirectly maintain 100% ownership of the Common Securities of the
Trust; provided, however, that any permitted successor of the Company hereunder
may succeed to the Company's ownership of such Common Securities and (ii) that
it shall use its reasonable efforts, consistent with the terms and provisions of
the Declaration, to cause the Trust (x) to remain a statutory business trust,
except in connection with the distribution of the Securities to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States federal income tax purposes.
SECTION 10.06 Payment of Expenses of the Trust. In connection
with the offering, sale and issuance of the Securities to the Property Trustee
in connection with the sale of the Trust Securities by the Trust, the Company
shall:
(a) pay for all costs, fees and expenses relating to the
offering, sale and issuance of the Securities, including commissions to
the Initial Purchasers payable pursuant to the Underwriting Agreement
and compensation of the Trustee under the Indenture in accordance with
the provisions of Section 6.07 of the Indenture;
(b) be responsible for and pay for all debts and obligations
(other than with respect to the Trust Securities) of the Trust, pay for
all costs and expenses of the Trust (including, but not limited to,
costs and expenses relating to the organization of the Trust, the
offering, sale and issuance of the Trust Securities (including
commissions to the underwriters in connection therewith), the fees and
expenses of the Property Trustee and the Delaware Trustee, the costs and
expenses relating to the operation of the Trust, including, without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing
or accounting equipment, paying agent(s), registrar(s), transfer
agent(s), duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the
acquisition, financing, and disposition of Trust assets); and
(c) pay any and all taxes (other than United States withholding
taxes attributable to the Trust or its assets) and all liabilities,
costs and expenses with respect to such taxes of the Trust.
ARTICLE XI
Redemption of Securities
SECTION 11.01 Optional Redemption. (a) The Company shall have the
right to redeem the Securities (an "Optional Redemption") (i) in whole or in
part, at any time or from time to time, prior to the Reset Date but on or after
October [ ], 2002 until (but excluding) the Tender Notification Date, at a
Redemption Price (the "Initial Redemption Price") equal to the prices per $50
principal amount of Securities set forth in the following table, plus accrued
and unpaid interest, including Additional Payments, if any, to the Redemption
Date, if redeemed during the 12-month period ending on [ ]:
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<PAGE> 52
<TABLE>
<CAPTION>
Price Per $50
Principal
Year Amount
---- -------------
<S> <C> <C>
2003 $[ ]
2004 [ ];
</TABLE>
(ii) after the Reset Date (except in the event of a Failed Final Remarketing),
in accordance with the Term Call Protections, if any, established in the
Remarketing; and (iii) in whole or in part, at any time on or after the third
anniversary of the Reset Date following a Failed Final Remarketing at a
redemption price equal to 100% of the then outstanding aggregate principal
amount of the Securities to be redeemed, plus accrued and unpaid interest
thereon (any Redemption Price so established in the Remarketing or as a result
of a Failed Final Remarketing, the "Term Redemption Price", and, together with
the Initial Redemption Price, an "Optional Redemption Price").
(b) If the Company desires to consummate an Optional Redemption,
it must cause to be sent, at its own expense, notice of such intent (an
"Optional Redemption Notice"), via first-class mail, postage prepaid, to each
Holder of Securities (and, if the Preferred Securities are still outstanding, to
each Holder of the corresponding Preferred Securities) to be redeemed, at such
Holder's address appearing in the Security Register and the List of Holders, if
applicable, which Optional Redemption Notice shall comply with Section 11.06
hereof. Holders receiving an Optional Redemption Notice have the right, upon
notification of the Trustee and the Conversion Agent prior to the Optional
Redemption Date, to convert their Securities called for redemption into Company
Common Stock at the Applicable Conversion Ratio on or prior to the Optional
Redemption Date in compliance with Article XIII hereof.
(c) In the case of any Optional Redemption, the Company must
notify the Trustee and the Property Trustee in writing of the Optional
Redemption Date, the principal amount of Securities to be redeemed and provide a
copy of the Optional Redemption Notice at least [60] days prior to sending the
Optional Redemption Notice, or such shorter period as agreed to by the Trustee
and Property Trustee in writing.
SECTION 11.02 [Reserved]
SECTION 11.03 Tax Event Redemption. (a) If a Tax Event has
occurred and is continuing and:
(1) the Company has received a Redemption Tax Opinion; or
(2) the Issuer Trustees shall have been informed by nationally
recognized independent tax counsel (reasonably acceptable to the Issuer
Trustees) experienced in such matters that a No Recognition Opinion
cannot be delivered,
then the Company shall have the right upon not less than 30 days nor more than
60 days notice to the Holders of the Securities and within 90 days following the
occurrence and continuation of a Tax Event to redeem the Securities in whole,
but not in part, for cash at $50 per $50 principal amount of the Securities plus
accrued and unpaid interest, including Additional Payments, if any, to the
Redemption Date, within 90 days following the
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occurrence of such Tax Event (the "90 Day Period"); provided, however, that if,
at the time there is available to the Company or the Trust the opportunity to
eliminate, within the 90 Day Period, the Tax Event by taking some ministerial
action, including, but not limited to, filing a form or making an election, or
pursuing some other similar reasonable measure which, in the sole judgment of
the Company, will have no adverse effect on the Company, the Trust or the
Holders of the Preferred Securities and will involve no material cost, then the
Company or the Trust shall pursue such ministerial action or other measure in
lieu of redemption; and provided further that the Company shall have no right to
redeem the Securities while the Trust is pursuing any ministerial action or
other similar measure pursuant to its obligations under the Declaration.
(b) In the event that the Company redeems the Securities pursuant
to Section 11.03(a), Holders shall have the right upon notification of the
Trustee and the Conversion Agent, to convert their Securities or Preferred
Securities, if applicable, into Common Stock at the Applicable Conversion Ratio
prior to 5:00 p.m., New York City time, on the applicable Redemption Date.
(c) If the Company opts not to redeem the Securities pursuant to
this Section 11.03, the Company shall be required to pay Additional Amounts in
respect of the Securities pursuant to Section 3.01 for so long as (i) a Tax
Event has occurred and is continuing and (ii) the Property Trustee is the sole
Holder of the Securities.
SECTION 11.04 Redemption at Stated Maturity. The Company shall
repay all of the Outstanding Securities, if any, on October [ ], 2029, at a
price equal to the aggregate principal amount thereof, plus any accrued and
unpaid interest, including Additional Payments, if any, to the Redemption Date.
SECTION 11.05 Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed (unless such redemption
affects only a single Security), the particular Securities to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee
pro rata, from the Outstanding Securities not previously called for redemption.
Such selection method may provide for the selection for redemption of portions
(equal to $50 or any integral multiple thereof) of the principal amount of the
Securities.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption as aforesaid and, in case of any Securities
selected for partial redemption as aforesaid, the principal amount thereof to be
redeemed.
The provisions of the two preceding paragraphs shall not apply
with respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 11.06 Notice of Redemption. Notice of redemption (other
than with respect to a redemption which is an Optional Redemption) shall be
given by first-class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to
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the Redemption Date, to each Holder of Securities to be redeemed, at such
Holder's address appearing in the Security Register.
All notices of redemption (including, without limitation,
Optional Redemption Notices) given pursuant to this Article XI shall identify
the Securities to be redeemed (including, if relevant, CUSIP number) and shall
state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date,
(4) the place or places where such Securities are to be
surrendered for payment of the Redemption Price, and
(5) the date on which the right to convert the Securities to be
redeemed will terminate and the places where such Securities may be
surrendered for conversion.
Notice of redemption of Securities to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 11.07 Deposit of Redemption Price. Prior to 10:00 a.m.
on any Redemption Date, the Company shall deposit with the Trustee or with a
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate
and hold in trust as provided in Section 10.03) an amount of money sufficient to
pay the Redemption Price of, and (except if the Redemption Date shall be an
Interest Payment Date) accrued interest (together with Additional Payments, if
any) on, all the Securities which are to be redeemed on that date.
If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 3.08) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 11.08 Securities Payable on Redemption Date. Notice of
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest (including
Additional Payments, if any) to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to the terms and the provisions of Section 3.08.
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If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security.
SECTION 11.09 Securities Redeemed in Part. (a) In the event of
any redemption in part, the Company shall not be required to (i) issue, register
the transfer of or exchange any Security during a period beginning at the
opening of business 15 days before the date of mailing of a notice of redemption
of Securities selected for redemption and ending at the close of business on the
day of such mailing and (ii) register the transfer of or exchange any Securities
so selected for redemption, in whole or in part, except for the unredeemed
portion of any Securities being redeemed in part.
(b) If a partial redemption of the Securities would result in the
delisting of the Preferred Securities issued by the Trust from any national
securities exchange or other organization on which the Preferred Securities are
listed, the Company shall not be permitted to effect such partial redemption and
may only redeem the Securities in whole.
(c) Any Security which is to be redeemed only in part shall be
surrendered at a place of payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and make available for delivery to the Holder of
such Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered. If a Global Security is surrendered, such new
Security will (subject to Section 3.06) also be a new Global Security.
ARTICLE XII
Subordination of Securities
SECTION 12.01 Agreement to Subordinate. The Company covenants
and agrees, and each Holder of Securities by such Holder's acceptance thereof
likewise covenants and agrees, that all Securities shall be issued subject to
the provisions of this Article XII; and each Holder of a Security, whether upon
original issue or upon transfer or assignment thereof, accepts and agrees to be
bound by such provisions. The payment by the Company of the principal of,
premium, if any, interest (including Additional Payments, if any) and other
Obligations with respect to all Securities issued hereunder shall, to the extent
and in the manner hereinafter set forth, be subordinated and junior in right of
payment to the prior payment in full in cash of principal of (and premium, if
any), interest and all other Obligations with respect to all Senior Debt,
whether outstanding at the date of this Indenture or thereafter incurred;
provided, however, that no provision of this Article XII shall prevent the
occurrence of any default or Event of Default hereunder.
SECTION 12.02 Default on Senior Debt. In the event and during
the continuation of any default by the Company in the payment of principal,
premium, if any, interest on or any other Obligation relating to, any Senior
Debt when the same becomes due and payable (a "payment default"), whether at
maturity or at a date fixed for prepayment or by declaration of acceleration or
otherwise, and such default continues beyond the period of grace, if any,
specified in the instrument evidencing such Senior
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Debt, then unless and until such default shall have been cured or waived or
shall have ceased to exist or all Senior Debt and all Obligations relating
thereto have been paid in full in cash, and in the event that the maturity of
any Senior Debt has been accelerated because of a default, then no direct or
indirect payment or distribution (in cash, property, securities, by set-off or
otherwise) shall be made or agreed to be made with respect to the principal of
(including redemption payments), premium, if any, or interest on, or any other
Obligation relating to, the Securities or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Securities.
In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee when such payment is prohibited by the
preceding paragraph of this Section 12.02, such payment shall be held in trust
for the benefit of, and shall be paid over or delivered to the holders of Senior
Debt, or their respective representatives, or to the trustee or trustees under
any indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, but only to the extent that the holders
of the Senior Debt (or their representative or representatives or a trustee)
notify the Trustee in writing within 180 days of such payment of the amounts
then due and owing to the holders of such Senior Debt and only the amounts
specified in such notice to the Trustee shall be paid to the holders of such
Senior Debt.
SECTION 12.03 Liquidation; Dissolution; Bankruptcy. Upon any
direct or indirect payment by or on behalf of the Company or direct or indirect
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, by set-off or otherwise, to creditors upon any
dissolution or winding up or liquidation or reorganization of the Company or
assignment for the benefit of creditors or marshaling of assets, whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
proceedings, all amounts (including principal, premium, if any, and interest)
due or to become due upon all Senior Debt shall first be paid in full in cash,
or such payment thereof provided for in money in accordance with its terms,
before any payment or distribution is made on account of the principal (and
premium, if any), interest or any other Obligation relating to the Securities;
and upon any such dissolution or winding up or liquidation or reorganization,
any direct or indirect payment by the Company, or direct or indirect payment or
distribution (in cash, property, securities, by set-off or otherwise) to which
the Holders of the Securities or the Trustee would be entitled, except for the
provisions of this Article XII, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the Holders of the Securities or by the Trustee
under this Indenture if received by them or it, directly to the holders of
Senior Debt (pro rata to such holders on the basis of the respective amounts of
Senior Debt held by such holders, as calculated by the Company) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Debt may have
been issued, as their respective interests may appear, to the extent necessary
to pay such Senior Debt in full, in cash, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Debt, before any
such payment or distribution is made to the Holders of Securities or to the
Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, by set-off or otherwise, prohibited by the foregoing,
shall be received by the Trustee or the Holders of the Securities before all
Senior Debt is paid in full in cash, or provision is made for such payment in
cash in accordance with its terms, such payment or distribution shall be held in
trust for the benefit of and shall be paid over or delivered to the holders of
Senior Debt or their representative or representatives, or to the trustee or
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trustees under any indenture pursuant to which any instruments evidencing such
Senior Debt may have been issued, and their respective interests may appear, as
calculated by the Company, for application to the payment of all Senior Debt
remaining unpaid to the extent necessary to pay such Senior Debt in full in cash
in accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Debt.
For purposes of this Article XII, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XII with respect
to the Securities to the payment of all Senior Debt which may at the time be
outstanding; provided, that (i) such Senior Debt is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment, and
(ii) the rights of the holders of such Senior Debt are not, without the consent
of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company with or into,
another Person or the liquidation or dissolution of the Company following the
conveyance, transfer or lease of its properties and assets substantially as an
entirety to another Person upon the terms and conditions provided for in Article
VIII hereof shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purposes of this Section 12.03 if such other Person
shall, as a part of such consolidation, merger, conveyance, transfer or lease,
comply with the conditions stated in Article VIII hereof. Nothing in Section
12.02 or in this Section 12.03 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.07 hereof.
SECTION 12.04 Subrogation. Subject to the payment in full in
cash of all Senior Debt, the Holders of the Securities shall be subrogated to
the rights of the holders of such Senior Debt to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Debt until the principal of (and premium, if any)
and interest on the Securities shall be paid in full; and, for the purposes of
such subrogation, no payments or distributions to the holders of such Senior
Debt of any cash, property or securities to which the Holders of the Securities
or the Trustee would be entitled except for the provisions of this Article XII,
and no payment over pursuant to the provisions of this Article XII, to or for
the benefit of the holders of such Senior Debt by Holders of the Securities or
the Trustee, shall, as between the Company, its creditors other than holders of
Senior Debt, and the Holders of the Securities, be deemed to be a payment by the
Company to or on account of such Senior Debt. It is understood that the
provisions of this Article XII are and are intended solely for the purposes of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of such Senior Debt on the other hand.
Nothing contained in this Article XII or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Debt, and the Holders of
the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including Additional Payments, if any) on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Company, as the case may be,
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the Trustee or the Holder of any Security from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article XII of the holders of
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such Senior Debt in respect of cash, property or securities of the Company, as
the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company
referred to in this Article XII, the Trustee, subject to the provisions of
Section 6.03, and the Holders of the Securities, shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Holders of the Securities, for the purposes of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Debt and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XII; provided
that such court, trustee, receiver, agent or other Person has been apprised of,
or the order, decree or certificate makes reference to, the provisions of this
Article.
SECTION 12.05 Trustee to Effectuate Subordination. Each Holder
of Securities by such Holder's acceptance thereof authorizes and directs the
Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XII and
appoints the Trustee as such Holder's attorney-in-fact for any and all such
purposes.
SECTION 12.06 Notice by the Company. The Company shall give
prompt written notice to a Responsible Officer of the Trustee of any fact known
to the Company which would prohibit the making of any payment of monies to or by
the Trustee in respect of the Securities pursuant to the provisions of this
Article XII. Notwithstanding the provisions of this Article XII or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
monies to or by the Trustee in respect of the Securities pursuant to the
provisions of this Article XII, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof at the Corporate Trust Office
of the Trustee from the Company or a holder or holders of Senior Debt or from
any trustee therefor; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 6.03 hereof, shall be entitled in
all respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 12.06 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (and premium, if any) or interest on any Security),
then, anything herein contained to the contrary notwithstanding, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purposes for which they were received, and shall not be affected by any
notice to the contrary which may be received by it within two Business Days
prior to such date.
The Trustee, subject to the provisions of Section 6.03, shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Debt (or a trustee on behalf of
such holder) to establish that such notice has been given by a holder of such
Senior Debt or a trustee on behalf of any such holder or holders. In the event
that the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Debt to participate in
any payment or distribution pursuant to this Article XII, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount
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of Senior Debt held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent to
the right of such Person under this Article XII, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 12.07 Rights of the Trustee; Holders of Senior Debt. The
Trustee in its individual capacity shall be entitled to all the rights set forth
in this Article XII in respect of any Senior Debt at any time held by it, to the
same extent as any other holder of Senior Debt, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Debt of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Article XII, and no implied covenants or
obligations with respect to the holders of such Senior Debt shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of such Senior Debt and, subject to the provisions
of Section 6.03, the Trustee shall not be liable to any holder of such Senior
Debt if it shall pay over or deliver to Holders of Securities, the Company or
any other Person money or assets to which any holder of such Senior Debt shall
be entitled by virtue of this Article XII or otherwise.
SECTION 12.08 Subordination May Not Be Impaired. (a) No right
of any present or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the holders of the Securities
and without impairing or releasing the subordination provided in this Article
XII or the obligations hereunder of the Holders of the Securities to the holders
of Senior Debt, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
such Senior Debt, or otherwise amend or supplement in any manner such Senior
Debt or any instrument evidencing the same or any agreement under which such
Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing such Senior Debt; (iii)
release any Person liable in any manner for the collection of such Senior Debt;
and (iv) exercise or refrain from exercising any rights against the Company and
any other Person.
(c) The subordination provisions of this Article XII shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Senior Debt is, pursuant to applicable law,
avoided, recovered, or rescinded or must otherwise be restored or returned by
any holder of Senior Debt, whether as a "voidable preference," "fraudulent
conveyance," "fraudulent transfer," or otherwise, all as though such payment or
performance had not been made.
(d) If, upon any proceeding referred to in Section 12.03, the
Trustee does not file a claim in such proceeding prior to fifteen Business Days
before the expiration of
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the time to file such claim, the holders of Designated Senior Debt or their
agent may file such claim on behalf of the Holders of the Securities.
(e) The subordination provisions contained herein are solely for
the benefit of the holders from time to time of Senior Debt and their
representatives, assignees and beneficiaries and may not be rescinded, canceled,
amended or modified in any way other than, as to any holder of Senior Debt,
pursuant to an amendment or modification that is permitted by the documentation
relating to the Senior Debt applicable to such holder.
ARTICLE XIII
Conversion of Securities
SECTION 13.01 Conversion Rights. Subject to and upon compliance
with the provisions of this Article, the Securities are convertible, at the
option of the Holder, at any time prior to 5:00 p.m. New York City time, on or
prior to the Tender Notification Date and, in the event of either a Convertible
Remarketing which does not fail or a Failed Final Remarketing, on and after the
Reset Date through October [ ], 2029 (except that Securities called for
redemption by the Company shall be convertible at any time prior to 5:00 p.m.
New York City time, on any Redemption Date), into fully paid and nonassessable
shares of Common Stock of the Company. On or prior to the Tender Notification
Date, each Security is convertible at the option of the Holder into [ ] shares
of Common Stock for each $50 in aggregate principal amount of Securities (the
"Initial Conversion Ratio") (equal to a conversion price of $[ ] principal
amount of Securities per share of Common Stock (the "Initial Conversion
Price")). On and after the Reset Date, the Securities may, at the option of the
Company and subject to the results of the Remarketing, become nonconvertible or
convertible into a different number of shares of Common Stock, as determined by
the Remarketing Agent in accordance with the terms of the Remarketing Agreement.
The conversion ratio and the equivalent conversion price in effect at any given
time are known as the "Applicable Conversion Ratio" and the "Applicable
Conversion Price", respectively, and are subject to adjustment as described in
this Article XIII. A Holder of Securities may convert any portion of the
principal amount of the Securities into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) obtained by dividing the principal amount of the
Securities to be converted by the Applicable Conversion Ratio. In case a
Security or portion thereof is called for redemption, such conversion right in
respect of the Security or portion so called shall expire at the close of
business on the corresponding Redemption Date, unless the Company defaults in
making the payment due upon redemption.
SECTION 13.02 Conversion Procedures. (a) In order to convert all
or a portion of the Securities, the Holder thereof shall deliver to the
Conversion Agent an irrevocable Notice of Conversion setting forth the principal
amount of Securities to be converted, together with the name or names, if other
than the Holder, in which the shares of Common Stock should be issued upon
conversion and, if such Securities are definitive Securities, surrender to the
Conversion Agent the Securities to be converted, duly endorsed or assigned to
the Company or in blank. In addition, a Holder of Preferred Securities may
exercise its right under the Declaration to convert such Preferred Securities
into Common Stock by delivering to the Conversion Agent an irrevocable Notice of
Conversion setting forth the information called for by the preceding sentence
and directing the Conversion Agent (i) to exchange such Preferred Security for
a portion of the Securities held by the Trust (at an exchange rate of $50
principal amount of Securities for
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each Preferred Security) and (ii) to immediately convert such Securities, on
behalf of such Holder, into Common Stock of the Company pursuant to this Article
XIII and, if such Preferred Securities are in definitive form, surrendering such
Preferred Securities, duly endorsed or assigned to the Company or in blank. So
long as any Preferred Securities are outstanding, the Trust shall not convert
any Securities except pursuant to a Notice of Conversion duly executed and
delivered to the Conversion Agent by a Holder of Preferred Securities.
If a Notice of Conversion is delivered on or after the Regular
Record Date and prior to the subsequent Interest Payment Date, the Holder will
be entitled to receive the interest payable on the subsequent Interest Payment
Date on the portion of Securities to be converted notwithstanding the conversion
thereof prior to such Interest Payment Date. Except as otherwise provided in the
immediately preceding sentence, in the case of any Security which is converted,
interest whose Stated Maturity is after the date of conversion of such Security
shall not be payable, and the Company shall not make nor be required to make any
other payment, adjustment or allowance with respect to accrued but unpaid
interest on the Securities being converted, which shall be deemed to be paid in
full. Each conversion shall be deemed to have been effected immediately prior to
the close of business on the day on which the Notice of Conversion was received
(the "Conversion Date") by the Conversion Agent from the Holder or from a Holder
of the Preferred Securities effecting a conversion thereof pursuant to its
conversion rights under the Declaration, as the case may be. The Person or
Persons entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
as of the Conversion Date. As promptly as practicable on or after the Conversion
Date, the Company shall issue and deliver at the office of the Conversion Agent,
unless otherwise directed by the Holder in the Notice of Conversion, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with the cash payment, if any, in lieu
of any fraction of any share to the Person or Persons entitled to receive the
same. The Conversion Agent shall deliver such certificate or certificates to
such Person or Persons.
(b) Subject to the right of the Holder of such Security or any
Predecessor Security to receive interest as provided in the last paragraph of
Section 3.08 and the second paragraph of clause (a) of Section 13.02, the
Company's delivery upon conversion of the whole number of shares of Common Stock
into which the Securities are convertible (together with the cash payment, if
any, in lieu of fractional shares) shall be deemed to satisfy the Company's
obligation to pay the principal amount at Maturity of the portion of Securities
so converted and any unpaid interest (including Additional Payments) accrued on
such Securities at the time of such conversion.
(c) No fractional shares of Common Stock will be issued as a
result of conversion, but in lieu thereof, the Company shall pay to the
Conversion Agent a cash adjustment in an amount equal to the same fraction of
the Closing Price of such fractional interest on the date on which the
Securities or Preferred Securities, as the case may be, were duly surrendered to
the Conversion Agent for conversion, or, if such day is not a Trading Day, on
the next Trading Day, and the Conversion Agent in turn will make such payment,
if any, to the Holder of the Securities or the Holder of the Preferred
Securities so converted.
(d) In the event of the conversion of any Security in part only,
a new Security or Securities for the unconverted portion thereof will be issued
in the name of the Holder thereof upon the cancelation thereof in accordance
with Section 3.06.
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(e) In effecting the conversion transactions described in this
Section, the Conversion Agent is acting as agent of the Holders of Preferred
Securities (in the exchange of Preferred Securities for Securities) and as
agent of the Holders of Securities (in the conversion of Securities into Common
Stock), as the case may be, directing it to effect such conversion transactions.
The Conversion Agent is hereby authorized (x) if the Trust exists, (i) to
exchange Securities held by or on behalf of the Trust from time to time for
Preferred Securities in connection with the conversion of such Preferred
Securities in accordance with this Article XIII and (ii) to convert all or a
portion of the Securities into Common Stock and thereupon to deliver such shares
of Common Stock in accordance with the provisions of this Article XIII and to
deliver to the Trust a new Security or Securities for any resulting unconverted
principal amount and (y) if the Trust no longer exists (i) to exchange
Securities held by the Holders in connection with the conversion of such
Securities in accordance with this Article XIII and (ii) to convert all or a
portion of the Securities into Common Stock and thereupon to deliver such shares
of Common Stock in accordance with the provisions of this Article XIII and to
deliver to such Holders a new Security or Securities for any resulting
unconverted principal amount.
SECTION 13.03 Conversion Price Adjustments. The Applicable
Conversion Price shall be subject to adjustment (without duplication) from time
to time as follows:
(i) In case the Company shall pay a dividend or make a
distribution on the Common Stock exclusively in Common Stock, the
Applicable Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be reduced
by multiplying such Applicable Conversion Price by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and
the denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business
on the day following the date fixed for such determination. For the
purposes of this subparagraph (i), the number of shares of Common Stock
at any time outstanding shall not include shares held in the treasury of
the Company. In the event that such dividend or distribution is not so
paid or made, the Applicable Conversion Price shall again be adjusted to
be the Applicable Conversion Price which would then be in effect if such
dividend or distribution had not occurred.
(ii) In case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall
otherwise issue to all holders of its Common Stock, rights or warrants,
in each case entitling the holders thereof to subscribe for or purchase
shares of Common Stock at a price per share less than the current market
price per share (determined as provided in subparagraph (vii)) of the
Common Stock on the date fixed for the determination of stockholders
entitled to receive such rights or warrants, the Applicable Conversion
Price in effect at the opening of business on the day following the date
fixed for such determination shall be reduced by multiplying such
Applicable Conversion Price by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription or
purchase would purchase at such current market price and the denominator
shall be the number of shares of Common Stock outstanding
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at the close of business on the date fixed for such determination plus
the number of shares of Common Stock so offered for subscription or
purchase, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such
determination. To the extent that rights are not so issued or shares of
Common Stock are not so delivered after the expiration of such rights or
warrants, the Applicable Conversion Price shall be readjusted to the
Applicable Conversion Price which would then be in effect if such date
fixed for the determination of stockholders entitled to receive such
rights or warrants had not been fixed. For the purposes of this
subparagraph (ii), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Company.
(iii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Applicable Conversion Price in effect at the opening of business on the
day following the day upon which such subdivision becomes effective
shall be proportionately reduced and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller number of
shares of Common Stock, the Applicable Conversion Price in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv), in
case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of any
class or series of capital stock, cash or assets (including securities,
but excluding any rights or warrants referred to in subparagraph (ii) of
this Section 13.03, any dividend or distribution paid exclusively in
cash and any dividend or distribution referred to in subparagraph (i) of
this Section 13.03), the Applicable Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the
Applicable Conversion Price in effect immediately prior to the
effectiveness of the Applicable Conversion Price reduction contemplated
by this subparagraph (iv) by a fraction of which the numerator shall be
the current market price per share (determined as provided in
subparagraph (vii) of this Section 13.03) of the Common Stock on the
date fixed for the determination of stockholders entitled to receive
such distribution (the "Reference Date") less the fair market value (as
determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of
Directors), on the Reference Date, of the portion of the evidences of
indebtedness, shares of capital stock, cash and assets so distributed
applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such reduction
to become effective immediately prior to the opening of business on the
day following the Reference Date. In the event that such dividend or
distribution is not so paid or made, the Applicable Conversion Price
shall again be adjusted to be the Applicable Conversion Price which
would then be in effect if such dividend or distribution had not
occurred. For purposes of this subparagraph (iv), any dividend or
distribution that includes shares of Common Stock or rights or warrants
to subscribe for or purchase shares of Common Stock shall be deemed
instead to be (1) a dividend or distribution of the evidences of
indebtedness, shares of capital stock, cash or assets other than such
shares of Common Stock or such rights or warrants (making any Applicable
Conversion Price reduction
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required by this subparagraph (iv)) immediately followed by (2) a
dividend or distribution of such shares of Common Stock or such rights
or warrants (making any further Applicable Conversion Price reduction
required by subparagraph (i) or (ii) of this Section 13.03), except any
shares of Common Stock included in such dividend or distribution shall
not be deemed "outstanding at the close of business on the date fixed
for such determination" within the meaning of subparagraph (i) of this
Section 13.03.
(v) In case the Company shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding (x) cash
dividends that do not exceed the per share amount of the smallest of the
immediately four preceding quarterly cash dividends (as adjusted to
appropriately reflect any of the events referred to in subparagraphs
(i), (ii), (iii), (iv), (v) and (vi)), and (y) cash dividends, the per
share amount of which, together with the aggregate per share amount of
any other cash dividends paid within the 12 months preceding the date of
payment of such cash dividends, does not exceed [ ]% of the current
market price per share (determined as provided in subparagraph (vii) of
this Section 13.03) of the Common Stock on the Trading Day next
preceding the date of declaration of such dividend, the Applicable
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Applicable Conversion Price in effect
immediately prior to the effectiveness of the Applicable Conversion
Price reduction contemplated by this subparagraph (v) by a fraction of
which the numerator shall be the current market price per share
(determined as provided in subparagraph (vii) of this Section 13.03) of
the Common Stock on the date fixed for the payment of such distribution
less the amount of cash so distributed and not excluded as provided
applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such reduction
to become effective immediately prior to the opening of business on the
day following the date fixed for the payment of such distribution;
provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or
greater than the current market price per share (as defined in
subparagraph (vii) of this Section 13.03) of the Common Stock on the
record date mentioned above, in lieu of the foregoing adjustment,
adequate provision shall be made so that each Holder of Securities shall
have the right to receive upon conversion the amount of cash such Holder
would have received had such Holder converted each Security immediately
prior to the record date for the distribution of the cash. In the event
that such dividend or distribution is not so paid or made, the
Applicable Conversion Price shall again be adjusted to be the Applicable
Conversion Price which would then be in effect if such record date had
not been fixed.
(vi) In case a tender or exchange offer (other than an odd-lot
offer) made by the Company or any Subsidiary of the Company for all or
any portion of the Company's Common Stock shall expire and such tender
or exchange offer shall involve the payment by the Company or such
Subsidiary of consideration per share of Common Stock having a fair
market value (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution of
the Board of Directors) at the last time (the "Expiration Time") tenders
or exchanges may be made pursuant to such tender or exchange offer (as
it shall have been amended) that exceeds 110% of the current market
price per share (determined as provided in subparagraph (vii) of this
Section 13.03) of the Common Stock on the Trading Day next succeeding
the Expiration Time, the Applicable Conversion Price shall be reduced so
that the same shall equal the
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price determined by multiplying the Applicable Conversion Price in
effect immediately prior to the effectiveness of the Applicable
Conversion Price reduction contemplated by this subparagraph (vi) by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) at the
Expiration Time multiplied by the current market price per share
(determined as provided in subparagraph (vii) of this Section 13.03) of
the Common Stock on the Trading Day next succeeding the Expiration Time
and the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the
terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed
so accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y) the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) at the Expiration Time and the
current market price per share (determined as provided in subparagraph
(vii) of this Section 13.03) of the Common Stock on the Trading Day next
succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the
Expiration Time.
(vii) For the purpose of any computation under subparagraphs
(ii), (iv), (v) and (vi) of this Section 13.03, the current market price
per share of Common Stock on any date in question shall be deemed to be
the average of the daily Closing Prices for the ten consecutive Trading
Days prior to the earlier of the day in question and, if applicable, the
day before the "ex" date (as hereinafter defined) with respect to the
issuance or distribution requiring such computation; provided, however,
that if the day in question or the "ex" date for any event (other than
the issuance or distribution requiring such computation) that requires
an adjustment to the Applicable Conversion Price pursuant to Section
13.03 (ii), (iv), (v) or (vi) occurs during such 10 consecutive Trading
Days, the Closing Price for each Trading Day prior to such date for such
other event shall be adjusted by multiplying such Closing Price by the
same fraction by which the Applicable Conversion Price is so required to
be adjusted as a result of such other event. For purposes of this
subparagraph (vii), the term "ex" date (I) when used with respect to any
issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market
from which the Closing Price was obtained without the right to receive
such issuance or distribution, (II) when used with respect to any
subdivision or combination of shares of Common Stock, means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the time at which such subdivision or combination
becomes effective and (III) when used with respect to any tender or
exchange offer means the first date on which the Common Stock trades
regular way on such exchange or in such market after the Expiration Time
of such offer. Notwithstanding the foregoing, whenever successive
adjustments to the Applicable Conversion Price are called for pursuant
to this Section 13.03, such adjustments shall be made to the current
market price as may be necessary or appropriate to effectuate the intent
of this Section 13.03 and to avoid unjust or inequitable results, as
determined in good faith by the Board of Directors.
(viii) The Company may make such reductions in the Applicable
Conversion Price, in addition to those required by subparagraphs (i),
(ii), (iii), (iv), (v) and (vi), as it considers to be advisable to
avoid or diminish any income tax to holders of Common Stock or rights to
purchase Common Stock resulting from any
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dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes.
(ix) No adjustment of the Applicable Conversion Price shall be
made upon the issuance of any shares of Common Stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock or options or
rights to purchase such shares pursuant to any present or future
employee, director or consultant benefit plan or program of the Company
or pursuant to any option, warrant, right, or exercisable, exchangeable
or convertible security outstanding as of the date the Securities were
first issued. There shall also be no adjustment of the Applicable
Conversion Price in case of the issuance of any Common Stock (or
securities convertible into or exchangeable for Common Stock), except as
specifically described above. Furthermore, no adjustment in the
Applicable Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in the Applicable
Conversion Price; provided, however, that any adjustments which by
reason of this subparagraph (ix) are not required to be made shall be
carried forward and taken into account in determining whether any
subsequent adjustment shall be required.
SECTION 13.04 Reclassification, Consolidation, Merger or Sale
of Assets. In the event that the Company shall be a party to any transaction
(including without limitation (a) any recapitalization or reclassification of
the Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (b) any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of another Person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancelation of outstanding shares of Common Stock of the
Company), (c) any sale or transfer of all or substantially all of the assets of
the Company or (d) any compulsory share exchange) (each of the events in the
preceding clauses (a) through (d) being referred to as a "Company Transaction"),
in each case, as a result of which shares of Common Stock shall be converted
into the right to receive other securities, cash or other property, then lawful
provision shall be made as part of the terms of such Company Transaction whereby
the Holder of each Security then outstanding shall have the right thereafter to
convert such Security only into (i) in the case of any such transaction other
than a Common Stock Fundamental Change, the kind and amount of securities, cash
and other property receivable upon consummation of such Company Transaction by a
holder of the number of shares of Common Stock of the Company into which such
Security could have been converted immediately prior to such Company
Transaction, after giving effect to any adjustment in the Applicable Conversion
Price required by the provision of Section 13.07(a)(i), and (ii) in the case of
a Company Transaction involving a Common Stock Fundamental Change, common stock
of the kind received by holders of Common Stock as a result of such Common Stock
Fundamental Change in an amount determined pursuant to the provisions of Section
13.07(a)(ii). Holders of the Securities shall have no voting rights with respect
to any Company Transaction described in this Section 13.04.
The Company or the Person formed by such consolidation or
resulting from such merger or which acquired such assets or which acquires the
Company's shares, as the case may be, shall make provision in its certificate or
articles of incorporation or other constituent document to establish such right.
Such certificate or articles of incorporation or other constituent document
shall provide for adjustments which, for
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events subsequent to the effective date of such certificate or articles of
incorporation or other constituent document, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article XIII. The
above provisions shall similarly apply to successive transactions of the
foregoing type.
SECTION 13.05 Notice of Adjustments of Conversion Price.
Whenever the Applicable Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Applicable Conversion
Price and shall prepare a certificate signed by the Chief Financial Officer or
the Treasurer of the Company setting forth the adjusted Applicable Conversion
Price and showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed with the Trustee, the
Conversion Agent and the transfer agent for the Preferred Securities and the
Securities; and
(b) a notice stating the Applicable Conversion Price has been
adjusted and setting forth the adjusted Applicable Conversion Price shall as
soon as practicable be mailed by the Company to all record Holders of Preferred
Securities and the Securities at their last addresses as they appear upon the
stock transfer books of the Company and the books and records of the Trust,
respectively.
SECTION 13.06 Prior Notice of Certain Events. In case:
(i) the Company shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in
shares of Common Stock or (B) a dividend payable in cash that would not
require an adjustment pursuant to Section 13.03(iv) or (v) or (2)
authorize a tender or exchange offer that would require an adjustment
pursuant to Section 13.03(vi);
(ii) the Company shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or series or of any other rights or
warrants;
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company shall be
required, or of the sale or transfer of all or substantially all of the
assets of the Company or of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or other property;
or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall (a) if any Preferred Securities are outstanding, cause to
be filed with the transfer agent for the Preferred Securities, and shall cause
to be mailed to the Holders of record of the Preferred Securities, at their last
addresses as they shall appear upon the books and records of the Trust or (b) if
no Preferred Securities are outstanding, shall cause to be mailed to all Holders
at their last addresses as they shall appear in the Security Register, at least
fifteen days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record (if any) is to be
taken for the purpose of such dividend, distribution, rights or warrants or, if
a record is not to be
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taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).
SECTION 13.07 Adjustments in Case of Fundamental Changes.
(a) Notwithstanding any other provision in this Article XIII to the contrary, in
the case of any Company Transaction involving a Fundamental Change, then the
Applicable Conversion Price will be adjusted immediately after such Fundamental
Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the Applicable
Conversion Price of the Securities shall thereupon become the lower of
(A) the Applicable Conversion Price immediately prior to such Non-Stock
Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to this Article XIII, and (B) the result
obtained by multiplying the greater of the Relevant Price or the then
applicable Reference Market Price by a fraction of which the numerator
shall be $50 and the denominator shall be the then-current Optional
Redemption Price or, on or prior to [ ], 20[ ] and at any time after the
Reset Date at which the Securities are not redeemable at the option of
the Company, an amount per Security determined by the Company in its
sole discretion, after consultation with an investment banking firm, to
be the equivalent of the hypothetical Redemption Price that would have
been applicable if the Securities had been redeemable during such period
(such fraction shall hereinafter be referred to as the "Optional
Redemption Ratio") (such product shall hereinafter be referred to as the
"Adjusted Relevant Price" or the "Adjusted Reference Market Price", as
the case may be); and
(ii) in the case of a Common Stock Fundamental Change, the
Applicable Conversion Price of the Securities in effect immediately
prior to such Common Stock Fundamental Change, but after giving effect
to any other prior adjustments effected pursuant to this Article XIII,
shall thereupon be adjusted by multiplying such Applicable Conversion
Price by a fraction of which the numerator shall be the Purchaser Stock
Price and the denominator shall be the Relevant Price; provided,
however, that in the event of a Common Stock Fundamental Change in which
(A) 100% of the value of the consideration received by a holder of
Common Stock is common stock of the successor, acquiror or other third
party (and cash, if any, is paid only with respect to any fractional
interests in such common stock resulting from such Common Stock
Fundamental Change) and (B) all of the Common Stock shall have been
exchanged for, converted into or acquired for common stock (and cash
with respect to fractional interests) of the successor, acquiror or
other third party, the Applicable Conversion Price of the Securities in
effect immediately prior to such Common Stock Fundamental Change shall
thereupon be adjusted by multiplying such Applicable Conversion Price by
a fraction of which the numerator shall be one and the denominator shall
be the number of shares of common stock of the successor, acquiror, or
other third
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party received by a stockholder for one share of Common Stock as a
result of such Common Stock Fundamental Change.
(b) Definitions. The following definitions shall apply to terms
used in this Article XIII:
(1) "Closing Price" of any security on any day shall mean on any
day the last reported sale price of such security on such day, or in
case no sale takes place on such day, the average of the closing bid and
asked prices in each case on the principal national securities exchange
on which such securities are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on
the NNM or, if such securities are not listed or admitted to trading on
any national securities exchange or quoted on the NNM, the average of
the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected by the
Company for such purpose.
(2) "Common Stock Fundamental Change" shall mean any Fundamental
Change in which more than 50% of the value (as determined in good faith
by the Board of Directors) of the consideration received by holders of
Common Stock consists of common stock that for each of the ten
consecutive Trading Days immediately prior to and including the
Entitlement Date has been admitted for listing or admitted for listing
subject to notice of issuance on a national securities exchange or
quoted on the NNM, provided, however, that a Fundamental Change shall
not be a Common Stock Fundamental Change unless either:
(A) the Company continues to exist after the occurrence of the
Fundamental Change and the Outstanding Preferred Securities
continue to remain Outstanding without having been converted into
another security; or
(B) not later than the occurrence of the Fundamental Change, the
Outstanding Securities are converted into or exchanged for
debentures of a corporation succeeding to the business of the
Company, which debentures have terms substantially similar to the
Securities.
(3) "Entitlement Date" shall mean the record date for
determination of the holders of Common Stock entitled to receive
securities, cash or other property in connection with a Non-Stock
Fundamental Change or a Common Stock Fundamental Change or, if there is
no such record date, the date upon which holders of Common Stock shall
have the right to receive such securities, cash or other property.
(4) "Fundamental Change" shall mean the occurrence of any
transaction or event in connection with a Company Transaction pursuant
to which all or substantially all of the Common Stock shall be exchanged
for, converted into, acquired for or constitute solely the right to
receive securities, cash or other property (whether by means of an
exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise); provided,
however, in the case of a Company Transaction involving more than one
such transaction or event, for purposes of adjustment of the Applicable
Conversion Price, such Fundamental Change shall be deemed to have
occurred when substantially all of the Common Stock of the Company shall
be
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exchanged for, converted into, or acquired for or constitute solely the
right to receive securities, cash or other property, but the adjustment
shall be based upon the highest weighted average of consideration per
share that a holder of Common Stock could have received in such
transactions or events as a result of which more than 50% of the Common
Stock of the Company shall have been exchanged for, converted into, or
acquired for or constitute solely the right to receive securities, cash
or other property.
(5) "Non-Stock Fundamental Change" shall mean any Fundamental
Change other than a Common Stock Fundamental Change.
(6) "Purchaser Stock Price" shall mean, with respect to any
Common Stock Fundamental Change, the average of the daily Closing Prices
of the common stock received in such Common Stock Fundamental Change for
the ten (10) consecutive Trading Days prior to and including the
Entitlement Date, as adjusted in good faith by the Board of Directors to
appropriately reflect any of the events referred to in subparagraphs
(i), (ii), (iii), (iv), (v) and (vi) of Section 13.03.
(7) "Reference Market Price" shall initially mean on the date of
original issuance of the Securities, $[ ] (which is an amount equal to
662/3% of the last reported sale price for the Common Stock on the New
York Stock Exchange Composite Tape on such date) and, in the event of
any adjustment to the Applicable Conversion Price from such date to (but
excluding) the Reset Date, other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so
that the ratio of the Reference Market Price to the Applicable
Conversion Price after giving effect to any such adjustment shall always
be the same as the ratio of $[ ] to the Initial Conversion Price. If the
Securities are convertible into Common Stock on and after the Reset
Date, the Reference Market Price on such date will be an amount equal to
662/3% of the Closing Price of the Common Stock on the Reset Date and,
in the event of any adjustment to the Applicable Conversion Price from
the Reset Date and thereafter, other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so
that the ratio of the Reference Market Price to the Applicable
Conversion Price after giving effect to any such adjustment shall always
be the same as the ratio of the Closing Price of the Common Stock on the
Reset Date to the Term Conversion Price.
(8) "Relevant Price" shall mean (i) in the event of a Non-Stock
Fundamental Change in which the holders of the Common Stock receive only
cash, the amount of cash received by a stockholder for one share of
Common Stock and (ii) in the event of any other Non-Stock Fundamental
Change or any Common Stock Fundamental Change, the average of the daily
Closing Prices of the Common Stock for the ten consecutive Trading Days
prior to and including the Entitlement Date, in each case, as adjusted
in good faith by the Company to appropriately reflect any of the events
referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of
Section 13.03.
(9) "Trading Day" shall mean a day on which securities are traded
on the national securities exchange or quotation system used to
determine the Closing Price.
SECTION 13.08 Dividend or Interest Reinvestment Plans. (a)
Notwithstanding the foregoing provisions, the issuance of any shares of Common
Stock pursuant
65
<PAGE> 71
to any present or future plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under any such plan, and the issuance
of any shares of Common Stock or options or rights to purchase such shares
pursuant to any employee benefit plan or program of the Company or pursuant to
any option, warrant, right or exercisable, exchangeable or convertible security
outstanding as of the date the Securities were first issued, shall not be deemed
to constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Company to which any of the adjustment provisions
described above applies.
(b) There shall also be no adjustment of the Applicable
Conversion Price in case of the issuance of any stock (or securities convertible
into or exchangeable for stock) of the Company except as specifically described
in this Article XIII.
SECTION 13.09 Certain Additional Rights. Notwithstanding any
other provision of this Article XIII to the contrary, rights, warrants,
evidences of indebtedness, other securities, cash or other assets (including,
without limitation, any rights distributed pursuant to any stockholder rights
plan) shall be deemed not to have been distributed for purposes of this Article
XIII if the Company makes proper provision so that each Holder who converts a
Security (or any portion thereof) after the date fixed for determination of
stockholders entitled to receive such distribution shall be entitled to receive
upon such conversion, in addition to the shares of Common Stock issuable upon
such conversion, the amount and kind of such distributions that such Holder
would have been entitled to receive if such Holder had, immediately prior to
such determination date, converted such Security into Common Stock.
SECTION 13.10 Trustee Not Responsible for Determining
Conversion Price or Adjustments. Neither the Trustee nor any Conversion Agent
shall at any time be under any duty or responsibility to any Holder of any
Security to determine whether any facts exist which may require any adjustment
of the Applicable Conversion Price, or with respect to the nature or extent of
any such adjustment when made, or with respect to the method employed, or herein
or in any supplemental indenture provided to be employed, in making the same.
Neither the Trustee nor any Conversion Agent shall be accountable with respect
to the validity or value (or the kind or amount) of any shares of Common Stock
or of any securities or property, which may at any time be issued or delivered
upon the conversion of any Security; and neither the Trustee nor any Conversion
Agent makes any representation with respect thereto. Neither the Trustee nor any
Conversion Agent shall be responsible for any failure of the Company to make any
cash payment or to issue, transfer or deliver any shares of Common Stock or
stock certificates or other securities or property upon the surrender of any
Security for the purpose of conversion, or, except as expressly herein provided,
to comply with any of the covenants of the Company contained in Article X or
this Article XIII.
[Signature page follows.]
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<PAGE> 72
This Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, as of the day and year first above written.
CALPINE CORPORATION
By:
-----------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By:
-----------------------------------------
Name:
Title:
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<PAGE> 73
EXHIBIT A
FORM OF SECURITY
[FORM OF FACE OF SECURITY]
[Include if a Global Security: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE
MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE
DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR A SECURITY REGISTERED IN THE NAME
OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK) TO CALPINE CORPORATION 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 REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.]
CALPINE CORPORATION
Convertible Subordinated
Debenture Due 2029
No. $
[CUSIP No. ]
CALPINE CORPORATION, a corporation duly organized and existing
under the laws of the State of Delaware (herein called "the Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to , or registered assigns, the
principal sum [indicated on Schedule A hereof](1) [of Dollars](2) ($ ) on [
], 20[ ].
- -------------------
(1) Applicable to Global Securities only.
(2) Applicable to certificated Securities only.
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<PAGE> 74
Interest Payment Dates: [ ], [ ], [ ] and [ ], commencing
[ ], 2000
Regular Record Dates: the close of business on the fifteenth day of each
[ ], [ ], [ ] and [ ] immediately
preceding the applicable Interest Payment Date
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
signed manually or by facsimile by its duly authorized officers.
Dated: ,
CALPINE CORPORATION
By:
--------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: , THE BANK OF NEW YORK,
as Trustee
By:
--------------------------------------
Authorized Signatory
2
<PAGE> 75
[FORM OF REVERSE OF SECURITY]
CALPINE CORPORATION
Convertible Subordinated
Debenture Due 20293
1. Interest. CALPINE CORPORATION, a Delaware corporation (the
"Company"), is the issuer of this Convertible Subordinated Debenture Due 2029
(the "Security") limited in aggregate principal amount to $206,185,600 (or up to
$237,113,450 to the extent the over-allotment option is exercised in full),
issued under the Indenture hereinafter referred to. The Company promises to pay
interest on the Securities in cash from [ ], 1999 or from the most recent
interest payment date to which interest has been paid or duly provided for,
quarterly (subject to deferral for up to 20 consecutive quarters as described in
Section 3 hereof) in arrears on [ ], [ ], [ ] and [ ] of each
year (each such date, an "Interest Payment Date"), commencing [ ], 2000, at
the Applicable Rate, plus Additional Payments, if any, until the principal
hereof shall have become due and payable. Each registered Holder of Securities
on the fifteenth day prior to the Reset Date (including any Holder which has
tendered or is deemed to have tendered its Securities for remarketing) shall be
paid interest and Additional Payments, if any, accrued to (but excluding) the
Reset Date (or, if such day is not a Business Day, the next succeeding Business
Day). Interest and Additional Payments, if any, accrued from and after the Reset
Date to (but excluding) [ ], 20[ ] shall be paid on [ ], 20[ ]
(or, if such day is not a Business Day, the next succeeding Business Day) to the
Person in whose name each Security is registered on the preceding [ ],
subject to the right of the Company to initiate a Deferral Period. Prior to the
Reset Date, the Applicable Rate shall be [ ]% per annum. On and after
the Reset Date, the Applicable Rate shall be the rate established by the
Remarketing Agent in connection with the Remarketing.
The amount of interest payable for any period will be computed on
the basis of twelve 30-day months and a 360-day year. To the extent lawful, the
Company shall pay interest on overdue installments of interest (without regard
to any applicable grace period) at the rate borne by the Securities, compounded
quarterly. Any interest paid on this Security shall be increased to the extent
necessary to pay Additional Sums as set forth in this Security.
2. Additional Amounts. The Company shall pay to Calpine Capital
Trust (and its permitted successors or assigns under the Declaration) (the
"Trust") such additional amounts as may be necessary in order that the amount
of dividends or other distributions then due and payable by the Trust on the
Preferred Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of any additional taxes, duties
and other governmental charges of whatever nature (other than withholding taxes)
imposed by the United States or any other taxing authority.
- ------------------
3 All terms used in this Security which are defined in the Indenture or in
the Declaration referred to herein shall have the meanings assigned to them in
the Indenture or the Declaration, as the case may be.
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<PAGE> 76
3. Extension of Interest Payment Period. So long as no Event of
Default has occurred and is continuing, the Company shall have the right, at any
time during the term of this Security, from time to time to defer payments of
interest by extending the interest payment period of such Security for up to 20
consecutive quarters (a "Deferral Period"); provided that no Deferral Period may
extend beyond (i) the maturity (whether at October [ ], 2029 or by declaration
of acceleration, call for redemption or otherwise) or (ii) in the case of a
Deferral Period that begins prior to the Reset Date, the Reset Date. To the
extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
Section 3.13 of the Indenture, will bear interest thereon at the Applicable Rate
compounded quarterly for each quarter of the Deferral Period ("Compounded
Interest"). On the applicable Payment Resumption Date, the Company shall pay all
interest then accrued and unpaid on the Securities, including any Compounded
Interest that shall be payable to the Holders of the Securities in whose names
the Securities are registered in the Security Register on the record date fixed
for such Payment Resumption Date. Before the termination of any Deferral Period,
the Company may further extend such period, provided that such period together
with all such further extensions thereof shall not exceed 20 consecutive
quarters or extend beyond (i) the maturity (whether at October [ ], 2029 or by
declaration of acceleration, call for redemption or otherwise) or (ii) in the
case of a Deferral Period that begins prior to the Reset Date, the Reset Date.
Upon the termination of any Deferral Period and upon the payment of all
Compounded Interest and Additional Sums (together, "Additional Payments"), if
any, then due, the Company may commence a new Deferral Period, subject to the
foregoing requirements. No interest shall be due and payable during a Deferral
Period except on the applicable Payment Resumption Date.
The Company shall give the Holder of the Security and the Trustee
written notice (a "Deferral Notice") of its selection of a Deferral Period at
least ten days prior to the record date for any distributions that would have
been payable on the Trust Securities except for the decision to begin or extend
such Deferral Period. The Company may elect to pay all interest then accrued and
unpaid on the Securities, including Compounded Interest, on an Interest Payment
Date prior to its most recently established Payment Resumption Date, provided
that the Company gives the Holder of the Security and the Trustee a new Deferral
Notice setting forth the revised Payment Resumption Date at least three Business
Days prior to the Regular Record Date for such revised Payment Resumption Date.
The quarter in which any Deferral Notice is given pursuant to the
second paragraph of this Section 3 shall be counted as one of the 20 quarters
permitted in the maximum Deferral Period permitted under the first paragraph of
this Section 3.
4. Method of Payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the regular
record date for such interest installment, which shall be the close of business
on the [first] day of [ ], [ ], [ ] or [ ], as
applicable, immediately preceding each Interest Payment Date (the "Regular
Record Date"), commencing [ ], 2000. Each registered Holder of Securities
on the fifteenth day prior to the Reset Date (including any Holder which has
tendered or is deemed to have tendered its Securities for remarketing) shall be
paid interest and Additional Payments, if any, accrued to (but excluding) the
Reset Date (or, if such day is not a Business Day, the next succeeding Business
Day). Interest and Additional Payments, if any, accrued from and after the Reset
Date to (but excluding) [ ], 20[ ] shall be paid on [ ],
20[ ] (or, if such day is not a Business Day, the next succeeding Business
Day)
4
<PAGE> 77
to the Person in whose name each Security is registered on the preceding
[ ], subject to the right of the Company to initiate a Deferral Period.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than ten days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture; provided that any such
payment will be made in such coin or currency of the United States of America
which at the time is a legal tender for payment of public and private debts.
Payment of the principal of and interest on this Security will be
made at the office or agency of the Company maintained for that purpose in New
York, New York, in such coin or currency of the United States of America which
at the time of payment is legal tender for payment of public and private debts;
provided, however, that at any time that the Property Trustee is not the sole
Holder of the Securities, payment of interest may, at the option of the Company,
be made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or by wire transfer.
5. Paying Agent and Security Registrar. The Trustee will act as
Paying Agent, Security Registrar and Conversion Agent. The Company may change
any Paying Agent, Security Registrar, co-registrar or Conversion Agent without
prior notice. The Company or any of its Affiliates may act in any such capacity.
6. Indenture. The Company issued the Securities under an
indenture, dated as of [ ], 1999 (the "Indenture"), between the Company and
[ ], as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Trustee,
the Company and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) (the "Trust Indenture Act") as in effect on the date of the
Indenture. The Securities are subject to, and qualified by, all such terms,
certain of which are summarized hereon, and Holders are referred to the
Indenture and the Trust Indenture Act for a statement of such terms. The
Securities are unsecured general obligations of the Company limited to
$206,185,600 in aggregate principal amount (or up to $237,113,450 to the extent
the over-allotment option is exercised in full) and subordinated in right of
payment to all existing and future Senior Debt of the Company. No reference
herein to the Indenture and no provision of this Security or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed or to
convert this Security as provided in the Indenture.
7. Optional Redemption. The Securities are redeemable at the
Company's option at any time and from time to time (an "Optional Redemption")
(i) in whole or in part, at any time or from time to time, prior to the Reset
Date but on or after October [ ], 2002 until (but excluding) the Tender
Notification Date, at a Redemption Price (the
5
<PAGE> 78
"Initial Redemption Price") equal to the prices per $50 principal amount of
Securities set forth in the table below, plus any accrued and unpaid interest,
including Additional Payments, if any, to the Redemption Date, if redeemed
during the 12-month period ending on [ ]:
<TABLE>
<CAPTION>
Price Per $50
Principal
Year Amount
---- ----------
<S> <C> <C>
2003 ............................ $[ ]
2004 ............................ [ ];
</TABLE>
(ii) after the Reset Date (except in the event of a Failed Final Remarketing),
in accordance with the Term Call protections, if any, established in connection
with the Remarketing and (iii) in whole or in part, at any time on or after the
third anniversary of the Reset Date following a Failed Final Remarketing at a
redemption price equal to 100% of the then outstanding aggregate principal
amount of the Securities to be redeemed, plus accrued and unpaid interest
thereon.
If the Company desires to consummate an Optional Redemption, it
must cause to be sent, at its own expense, notice of such intent (an "Optional
Redemption Notice"), via first-class mail, postage prepaid, to each Holder of
Securities to be redeemed, at such Holder's address appearing in the Security
Register. Holders receiving an Optional Redemption Notice have the right, upon
notification of the Trustee and the Conversion Agent on or prior to the Optional
Redemption Date, to convert their Securities called for redemption into common
stock of the Company, par value $.001 per share ("Common Stock"), at the
Applicable Conversion Ratio prior to the Optional Redemption Date in compliance
with Article XIII of the Indenture. "Optional Redemption Date" means the date
which is not less than 20, nor more than 60, days following the date on which
the Optional Redemption Notice is sent, as specified in the Optional Redemption
Notice (or if such date is not a Business Day, the next succeeding Business
Day).
Securities in denominations larger than $50 may be redeemed in
part but only in integral multiples of $50. In the event of a redemption of less
than all of the Securities, the Securities will be chosen for redemption by the
Trustee pro rata in accordance with the Indenture. In the event of redemption of
this Security in part only, a new Security or Securities for the unredeemed
portion hereof will be issued in the name of the Holder hereof upon the
cancelation hereof. On and after the Redemption Date, interest ceases to accrue
on the Securities or portions of them called for redemption.
8. The Remarketing. At least 30 Business Days but not more than
90 Business Days prior to October [ ], 2004, the Company will cause a
notice to be sent to all Holders of Securities stating whether it intends to
remarket the Securities as Securities which will be convertible into Common
Stock or which will be nonconvertible. All Securities will be deemed tendered
for remarketing unless the Holder thereof delivers irrevocable notice to the
contrary to the Tender Agent prior to 5:00 pm New York Time on the Tender
Notification Date (or, if such day is not a Business Day, the next succeeding
Business Day)(the "Tender Notification Date"). The Remarketing Agent will
establish, pursuant to the terms of the Remarketing Agreement, the Term
Provisions, including the Term Rate at which interest will accrue on the
Securities, to be effective
6
<PAGE> 79
beginning on the Reset Date. A Holder of Securities that has not duly given
notice that it will retain its Securities will cease to have any further rights
with respect to such Securities upon the successful remarketing thereof, except
the right of such Holder to receive an amount equal to (i) from the proceeds of
the Remarketing, 101% of the aggregate principal amount of the Securities, plus
(ii) from the Company, any accrued but unpaid interest (including Additional
Payments, if any) to (but excluding) the Reset Date. In the event of a Failed
Final Remarketing, the Remarketing Agent will set the Term Provisions in
accordance with the Remarketing Agreement.
9. Optional Redemption Upon Tax Event. Subject to the conditions
set forth in the Indenture, the Securities are subject to redemption in whole,
but not in part, if a Tax Event shall occur and be continuing, at any time
within 90 days following the occurrence of such Tax Event, at a Redemption Price
equal to $50 per $50 principal amount thereof, plus accrued but unpaid interest,
including Additional Payments, if any, to the Redemption Date.
In lieu of the foregoing, the Company shall also have the option
of causing the Securities to remain outstanding and pay Additional Sums on the
Securities.
10. Notice of Redemption in Connection with a Tax Event. In case
of a redemption in connection with a Tax Event, notice of redemption will be
mailed by first-class mail, postage prepaid, at least 30 days but not more than
60 days before the Redemption Date to each Holder of the Securities to be
redeemed at such Holder's address appearing in the Security Register.
11. Mandatory Redemption. The Securities will mature, and the
Company must redeem the securities in whole and not in part, on October [ ],
2029 at a price equal to the aggregate principal amount thereof, plus accrued
and unpaid interest, including Additional Payments, if any, to the Redemption
Date. The failure of the Company to redeem all Outstanding Securities on October
[ ], 2029 shall constitute an Event of Default.
12. No Sinking Fund. There are no sinking fund payments with
respect to the Securities.
13. Payment to Registered Holders; Cessation of Interest Accrual
Upon Redemption.
If this Security is redeemed subsequent to a Regular Record Date
with respect to any Interest Payment Date specified above and on or prior to
such Interest Payment Date, then any accrued interest (and Additional Payments,
if any) will be paid to the person in whose name this Security is registered at
the close of business on such record date.
On or after the Redemption Date, interest will cease to accrue on
the Securities, or portion thereof, called for redemption.
14. Subordination. The payment of the principal of, interest on
or any other amounts due on the Securities is subordinated in right of payment
to all existing and future Senior Debt (as defined below) of the Company, as
described in the Indenture. Each Holder, by accepting a Security, agrees to such
subordination and authorizes and directs the Trustee on its behalf to take such
action as may be necessary or appropriate to
7
<PAGE> 80
effectuate the subordination so provided and appoints the Trustee as its
attorney-in-fact for such purpose.
"Senior Debt" means (i) all indebtedness of the Company evidenced
by securities, debentures, bonds or other similar instruments, (ii) all
obligations to make payment pursuant to the terms of financial instruments, such
as (a) securities contracts and foreign currency exchange contracts, (b)
derivative instruments, such as swap agreements (including interest rate and
foreign exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange agreements, options,
commodity futures contracts and commodity options contracts, and (c) similar
financial instruments; except, in the case of (i) above, such indebtedness and
obligations that are expressly stated to rank junior in right of payment to, or
pari passu in right of payment with, the Securities, (iii) and indebtedness or
obligations of others of the kind described in (i) and (ii) above for the
payment of which the Company is responsible or liable as guarantor or otherwise
and (iv) deferrals, renewals or extensions of any such Senior Debt; provided,
however, that Senior Debt shall not be deemed to include (a) any Debt of the
Company which, when incurred and without respect to any election under Section
1111(b) of the United States Bankruptcy Code of 1978, was without recourse to
the Company, (b) trade accounts payable and accrued liabilities arising in the
ordinary course of business, which will not constitute Debt for purposes of the
Preferred Securities, (c) any Debt of the Company to any of its subsidiaries,
except to the extent incurred for the benefit of third parties, (d) Debt to any
employee of the Company and (e) Debt that expressly provides that it is not
senior in right of payment to the Securities.
15. Conversion. The Holder of any Security has the right,
exercisable at any time prior to 5:00 p.m. New York City time, on or prior to
the Tender Notification Date or, in the event of a Convertible Remarketing which
does not fail, from and after the Reset Date through October [ ], 2029
(except that Securities called for redemption by the Company will be convertible
at any time prior to 5:00 p.m., New York City time, on any Redemption Date) to
convert the principal amount thereof (or any portion thereof that is an integral
multiple of $50) into shares of Common Stock. Prior to the Reset Date, each
Security is convertible, at the option of the Holder into [ ] shares of
Common Stock for each $50 in aggregate principal amount of Securities
(equivalent to a conversion price of $[ ] per share of Common Stock). On
and after the Reset Date, the Securities may, at the option of the Company and
subject to the results of the Remarketing, become nonconvertible or convertible
into a different number of shares of Common Stock. The conversion ratio and
equivalent conversion price in effect at any time are known as the "Applicable
Conversion Price" and the "Applicable Conversion Ratio," respectively, and are
subject to adjustment under certain circumstances. If a Security is called for
redemption, the conversion right will terminate at 5:00 p.m. New York City time
on the corresponding Redemption Date, unless the Company defaults in making the
payment due upon redemption.
To convert a Security, a Holder must (1) complete and sign a
conversion notice substantially in the form attached hereto, (2) surrender the
Security to a Conversion Agent, (3) furnish appropriate endorsements or
transfer documents if required by the Security Registrar or Conversion Agent and
(4) pay any transfer or similar tax, if required. Upon conversion, no
adjustment or payment will be made for interest or dividends, but if any Holder
surrenders a Security for conversion after the close of business on the Regular
Record Date for the payment of an installment of interest and prior to the
opening of business on the next Interest Payment Date, then, notwithstanding
8
<PAGE> 81
such conversion, the interest payable on such Interest Payment Date will be paid
to the registered Holder of such Security on such Regular Record Date. In such
event, such Security, when surrendered for conversion, need not be accompanied
by payment of an amount equal to the interest payable on such Interest Payment
Date on the portion so converted. The number of shares issuable upon conversion
of a Security is determined by dividing the principal amount of the Security
converted by the Applicable Conversion Price in effect on the Conversion Date.
No fractional shares will be issued upon conversion but a cash adjustment will
be made for any fractional interest. The outstanding principal amount of any
Security shall be reduced by the portion of the principal amount thereof
converted into shares of Common Stock.
16. Registration, Transfer, Exchange and Denominations. As
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in New York, New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without
coupons in denominations of $50 and integral multiples thereof. No service
charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Prior to due presentment
of this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent
shall be affected by notice to the contrary. In the event of redemption or
conversion of this Security in part only, a new Security or Securities for the
unredeemed or unconverted portion hereof will be issued in the name of the
Holder hereof upon the cancelation hereof.
17. Persons Deemed Owners. Except as provided in Section 3
hereof, the registered Holder of a Security may be treated as its owner for all
purposes.
18. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, Holders of
Securities entitled to the money must look to the Company for payment unless an
abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
19. Events of Default and Remedies. The Securities shall have the
Events of Default as set forth in Section 5.01 of the Indenture. Subject to
certain limitations in the Indenture, if an Event of Default occurs and is
continuing, the Trustee by notice to the Company or the Holders of at least 25%
in aggregate principal amount of the Outstanding Securities by notice to the
Company and the Trustee may declare all amounts payable on the Securities
(including any Additional Payments) to be due and payable immediately; provided
that, if the Property Trustee is the sole Holder of the Securities and if upon
an Event of Default, the Trustee or the Holders of not less than 25% in
aggregate principal amount of the then Outstanding Securities fail to declare
the principal of all the Securities
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<PAGE> 82
to be immediately due and payable, the Holders of at least 25% in aggregate
liquidation amount of Preferred Securities then outstanding shall have such
right by a notice in writing to the Company and the Trustee, and upon any such
declaration such principal and all accrued interest (and Additional Payments, if
any) shall become immediately due and payable. The Holders of a majority in
aggregate principal amount of the Outstanding Securities may annul such
declaration and waive the default by written notice to the Property Trustee, the
Company and the Trustee if the default (other than the nonpayment of the
principal of these Securities which has become due solely by such acceleration)
has been cured and a sum sufficient to pay all matured installments of interest
(and Additional Payments, if any) and principal due otherwise than by
acceleration has been deposited with the Trustee. Should the Holders of the
Securities of such a series fail to annul such declaration and waive such
default, the Holders of a majority in aggregate liquidation amount of the
Preferred Securities shall have such right. Upon the effectiveness of any such
declaration such principal amount (or specified amount) of and the accrued
interest (including any Additional Payments) on all the Securities of such
series shall then become immediately due and payable; and provided further that
the payment of principal and interest on such Securities shall remain
subordinated to the extent provided in the Indenture.
In the case of an Event of Default, the Holders of a majority in
principal amount of the Securities then Outstanding by written 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.
Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the Outstanding Securities issued under the Indenture may
direct the Trustee in its exercise of any trust or power. The Company must
furnish annually compliance certificates to the Trustee. The above description
of Events of Default and remedies is qualified by reference to, and subject in
its entirety by, the more complete description thereof contained in the
Indenture.
20. Amendments, Supplements and Waivers. The Indenture permits,
subject to the rights of the Holders of Preferred Securities set forth therein
and in the Declaration and with certain other exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, subject to the
rights of the Holders of the Preferred Securities set forth therein and in the
Declaration, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
therefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security. The above description of amendments, supplements and
waivers is qualified by reference to, and subject in its entirety by the more
complete description thereof contained in the Indenture.
10
<PAGE> 83
21. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the Company or an Affiliate with the same
rights it would have, as if it were not a Trustee, subject to certain
limitations provided for in the Indenture and in the Trust Indenture Act. Any
Agent may do the same with like rights.
22. 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 Holder of the Securities 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.
23. GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF NEW YORK
SHALL GOVERN THE INDENTURE AND THE SECURITIES WITHOUT REGARD TO CONFLICT OF LAW
PROVISIONS THEREOF.
24. Authentication. The Securities shall not be valid until
authenticated by the manual signature of an authorized officer of the Trustee or
an authenticating agent.
25. Abbreviations. Customary abbreviations may be used in the
name of a Holder 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).
The Company will furnish to any Holder of the Securities upon
written request and without charge a copy of the Indenture. Request may be made
to:
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
11
<PAGE> 84
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(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.
Your Signature:
-------------------------------------------------------
(Sign exactly as your name appears on the other side of
this Security)
Date:
------------------------
Signature Guarantee:4
--------------------------------------------------
- ------------
4 (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents 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.)
12
<PAGE> 85
(TO BE ATTACHED TO GLOBAL SECURITIES)
SCHEDULE A
The initial principal amount of this Global Security shall be $ .
The following increases or decreases in the principal amount of this Global
Security have been made:
<TABLE>
<CAPTION>
Amount of increase in
Principal Amount of this
Global Security including Amount of decrease in Principal Amount of this Signature of authorized
upon exercise of over- Principal Amount of this Global Security following officer of Trustee or
Date Made allotment option Global Security such decrease or increase Securities Custodian
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C>
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ --------------------------- ---------------------------- ---------------------------- -------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
- ------------------ --------------------------- ---------------------------- ---------------------------- -------------------------
- ------------------ ---------------------------- ---------------------------- ---------------------------- ------------------------
</TABLE>
2
<PAGE> 86
ELECTION TO CONVERT
To: Calpine Corporation
The undersigned owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion below designated,
into Common Stock of Calpine Corporation in accordance with the terms of the
Indenture referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned, unless a
different name has been indicated in the assignment below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.
Any Holder, upon the exercise of its conversion rights in
accordance with the terms of the Indenture and the Security, agrees to be bound
by the terms of the Registration Rights Agreement relating to the Common Stock
issuable upon conversion of the Securities.
Date: ,
in whole __
Portions of Security to be converted
($50 or integral multiples thereof):
$
-----------------
---------------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and
Address, Including Zip Code, and Social
Security or Other Identifying Number
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Signature Guarantee:(5)
----------------------
- -----------------
(5) (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents 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.)
3
<PAGE> 87
EXHIBIT B
REMARKETING AGREEMENT
4
<PAGE> 1
EXHIBIT 4.14
===============================================================================
PREFERRED SECURITIES GUARANTEE AGREEMENT
BETWEEN
CALPINE CORPORATION
AND
THE BANK OF NEW YORK
===============================================================================
<PAGE> 2
2
GUARANTEE AGREEMENT, dated as of [ ], executed and delivered
by Calpine Corporation, a Delaware corporation (the
"Guarantor"), and The Bank of New York, a New York banking
corporation, as trustee (the "Guarantee Trustee"), for the
benefit of the Holders (as defined herein) from time to time
of the HIGH TIDES (as defined herein) of Calpine Capital
Trust, a Delaware statutory business trust (the "Trust").
WHEREAS pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of [ ], executed by the Guarantor, as Depositor,
The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as
Property Trustee, and the Administrative Trustees named therein, the Trust is
issuing $200 million (or up to $230 million pursuant to the over-allotment
option) aggregate liquidation amount of its [ ]% Convertible Preferred
Securities Remarketable Term Income Deferred Equity Securities (HIGH TIDES),
liquidation amount $50 per security (the "HIGH TIDES") and $6,185,600 (or up to
$7,113,450 pursuant to the over-allotment option) aggregate liquidation amount
of its Common Securities, liquidation amount $50 per security (the "Common
Securities" and collectively with the HIGH TIDES, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust and
having the terms set forth in the Declaration;
WHEREAS the Trust Securities will be issued by the Trust and the
proceeds thereof will be used to purchase the Debentures due 2029 (the
"Debentures") of the Guarantor which will be deposited with The Bank of New York
as Property Trustee under the Declaration, as trust assets; and
WHEREAS as incentive for the Holders to purchase HIGH TIDES, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the HIGH TIDES the Guarantee Payments (as
defined herein) and to make certain other payments on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
HIGH TIDES, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the HIGH TIDES.
ARTICLE I
Definitions
SECTION 1.01. Definitions. As used in this Guarantee Agreement, the
terms set forth below shall, unless the context otherwise requires, have the
following meanings. Capitalized or otherwise defined terms used but not
otherwise defined herein shall have the meanings assigned to such terms in the
Declaration as in effect on the date hereof.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with
<PAGE> 3
3
such specified Person; provided, however, that the Trust shall be deemed not to
be an Affiliate of the Guarantor. For the purposes of this definition, "control"
when used with respect to any specified 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; the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Common Securities" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Debt" means (i) the principal of and premium, if any, and unpaid
interest on indebtedness for money borrowed, (ii) purchase money and similar
obligations, (iii) obligations under capital leases, (iv) guarantees,
assumptions or purchase commitments relating to, or other transactions as a
result of which the Guarantor is responsible for the payment of such
indebtedness of others, (v) renewals, extensions and refunding of any such
indebtedness, (vi) interest or obligations in respect of any such indebtedness
accruing after the commencement of any insolvency or bankruptcy proceedings and
(vii) obligations associated with derivative products such as interest rate and
currency exchange contracts, foreign exchange contracts, commodity contracts and
similar arrangements.
"Declaration" shall have the meaning specified in the first recital
to this Guarantee Agreement.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement; provided, however,
that, except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the HIGH TIDES, to the extent not paid or
made by or on behalf of the Trust: (i) any accrued and unpaid Distributions
required to be paid on the HIGH TIDES, to the extent the Trust shall have funds
on hand available therefor at such time, (ii) the applicable Redemption Price,
with respect to the HIGH TIDES called for redemption by the Trust to the extent
the Trust shall have funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of the
Trust, unless Debentures are distributed to the Holders of the HIGH TIDES or all
the HIGH TIDES are redeemed, the lesser of (a) the aggregate of the liquidation
amount of $50 per HIGH TIDES plus accrued and unpaid Distributions on the HIGH
TIDES to the date of payment (the "Liquidation Distribution") to the extent the
Trust shall have funds on hand available to make such payment at such time and
(b) the amount of assets of the Trust remaining available for distribution to
Holders of the HIGH TIDES upon liquidation of the Trust after satisfaction of
liabilities to creditors of the Trust as required by applicable law.
"Guarantee Trustee" means The Bank of New York, a New York Banking
corporation, until a Successor Guarantee Trustee has been appointed and has
accepted such appointment pursuant to the terms of this Guarantee Agreement and
thereafter means each such Successor Guarantee Trustee.
<PAGE> 4
4
"Guarantor" shall have the meaning specified in the first paragraph
of this Guarantee Agreement.
"HIGH TIDES" shall have the meaning specified in the first recital
of this Guarantee Agreement.
"Debentures" shall have the meaning specified in the second recital
of this Guarantee Agreement.
"Holder" means any holder, as registered on the books and records
of the Trust, of any HIGH TIDES; provided, however, that in determining whether
the holders of the requisite percentage of HIGH TIDES have given any request,
notice, consent or waiver hereunder, "Holder" shall not include the Guarantor,
the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee
Trustee.
"Indenture" means the Indenture dated as of [ ], as amended or
supplemented, between the Guarantor and The Bank of New York, as trustee,
relating to the issuance of Debentures.
"Trust" shall have the meaning specified in the first paragraph of
this Guarantee Agreement.
"List of Holders" has the meaning specified in Section 2.02(a).
"Majority in liquidation amount of the HIGH TIDES" means, except as
provided in the terms of the HIGH TIDES or by the Trust Indenture Act, a vote by
the Holder(s), voting separately as a class, of more than 50% of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid distributions to
the date upon which the voting percentages are determined) of all then
outstanding HIGH TIDES.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman and Chief Executive Officer, President or a
Vice President, and by the Treasurer, an Associate Treasurer, an Assistant
Treasurer, the Controller, the Secretary or an Assistant Secretary of such
Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
<PAGE> 5
5
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Responsible Officer" when used with respect to the Guarantee
Trustee means any officer assigned to the Corporate Trust Office, including any
vice president, assistant vice president, assistant treasurer, assistant
secretary or any other officer of the Guarantee Trustee customarily performing
functions similar to those performed by any of the above designated officers,
and having direct responsibility for the administration of this Guarantee
Agreement, and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Senior Debt" means (i) indebtedness evidenced by securities, debentures,
bonds or other similar instruments issued by the Company (ii) all obligations to
make payment pursuant to the terms of financial instruments, such as (a)
securities contracts and foreign currency exchange contracts, (b) derivative
instruments, such as swap agreements (including interest rate and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange agreements, options,
commodity futures contracts and commodity options contracts, and (c) similar
financial instruments; except, in the case of (i) above, such indebtedness
and obligations that are expressly stated to rank junior in right of payment to,
or pari passu in right of payment with, the Debentures, (iii) and indebtedness
or obligations of others of the kind described in (i) and (ii) above for the
payment of which the Company is responsible or liable as guarantor or otherwise
and (iv) deferrals, renewals or extensions of any such Senior Debt; provided,
however, that Senior Debt shall not be deemed to include (a) any Debt of the
Company which, when incurred and without respect to any election under Section
1111(b) of the United States Bankruptcy Code of 1978, was without recourse to
the Company, (b) trade accounts payable in the ordinary course of business which
will not constitute debt for purposes of the HIGH TIDES, (c) any Debt of the
Company to any of its subsidiaries, except to the extent incurred for the
benefit of third parties, (d) Debt to any employee of the Company and (e) Debt
that expressly provides that it is not senior in right of payment to the
HIGH TIDES.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.01.
"Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S.C. Sections 77aaa-77bbbb), as amended.
"Trust Securities" shall have the meaning specified in the first
recital of this Guarantee Agreement.
<PAGE> 6
6
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application. This Guarantee
Agreement is subject to the provisions of the Trust Indenture Act that are
required to be part of this Guarantee Agreement, which are incorporated by
reference in and made part of this Guarantee Agreement and shall, to the extent
applicable, be governed by such provisions. If and to the extent that any
provision of this Guarantee Agreement limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act,
such imposed duties shall control.
SECTION 2.02. Lists of Holders of Securities. (a) The Guarantor
shall provide the Guarantee Trustee (i) within 14 days after each record date
for payment of Distributions, a list, in such form as the Guarantee Trustee may
reasonably require, of the names and addresses of the Holders of the HIGH TIDES
("List of Holders") as of such record date, provided that the Guarantor shall
not be obligated to provide such List of Holders at any time the List of Holders
does not differ from the most recent List of Holders given to the Guarantee
Trustee by the Guarantor on behalf of the Trust, and (ii) at any other time,
within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Guarantee Trustee.
(b) The Guarantee Trustee shall comply with its obligations under
Section 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Guarantee Trustee. Within 60 days
after [May 15] of each year, commencing [May 15], 2000, the Guarantee Trustee
shall provide to the Holders of the HIGH TIDES such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to The Guarantee Trustee. The
Guarantor shall provide to the Guarantee Trustee such documents, reports and
information as required by Section 314 of the Trust Indenture Act (if any) and
the compliance certificate required by Section 314 of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.05. Evidence of Compliance with Conditions Precedent. The
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with such conditions precedent, if any, provided for in this Guarantee Agreement
that relate to any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given by any officer
pursuant to Section 314(c)(1) may be given in the form of an Officers'
Certificate.
SECTION 2.06. Events of Default; Waiver. The Holders of a Majority
in liquidation amount of the HIGH TIDES may, by vote, on behalf of all the
Holders, waive any past Event of Default and its consequences. Upon such waiver,
any such Event of Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed
<PAGE> 7
7
to have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
SECTION 2.07. Event of Default; Notice. (a) The Guarantee Trustee
shall, within 10 days after the occurrence of an Event of Default, transmit by
mail, first class postage prepaid, to the Holders, notices of all Events of
Default known to the Guarantee Trustee, unless such Events of Default have been
cured before the giving of such notice; provided, that, except in the case of a
default in the payment of a Guarantee Payment, the Guarantee Trustee shall be
protected in withholding such notice if and so long as the Board of Directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Guarantee Trustee in good faith determine that the withholding
of such notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless a Responsible Officer of the Guarantee Trustee shall
have received written notice of such Event of Default.
SECTION 2.08. Conflicting Interests. The Declaration shall be
deemed to be specifically described in this Guarantee Agreement for the purposes
of clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
ARTICLE III
Powers, Duties and Rights of the
Guarantee Trustee
SECTION 3.01. Powers and Duties of the Guarantee Trustee. (a) This
Guarantee Agreement shall be held by the Guarantee Trustee for the benefit of
the Holders, and the Guarantee Trustee shall not transfer this Guarantee
Agreement to any Person except a Holder exercising his or her rights pursuant to
Section 5.04(iv) or to a Successor Guarantee Trustee on acceptance by such
Successor Guarantee Trustee of its appointment to act as Successor Guarantee
Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee Agreement, and no implied covenants shall be read into this
Guarantee Agreement against the Guarantee Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.06), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and
<PAGE> 8
8
skill in its exercise thereof, as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own wilful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Guarantee Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to
the Guarantee Trustee and conforming to the requirements of this
Guarantee Agreement; but in the case of any such certificates or
opinions that by any provision hereof or of the Trust Indenture
Act are specifically required to be furnished to the Guarantee
Trustee, the Guarantee Trustee shall be under a duty to examine
the same to determine whether or not they conform to the
requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment
was made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a Majority in
liquidation amount of the HIGH TIDES relating to the time, method and
place of conducting any proceeding for any remedy available to the
Guarantee Trustee, or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers.
SECTION 3.02. Certain Rights of Guarantee Trustee. (a) Subject to
the provisions of Section 3.01:
(i) The Guarantee Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order,
<PAGE> 9
9
bond, debenture, note, other evidence of indebtedness or other paper or
document reasonably believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee Agreement,
the Guarantee Trustee shall deem it desirable that a matter relating to
compliance by the Guarantor with any of its obligations contained in this
Guarantee Agreement be proved or established before taking, suffering or
omitting to take any action hereunder, the Guarantee Trustee (unless
other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and conclusively rely upon an Officers'
Certificate (with respect to the Guarantor) which, upon receipt of such
request from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel of its
selection, and the advice or opinion of such legal counsel with respect
to legal matters shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice or opinion.
Such legal counsel may be legal counsel to the Guarantor or any of its
Affiliates and may be one of its employees. The Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Guarantee Agreement from any court of competent
jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Guarantee Agreement at
the request or direction of any Holder, unless such Holder shall have
provided to the Guarantee Trustee such security and indemnity reasonably
satisfactory to it, against the costs, expenses (including attorneys'
fees and expenses) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable
advances as may be requested by the Guarantee Trustee; provided, that
nothing contained in this Section 3.02(a)(v) shall be taken to relieve
the Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound 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, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any
<PAGE> 10
10
misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee Agreement
the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request instructions from the
Holders, (B) may refrain from enforcing such remedy or right or taking
such other action until such instructions are received and (C) shall be
fully protected in acting in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to
impose any duty or obligation on the Guarantee Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on it
in any jurisdiction in which it shall be illegal, or in which the Guarantee
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
SECTION 3.03. Indemnity. The Guarantor agrees to indemnify the
Guarantee Trustee and its directors, officers, agents and employees for, and to
hold them harmless against, any and all loss, damage, claim, liability or
expense incurred without negligence or bad faith on the part of the Guarantee
Trustee, arising out of or in connection with the acceptance or administration
of this Guarantee Agreement, 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 Guarantee Trustee will
not claim or exact any lien or charge on any Guarantee Payments as a result of
any amount due to it under this Guarantee Agreement. This indemnity shall
survive the termination of this Guarantee Agreement or the resignation or
removal of the Guarantee Trustee.
SECTION 3.04. Expenses. The Guarantor shall from time to time
reimburse the Guarantee Trustee for its expenses and costs incurred in
connection with the performance of its duties hereunder. This reimbursement
obligation shall survive the termination of this Guarantee Agreement or the
resignation or removal of the Guarantee Trustee.
ARTICLE IV
Guarantee Trustee
SECTION 4.01. Guarantee Trustee; Eligibility. (a) There shall
at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture
Act to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be
<PAGE> 11
11
a corporation meeting the requirements of Section 310(c) of the Trust
Indenture Act. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the supervising
or examining authority, then, for the purposes of this Section and to the
extent permitted by the Trust Indenture Act, the combined capital and
surplus of such corporation shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Guarantee Trustee shall cease to be eligible
to so act under Section 4.01(a), the Guarantee Trustee shall immediately resign
in the manner and with the effect set out in Section 4.02(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.02. Appointment, Removal and Resignation of the Guarantee
Trustee. (a) Subject to Section 4.02(b), in the absence of the existence of an
Event of Default, the Guarantee Trustee may be appointed or removed without
cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Guarantee Trustee and delivered to
the Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold office
until a Successor Guarantee Trustee shall have been appointed or until its
removal or resignation. The Guarantee Trustee may resign from office (without
need for prior or subsequent accounting) by an instrument in writing executed by
the Guarantee Trustee and delivered to the Guarantor, which resignation shall
not take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.02 within 30 days after
delivery to the Guarantor of an instrument of resignation or notice of removal
by the Guarantor, the retiring Guarantee Trustee may petition, at the expense of
the Guarantor, any court of competent jurisdiction for appointment of a
Successor Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.
ARTICLE V
Guarantee
SECTION 5.01. Guarantee. The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without
<PAGE> 12
12
duplication of amounts theretofore paid by or on behalf of the Trust), as and
when due, regardless of any defense, right of set-off or counterclaim which the
Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Guarantor to
the Holders or by causing the Trust to pay such amounts to the Holders. The
Guarantor shall give written notice to the Guarantee Trustee as promptly as
practicable in the event it makes any direct payment hereunder.
SECTION 5.02. Waiver of Notice and Demand. The Guarantor hereby
waives notice of acceptance of the Guarantee Agreement and, with respect to its
obligations under Section 5.01, hereby waives presentment, demand for payment,
any right to require a proceeding first against the Guarantee Trustee, Trust or
any other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.
SECTION 5.03. Obligations Not Affected. The obligations, covenants,
agreements and duties of the Guarantor under this Guarantee Agreement shall in
no way be affected or impaired by reason of the happening from time to time of
any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied
agreement, covenant, term or condition relating to the HIGH TIDES to be
performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or
any portion of the Distributions (other than any extension of time for
payment of Distributions that results from the extension of any interest
payment period on the Debentures as so provided in the Indenture),
Redemption Price, Liquidation Distribution or any other sums payable
under the terms of the HIGH TIDES or the extension of time for the
performance of any other obligation under, arising out of, or in
connection with, the HIGH TIDES;
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege, power
or remedy conferred on the Holders pursuant to the terms of the HIGH
TIDES, or any action on the part of the Trust granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the
Trust or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the HIGH TIDES;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it
being the intent of this
<PAGE> 13
13
Section 5.03 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain the consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.04. Rights of Holders. The Guarantor expressly
acknowledges that: (i) this Guarantee Agreement will be deposited with the
Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee
Trustee has the right to enforce this Guarantee Agreement on behalf of the
Holders; (iii) the Holders of a Majority in liquidation amount of the HIGH TIDES
have the right among themselves, the other Holders, if any, and the Guarantee
Trustee to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of this Guarantee
Agreement or exercising any trust or power conferred upon the Guarantee Trustee
under this Guarantee Agreement; and (iv) any Holder may institute a legal
proceeding directly against the Guarantor to enforce, subject to the
subordination provisions hereof, its rights under this Guarantee Agreement,
without first instituting a legal proceeding against the Trust or any other
Person.
SECTION 5.05. Guarantee of Payment. This Guarantee Agreement
creates a guarantee of payment and not of collection. This Guarantee Agreement
will not be discharged except by payment of the Guarantee Payments in full
(without duplication of amounts theretofore paid by the Trust) or upon
distribution of Debentures to Holders as provided in the Declaration.
SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all
(if any) rights of the Holders against the Trust in respect of any amounts paid
to the Holders by the Guarantor under this Guarantee Agreement and shall have
the right to waive payment by the Trust pursuant to Section 5.01; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any rights which
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee Agreement,
if at the time of any such payment, any amounts are due and unpaid under this
Guarantee Agreement. If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders. Any amounts paid over to
and not subsequently recovered from the Holders pursuant to any insolvency law
shall be deemed to have been applied by the Holders to the Guarantee Payments.
SECTION 5.07. Independent Obligations. The Guarantor acknowledges
that its obligations hereunder are independent of the obligations of the Trust
with respect to the HIGH TIDES and that the Guarantor shall (without duplication
of amounts paid by or on behalf of the Trust) be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this
Guarantee Agreement notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.03 hereof, but subject to
Section 6.01 hereof.
<PAGE> 14
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ARTICLE VI
Covenants and Subordination
SECTION 6.01. Subordination. This Guarantee Agreement will
constitute an unsecured obligation of the Guarantor and will rank subordinate
and junior in right of payment to all Senior Debt of the Guarantor in accordance
with the terms of Article XII of the Indenture, which terms (including the
definitions of all defined terms used therein) are incorporated herein, mutatis
mutandis, by this reference (it being understood and agreed that each notice
from holders of Senior Debt (or their agent or representative) to the Trustee
under the Indenture shall constitute a notice to the Guarantee Trustee hereunder
and that no payment or distribution by the Guarantor of a Guarantee Payment
shall be made within ten Business Days prior written notice thereof to the
administrative agent under the Senior Credit Agreement).
SECTION 6.02. Pari Passu Guarantees. This Guarantee Agreement shall
rank pari passu with any similar guarantee agreements issued by the Guarantor on
behalf of the holders of trust securities issued by a trust created by the
Guarantor similar to Budget Group Capital Trust.
ARTICLE VII
Termination
SECTION 7.01. Termination. This Guarantee Agreement shall terminate
and be of no further force and effect upon (i) full payment of the Redemption
Price of all HIGH TIDES, (ii) the distribution of Debentures to the Holders in
exchange for all of the HIGH TIDES, (iii) full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Trust or (iv)
distribution of the Guarantor's common stock to the Holders in respect of the
conversion of all of the HIGH TIDES. Notwithstanding the foregoing, this
Guarantee Agreement will continue to be effective or will be reinstated, as the
case may be, if at any time any Holder must repay any sums paid with respect to
HIGH TIDES or this Guarantee Agreement.
ARTICLE VIII
Miscellaneous
SECTION 8.01. Successors and Assigns. All guarantees and agreements
contained in this Guarantee Agreement shall bind the successors, assigns,
receivers, trustees and representatives of the Guarantor and shall inure to the
benefit of the Holders of the HIGH TIDES then outstanding. Except in connection
with a consolidation, merger or sale involving the Guarantor that is permitted
under Article VIII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Guarantor's obligations hereunder, the Guarantor shall
not assign its obligations hereunder.
SECTION 8.02. Amendments. Except with respect to any changes which
do not adversely affect the rights of the Holders in any material respect (in
which case no
<PAGE> 15
15
consent of the Holders will be required), this Guarantee Agreement may only be
amended with the prior approval of the Holders of not less than a Majority in
liquidation amount of the HIGH TIDES. The provisions of Article XII of the
Declaration concerning meetings of the Holders shall apply to the giving of such
approval.
SECTION 8.03. Notices. Any notice, request or other communication
required or permitted to be given hereunder shall be in writing, duly signed by
the party giving such notice, and delivered, telecopied (confirmed by delivery
of the original) or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or
such other address, facsimile number or to the attention of such other
Person as the Guarantor may give notice to the Holders:
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
Facsimile No.: (408) 995-0505
Attention: Corporate Secretary
(b) if given to the Trust, in care of the Guarantor, at the Trust's
(and the Guarantee Trustee's) address set forth below or such other
address as the Trust may, at the Trusts's direction, give notice to the
Holders:
Calpine Capital Trust
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
Facsimile No.: (408) 995-0505
Attention: Secretary
with a copy to:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, NY 10286
Facsimile No.: (212) 815-5915
Attention: Corporate Trust Administration
<PAGE> 16
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(c) if given to the Guarantee Trustee:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, NY 10286
Facsimile No.: (212) 815-5915
Attention: Corporate Trust Administration
(d) if given to any Holder, at the address set forth on the books
and records of the Trust.
All notices hereunder shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid, except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 8.04. Benefit. This Guarantee Agreement is solely for the
benefit of the Holders (subject to the benefits inuring to the holders of Senior
Debt pursuant to the subordination provisions hereof) and is not separately
transferable from the HIGH TIDES.
SECTION 8.05. Interpretation. In this Guarantee Agreement, unless
the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not
defined in the preamble hereto have the respective meanings assigned to
them in Section 1.01;
(b) a term defined anywhere in this Guarantee Agreement has the
same meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or
amended from time to time;
(d) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice
versa; and
(g) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.
<PAGE> 17
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SECTION 8.06 Governing Law. THIS GUARANTEE AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
This instrument may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
Calpine Corporation
by
-------------------------------------------
Name:
Title:
The Bank of New York, as Guarantee Trustee,
by
-------------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.15
REMARKETING AGREEMENT, [ ], 1999 (this "Agreement"), among (i)
Calpine Corporation, a Delaware Corporation (the "Company"), (ii)
Calpine Capital Trust, a Delaware business trust (the "Trust"), (iii)
The Bank of New York, as Tender Agent and (iv) Credit Suisse First
Boston Corporation, a Massachusetts corporation (together with its
successors and assigns, the "Remarketing Agent").
RECITALS
WHEREAS the Trust is a statutory business trust that has been created
under Delaware law and exists pursuant to the Trust Agreement (as defined below)
and a certificate of trust filed with the Delaware Secretary of State; and
WHEREAS the Trust is issuing on today's date or has heretofore issued
$200,000,000 (or up to $230,000,000 to the extent the over-allotment option is
exercised in full) aggregate Liquidation Amount (as defined below) of
Remarketable Term Income Deferrable Equity Securities (the "HIGH TIDES(sm)")
representing preferred undivided beneficial interests in the assets of the Trust
and has used the proceeds of the HIGH TIDES, together with the proceeds of
$6,185,600 (or up to $7,113,450 to the extent the over-allotment option is
exercised in full) aggregate Liquidation Amount of its Common Securities (as
defined in the Trust Agreement) of the Trust, to purchase $206,185,600 (or up to
$207,113,450 to the extent the over-allotment option is exercised in full)
aggregate principal amount of Convertible Subordinated Debentures Due 2029 (the
"Debentures") issued by the Company pursuant to the Indenture (as defined
below);
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. (a) The following terms shall have the meanings
indicated below:
"Additional Amounts" has the meaning specified in the Indenture.
"Administrative Trustees" has the meaning specified in the definition
of Trust Agreement in this Section 1.
"Broker-Dealer" has the meaning assigned to such term in Section 5.
"Broker-Dealer Agreement" means an agreement between the Remarketing
Agent and a Broker-Dealer in substantially the form of Annex 1.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Property Trustee's or Debenture Trustee's Corporate Trust Office (as defined in
the Trust Agreement with respect to the Property Trustee and in the Indenture
with respect to the Debenture Trustee) is closed for business.
"Cause" means any one of the following events or circumstances shall
have occurred and be continuing: (i) the bankruptcy or insolvency of the
Remarketing
<PAGE> 2
Agent; or (ii) the Remarketing Agent shall cease to be registered as a
broker-dealer under the Exchange Act.
"Closing Price" means for any security on any day the last reported
sale price of the security on that day, or in case no sale takes place on that
day, the average of the closing bid and asked prices in each case on the
principal national securities exchange on which the securities are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the National Market System of the National Association
of Securities Dealers, Inc. or any successor national automated interdealer
quotation system (the "NNM") or, if the securities are not listed or admitted to
trading on any national securities exchange or quoted on the NNM, the average of
the closing bid and asked prices of the security in the over-the-counter market
as furnished by any New York Stock Exchange member firm selected by the Company
for that purpose.
"Commission" means the Securities and Exchange Commission or any
successor thereto.
"Common Stock" has the meaning assigned to such term in the Indenture.
"Company" has the meaning assigned to such term in the preamble to this
Agreement.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the Remaining
Life that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the Remaining Life. If no United States Treasury
security has a maturity which is within a period from three months before to
three months after the Reset Date, the two most closely corresponding United
States Treasury securities shall be used as the Comparable Treasury Issue, and
the rate being calculated shall be interpolated or extrapolated on a
straight-line basis, rounding to the nearest month using such securities.
"Comparable Treasury Price" means (A) the arithmetic mean of five
Reference Treasury Dealer Quotations, after excluding the highest and lowest
such Reference Treasury Dealer Quotations, or (B) if the Debenture Trustee
obtains fewer than five such Reference Treasury Dealer Quotations, the
arithmetic mean of all such Reference Treasury Dealer Quotations.
"Convertible Remarketing" has the meaning specified in Section 2(d).
"Debenture Trustee" means The Bank of New York, as Trustee under the
Indenture (including its successors as Debenture Trustee thereunder).
"Debentures" has the meaning assigned to such term in the recitals to
this Agreement.
"Declaration Trustees" means collectively, the Property Trustee, the
Delaware Trustee and the Administrative Trustees.
"Disclosure Documents" means the Registration Statement, or if the
Registration Statement is not required to be filed with the Commission pursuant
to Section 2(b), the Nonregistered Offering Documents, including any preliminary
offering document or Preliminary Prospectus, as applicable, and as each may be
amended or supplemented.
2
<PAGE> 3
"Effective Time" means the date and time as of which the Registration
Statement or its most recent post-effective amendment is declared effective by
the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Failed Final Remarketing" has the meaning specified in Section 2(d).
"Final Remarketing" has the meaning specified in Section 2(d).
"Final Remarketing Period" means the period beginning on the Business
Day immediately following the Initial Remarketing Termination Date and ending on
the day which is ten (10) Business Days (or such shorter period as shall be
agreed to by the Remarketing Agent) after the Initial Remarketing Termination
Date.
"Final Reset Date" means October __, 2004.
"Global Security Certificate" has the meaning assigned to (i) the term
"Global Preferred Securities" in the Trust Agreement if the Subject Securities
are HIGH TIDES or (ii) the term "Global Security" in the Indenture if the
Subject Securities are Debentures.
"HIGH TIDES" has the meaning assigned to such term in the recitals to
this Agreement.
"Indenture" means the Indenture, dated as of _______, 1999, between the
Company and the Debenture Trustee, as such indenture may from time to time be
amended, modified or supplemented.
"Initial Failed Remarketing" has the meaning specified in Section 2(d).
"Initial Remarketing" has the meaning specified in Section 2(d).
"Initial Remarketing Period" means the period beginning on the first
Business Day immediately following the Tender Notification Date and ending on
the day which is ten (10) Business Days (or such shorter period as shall be
agreed to by the Remarketing Agent) after the Tender Notification Date.
"Initial Remarketing Termination Date" means the tenth (10) Business
Day following the Tender Notification Date (or such shorter period as shall be
agreed to by the Remarketing Agent).
"Interest" means all quarterly payments, interest on quarterly payments
not paid on the applicable Interest Payment Date and Additional Amounts, as
applicable.
"Interest Payment Date" has the meaning specified in the Indenture and
the Trust Agreement.
"Liquidation Amount" means, with respect to a HIGH TIDES or Common
Security, its stated liquidation amount of $50.
"Market Event" means the occurrence of (i) a change in U.S. or inter
national financial, political or economic conditions or currency exchange rates
or exchange controls as would, in the sole judgment of Remarketing Agent, be
likely to prejudice materially the success of the Remarketing, issue, sale or
distribution of the
3
<PAGE> 4
Subject Securities, or (ii) (A) any change, or any development or event
involving a prospective change, in the condition (financial or other), business,
properties or results of operations of the Company or its subsidiaries which, in
the sole judgment the Remarketing Agent, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the Remarketing or the
sale of and payment for the Subject Securities; (B) any downgrading in the
rating of the Subject Securities or any other debt securities of the Company by
any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act), or any public announcement
that any such organization has under surveillance or review its rating of the
Subject Securities or any other 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); (C) 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; (D) any banking moratorium declared by U.S. Federal or
New York authorities; or (E) 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
sole judgment of the Remarketing Agent, the effect of any such outbreak,
escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the Remarketing or the sale of and
payment for the Subject Securities.
"Maximum Rate" means a rate per annum equal to the Treasury Rate plus
6%.
"No Registration Opinion" means an opinion of Securities Counsel that
the securities issuable in the Remarketing do not need to be registered under
the Securities Act and that no other filing of any kind is required to be made
with the Commission as a condition to the sale of such securities, which No
Registration Opinion shall be reasonably satisfactory to the Remarketing Agent
and its counsel.
"Nonconvertible Remarketing" has the meaning specified in Section 2(d).
"Nonregistered Offering Documents" has the meaning specified in Section
6(a).
"Notice of Purchasers" means a notice delivered by the Remarketing
Agent on the Reset Date to (i) the Tender Agent if the Subject Securities are
not evidenced by a Global Security Certificate on the Reset Date or (ii) The
Depository Trust Company if the Subject Securities are evidenced by a Global
Security Certificate on the Reset Date, in either case naming the parties who
will purchase the Subject Securities from the Remarketing Agent.
"Par Amount" means $50 per Subject Security.
"Paying Agent" has the meaning specified in the Trust Agreement.
"Preliminary Prospectus" means each prospectus included in the
Registration Statement, or amendment thereof, before it becomes effective under
the Securities Act and any prospectus which may be filed by the Company with the
Commission pursuant to Rule 424(a) (or any successor applicable rule) of the
rules and regulations under the Securities Act (the "Rules and Regulations") in
connection with the Registration Statement.
4
<PAGE> 5
"Primary Treasury Dealer" has the meaning specified in the definition
of Quotation Agent in this Section 1.
"Property Trustee" has the meaning specified in the definition of Trust
Agreement in this Section 1.
"Prospectus" means the final prospectus which will be filed with the
Commission pursuant to Rule 424(b) (or any successor applicable rule) of the
Rules and Regulations and deemed to be a part of the Registration Statement at
the time of its effectiveness under the Securities Act pursuant to paragraph (b)
of Rule 430A (or any successor applicable rule) of the Rules and Regulations.
"Quotation Agent" means Credit Suisse First Boston Corporation and its
successors; provided, however, that if Credit Suisse First Boston Corporation
shall cease to be a primary United States Government securities dealer in The
City of New York (a "Primary Treasury Dealer"), the Company shall substitute
therefor another Primary Treasury Dealer.
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any
other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer, the arithmetic mean, as determined by the Debenture
Trustee of the bid and asked prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) quoted in writing to the
Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City
time, on the third Business Day preceding the Reset Date.
"Registration Statement" means a registration statement covering the
securities to be issued in the Remarketing filed with the Commission pursuant to
the Securities Act, including any amendments thereto and any document or other
information incorporated by reference therein.
"Remaining Life" means the period beginning on (and including) the
Reset Date and ending on [ ] , 2029.
"Remarketing" has the meaning specified in the recitals to this
Agreement.
"Remarketing Agent" has the meaning assigned to such term in the
preamble to this Agreement (including any successor Remarketing Agent).
"Remarketing Conditions" means the following factors: (i) short-term
and long-term market rates and indices of such short-term and long-term rates,
(ii) market supply and demand for short-term and long-term securities, (iii)
yield curves for short-term and long-term securities comparable to the Subject
Securities, (iv) industry and financial conditions which may affect the Subject
Securities, (v) the number of Subject Securities to be remarketed, (vi) the
number of potential purchasers, (vii) the current ratings by nationally
recognized statistical rating organizations of long-term subordinated debt of
the Company and of other outstanding capital securities of the Company's trust
subsidiaries, (viii) the number of shares of Common Stock, if any, into which
the Subject Securities will be convertible and (ix) the length and type of call
protections, if any.
"Remarketing Notice" has the meaning specified in Section 2(d).
5
<PAGE> 6
"Reset Date" means any date (1) not later than October __, 2004, or the
Final Reset Date, or, if such date is not a Business Day, the next succeeding
Business Day and (2) not earlier than 70 Business Days prior to October __,
2004, as may be determined by the Remarketing Agent, in its sole discretion, for
settlement of a successful remarketing.
"Rules and Regulations" has the meaning specified in the definition of
Preliminary Prospectus in this Section 1.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Securities Counsel" means counsel experienced in matters relating to
securities law.
"Subject Securities" means (i) the HIGH TIDES if, on the Reset Date,
the Debentures have not been distributed to holders of HIGH TIDES in connection
with a liquidation or dissolution of the Trust or (ii) otherwise, the
Debentures.
"Tender Agent" means (i) the Property Trustee if the Subject Securities
are HIGH TIDES or (ii) the Debenture Trustee if the Subject Securities are
Debentures.
"Tender Notification Date" means a Business Day no earlier than ten
(10) Business Days following the date of the Remarketing Notice (or such shorter
period as shall be agreed to by the Remarketing Agent).
"Term Call Protections" has the meaning assigned to such term in
Section 2(c).
"Term Conversion Ratio" has the meaning assigned to such term in
Section 2(c).
"Term Conversion Price" has the meaning assigned to such term in
Section 2(c).
"Term Provisions" has the meaning specified in Section 2(c).
"Term Rate" has the meaning assigned to such term in Section 2(c).
"Treasury Rate" means (i) the yield, under the heading which represents
the average for the week immediately prior to the date of calculation, appearing
in the most recently published statistical release designated H.15(519) or any
successor publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semiannual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
the Reset Date. The Treasury Rate shall be calculated by the Remarketing Agent
on the third Business Day preceding the Reset Date.
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<PAGE> 7
"Trust" has the meaning assigned to such term in the preamble to this
Agreement.
"Trust Agreement" means the Amended and Restated Declaration of Trust,
dated as of [ ], 1999, among the Company, as Depositor, The Bank of New York, as
Property Trustee (the "Property Trustee"), The Bank of New York (Delaware), as
Delaware Trustee (the "Delaware Trustee"), Peter Cartwright, Ann B. Curtis and
Thomas R. Mason (the "Administrative Trustees") and the holders from time to
time of undivided beneficial interests in the assets of the Trust, as such
agreement may from time to time be amended, modified or supplemented.
(b) Capitalized terms used herein and not otherwise defined but defined
in the Trust Agreement or Indenture shall have the meanings assigned to such
terms in the Trust Agreement or the Indenture, as applicable.
2. Acceptance and Performance of Duties. The Remarketing Agent, the
Company, the Trust and the Tender Agent agree as follows:
(a) The Remarketing Agent will perform the duties and obligations of
Remarketing Agent for the Remarketed Securities as specified in the Trust
Agreement (if the Tendered Securities are the HIGH TIDES), the Indenture (if the
Tendered Securities are the Debentures) and in this Agreement in good faith and
in compliance with the provisions of applicable laws.
(b) The Remarketing Agent will use its best efforts to remarket all
Subject Securities tendered or deemed tendered for sale; provided, however, that
the Remarketing Agent will not be obligated to attempt to remarket such Subject
Securities, or to determine the Term Rate pursuant to Section 2(c) below, if (A)
in the Remarketing Agent's judgment any (i) Disclosure Document provided by the
Trust or the Company in connection with the Remarketing or (ii) document
publicly disclosed (including in a filing pursuant to the Exchange Act) by or on
behalf of the Trust or the Company, includes any untrue statement of a material
fact or omits to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, unless the Remarketing Agent is satisfied in its sole discretion
that such statement or omission has been properly corrected, (B) unless the
Company provides a No Registration Opinion to the Remarketing Agent prior to the
Tender Notification Date, the Company and the Trust (if applicable) shall have
failed to have the Registration Statement declared effective by the Commission
on or prior to the Tender Notification Date and remain effective at least
through and including the Reset Date, provided that the Registration Statement
may be declared effective later than the Tender Notification Date if the Company
provides an opinion of Securities Counsel to the Remarketing Agent to the effect
that such Registration Statement need not become effective until the date the
Initial Remarketing Period is required to commence and the Remarketing Agent
consents to such delay or (C) the Company fails to comply with the requirements
set forth in Section 6(c) of this Agreement. The Remarketing Agent may, but
except as provided in Section 11 shall not be obligated to, purchase tendered
Subject Securities for its own account.
(c) The Remarketing Agent has agreed to use its best efforts to
remarket all Subject Securities tendered for Remarketing on the Tender
Notification Date. The Remarketing Agent will establish, effective beginning on
the Reset Date, (i) the rate (the "Term Rate") per annum at which Interest will
accrue on the Subject Securities, (ii) the term conversion ratio and price,
which determine the number of shares of Common Stock, if any, into which each
Subject Security may be converted (respectively, the "Term Conversion Ratio" and
the "Term Conversion Price") and (iii) the price, manner and time, if any, at
which the Subject Securities may be redeemed (the "Term Call
7
<PAGE> 8
Protections" and together with the Term Rate, Term Conversion Ratio and Term
Conversion Price, the "Term Provisions"). The Remarketing Agent will use its
best efforts to establish the Term Provisions most favorable to the Company
consistent with the successful remarketing of Subject Securities tendered
therefor at a price equal to 101% of the aggregate Par Amount thereof; provided
that each Subject Security will have the same Term Provisions; provided that the
Term Provisions may not permit the Company to redeem the Subject Securities for
a price less than the aggregate Par Amount thereof plus any accrued and unpaid
Interest thereon; and, provided further, that if no Subject Security is tendered
for remarketing on the Tender Notification Date, the Remarketing will not take
place (although the Remarketing will not be deemed to have failed), and the
Remarketing Agent will set the Term Provisions in a manner consistent with the
Remarketing Notice that it believes, in its sole discretion, would result in a
price per Subject Security equal to 101% of its Par Amount.
(d) The remarketing process will commence on the first Business Day
following the Tender Notification Date and will be conducted on the following
schedule and in the following manner:
<TABLE>
<S> <C>
At Least 30 Business Days , But Not More The Trust shall cause a notice (the
Than 90 Business Days Prior to the Final "Remarketing Notice") to be sent to
Reset Date: holders of the Subject Securities
stating whether it intends to remarket
the Subject Securities as securities
which will be convertible into Common
Stock of the Company (a "Convertible
Remarketing") or which will be
nonconvertible (a "Nonconvertible
Remarketing").
The date of the Remarketing Notice Each outstanding Subject Security shall
through the Tender Notification Date: be deemed to have been tendered for
remarketing unless the holder thereof
has given irrevocable notice to the
contrary to the Tender Agent (which the
Tender Agent will promptly remit to the
Remarketing Agent). Such irrevocable
notice, which may be telephonic or
written, must be delivered prior to 5:00
p.m., New York City time, on the Tender
Notification Date. A holder's notice of
an election to retain Subject Securities
must state the number of Subject
Securities to be retained (which must be
all of the Subject Securities
represented by the applicable
certificate, unless such certificate is
a Global Security Certificate), the
number of the certificate representing
the Subject Securities not to be deemed
to have been so tendered and the number
of Subject Securities represented by
such certificate. Any transferee of a
Subject Security for which such notice
has been provided shall be bound
thereby. The failure by a holder of
Subject Securities to give timely notice
of an election to retain all (or, in the
case of a Global Security Certificate,
any part) of such holder's Subject
Securities will consti-
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C>
tute the irrevocable tender for sale in
the Remarketing of all the Subject
Securities it holds. A holder of Subject
Securities which has not duly given
notice that it will not tender and
retain its Subject Securities will cease
to have any further rights with respect
to such Subject Securities upon the
successful remarketing thereof, except
the right of such holder to receive an
amount equal to (i) from the proceeds of
the Remarketing, 101% of the aggregate
liquidation amount thereof, plus (ii)
from the Company, any accrued and unpaid
Interest thereon to (but excluding) the
Reset Date.
Beginning the First Business If any Subject Securities are tendered
Day Following the Tender Notification for remarketing, the Remarketing Agent
Date: will commence a Convertible Remarketing
or a Nonconvertible Remarketing, as the
case may be (in either case, an "Initial
Remarketing"), in accordance with the
terms of this Agreement and pursuant to
the instructions set forth in the
Remarketing Notice. The Remarketing
Agent will determine, and upon request
make available to interested persons
nonbinding indications of, the Term
Provisions based upon then-current
Remarketing Conditions. The Remarketing
Agent will solicit and receive orders
from prospective investors to purchase
tendered Subject Securities. The Initial
Remarketing shall be deemed to have
failed (an "Initial Failed Remarketing")
if (i) despite using its best efforts,
the Remarketing Agent is unable to
establish, prior to the Initial
Remarketing Termination Date, a Term
Rate which is less than or equal to the
Maximum Rate, (ii) the Remarketing Agent
is excused from Remarketing the Subject
Securities because of (a) the failure by
the Company or the Trust to satisfy a
condition in this Agreement or (b) the
occurrence of a Market Event or (iii)
there is no Remarket ing Agent on the
first day of the Initial Remarketing
Period.
Remainder of the Initial Remarketing The Remarketing Agent will continue, if
Period: necessary, using its best efforts to
remarket the Subject Securities tendered
for remarketing as described above,
adjusting the non-binding indications of
the Term Provisions necessary to
establish the Term Provisions most
favorable to the Company consistent with
remarketing all Subject
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C>
Securities tendered therefor at 101% of
the Par Amount, until the Initial
Remarketing is completed or is deemed to
have failed. See the definition of an
Initial Failed Remarketing above.
Promptly upon determination of the Term
Provisions, the Remarketing Agent will
communicate such Term Provisions to the
Tender Agent, which will communicate
such Term Provisions to the Declaration
Trustees (if the Trust has not
dissolved), the Trust (if the Trust has
not dissolved), the Debenture Trustee,
the Paying Agent, the Company and each
holder (if any) which timely elected not
to tender all of its Subject Securities
for remarketing, by delivery of a
written notice or by telephone promptly
confirmed by telecopy or writing.
Beginning the First Business Day If the Initial Remarketing fails because
Following an Initial Failed Remarketing the Remarketing Agent was not able to
(if applicable): establish a Term Rate less than or
equal to the Maximum Rate prior to the
Initial Remarketing Termination Date,
the Remarketing Agent will commence a
second remarketing (the "Final
Remarketing"), which will be a
Convertible Remarketing if the Initial
Remarketing was a Nonconvertible
Remarketing and a Nonconvertible
Remarketing if the Initial Remarketing
was a Convertible Remarketing. The
Remarketing Agent will determine, and
upon request make available to
interested persons nonbinding
indications of, the Term Provisions
based upon then-current Remarketing
Conditions. The Remarketing Agent will
solicit and receive orders from
prospective investors to purchase
tendered Subject Securities. The Final
Remarketing will be deemed to have
failed (a "Failed Final Remarketing") if
(i) despite using its best efforts, the
Remarketing Agent is still not able to
establish a Term Rate less than or equal
to the Maximum Rate prior to the
expiration of the Final Remarketing
Period, or (ii) the Remarketing Agent is
excused from Remarketing the Subject
Securities because of (a) the failure by
the Company or the Trust to satisfy a
condition in this Agreement or (b) the
occurrence of a Market Event.
Remainder of the Final Remarketing The Remarketing Agent will continue, if
Period (if applicable): necessary, to use its best efforts to
remarket the Subject Securities, as
described above,
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C>
adjusting the non-binding indications of the
Term Provisions as necessary to establish the
Term Provisions most favorable to the Company
consistent with remarketing all Subject
Securities tendered therefor at 101% of the
Par Amount until the Final Remarketing is
completed or is deemed to have failed. See
the definition of a Failed Final Remarketing
above. If the Remarketing Agent is able to
establish a Term Rate less than or equal to
the Maximum Rate during the Final Remarketing
Period, it will promptly communicate such
Term Provisions to the Tender Agent, which
will communicate such Term Provisions to the
Declaration Trustees (if the Trust has not
dissolved), the Trust (if the Trust has not
dissolved), the Debenture Trustee, the Paying
Agent, the Company and each holder (if any)
which timely elected not to tender all of its
Subject Securities for remarketing, by
delivery of a written notice or by telephone
promptly confirmed by telecopy or writing.
Reset Date: New holders must deliver the purchase price
for the remarketed securities in same-day
funds to the Remarketing Agent and the
Remarketing Agent will deliver such purchase
price to the Tender Agent (in like funds).
Settlement of transactions in connection with
the remarketing will take place on the third
Business Day following the Reset Date, or
such date as is required by applicable law.
Payments to tendering holders who hold
Subject Securities in the form of one or more
Global Security Certificates will be made in
the manner provided in the Prospectus under
"Description of HIGH TIDES-Form, Book-Entry
Procedures and Transfer." Tendering holders
who hold Subject Securities in certificated
form (other than in the form of Global
Security Certificates) must deliver their
certificates properly endorsed for transfer
to the Tender Agent by 2:30 p.m. on the Reset
Date (or any succeeding date) to receive
payment of the purchase price for their
Subject Securities. Subject to compliance
with the preceding two sentences, the Tender
Agent will pay former holders the proceeds of
the Remarketing of their Subject Securities
by the Remarketing Agent. In the event of a
Failed Final Remarketing, the Remarketing
Agent will establish the terms of the HIGH
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
TIDES. The Term Rate shall be a rate
equal to the Treasury Rate plus 6% per
annum. The Term Conversion Price will be
equal to 105% of the average Closing
Price of the Company's Common Stock for
the five (5) consecutive trading days
after the Final Remarketing Period. In
the event of a Failed Final Remarketing,
all outstanding Debentures will be
redeemable by the Company, in whole or
in part, at any time on or after the
third anniversary of the Reset Date at a
redemption price equal to 100% of the
aggregate principal amount thereof, plus
accrued and unpaid interest thereon. On
and after the Reset Date, the terms of
all Subject Securities, whether or not
tendered for remarketing, will be
modified by the Term Provisions, as the
same shall be established by the
Remarketing Agent. If the Subject
Securities are not held by The Depository
Trust Company or its nominee in the form
of one or more Global Security
Certificates, certificates representing
remarketed Subject Securities will be
issued to the purchasers thereof,
irrespective of whether the certificates
formerly representing such Subject
Securities have been delivered to the
Tender Agent.
</TABLE>
3. Representations, Warranties, Covenants and Agreements of the Company
and the Remarketing Agent. (a) The Company represents, warrants, covenants and
agrees with the Remarketing Agent as follows:
(i) the Company has full power and authority to enter into
this Agreement and will have full power and authority to enter into any
agreements which it may enter into in connection with the Remarketing;
this Agreement and the transactions contemplated hereby have been, and
each other such agreement and the transactions contemplated thereby
will be, duly authorized, executed and delivered by the Company; and
this Agreement is, and each such other agreement will be at the Reset
Date, a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms;
(ii) the consummation of the transactions contemplated herein
do not now, and the consummation of the transactions contemplated in
any other agreement entered into by the Company in connection with the
Remarketing will not, at the Reset Date, conflict with or constitute a
breach of, or a default under, or result in the creation or imposition
of any lien, charge or other encumbrance upon any property or assets of
the Trust, the Company or any of the Company's subsidiaries pursuant to
any contract, indenture, declaration of trust, deed of trust, mortgage,
loan agreement, note, lease or other instrument or agreement to which
the Trust, the Company or any of its subsidiaries is or will be a party
or by which it or any of them may be bound, or to which any of the
property or assets of any of them is or will be subject, nor will such
actions result in any violation of the provisions of the by-laws of the
Company or any of its subsidiaries or any statute (including the
Securities Act, the Exchange
12
<PAGE> 13
Act and state securities laws) or any order, rule or regulation of any
court or governmental agency or body (including the Commission) which
has or will have jurisdiction over the Company or any of its
subsidiaries or any of their material property or assets except for a
conflict, breach, default, lien, charge or encumbrance which could not
reasonably be expected to have a material adverse effect on the
consummation of the transactions contemplated herein or therein;
(iii) all required consents, rulings and approvals of
governmental authorities (other than "Blue Sky" authorities) required
in connection with the execution and delivery by the Company of this
Agreement and any agreement entered into by the Company in connection
with the transactions contemplated by any Disclosure Documents, and the
performance by the Company of its obligations hereunder and thereunder,
have been obtained and are in full force and effect and, at the Reset
Date, will have been obtained and be in full force and effect;
(iv) except as disclosed in the Disclosure Documents, neither
the Company nor any of its subsidiaries is or, at the Reset Date, will
be (i) in violation of its by-laws, (ii) in default in any respect,
and no event has occurred or will have occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained
in any contract, indenture, declaration of trust, deed of trust,
mortgage, loan agreement, note, lease or other instrument or agreement
to which it is or will be bound or to which any of its properties or
assets is or will be subject or (iii) in violation of any law,
ordinance, governmental rule, regulation or court decree to which it or
its property or assets may be subject;
(v) the Disclosure Documents, including as provided in Section
3(x), will not, at the Effective Time and thereafter through and
including the Reset Date, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to information contained in or
omitted from the Disclosure Documents in reliance upon and in
conformity with written information furnished to the Company by the
Remarketing Agent specifically for inclusion therein;
(vi) the financial statements of the Company contained (or
incorporated by reference) in the Disclosure Documents will present
fairly the financial position of the Company as of the dates indicated,
and the results of operations and changes in financial position of the
Company for the periods covered, in conformity with generally accepted
accounting principles applied on a consistent basis, except as
otherwise set forth therein;
(vii) after the date of the most recent financial statements
of the Company contained (or incorporated by reference) in the
Disclosure Documents, there will not have been any material adverse
change in the condition (financial or other), stockholders' equity,
results of operations or business of the Company and its subsidiaries,
except as disclosed in the Disclosure Documents;
(viii) except as disclosed in the Disclosure Documents, there
will be no legal or governmental proceedings pending at the Reset Date
to which the Company or any of its subsidiaries is a party or of which
any material property or assets of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, might have a
13
<PAGE> 14
material adverse effect on the condition (financial or other),
stockholders' equity, results of operations or business of the Company
and its subsidiaries, taken as a whole;
(ix) any description of a contract, indenture, declaration of
trust, deed of trust, mortgage, loan agreement, note, lease or other
instrument or agreement contained in the Disclosure Documents will be,
at the Effective Time and thereafter through and including the Reset
Date, true, complete and correct; and
(x) If the Registration Statement is filed, the Registration
Statement at the Effective Time will conform to the requirements of the
Securities Act and the Rules and Regulations and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as of the Effective Time
and thereafter through and including the Reset Date, will conform to
the requirements of the Securities Act and the Rules and Regulations
and will not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided that no representation or warranty is made as
to information contained in or omitted from any Preliminary Prospectus,
the Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company by the
Remarketing Agent specifically for inclusion therein.
(b) The Remarketing Agent represents, warrants, covenants and agrees
with the Company that if it shall not have received a No Registration Opinion
and the Registration Statement shall not be effective on the Tender Notification
Date (or such later date as may be provided in Section 2(b)), the Remarketing
Agent will offer and sell the Subject Securities only in compliance with the
federal and state securities laws applicable to unregistered sales of securities
in effect at the time of the Remarketing.
4. Fees and Expenses. (a) The Company agrees to pay to the Remarketing
Agent upon settlement of the transactions contemplated by the Remarketing (i) as
compensation for its services hereunder, a fee equal to 1% of the aggregate Par
Amount of outstanding Subject Securities on the Reset Date upon settlement of
the transactions contemplated by the Remarketing, plus (ii) all out-of-pocket
expenses reasonably incurred by the Remarketing Agent in connection with the
performance of its duties; provided that if both the Initial Remarketing and the
Final Remarketing fail, the Company shall not be required to pay any fees to, or
reimburse any out-of-pocket expenses of, the Remarketing Agent.
(b) The Remarketing Agent acknowledges and agrees that the performance
of its duties hereunder will be without charge to holders or purchasers of the
Subject Securities other than the Company.
5. Broker-Dealer Participation. The Remarketing Agent shall enter into
Broker-Dealer Agreements with all broker-dealers ("Broker-Dealers"), if any,
which it selects to have participate in the remarketing process; provided that
(i) such Broker-Dealers agree to comply with the terms of this Agreement,
including the terms of Section 3(b) of this Agreement, (ii) any fees or
commissions paid to the Broker- Dealers shall be paid by the Remarketing Agent
out of the fees it is paid pursuant to Section 4(a), and (iii) the Remarketing
Agent agrees to provide to the Company an executed copy of each Broker-Dealer
Agreement. None of the Remarketing Agent, the Trust and the Company shall be
responsible for the out-of-pocket expenses of such Broker-Dealers or for
ensuring compliance by such Broker-Dealers with the terms of
14
<PAGE> 15
this Agreement (except, with respect to the Remarketing Agent, as specifically
set forth in the Broker-Dealer Agreement).
6. Disclosure Documents and Other Information. (a) If (i) the
Registration Statement is not required to be filed with the Commission pursuant
to the provisions of Section 2(b) of this Agreement and (ii) the Remarketing
Agent determines that it is necessary or desirable to use a disclosure document
in connection with the performance of its obligation to remarket the Subject
Securities, the Remarketing Agent will notify the Company and the Company will
provide to the Remarketing Agent prior to the Tender Notification Date at the
Company's expense a disclosure document or documents reasonably satisfactory to
the Remarketing Agent and its counsel in respect of the Subject Securities
(collectively, and including any documents or other information incorporated by
reference therein, the "Nonregistered Offering Documents"). The Company will
supply the Remarketing Agent at the Company's expense with such number of copies
of the Disclosure Documents as the Remarketing Agent reasonably requests from
time to time. The Company will supplement and amend the Disclosure Documents so
that at all times they will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements in the
Disclosure Documents, in light of the circumstances under which they were made,
not misleading.
(b) The Company and the Trust each agrees to furnish to the Remarketing
Agent (i) as promptly as practicable after they are available, all regular and
periodic reports, if any, which the Company or the Trust files with the
Commission under the Exchange Act and all reports which the Company or the Trust
provides generally to holders of its publicly held securities and (ii) from time
to time, such other information concerning the Company and the Trust as the
Remarketing Agent may reasonably request.
(c) The Company will provide the Remarketing Agent with such
certificates, opinions of counsel, accountants' letters and other support for
the information contained in any Disclosure Documents as the Remarketing Agent
and its counsel may reasonably request.
(d) If the Registration Statement is filed with the Commission, the
Company agrees that it will:
(i) prepare the Registration Statement in conformity with the
requirements of the Securities Act and the Rules and Regulations;
(ii) cause the Registration Statement to become effective
prior to the Tender Notification Date (or such later date as may be
permitted in accordance with the provisions of Section 2(b));
(iii) prepare the Prospectus in a form approved by the
Remarketing Agent and file the Prospectus in accordance with Rule
424(b) (or any successor applicable rule) under the Securities Act and
Rule 430A(a)(3) (or any successor applicable rule) under the Securities
Act; make no further amendment or any supplement to the Registration
Statement or to the Prospectus except as permitted herein; advise the
Remarketing Agent, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and furnish the Remarketing Agent with copies
thereof; advise the Remarketing Agent, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary
Prospectus or the
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<PAGE> 16
Prospectus, of the suspension of the qualification of the securities
covered by such Registration Statement for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending
or supplementing of the Registration Statement or the Prospectus or for
additional information; and in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, promptly use its reasonable best efforts to obtain its
withdrawal;
(iv) furnish promptly to the Remarketing Agent and to counsel
for the Remarketing Agent a signed copy of the Registration Statement
as originally filed with the Commission, and each amendment thereto
filed with the Commission, including all consents and exhibits filed
therewith;
(v) deliver promptly to the Remarketing Agent such number of
the following documents as the Remarketing Agent shall reasonably
request: (1) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in
each case excluding exhibits) and (2) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus; and, if the
delivery of a prospectus is required at any time after the Effective
Time in connection with the offering or sale of the securities covered
by the Registration Statement and if at such time any events shall have
occurred 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 in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Securities Act, notify the
Remarketing Agent and, upon its request, prepare and furnish without
charge to the Remarketing Agent as many copies as the Remarketing Agent
may from time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect such
compliance;
(vi) file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Remarketing
Agent, be required by the Securities Act or requested by the
Commission;
(vii) prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 (or any applicable successor rule) of
the Rules and Regulations, furnish a copy thereof to the Remarketing
Agent and counsel for the Remarketing Agent;
(viii) as soon as practicable after the Effective Time, make
generally available to the Company's security holders and deliver to
the Remarketing Agent an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
(or any applicable successor section) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule
158 (or any applicable successor rule));
(ix) promptly from time to time take such action as the
Remarketing Agent may request to qualify the securities covered by the
Registration Statement for offering and sale under the securities laws
of such jurisdictions
16
<PAGE> 17
as the Remarketing Agent may request and to take all steps necessary to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Subject Securities; provided,
however, that in connection therewith the Company will not be required
to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not so qualified;
and
(x) use its best effort to have the Subject Securities listed
on any securities exchange or quoted in any automated inter-dealer
quotation system reasonably requested by the Remarketing Agent.
7. Indemnification. (a) The Company will indemnify and hold harmless
the Remarketing Agent against any losses, claims, damages or liabilities, joint
or several, to which the Remarketing Agent may become subject, under the
Securities Act or the Exchange 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 Disclosure Document, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and will
reimburse the Remarketing Agent for any legal or other expenses reasonably
incurred by the Remarketing Agent 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 Disclosure Document in reliance upon and in conformity with
written information furnished to the Company by the Remarketing Agent
specifically for use therein.
(b) The Remarketing Agent will indemnify and hold harmless the Company
and the Trust against any losses, claims, damages or liabilities to which the
Company or the Trust may become subject, under the Securities Act or the
Exchange 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
the Disclosure Documents, or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, 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 furnish to the Company or the Trust by the
Remarketing Agent specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company or the Trust in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred.
(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
the indemnifying party 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
17
<PAGE> 18
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 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 Remarketing Agent on the other from the Remarketing of the
Subject Securities in accordance with this Agreement 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 Remarketing Agent 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 Remarketing Agent on the other shall be
deemed to be in the same proportion as the aggregate outstanding Liquidation
Amount (if the Subject Securities are HIGH TIDES) or principal amount (if the
Subject Securities are Debentures) bear to the fees received by the Remarketing
Agent from the Company under this Agreement. 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
Remarketing Agent 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). Notwithstanding
the provisions of this subsection (d), the Remarketing Agent shall not be
required to contribute any amount in excess of the amount by which the aggregate
outstanding Liquidation Amount (if the Subject Securities are HIGH TIDES) or
principal amount (if the Subject Securities are Debentures) of the Subject
Securities remarketed exceeds the amount of any damages which the Remarketing
Agent has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
(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 the
Remarketing Agent within the meaning of the Securities Act or the Exchange Act;
and the obligations of the Remarketing Agent under this Section shall be in
addition to any liability which the Remarketing Agent may otherwise have and
shall extend, upon the
18
<PAGE> 19
same terms and conditions, to each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act.
8. Remarketing Agent's Liabilities. The Remarketing Agent shall incur
no liability to the Company, the Debenture Trustee, the Property Trustee, the
Administrative Trustees, the Delaware Trustee, the Tender Agent or any holder of
Subject Securities for its actions as Remarketing Agent pursuant to the terms
hereof and of the Trust Agreement or Indenture without gross negligence or in
the absence of wilful misconduct. The undertaking of the Remarketing Agent to
remarket any Subject Securities shall be on a "best efforts" basis.
9. Termination. This Agreement will terminate upon the earliest to
occur of the following: (i) the written agreement of all parties hereto; (ii)
the date that no Debenture is outstanding; and (iii) the day immediately
following the Reset Date. The provisions of Sections 7, 8, 11 and 12 hereof will
continue in effect as to actions prior to the date of termination, and each
party will pay to the others any amounts owing at the time of termination.
10. Resignation and Removal; Appointment of Successor. (a) The
Remarketing Agent may resign at any time hereunder by giving at least 30 days'
written notice thereof to the Company and the Tender Agent. No successor need
have accepted its appointment for such resignation to be effective.
(b) The Remarketing Agent may be removed at any time for Cause by the
holders of a majority in aggregate Par Amount of the Subject Securities
outstanding, by written notice to the Remarketing Agent, the Tender Agent and
the Company. No successor need have accepted its appointment for such removal to
be effective.
(c) If the Remarketing Agent resigns or is removed in accordance with
Section 10(b), the Company will use its best efforts to appoint as the successor
Remarketing Agent hereunder an investment bank, broker, dealer or other
organization which, in the judgment of the Company, is qualified to remarket the
Subject Securities and to establish the Term Provisions. If the Company fails to
so appoint a successor Remarketing Agent reasonably promptly, in light of the
proximity of the Tender Notification Date, or if such successor fails to accept
such appointment, the holders of not less than 25% in aggregate Par Amount of
the Subject Securities outstanding, by written notice to the Tender Agent and
the Company, may appoint a successor Remarketing Agent which is an investment
bank, broker, dealer or other organization qualified to remarket the Subject
Securities and to establish the Term Provisions; provided that for purposes of
determining the holders of not less than 25% in aggregate Par Amount of the
Subject Securities outstanding, Subject Securities owned by the Company, the
Trust or any trustee or administrator of the Trust or any affiliate of any of
the foregoing shall be disregarded and deemed not to be outstanding.
(d) A successor Remarketing Agent shall accept its appointment by
executing and delivering a written instrument of acceptance to the Tender Agent
and the Company.
(e) The provisions of Sections 7, 8, 11 and 12 hereof will continue in
effect as to actions of the Remarketing Agent prior to the date of resignation
or removal, and the Remarketing Agent will pay to and have the right to receive
from the other parties hereto any amounts owing at the time of such event.
(f) The Tender Agent shall provide written notice of each resignation
and each removal of the Remarketing Agent and each appointment of a successor
19
<PAGE> 20
Remarketing Agent and such successor's acceptance thereof by first-class mail,
postage prepaid, to the holders of the Subject Securities as their names and
addresses appear in the applicable register.
(g) Any corporation or other entity into which the Remarketing Agent
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Remarketing Agent may be a party, or any corporation succeeding to all or
substantially all of the business of the Remarketing Agent, shall be the
successor of the Remarketing Agent hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
11. Dealing in Subject Securities by Remarketing Agent. The Remarketing
Agent, either as principal or agent, may buy, sell, own, hold and deal in
Subject Securities, and may join in any action which any owner of the Subject
Securities may be entitled to take with like effect as if it did not act in any
capacity hereunder. Except as provided in the next succeeding sentence, the
Remarketing Agent is under no obligation at any time to purchase Subject
Securities. If the Term Rate is established by the Remarketing Agent but on the
Reset Date the Remarketing Agent is unable to consummate the sale of one or more
Subject Securities tendered for remarketing, the Remarketing Agent shall
purchase such Subject Securities on the Reset Date for 101% of their aggregate
Par Amount. The Remarketing Agent agrees that the purchase of Subject Securities
for its own account or the account of its affiliates will be upon terms no more
favorable to it than those pertaining to the purchase of Subject Securities in
the market (which shall be determined by the Remarketing Agent in its sole
discretion) in general at the time of such purchase and that neither it nor its
affiliates will elect to retain Subject Securities on the Reset Date if the
Subject Securities could be remarketed pursuant to this Agreement on terms more
favorable to the Trust or the Company than the terms upon which the Remarketing
Agent or such affiliates would continue to hold it. The Remarketing Agent,
either as principal or agent, may also engage in or be interested in any
financial or other transaction with the Trust or the Company and may act as
depository, trustee or agent for any committee or body of owners of Subject
Securities or other obligations of the Trust or the Company as freely as if it
had no obligations hereunder or under the Trust Agreement or Indenture.
12. Records. The Remarketing Agent agrees to keep books and records
relating to its activities as Remarketing Agent in accordance with standard
industry practice.
13. Purchase and Sales by Company. While the Company and its affiliates
may from time to time purchase, hold and sell Subject Securities, the Company
and the Remarketing Agent acknowledge that neither the Company nor any affiliate
of the Company may acquire or bid to acquire Subject Securities on the Reset
Date or submit orders in the Remarketing. The Remarketing Agent agrees that it
will not knowingly remarket any Subject Securities to the Company or any of its
affiliates.
14. Communication of Remarketing Conditions. The Remarketing Agent
agrees, upon request from time to time by any holder of Subject Securities and
to the extent the Remarketing Agent deems advisable, to advise such holder of
current Remarketing Conditions.
20
<PAGE> 21
15. Notices. Unless otherwise provided herein, all notices, requests,
demands and formal actions hereunder shall be in writing and mailed or sent by
facsimile transmission or delivered, as follows:
If to the Company:
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Secretary
Telephone: (408) 995-5115
Telecopy: (408) 995-0505
If to the Tender Agent:
The Bank of New York, as Tender Agent
101 Barclay Street
New York, New York 10286
Telephone: (212) 815-5783
Telecopy: (212) 815-5915
If to the Trust:
c/o Calpine Corporation
Attention: Secretary
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
Telecopy: (408) 995-0505
If to the Remarketing Agent:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Attention: Transactions Advisory Group - Joseph D. Fashano
Telephone: (212) 325-2107
Telecopy: (212) 325-4296
Each of the above parties may, by written notice given hereunder to the
others, designate any further or different addresses or telecopier numbers to
which subsequent notices, certificates, requests or other communications shall
be sent. In addition, the parties hereto may agree to any other means by which
subsequent notices, certificates, requests or other communications may be sent.
16. Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by, the respective successors and assigns
of the Company, the Trust, the Tender Agent, the Remarketing Agent and the
holders of the Subject Securities.
17. The Tender Agent. In serving as the Tender Agent hereunder, the
Debenture Trustee shall be entitled to the protections and benefits of Sections
6.01(d), 6.03, 6.06 and 12.07 of the Indenture and the Property Trustee shall be
entitled to the protections and benefits of Sections 3.09, 3.10 and 10.04 of the
Trust Agreement.
21
<PAGE> 22
18. Entire Agreement. Except as otherwise provided herein, this
Agreement contains the entire agreement between the parties relating to the
subject matter hereof, and there are no other representations, endorsements,
promises, agreements or understandings, oral, written or inferred, among the
parties.
19. Descriptive Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
20. Amendment; Waiver. (a) This Agreement shall not be deemed or
construed to be modified, amended, rescinded, canceled or waived, in whole or in
part, except by a written instrument signed by a duly authorized representative
of each of the Company, the Tender Agent, the Administrative Trustees and the
Remarketing Agent.
(b) Failure of any party to exercise any right or remedy under this
Agreement in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
21. Severability. If any clause, provision or section of this Agreement
shall be ruled invalid or unenforceable by any court of competent jurisdiction,
the invalidity or unenforceability of such clause, provision or section shall
not affect any of the remaining clauses, provisions or sections hereof.
22. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original and all of which
shall constitute but one and the same instrument. It shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart signed by the party against which enforcement of this Agreement is
sought.
22
<PAGE> 23
23. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CALPINE CORPORATION
By:
----------------------------------------
Name:
Title:
CALPINE CAPITAL TRUST,
By:
----------------------------------------
Name: Peter Cartwright
Title: Administrative Trustee
By:
----------------------------------------
Name: Ann B. Curtis
Title: Administrative Trustee
By:
----------------------------------------
Name: Thomas R. Mason
Title: Administrative Trustee
THE BANK OF NEW YORK, as Tender Agent,
By:
----------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON CORPORATION,
By:
----------------------------------------
Name:
Title:
23
<PAGE> 1
EXHIBIT 5.1
[Brobeck, Phleger & Harrison, LLP Letterhead]
October 25, 1999
Calpine Corporation
50 West San Fernando Street
San Jose, CA 95113
Ladies and Gentlemen:
We have acted as counsel to Calpine Corporation, a Delaware corporation
(the "Company") in connection with the registration, pursuant to a Registration
Statement of Form S-3 (File No. 333-87427) filed with the Securities and
Exchange Commission (the "Commission") on September 20, 1999, as amended by
Amendment No. 1 filed with the Commission on October 6, 1999 and Amendment No. 2
filed with the Commission on October 25, 1999 (collectively, the "Registration
Statement"), of the Company and Calpine Capital Trust, a statutory business
trust formed under the laws of the State of Delaware (the "Trust") under the
Securities Act of 1933, as amended (the "Securities Act"), of (i) up to
6,900,000 shares of the Company's Common Stock, $0.001 par value (including
900,000 shares to cover over-allotments, if any) (the "Shares"), (ii) up to
4,600,000 shares of __% Convertible Preferred Securities, Remarketable Term
Income Deferrable Equity Securities of the Trust (including 600,000 shares to
cover over-allotments, if any) (the "HIGH TIDES"), (iii) the __% Convertible
Subordinated Debentures due 2029 of the Company (the "Convertible Subordinated
Debentures"), (iv) the shares of Common Stock, $0.001 par value, of the Company
issuable upon the conversion of the HIGH TIDES and the Convertible Subordinated
Debentures (the "Underlying Common Stock") and (v) the Preferred Securities
Guarantee of the Company for the benefit of the holders of the HIGH TIDES (the
"Guarantee").
The HIGH TIDES will be issued pursuant to the Amended and Restated
Declaration of Trust of Calpine Capital Trust (the "Trust Agreement") among the
Company, as Depositor and Debenture Issuer, The Bank of New York, as Delaware
Trustee and Property Trustee, and Peter Cartwright, Ann B. Curtis and Thomas R.
Mason, as Administrative Trustees. The proceeds from the sale by the Trust of
the HIGH TIDES will be invested in the Convertible Subordinated Debentures,
which will be issued pursuant to an Indenture (the "Indenture") among the
Company and The Bank of New York, as Trustee (the "Trustee").
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.
In connection with this opinion letter, we have examined the originals,
or copies certified or otherwise identified to our satisfaction, of such
documents, corporate records, certificates, including certificates of public
officials, and other instruments as we have deemed necessary or advisable for
purposes of this opinion letter, including the Company's charter documents and
the corporate proceedings taken by the Company in connection with the issuance
and sale of the Shares and
<PAGE> 2
Calpine Corporation October 25, 1999
Page 2
the Convertible Subordinated Debentures and the Company's delivery of the
Guarantee.
In our examination and review we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of the
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, facsimile or photostatic copies, and
the authenticity of the originals of such copies. As to any facts material to
the opinions hereinafter expressed which we did not independently establish or
verify, we have relied without investigation upon certificates, statements and
representations of representatives of the Company. Regarding documents executed
by parties other than the Company, we have assumed (i) that each such other
party had the power to enter into and perform all its obligations thereunder,
(ii) the due authorization, execution and delivery of such documents by each
such party, and (iii) that such documents constitute the legal, valid, binding
and enforceable obligations of each such party.
This opinion relates solely to the laws of the State of New York, the
General Corporation Law of the State of Delaware and the applicable laws of
the United States, and we express no opinion with respect to the effect or
applicability of any other jurisdiction.
Based on such review as described above and subject to the limitations,
qualifications and exceptions set forth herein, 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;
2. The Convertible Subordinated Debentures 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;
3. The Guarantee has been duly authorized, and, upon due
execution, authentication and delivery of the Guarantee by or on behalf
of the Company, the Guarantee will constitute a valid and binding
obligation of the Company; and
4. The Underlying Common Stock has been duly authorized, and if,
as and when issued upon conversion of the HIGH TIDES and the Convertible
Subordinated Debentures in accordance with the terms of the Trust
Agreement and the Indenture (as amended and supplemented through the
date of issuance), will be legally issued, fully paid and nonassessable.
<PAGE> 3
Calpine Corporation October 25, 1999
Page 3
The opinions rendered above relating to the enforceability of the
Convertible Subordinated Debentures and the Guarantee are subject to the
following exceptions, limitations and qualifications:
(a) The enforceability of the obligations of the company under
the Convertible Subordinated Debentures and the Guarantee may be subject to or
limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent transfer and other similar laws affecting the rights of creditors
generally; and (ii) general equitable principles (whether relief is sought in a
proceeding at law or in equity), including, without limitation, concepts or
materiality, reasonableness, good faith, and fair dealing.
(b) We express no opinion as to provisions of the Convertible
Subordinated Debentures and the Guarantee purporting to establish an
evidentiary standard or to authorize conclusive determinations by any party
thereto or any other person or allowing any party thereto or any other person to
make determinations in its sole discretion.
(c) We also express no opinion as to: (i) the enforceability of
any provisions of the Convertible Subordinated Debentures and the Guarantee
pursuant to which the Company agrees to make payments without set-off, defense
or counterclaim; (ii) the enforceability of provisions relating to
indemnification, contribution or exculpation, to the extent any such provision
is contrary to public policy or prohibited by law (including, without
limitation, federal and state securities laws); (iii) any provision providing
for the exclusive jurisdiction of a particular court or purporting to waive
rights to trial by jury, service of process or objections to the laying of venue
or to forum on the basis of forum non conveniens, in connection with any
litigation arising out of or pertaining to the Convertible Subordinated
Debentures and the Guarantee; (iv) any provision contained in the Convertible
Subordinated Debentures and the Guarantee purporting to waive either illegality
as a defense to the performance of contract obligations or any other defense to
such performance which cannot, as a matter of law, be effectively waived; (v)
any provision of the Convertible Subordinated Debentures and the Guarantee
permitting modification thereof only by means of an agreement in writing signed
by the parties thereto; (vi) any provision of the Convertible Subordinated
Debentures and the Guarantee requiring payment of attorneys' fees, except to the
extent a court determines such fees to be reasonable; or (vii) the effect of the
law of any jurisdiction other than the State of New York which limits the rates
of interest legally chargeable or collectible.
(d) You should be aware that under applicable New York law a
number of statutory and common law rights and protections exist in favor of
guarantors. We express no opinion herein as to the enforceability of any waivers
and other provisions of the Guarantee which purport to waive or alter rights
provided to the Guarantor by statute or judicial decision.
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 each 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 Securities Act, the
Rules and Regulations of the Commission promulgated thereunder, or Item 509 of
Regulation S-K.
<PAGE> 4
Calpine Corporation October 25, 1999
Page 4
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, the Convertible Subordinated Debentures, the Guarantee or the Underlying
Common Stock.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 5.2
[Letterhead of Richards, Layton & Finger, P.A.]
October 25, 1999
Calpine Capital Trust
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Re: Calpine Capital Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel for Calpine
Corporation, a Delaware corporation (the "Company"), and Calpine Capital Trust,
a Delaware business trust (the "Trust"), in connection with the matters set
forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated October 4, 1999
(the "Certificate"), as filed in the office of the Secretary of State of the
State of Delaware (the "Secretary of State") on October 4, 1999;
(b) The Declaration of Trust of the Trust, dated as of October
4, 1999, among the Company and the trustees of the Trust named therein;
(c) A form of Amended and Restated Declaration of Trust of the
Trust (including Annex I and Exhibits A-1 and A-2 thereto) (the "Declaration"),
to be entered into among the Company, as depositor, the trustees of the Trust
named therein, and the holders, from time to time, of undivided beneficial
interests in the assets of the Trust, attached as an exhibit to the Registration
Statement (as defined below);
<PAGE> 2
Calpine Capital Trust
October 25, 1999
Page 2
(d) Amendment No. 2 to the Registration Statement on Form S-3
(the "Registration Statement"), including a prospectus (the "Prospectus"),
relating to the Convertible Preferred Securities, Remarketable Term Income
Deferred Equity Securities (HIGH TIDES) (liquidation amount $50 per HIGH TIDES)
of the Trust representing undivided beneficial interests in the assets of the
Trust (each, a "Preferred Security" and collectively, the "Preferred
Securities"), as proposed to be filed by the Company and the Trust with the
Securities and Exchange Commission on or about October 25, 1999; and
(e) A Certificate of Good Standing for the Trust, dated October
25, 1999, obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined are used
as defined in the Declaration.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (e) above. In
particular, we have not reviewed any document (other than the documents listed
in paragraphs (a) through (e) above) that is referred to in or incorporated by
reference into the documents reviewed by us. We have assumed that there exists
no provision in any document that we have not reviewed that is inconsistent with
the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed
(i) the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the
Declaration and the Certificate are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, that each of
the parties to the documents examined by us has been duly created, organized or
formed, as the case may be, and is validly existing in good standing under the
laws of the jurisdiction governing its creation, organization or formation,
(iii) the legal capacity of natural persons who are parties to the documents
examined by us, (iv) that each of the parties to the documents examined by us
has the power and authority to execute and deliver, and to perform its
obligations under, such documents, (v) that each of the parties to the documents
examined by us has duly authorized, executed and delivered such documents, (vi)
the receipt by each Person to whom a Preferred Security is to be issued by the
Trust (collectively, the "Preferred Security Holders") of a preferred security
certificate (substantially in the form of Exhibit A-1 to the Declaration) for
such Preferred Security and
<PAGE> 3
Calpine Capital Trust
October 25, 1999
Page 3
the payment for the Preferred Security acquired by it, in accordance with the
Declaration and the Registration Statement, and (vii) that the Preferred
Securities are issued and sold to the Preferred Security Holders in accordance
with the Declaration and the Registration Statement. We have not participated in
the preparation of the Registration Statement and assume no responsibility for
its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Business Trust Act.
2. The Preferred Securities will represent valid and, subject to
the qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Declaration.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In addition, we
hereby consent to the use of our name under the heading "Legal Matters" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of Persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. Except as stated above,
<PAGE> 4
Calpine Capital Trust
October 25, 1999
Page 4
without our prior written consent, this opinion may not be furnished or quoted
to, or relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
BJK/MKS
<PAGE> 1
[Brobeck, Phleger & Harrison LLP Letterhead]
EXHIBIT 8.1
October 25, 1999
Calpine Corporation
Calpine Capital Trust
50 West San Fernando Street
San Jose, CA 95113
Ladies and Gentlemen:
We have acted as counsel to Calpine Corporation (the "Company")
and Calpine Capital Trust (the "Trust") in connection with the issuance of (i)
the Convertible Subordinated Debentures due 2029 (the "Subordinated Debentures")
of the Company pursuant to the terms of an indenture between the Company and The
Bank of New York (the "Indenture"); and (ii) the Remarketable Term Income
Deferrable Equity Securities (the "HIGH TIDES") to be issued by the Trust. The
Subordinated Debentures and the HIGH TIDES are described in the registration
statement on Form S-3 (Registration No. 333-87427) filed by the Company and the
Trust with the Securities and Exchange Commission on September 20, 1999 (as
amended, the "Registration Statement"). (Capitalized terms used herein that are
not otherwise defined herein have the meaning assigned to such terms in the
Registration Statement.)
In rendering the opinion set forth below, we have examined
copies, certified or otherwise identified to our satisfaction, of the following
executed documents and are relying upon the truth and accuracy of the
statements, covenants, representations and warranties set forth therein:
1. The Registration Statement;
2. The Indenture;
3. The Subordinated Debentures;
4. The Amended and Restated Declaration of Trust among the
Company, The Bank of New York, Peter Cartwright, Ann B.
Curtis and Thomas R. Mason (the "Declaration");
5. The HIGH TIDES;
6. The Remarketing Agreement among the Company, the Trust,
The Bank of New York, Peter Cartwright, Ann B. Curtis,
Thomas R. Mason and Credit Suisse First Boston Corporation
(the "Remarketing Agreement");
7. The Guarantee Agreement, executed and delivered by the
Company and The Bank of New York for the benefit of the
holders of the HIGH TIDES (the "Preferred Securities
Guarantee Agreement");
<PAGE> 2
Calpine Corporation October 25, 1999
Calpine Capital Trust Page 2
8. The Common Securities Guarantee Agreement, executed and
delivered by the Company for the benefit of the holders of
the Common Securities (the "Common Securities Guarantee
Agreement");
9. Certain statements and representations contained in the
Company's Representation Certificate attached hereto; and
10. Such other agreements and documents as we have considered
necessary or appropriate for the purpose of rendering the
opinion set forth below.
In addition, we have assumed that (i) each of the Indenture, the
Subordinated Debentures, the Declaration, the HIGH TIDES, the Remarketing
Agreement, the Preferred Securities Guarantee Agreement and the Common
Securities Guarantee Agreement has been validly executed, will be binding and
enforceable in accordance with its terms and will not be amended in any material
respect; and (ii) the Trust will at all times be operated in accordance with the
terms of the Declaration.
Based on and subject to the foregoing, we are of the opinion
that:
(1) the Trust will not be classified as an association taxable
as a corporation for United States federal income tax
purposes and, instead, under Subpart E, Part I of
Subchapter J of the Internal Revenue Code of 1986, as
amended (the "Code"), will be treated as a grantor trust,
and the beneficial owners of the HIGH TIDES will be
treated as owning undivided pro rata interests in the
income and corpus of the Trust;
(2) the Subordinated Debentures will be classified for United
States federal income tax purposes as indebtedness of
Calpine; and
(3) the statements of law and legal conclusions set forth in
the Prospectus constituting part of the Registration
Statement under the caption "Certain United States Federal
Income Tax Consequences" have been reviewed by us and were
accurate in all material respects.
We express no opinion as to other tax issues affecting the
holders of the HIGH TIDES or the other parties to the transactions described in
the Registration Statement, nor does our opinion address state, local or foreign
tax consequences that may result from such transactions.
Our opinion represents only our best judgment regarding the
application of United States federal income tax laws under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. We note that there is no authority directly on point dealing with
securities such as the Subordinated Debentures or the HIGH TIDES or transactions
of the type described herein. Our opinion is not binding upon the Internal
Revenue Service or the courts, and there is no assurance that the Internal
Revenue Service will not
<PAGE> 3
Calpine Corporation October 25, 1999
Calpine Capital Trust Page 3
successfully assert contrary positions. Furthermore, no assurance can be given
that future legislation, judicial decisions or administrative changes,
applicable either on a prospective or retroactive basis, might not materially
alter our opinion.
We consent to the use of this opinion for filing as an exhibit to
the Registration Statement and further consent to all references to us in the
Registration Statement. Subject to the foregoing sentence, this opinion is given
as of the date hereof solely for your benefit and may not be relied upon,
circulated, quoted or otherwise referred to for any purpose without our prior
written consent.
Respectfully,
/s/ Brobeck, Phleger & Harrison LLP
<PAGE> 1
EXHIBIT 12.1
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPUTATION OF EARNINGS:
Income before provision for $ 9,874 $ 12,427 $ 27,756 $ 53,159 $ 73,373 $ 11,755 $ 35,164
income taxes
Income from unconsolidated 2,754 2,854 (5,757) (1,554) 2,275 (171) 7,201
investments in power
projects, net of distributions
Net fixed charges 24,108 32,903 48,673 66,518 93,014 43,212 52,034
--------- --------- --------- --------- --------- --------- ---------
Total earnings 36,736 48,184 70,672 118,123 168,662 54,796 94,399
========= ========= ========= ========= ========= ========= =========
COMPUTATION OF FIXED CHARGES:
Interest expense 23,886 32,154 45,294 61,466 86,726 40,790 47,171
Capitalized interest -- -- -- 5,308 7,388 6,130 14,020
1/3 of operating lease expense 221 749 3,378 5,052 6,288 2,422 4,863
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges 24,107 32,903 48,672 71,826 100,402 49,342 66,054
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed 1.52x 1.46x 1.45x 1.64x 1.68x 1.11x 1.43x
charges
</TABLE>
<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
San Francisco, CA
October 25, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 2 to
Form S-3 Registration Statement of Calpine Corporation for the registration of
6,900,000 shares of its common stock and 4,600,000 % convertible preferred
securities, remarketable term income deferrable equity securities, 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
October 25, 1999
<PAGE> 1
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------
CALPINE CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 77-0232977
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
50 West San Fernando Street
San Jose, CA 95113
(Address of principal executive offices) (Zip code)
------------------
% Convertible Subordinated Debentures due 2029
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 22nd day of October, 1999.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
-------------------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
<PAGE> 4
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
In Thousands
------------
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ........... $ 5,597,807
Interest-bearing balances .................................... 4,075,775
Securities:
Held-to-maturity securities .................................. 785,167
Available-for-sale securities ................................ 4,159,891
Federal funds sold and Securities purchased under agreements
to resell .................................................... 2,476,963
Loans and lease financing receivables:
Loans and leases, net of unearned income ..................... 38,028,772
LESS: Allowance for loan and lease losses .................... 568,617
LESS: Allocated transfer risk reserve ........................ 16,352
Loans and leases, net of unearned income,
allowance, and reserve ..................................... 37,443,803
Trading Assets ................................................. 1,563,671
Premises and fixed assets (including capitalized leases) ....... 683,587
Other real estate owned ........................................ 10,995
Investments in unconsolidated subsidiaries and associated
companies .................................................... 184,661
Customers' liability to this bank on acceptances outstanding ... 812,015
Intangible assets .............................................. 1,135,572
Other assets ................................................... 5,607,019
------------
Total assets ................................................... $ 64,536,926
============
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices .......................................... $ 26,488,980
Noninterest-bearing .......................................... 10,626,811
Interest-bearing ............................................. 15,862,169
In foreign offices, Edge and Agreement subsidiaries,
and IBFs ................................................... 20,655,414
Noninterest-bearing .......................................... 156,471
Interest-bearing ............................................. 20,498,943
Federal funds purchased and Securities sold
under agreements to repurchase ............................... 3,729,439
Demand notes issued to the U.S. Treasury ....................... 257,860
Trading liabilities ............................................ 1,987,450
Other borrowed money:
With remaining maturity of one year or less .................. 496,235
With remaining maturity of more than one year through
three years ................................................ 465
With remaining maturity of more than three years ............. 31,080
Bank's liability on acceptances executed and outstanding........ 822,455
Subordinated notes and debentures .............................. 1,308,000
Other liabilities .............................................. 2,846,649
------------
Total liabilities .............................................. 58,624,027
============
EQUITY CAPITAL
Common stock ................................................... 1,135,284
Surplus ........................................................ 815,314
Undivided profits and capital reserves ......................... 4,001,767
Net unrealized holding gains (losses) on
available-for-sale securities ................................ (7,956)
Cumulative foreign currency translation
adjustments .................................................. (31,510)
------------
Total equity capital ........................................... 5,912,899
------------
Total liabilities and equity capital ........................... $ 64,536,926
============
</TABLE>
<PAGE> 6
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Directors:
Thomas A. Reyni
Alan R. Griffith
Gerald L. Hassell
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 25.2
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------
CALPINE CAPITAL TRUST
(Exact name of obligor as specified in its charter)
Delaware To Be Applied For
State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
50 West San Fernando Street
San Jose, CA 95113
(Address of principal executive offices) (Zip code)
------------------
% Convertible Preferred Securities
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 22nd day of October, 1999.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
-------------------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
<PAGE> 1
EXHIBIT 25.3
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------
CALPINE CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 77-0232977
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
50 West San Fernando Street
San Jose, CA 95113
(Address of principal executive offices) (Zip code)
------------------
Guarantee of % Convertible Preferred Securities of
Calpine Capital Trust
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 22nd day of October, 1999.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
-------------------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
