<PAGE> 1
PROSPECTUS Filed Pursuant to Rule 424(b)(2)
Registration File Nos.
333-33736 and 333-33736-01
7,200,000 HIGH TIDES(SM)
CALPINE CAPITAL TRUST II
5 1/2% 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,
CALPINE CORPORATION
LOGO
THE SECURITIES
The 5 1/2% Convertible Preferred Securities, Remarketable Term Income
Deferrable Equity Securities (HIGH TIDES)(SM) or HIGH TIDES(SM) represent
undivided preferred beneficial ownership interests in the assets of Calpine
Capital Trust II, a subsidiary trust of Calpine Corporation. Each HIGH TIDES is
initially convertible into shares of Calpine's common stock at the rate of .9762
shares of common stock for each HIGH TIDES (equivalent to an initial conversion
price of $51.2188 per share of common stock). The HIGH TIDES are guaranteed by
Calpine on a subordinated basis to the extent described in this prospectus.
Calpine owns all of the common securities issued by the Trust. The Trust
was formed for the sole purpose of issuing the common securities and the HIGH
TIDES and using the proceeds to purchase 5 1/2% Convertible Subordinated
Debentures due February 1, 2030, from Calpine.
Specific terms of the HIGH TIDES, the debentures, the common stock issuable
upon conversion of the HIGH TIDES and the guarantee are provided in this
prospectus.
THE OFFERING
The HIGH TIDES, the debentures and the common stock issuable upon
conversion of the HIGH TIDES may be offered and sold from time to time pursuant
to this prospectus by the holders of those securities or by their transferees,
pledgees, donees or successors (all of which we refer to as selling holders).
The securities may be sold by the selling holders directly to purchasers or
through agents, underwriters or dealers. The names of any selling holders,
agents, underwriters or dealers involved in the sale of the securities, and the
agent's commission, dealer's purchase price or underwriter's discount, if any,
will be provided in supplements to this prospectus. The selling holders will
receive all of the proceeds from the sale of the securities and will pay all
underwriting discounts and selling commissions, if any, applicable to any sale.
We are responsible for the payment of all other expenses incident to the offer
and sale of the securities. The selling holders and any broker-dealers, agents
or underwriters that participate in the distribution of the securities may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the securities
purchased by them may be deemed to be underwriting commission or discounts under
the Securities Act.
Calpine's common stock is traded on The New York Stock Exchange under the
symbol "CPN." The common stock registered pursuant hereto has been listed on The
New York Stock Exchange.
INVESTING IN THE HIGH TIDES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 14.
* 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.
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 date of this prospectus is June 27, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY..................................................... 4
RISK FACTORS................................................ 14
WHERE YOU CAN FIND MORE INFORMATION......................... 19
FORWARD-LOOKING STATEMENTS.................................. 20
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES............. 21
USE OF PROCEEDS............................................. 22
SELLING HOLDERS............................................. 23
PLAN OF DISTRIBUTION........................................ 26
CALPINE CAPITAL TRUST II.................................... 27
PRICE RANGE OF COMMON STOCK................................. 28
DIVIDEND POLICY............................................. 28
ACCOUNTING TREATMENT........................................ 29
CAPITALIZATION.............................................. 30
SECURITIES OFFERED.......................................... 31
THE REMARKETING............................................. 31
THE REMARKETING AGENT....................................... 37
DESCRIPTION OF HIGH TIDES................................... 38
DESCRIPTION OF DEBENTURES................................... 60
DESCRIPTION OF THE GUARANTEE................................ 70
RELATIONSHIP AMONG THE HIGH TIDES, THE DEBENTURES AND THE
GUARANTEE................................................. 73
REGISTRATION RIGHTS......................................... 75
DESCRIPTION OF CAPITAL STOCK................................ 76
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....... 78
CERTAIN ERISA CONSIDERATIONS................................ 88
LEGAL MATTERS............................................... 89
INDEPENDENT AUDITORS........................................ 90
</TABLE>
-------------------------
This document is called a prospectus and is part of a registration
statement that we filed with the SEC using a "shelf " registration or continuous
offering process. Under this shelf process, selling holders may from time to
time sell the securities described in this prospectus in one or more offerings.
This prospectus provides you with a general description of the securities
that the selling holders may offer. Each time a selling holder sells securities,
the selling holders are required to provide you with a prospectus supplement
containing specific information about the selling holder and the terms of the
securities being offered. That prospectus supplement may include additional risk
factors or other special considerations applicable to those securities. The
prospectus supplement may also add, update or change information in this
prospectus. If there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the information in
that prospectus supplement. You should read both this prospectus and any
prospectus supplement together with the additional information described under
the heading "Where You Can Find More Information."
The registration statement containing this prospectus, including the
exhibits to the registration statement, provides additional information about us
and the securities offered under this prospectus. The registration statement,
including the exhibits, can be read at the SEC web site or at the SEC offices
mentioned under the heading "Where You Can Find More Information."
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You should rely only on the information incorporated by reference or
provided in this prospectus and the prospectus supplement. We have not
authorized anyone to provide you with different information. We are not making
an offer or soliciting a purchase of these securities in any jurisdiction in
which the offer or solicitation is not authorized or in which the person making
the offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make the offer or solicitation. You should not assume that the
information in this prospectus or the prospectus supplement is accurate as of
any date other than the date on the front of the document.
The prospectus incorporates business and financial information about us
that is not included in or delivered with the document. YOU MAY REQUEST AND
OBTAIN THIS INFORMATION FREE OF CHARGE BY WRITING OR TELEPHONING US AT THE
FOLLOWING ADDRESS: CALPINE CORPORATION, 50 WEST SAN FERNANDO STREET, SAN JOSE,
CALIFORNIA 95113, ATTENTION: LISA M. BODENSTEINER, ASSISTANT SECRETARY,
TELEPHONE: (408) 995-5115.
Unless we have indicated otherwise, references in this prospectus to
"Calpine," "we," "us" and "our" or similar terms are to Calpine Corporation and
its consolidated subsidiaries, excluding Calpine Capital Trust II and Calpine
Capital Trust.
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SUMMARY
This summary highlights information contained elsewhere or incorporated by
reference 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 and any supplemental
prospectus, including the risk factors and the documents incorporated by
reference.
All information in this prospectus reflects the 2 for 1 stock split that
became effective on October 7, 1999 and the 2 for 1 stock split that became
effective on June 8, 2000.
THE COMPANY
We are 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 46 power plants having an aggregate capacity of
5,368 megawatts. We also have 12 gas-fired projects under construction having an
aggregate capacity of 6,780 megawatts and have announced plans to develop 14
gas-fired power plants with a total capacity of 8,880 megawatts. Upon completion
of our projects under construction, we will have interests in 58 power plants
located in 15 states having an aggregate capacity of 12,148 megawatts, of which
we will have a net interest in 9,997 megawatts. Of this total generating
capacity, 93% will be attributable to gas-fired facilities and 7% 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
1995 1999 GROWTH RATE
-------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total Revenue................................... $132.1 $ 847.7 59%
EBITDA.......................................... 69.5 392.2 54%
Net Income...................................... 7.4 95.1 89%
Total Assets.................................... 554.5 3,991.6 64%
</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.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AS OF
------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
1.45x 1.45x 1.70x 1.67x 1.75x 1.02x
</TABLE>
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THE MARKET
The power industry represents the third largest industry in the United
States, with an estimated end-user market of over $225 billion of electricity
sales in 1999 produced by an aggregate base of power generation facilities with
a capacity of approximately 785,000 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 growth strategy, we
utilize our management and technical knowledge 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 production and
acquisition, operations and power marketing, which we believe provides us with a
competitive advantage. The key elements of our strategy are as follows:
- Development of new and expansion of existing power plants. We are
actively pursuing the development of new and expansion of our existing
highly efficient, low-cost, gas-fired power plants to replace old and
inefficient generating facilities and meet the demand for new generation.
- Acquisition of power plants. Our strategy is to acquire power generating
facilities that meet our stringent criteria, provide significant
potential for revenue, cash flow and earnings growth and provide the
opportunity to enhance the operating efficiencies of the plants.
- Enhancement of 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.
THE TRUST
Calpine Capital Trust II is a recently created Delaware business trust. We
own all of the common securities of the Trust. The Trust was formed solely to
issue the HIGH TIDES and common securities, the proceeds of which were used by
the Trust to purchase debentures issued by us. We have irrevocably, fully and
unconditionally guaranteed all of the Trust's obligations under the HIGH TIDES
on a subordinated basis.
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For financial reporting purposes, we treat the Trust as one of our
subsidiaries. Accordingly, we include the accounts of the Trust in our
consolidated financial statements. We present the HIGH TIDES, together with
5,520,000 5 3/4% HIGH TIDES sold in October 1999 by Calpine Capital Trust,
another subsidiary trust of ours, as a separate line item in our consolidated
balance sheet entitled "Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts," and we 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.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices and the Trust's place of business are
located at 50 West San Fernando Street, San Jose, California 95113. Our
telephone number, and the telephone number of the Trust, 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 OFFERING
The HIGH TIDES being registered were originally issued and sold to the
initial purchasers, Credit Suisse First Boston Corporation and ING Barings LLC.
The initial purchasers simultaneously sold the HIGH TIDES in transactions exempt
from the registration requirements of the Securities Act to persons reasonably
believed by them to be qualified institutional buyers as defined in Rule 144A
under the Securities Act. The Trust used all of the proceeds from the issuance
of the HIGH TIDES and the concurrent sale of its common securities to Calpine to
purchase debentures from Calpine.
Issuer........................ Calpine Capital Trust II. Substantially all of
the assets of the Trust consist of Calpine's
5 1/2% Convertible Subordinated Debentures due
2030. We own 100% of the outstanding common
securities of the Trust.
Securities Registered Pursuant
to this Prospectus............ 7,200,000 HIGH TIDES, $371,134,100 in aggregate
principal amount of the debentures, 7,028,640
shares of common stock issuable upon conversion
of the HIGH TIDES (subject to adjustment under
certain circumstances described in this
prospectus) and the guarantee of the HIGH
TIDES.
Distributions................. Distributions accrue on the HIGH TIDES from the
date of original issuance (January 31, 2000) at
the applicable rate applied to the stated
liquidation amount of $50 per HIGH TIDES. The
applicable rate is 5 1/2% per annum from the
date of original issuance to, but excluding the
reset date. The reset date is any date (1) not
later than February 1, 2005, or, if that day is
not a business day, the next succeeding
business day, and (2) not earlier than 70
business days prior to February 1, 2005, 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 February 1, May 1,
August 1 and November 1. The initial
distribution was made on May 1, 2000. Because
distributions on the HIGH TIDES constitute
interest for United States
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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 continue to
accumulate quarterly at an annual rate of
5 1/2% of the liquidation amount of $50 per
HIGH TIDES. Also, the deferred distributions
will themselves accrue additional distributions
at an annual rate of 5 1/2%, 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.
The HIGH TIDES issued by Calpine Capital Trust
in 1999 contain similar distribution deferral
provisions. If we elect to defer interest
payments on the debentures underlying the 1999
HIGH TIDES, then we will in effect be required
to also defer interest payments on the
debentures underlying the HIGH TIDES.
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
.9762 shares of common stock for each
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HIGH TIDES (equivalent to an initial conversion
price of $51.2188 per share of common stock),
subject to adjustment in certain circumstances.
The last reported sale price of Calpine's
common stock on The New York Stock Exchange on
June 20, 2000 was $60.00 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 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 February 1, 2030, unless earlier
redeemed. Upon repayment or redemption of the
debentures, 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
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
February 1, 2005, or if that day is not a
business day, the next succeeding business day,
and (2) not earlier than 70 business days prior
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<PAGE> 9
to February 1, 2005, 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 February 1, 2005, the
Trust will send a 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,
- there is no remarketing agent on the first
day of the initial remarketing period, or
- prior to the initial remarketing termination
date, term provisions are established by the
remarketing agent, but the remarketing agent
is unable to sell one or more HIGH
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<PAGE> 10
TIDES tendered for remarketing because of the
occurrence of certain market events specified
in the remarketing agreement.
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.
The final 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 prior to the expiration of the final
remarketing period,
- the remarketing agent is excused from
remarketing the securities because of the
failure by us or the Trust to satisfy a
condition in the remarketing agreement or the
occurrence of certain market events, or
- term provisions are established by the
remarketing agent, but the remarketing agent
is unable to sell one or more HIGH TIDES
tendered for remarketing because of the
occurrence of certain market events specified
in the remarketing agreement.
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
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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 1.0% 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
February 5, 2003 until but excluding the
tender notification date, at a redemption
price equal to 101.375% of the principal
amount of the debentures, declining to 100%
of the principal amount of the debentures on
or after February 5, 2004, plus any accrued
and unpaid interest; and
- 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," 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 the Trust's common securities
having a liquidation amount equal to the
principal amount of the repaid or redeemed
debentures. The HIGH TIDES will receive a
preference over the Trust's common securities
if an event of default exists under the
debentures or
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the Amended and Restated Declaration of Trust,
which governs the Trust, among Calpine, as
depositor, The Bank of New York, as property
trustee, The Bank of New York (Delaware), as
Delaware trustee, the individuals named as
administrative trustees and the holders of
undivided beneficial interests in the assets of
the Trust.
Guarantee..................... We irrevocably guaranteed, 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
- generally, the liquidation amount of the HIGH
TIDES to the extent of trust funds available
for distribution to you.
The guarantee is 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
12
<PAGE> 13
will be unsecured and subordinate and junior in
right of payment to all of our senior debt. At
March 31, 2000, we had $1.6 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.
Form of HIGH TIDES............ The HIGH TIDES are represented by one or more
global certificates registered in the name of
Cede & Co., as nominee for The Depository Trust
Company.
Use of Proceeds............... The selling holders will receive all of the net
proceeds from the resale of the securities.
Neither we nor the Trust will receive any
proceeds.
Registration Rights........... Pursuant to a registration rights agreement
entered into in connection with the initial
offering and sale of the HIGH TIDES to the
initial purchasers, we and the Trust agreed to
use our best efforts to keep the shelf
registration statement of which this prospectus
is a part effective and useable (with certain
exceptions) for two years or, if different, the
period required under Rule 144(k) under the
Securities Act, or in either case a shorter
period ending when all of the HIGH TIDES,
debentures, common stock issuable upon their
conversion and the guarantee that are covered
by the registration statement have been sold.
The distribution rate on the HIGH TIDES and the
debentures will increase if we are not in
compliance with these requirements. See
"Registration Rights" for a further discussion
of our obligation to maintain the effectiveness
of the registration statement of which this
prospectus is a part.
Absence of Market for the HIGH
TIDES....................... The HIGH TIDES were initially a privately
placed security. As a result of the
effectiveness of the registration statement of
which this prospectus is a part, the HIGH TIDES
are no longer restricted securities under the
Securities Act. However, there is currently no
public trading market for the HIGH TIDES.
Although the initial purchasers informed the
Trust and us in connection with the initial
offering and sale of the HIGH TIDES that they
intended to make a market in the HIGH TIDES,
the initial purchasers 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.
Trading....................... Our common stock is listed on the New York
Stock Exchange under the symbol "CPN." The
common stock issuable upon conversion of the
HIGH TIDES has been listed on the New York
Stock Exchange.
13
<PAGE> 14
RISK FACTORS
Investing in the HIGH TIDES involves risk. In addition to the risk factors
described in our Annual Report on Form 10-K for the year ended December 31,
1999, which are incorporated by reference in this prospectus, you should
carefully consider the risk factors described below, as well as the other
information contained or incorporated by reference in this prospectus, before
making an investment decision. The risks and uncertainties described below and
incorporated by reference 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
Please see the risk factors described in our Annual Report on Form 10-K for
the year ended December 31, 1999 for risks relating to Calpine.
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 March 31,
2000, we had $1.6 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.
14
<PAGE> 15
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 5 1/2%, 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.
If we elect to defer interest payments on the debentures we issued in 1999
in connection with the 1999 HIGH TIDES issuance, we will be prohibited from
paying any interest on the debentures for so long as that deferral is in effect.
Rather than trigger an event of default under the debentures for failure to pay
interest when due, we would instead expect to defer interest payments on the
debentures, which would thus defer distributions on the HIGH TIDES.
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,
15
<PAGE> 16
- 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 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
.9762 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 FEBRUARY 5, 2003 WITHOUT
YOUR CONSENT.
We may redeem all or some of the debentures at our option at any time on or
after February 5, 2003. 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.
16
<PAGE> 17
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 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
17
<PAGE> 18
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
- ensure that the Trust will not be required to register as an "investment
company" under the Investment Company Act of 1940, as amended.
THE HIGH TIDES AND THE DEBENTURES DO NOT HAVE AN ESTABLISHED MARKET.
There is no existing public trading market for the HIGH TIDES or the
debentures. Although the initial purchasers informed us and the Trust at the
time of the initial offering and sale of the HIGH TIDES that they planned to
make a market in the HIGH TIDES, the initial purchasers 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, that holders will be able to sell their HIGH TIDES or debentures, or
at what price holders may be able to sell their HIGH TIDES or debentures. 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,
- our operating results, and
- the market for similar securities.
18
<PAGE> 19
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports with the SEC. You may obtain
any document we file with the SEC at the SEC's public reference rooms in
Washington, D.C., Chicago, Illinois and New York, New York. You may obtain
information on the operation of the public reference rooms by calling the SEC at
1-800-SEC-0330. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549-1004. Our SEC filings are also accessible
through the Internet at the SEC's Web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus the
information in documents we file with it, 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 a part of this
prospectus, and later information that we file with the SEC will update and
supersede this information. We incorporate by reference the documents listed
below and any future filings we make with the SEC under Section 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act until the offering is completed:
- Calpine's Annual Report on Form 10-K for the year ended December 31,
1999;
- Calpine's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000; and
- Calpine's Current Reports on Form 8-K dated January 26, 2000, February 3,
2000, March 6, 2000, March 30, 2000 and May 18, 2000.
You may request a copy of these filings at no cost. Requests should be
directed to: Calpine Corporation, 50 West San Fernando Street, San Jose,
California 95113, attention: Lisa M. Bodensteiner, Assistant Secretary,
telephone: (408) 995-5115.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act, covering the securities described in this prospectus. This
prospectus does not contain all of the information included in the registration
statement. Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is only a summary of the actual contract,
agreement or other document. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement regarding a contract, agreement or other document is qualified in
its entirety by reference to the actual document.
19
<PAGE> 20
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus and incorporated by
reference into this prospectus are forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act and are subject to the safe harbor created by the Securities Litigation
Reform Act of 1995. These statements include declarations regarding our or our
management's intents, beliefs or current expectations. 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. Any forward-looking statements are not guarantees of
future performance and actual results could differ materially from those
indicated by the forward-looking statements. Forward-looking 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.
Among the important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements are:
- the information is of a preliminary nature and may be subject to further
adjustment,
- the possible unavailability of financing,
- risks related to the development, acquisition and operation of power
plants,
- the impact of avoided cost pricing, energy price fluctuations and gas
price increases,
- the impact of curtailment of power plant generation due to constrained
transmission capacity, or other causes,
- the seasonal nature of our business,
- start-up risks,
- general operating risks,
- dependence on third parties,
- risks associated with international investments,
- risks associated with the power marketing business,
- changes in government regulation,
- availability of natural gas,
- the effects of competition,
- dependence on senior management,
- volatility in our stock price,
- fluctuations in quarterly results and seasonality, and
- other risks identified from time to time in our reports and registration
statements filed with the SEC, including the risk factors identified in
our Annual Report on Form 10-K for the year ended December 31, 1999,
which is incorporated by reference in this prospectus.
20
<PAGE> 21
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.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AS OF
------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
1.45x 1.45x 1.70x 1.67x 1.75x 1.02x
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed
charges, earnings consist of pretax income before adjustment for minority
interests in consolidated subsidiaries or income or loss from equity investees,
plus fixed charges, amortization of capitalized interest, and distributed income
of equity investees, reduced by interest capitalized, distributions on the HIGH
TIDES and the minority interest in pretax income of subsidiaries that have not
incurred fixed charges. Fixed charges consist of interest expensed and
capitalized (including amortized premiums, discounts and capitalized expenses
related to indebtedness), an estimate of the interest within rental expense, and
the distribution on the HIGH TIDES.
21
<PAGE> 22
USE OF PROCEEDS
The selling holders will receive all of the net proceeds of the resale of
the HIGH TIDES, the debentures, the common stock issuable upon conversion of the
HIGH TIDES and the guarantee. Neither we nor the Trust will receive any of the
proceeds from the resale of any of those securities.
22
<PAGE> 23
SELLING HOLDERS
The HIGH TIDES were originally issued and sold to the initial purchasers,
Credit Suisse First Boston Corporation and ING Barings LLC. The initial
purchasers immediately sold the HIGH TIDES in transactions exempt from the
registration requirements of the Securities Act to persons reasonably believed
by them to be qualified institutional buyers as defined in Rule 144A under the
Securities Act. The Trust used all of the proceeds of the issuance of the HIGH
TIDES and of its concurrent sale of common securities to us to purchase the
debentures.
The selling holders may from time to time offer and sell pursuant to this
prospectus any or all of the HIGH TIDES, the debentures, the common stock
issuable upon conversion of the HIGH TIDES and the guarantee. Any selling holder
may also elect not to sell any HIGH TIDES held by it. The term "selling holder"
includes the holders listed below and the beneficial owners of the HIGH TIDES
and their transferees, pledges, donees or other successors.
The follow table sets forth recent information with respect to the selling
holders of the HIGH TIDES and the respective number of HIGH TIDES beneficially
owned by each selling holder that may be offered for such selling holder's
account pursuant to this prospectus. Such information has been obtained from the
selling holders.
<TABLE>
<CAPTION>
NUMBER OF
HIGH
SELLING HOLDER TIDES
-------------- ----------
<S> <C>
1976 Distribution Trust FBO A.R. Lauder/Zinterhofer......... 551
1976 Distribution Trust FBO Jane A. Lauder.................. 551
Aftra Health Fund........................................... 12,750
AmSouth Equity Income Fund.................................. 67,000
AmSouth Equity Income Variable Annuity Fund................. 26,000
Argent Classic Convertible Arbitrage Fund (Bermuda) L.P..... 50,000
Arkansas Teachers Retirement System......................... 40,774
Associated Electric & Gas Insurance Services Limited........ 23,000
Aventis Pharmaceuticals..................................... 7,500
Banc of America Securities LLC.............................. 141,800
Bank Austria Cayman Island, Ltd............................. 30,000
Baptist Health of South Florida............................. 1,938
BBT Fund, L.P............................................... 25,000
Bear, Stearns & Co.......................................... 42,500
Boilermaker-Blacksmith Pension Trust........................ 45,500
Boston Museum of Fine Arts.................................. 1,611
BP Amoco PLC, Master Trust.................................. 35,500
British Virgin Islands Social Security Board................ 1,075
Brown & Williamson Tobacco Master Retirement Trust.......... 2,250
BS Debt Income Fund -- Class A.............................. 300
CALAMOS(R) Convertible Fund -- CALAMOS(R) Investment
Trust..................................................... 59,500
CALAMOS(R) Convertible Portfolio -- CALAMOS(R) Advisors
Trust..................................................... 1,300
CALAMOS(R) Global Growth and Income Fund -- CALAMOS(R)
Investment Trust.......................................... 4,000
CALAMOS(R) Growth and Income Fund -- CALAMOS(R) Investment
Trust..................................................... 17,400
CALAMOS(R) Market Neutral Fund -- CALAMOS(R) Investment
Trust..................................................... 6,300
California Public Employees' Retirement System.............. 185,000
Castle Convertible Fund, Inc................................ 20,000
Champion International Corp................................. 21,025
Champion International Corporation Master Retirement
Trust..................................................... 24,700
City of Albany Pension Plan................................. 5,500
City of Knoxville Pension System............................ 11,500
City University of New York................................. 2,766
Consulting Group Capital Markets Funds...................... 4,100
Continental Assurance Corporation Separate Account (E)...... 108,100
Continental Casualty Company................................ 621,800
Credit Suisse First Boston Corporation...................... 397,445
Deephaven Domestic Convertible Trading Ltd.................. 130,000
Delta Airlines Master Trust................................. 84,450
Deutsche Bank Securities.................................... 1,427,500
Dorinco Reinsurance Company................................. 22,000
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
NUMBER OF
HIGH
SELLING HOLDER TIDES
-------------- ----------
<S> <C>
Employee Benefit Convertible Securities Fund................ 6,000
Engineers Joint Pension Fund................................ 5,562
Forrestal Funding Master Trust.............................. 125,000
Genesee County Employees' Retirement System................. 5,000
Grady Hospital Foundation................................... 4,166
Greek Catholic Union........................................ 750
Greek Catholic Union II..................................... 505
Hotel Union and Hotel Industry of Hawaii.................... 5,310
HT Insight Convertible Securities Fund...................... 10,000
Independence Blue Cross..................................... 3,924
ITG, Inc.................................................... 3,350
JP Morgan Securities Inc.................................... 35,893
Kettering Medical Center Funded Depreciation Account........ 2,750
Key Asset Management, Inc. as Agent for the Victory
Convertible Securities Fund............................... 24,500
Key Asset Management, Inc. as Investment Manager for the
California State Auto Assoc Inter Insurance............... 5,600
Key Asset Management, Inc. as Investment Manager for the
California State Auto Assoc Retirement Pension............ 1,400
Knoxville Utilities Board Retirement System................. 7,100
Lions Clubs International Foundation........................ 3,500
Lipper Convertibles Series 1A, L.L.C........................ 220,000
Local Initiatives Union..................................... 1,717
Macomb County Employees' Retirement System.................. 4,000
Mainstay Convertible Fund................................... 90,000
Mainstay Strategic Value Fund............................... 7,000
Mainstay VP Convertible Portfolio........................... 20,000
Merrill Lynch Convertible Fund, Inc......................... 5,000
Merrill Lynch Insurance Group............................... 9,625
Morgan Stanley & Co......................................... 25,000
Nations Convertible Securities Fund......................... 90,000
New Orleans Firefighters Pension/Relief Fund................ 4,303
New York Life Separate Account #7........................... 18,000
Nicholas/Applegate Convertible Fund......................... 18,223
Occidental Petroleum........................................ 7,336
Ohio Bureau of Workers Compensation......................... 4,973
Pacific Life Insurance Company.............................. 30,000
Partner Reinsurance Company, Ltd............................ 10,000
Physicians Life............................................. 4,343
Pilgrim Convertible Fund.................................... 57,882
Port Authority of Allegheny County Retirement and Disability
Allowance Plan for the Employees Represented by Local 85
of the Amalgamated Transit Union.......................... 48,200
Primerica Life Insurance Company............................ 25,996
San Diego City Retirement................................... 11,104
San Diego County Convertible................................ 26,783
Shell Pension Trust......................................... 10,193
Southern Farm Bureau Life Insurance Company................. 17,000
SPT......................................................... 37,800
Teachers Insurance and Annuity Association of America....... 200,000
The Cockrell Foundation..................................... 1,500
The Estate of James Campbell................................ 16,060
The Dow Chemical Company Employees' Retirement Plan......... 90,100
The Fondren Foundation...................................... 2,700
The Grable Foundation....................................... 3,942
The Rockhaven Fund.......................................... 2,200
The Rockhaven Premier Dividend Fund......................... 14,700
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
NUMBER OF
HIGH
SELLING HOLDER TIDES
-------------- ----------
<S> <C>
The State of Maryland Retirement Agency..................... 100,985
The Travelers Indemnity Company............................. 190,677
The Travelers Insurance Company............................. 111,184
The Travelers Insurance Company Separate Account TLAC....... 12,881
The Travelers Life And Annuity Company...................... 5,262
The Travelers Series Managed Assets Trust................... 6,000
The Travelers Series Trust Convertible Bond Portfolio....... 10,000
Transamerica Life Insurance & Annuity Company............... 390,000
Transamerica Occidental Life Insurance Co................... 130,000
Unifi, Inc. Profit Sharing Plan and Trust................... 4,350
United Food and Commercial Workers Local 1262 and Employees
Pension Fund.............................................. 22,000
Van Kampen Convertible Securities Fund...................... 18,400
Van Kampen Harbor Fund...................................... 99,800
Van Waters & Rogers, Inc. Retirement Plan (f.k.a. Univac
Corporation).............................................. 13,200
Wake Forest University...................................... 13,447
White River Securities LLC.................................. 42,500
Writers Guild -- Industry Health Fund....................... 3,458
ZCM/HFR Index Management, L.L.C............................. 1,000
</TABLE>
None of the selling holders has any position, office or other material
relationship with Calpine or the Trust, except that Credit Suisse First Boston
Corporation acted as an initial purchaser of the HIGH TIDES, and acts as an
advisor to Calpine from time to time with respect to other matters. Because the
selling holders may, pursuant to this prospectus, offer all or some portion of
the HIGH TIDES, the debentures, the common stock issuable upon conversion of the
HIGH TIDES and the guarantee, no estimate can be given as to the amount of those
securities that will be held by the selling holders upon termination of any such
sales. In addition, the selling holders identified above may have sold,
transferred or otherwise disposed of all or a portion of their HIGH TIDES since
the date on which they provided the information regarding their HIGH TIDES
included herein.
25
<PAGE> 26
PLAN OF DISTRIBUTION
The HIGH TIDES, the debentures, the common stock issuable upon conversion
of the HIGH TIDES and the guarantee may be offered and sold from time to time to
purchasers directly by the selling holders. Alternatively, the selling holders
may from time to time offer those securities to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling holders or
the purchasers of the securities for whom they act as agents. The selling
holders and any underwriters, broker-dealers or agents that participate in the
distribution of the securities may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of such securities and
any discounts, commissions, concessions or other compensation received by any
such underwriter, broker-dealer or agent may be deemed to be underwriting
discounts and commissions under the Securities Act.
The securities may be sold from time to time in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. The sale of the
securities may be effected in transactions, which may involve crosses or block
transactions:
- on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale,
- in the over-the-counter market,
- in transactions otherwise than on such exchanges or in the
over-the-counter market, or
- through the writing and exercise of options.
At the time a particular offering of the securities is made, if required, a
prospectus supplement will be distributed, which will set forth the names of the
selling holders, the aggregate amount and type of securities being offered and
the terms of the offering, including the name or names of any underwriters,
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling holders and any discounts,
commissions or concessions allowed or reallowed to paid broker-dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the securities will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the securities may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or any exemption from registration or
qualification is available and is complied with.
The selling securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M of the Exchange Act, which may limit the timing of purchases and
sales of any of the offered securities by the selling securityholders and any
other such person. Furthermore, Regulation M may restrict the ability of any
person engaged in the distribution of the offered securities to engage in
market-making activities with respect to the particular offered securities being
distributed. All of the foregoing may affect the marketability of the offered
securities and the ability of any person or entity to engage with respect to the
offered securities.
Pursuant to the registration rights agreement, we have borne all fees and
expenses incurred in connection with the registration of the securities, except
that selling holders will pay all broker's commissions and underwriting
discounts and commissions, if any, in connection with any sales effected
pursuant to this prospectus. The selling holders will be indemnified by us and
the Trust, jointly and severally, against certain civil liabilities, including
certain liabilities under the Securities
26
<PAGE> 27
Act or the Securities Exchange Act or otherwise, or alternatively will be
entitled to contribution in connection with those liabilities.
CALPINE CAPITAL TRUST II
The Trust is a statutory business trust created under Delaware law on
January 25, 2000 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 was amended and restated in its entirety as of
January 31, 2000, the date the Trust initially issued the HIGH TIDES. The
declaration of trust was qualified as an indenture under the Trust Indenture
Act. 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 Trust's 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 acquired 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 its 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 has five trustees, which we
refer to in this prospectus as "declaration trustees." Three of the trustees,
referred to as administrative trustees, are officers of Calpine, the fourth
trustee is The Bank of New York, which acts as property trustee and the fifth
trustee is The Bank of New York (Delaware), which acts 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 holders 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, except that during an event of default under the indenture
governing the debentures, 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
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<PAGE> 28
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 Debentures."
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the symbol
"CPN." Public trading of our common stock commenced on September 20, 1996. Prior
to that, there was no public trading market for our 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 that became effective on
October 7, 1999 and the 2 for 1 stock split that became effective on June 8,
2000.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1998
First Quarter............................................. $ 4.625 $ 3.188
Second Quarter............................................ 5.313 4.313
Third Quarter............................................. 5.375 4.281
Fourth Quarter............................................ 6.906 4.391
1999
First Quarter............................................. $ 9.344 $ 6.313
Second Quarter............................................ 14.750 8.781
Third Quarter............................................. 23.938 13.703
Fourth Quarter............................................ 32.750 21.266
2000
First Quarter............................................. $61.500 $32.188
Second Quarter (through June 20, 2000).................... 60.75 36.250
</TABLE>
As of June 20, 2000, there were approximately 136 holders of record of our
common stock. On June 20, 2000, the last sale price reported on the New York
Stock Exchange for our common stock was $60.00 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.
28
<PAGE> 29
ACCOUNTING TREATMENT
For financial reporting purposes, we treat the Trust as one of our
subsidiaries. Accordingly, we include the accounts of the Trust in our
consolidated financial statements. We present the HIGH TIDES together with the
1999 HIGH TIDES as a separate line item in our consolidated balance sheet
entitled "Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary trusts," and we include appropriate disclosures about
the HIGH TIDES in the notes to our consolidated financial statements. For
financial reporting purposes, we record distributions payable on the HIGH TIDES
as a minority interest in our consolidated statement of income.
We do not include separate financial statements of the Trust in our reports
under the Securities Exchange Act because we do not consider those financial
statements material to you because:
- Calpine, a reporting company under the Securities Exchange Act, owns,
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 its
assets and investing the proceeds in the debentures; and
- we fully and unconditionally guarantee the obligations of the Trust under
the HIGH TIDES and its common securities to the extent that the Trust has
assets available to meet such obligations.
29
<PAGE> 30
CAPITALIZATION
The following table sets forth, as of March 31, 2000, the (1) actual
consolidated capitalization of Calpine and (2) the consolidated capitalization
of Calpine as adjusted for the 2 for 1 stock split that became effective on June
8, 2000. This table should be read in conjunction with the consolidated
financial statements and related notes thereto incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
CASH:
Cash and cash equivalents................................. $ 250,591 $ 250,591
========== ==========
LONG-TERM DEBT:
Borrowings under line of credit, net of current portion... $ 82,499 $ 82,499
Project financing, net of current portion................. 457,014 457,014
Senior notes.............................................. 1,551,750 1,551,750
Notes Payable, net of current portion..................... 10,378 10,378
---------- ----------
Total long-term debt................................... 2,101,641 2,101,641
---------- ----------
Company-obligated convertible preferred securities of
subsidiary trusts(1)...................................... 618,849 618,849
---------- ----------
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:
500,000,000 shares authorized; 127,506,852 shares
outstanding as adjusted................................ 64 128
Additional paid-in capital.................................. 754,107 754,043
Retained earnings........................................... 231,292 231,292
---------- ----------
Total stockholders' equity............................. 985,463 985,463
---------- ----------
Total capitalization................................... $3,705,953 $3,705,953
========== ==========
</TABLE>
-------------------------
(1) Amounts have been reclassified from the balance sheet presentation in the
Form 10-Q dated March 31, 2000. Proceeds are recorded net of issuance costs
of $17,314.
30
<PAGE> 31
SECURITIES OFFERED
Using this prospectus, selling holders may offer for sale the HIGH TIDES,
debentures, common stock into which the HIGH TIDES are convertible and the
guarantee. We and the Trust registered all of these securities under the
Securities Act using a "shelf" registration statement. This "shelf" registration
statement allows the selling holders to offer and sell any combination of these
securities. Each time selling holders offer securities, we must provide a
prospectus supplement that names the selling holders and describes the specific
securities offered. The prospectus supplement may also provide new information
or update the information in the prospectus.
In the following descriptions of the remarketing, remarketing agent, the
HIGH TIDES, the debentures, the guarantee, the Trust and related matters, the
terms "Calpine," "we," "us" and "our" or similar terms refer solely to Calpine
Corporation and not to the Trust or any of our other consolidated subsidiaries.
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
February 1, 2005, 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 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 of
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<PAGE> 32
the HIGH TIDES, 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 (but without any additional interest thereon),
which shall be payable upon surrender by you 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, 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.
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,
32
<PAGE> 33
- 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 any trust subsidiary of ours, 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.
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,
33
<PAGE> 34
- there is no remarketing agent on the first day of the initial remarketing
period, or
- prior to the initial remarketing termination date, term provisions are
established by the remarketing agent, but the remarketing agent is unable
to sell one or more HIGH TIDES tendered for remarketing because of the
occurrence of certain market events specified in the remarketing
agreement.
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 will tender the reset
price for the tendered HIGH TIDES as set forth below under "-- Settlement" and
the term provisions will become effective.
The final remarketing will fail if:
- despite its best efforts, the remarketing agent is unable to establish a
term rate less than or equal to the maximum rate prior to the expiration
of final remarketing period,
- the remarketing agent is excused from remarketing the securities because
of the failure by us or the Trust to satisfy a condition in the
remarketing agreement or the occurrence of certain market events, or
- term provisions are established by the remarketing agent, but the
remarketing agent is unable to sell one or more HIGH TIDES tendered for
remarketing because of the occurrence of certain market events specified
in the remarketing agreement.
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. 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
34
<PAGE> 35
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 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 February 1, 2030.
SETTLEMENT
Settlement of transactions in connection with the remarketing will take
place on the reset date, or such date as the remarketing agent may, in its sole
discretion, determine, or as otherwise required by applicable law. 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.
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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.
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 of the Trust, 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.
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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.
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 1.0% 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) 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
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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.
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 issued the HIGH TIDES and the common securities in fully
registered form without interest coupons. The HIGH TIDES represent preferred
undivided beneficial ownership interests in the assets of the Trust, and the
holders of the HIGH TIDES are 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 is qualified
under and is subject to and governed by the Trust Indenture Act. 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 is available
from us upon request as described in "Where You Can Find More Information."
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 has been executed by us for your benefit and provides for a
guarantee on a subordinated basis with respect to the HIGH TIDES but does 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 commenced to 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 February 1, May 1, August 1
and November 1, each referred to as a distribution date, commencing
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May 1, 2000, to the person in whose name each HIGH TIDES is registered at the
close of business on the 15th day of the month immediately preceding the
applicable distribution date.
The amount of distributions payable for any period will be paid on the
basis of a 360-day year comprised 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
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.
The reset date is any date (1) not later than February 1, 2005, or, if the
day is not a business day, the next succeeding business day, and (2) not earlier
than 70 business days prior to February 1, 2005, as may be determined by the
remarketing agent, in its sole discretion, for settlement of a successful
remarketing. The 15th day of the month immediately preceding each distribution
date is the record date for determining which holders of HIGH TIDES shall be
paid the distributions and additional amounts, if any, payable on such
distribution date. If the reset date is prior to the record date for the
immediately following distribution date, then distributions and additional
amounts, if any, accrued from and after the reset date to but excluding the
immediately following distribution date shall be paid on such distribution date
to the person in whose name each HIGH TIDES is registered on the relevant record
date, subject to our right to initiate a deferral period. If the reset date is
on or after the record date for the immediately following distribution date,
then (1) distributions and additional amounts, if any, accrued from and after
the record date to but excluding the reset date shall be paid on the immediately
following distribution date to the person in whose name each HIGH TIDES is
registered on the relevant record date and (2) distributions and additional
amounts, if any, accrued from and after the reset date to but excluding the
immediately following distribution date shall be paid on the second distribution
date immediately following the reset date to the person in whose name each HIGH
TIDES is registered on the relevant record date for such second distribution
date, subject in each case to our right to initiate a deferral period. The
applicable rate will be the initial rate of 5 1/2% 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." In the event of a
registration default under the registration rights agreement, the applicable
rate will be increased by 0.50% per annum until the registration default is
cured.
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
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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 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 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 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 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 February 1, 2030 (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 .9762 shares of our common stock (equivalent to an
initial conversion price of $51.2188 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 required to make, any payment,
allowance or adjustment for accrued and unpaid distributions, whether or not in
arrears, on converted HIGH TIDES, even if
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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."
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,
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- 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.
The holders of HIGH TIDES have no voting rights with respect to any company
transaction.
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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.
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
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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
- 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 "company transaction" means:
- 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),
- any consolidation of Calpine with, or merger of Calpine into, any other
person, any merger of another person into Calpine (other than a merger
which does not result in a reclassification, conversion, exchange or
cancellation of outstanding shares of common stock of Calpine),
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- any sale or transfer of all or substantially all of the assets of
Calpine, or
- any compulsory share exchange.
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 the reset date 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" means on the date the Trust originally
issued the HIGH TIDES, (which is an amount derived from the product of 66 2/3%
and the last reported sale price for our common stock on the New York Stock
Exchange Composite Tape on January 25, 2000, rounded to nearest sixteenth), and
on the date of this prospectus, $26.9063 (which amount reflects the original
reference market price as adjusted for the 2 for 1 stock split that became
effective on June 8, 2000). In the event of any further adjustment to the
applicable conversion price from the date of this prospectus 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 $26.9063 to the conversion price
as adjusted for the 2 for 1 stock split that became effective on June 8, 2000.
If the 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 derived from the
product of to 66 2/3% and the closing price of the common stock on the reset
date, rounded to the nearest sixteenth, and, in
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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 February 5, 2003, but
prior to, and excluding, the tender notification date, the initial
redemption price as set forth under "Description of
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."
If the Trust gives a notice of redemption in respect of the HIGH TIDES,
then, by 11:00 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
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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
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 Trust's common securities, on a pro 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
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- 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 (a) the Trust would become subject
to United States federal income tax for the interest accrued or received in the
debentures, or (b) 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 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 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
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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. In order to
be an investment company event, the change in law must become 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 DEBENTURES
We, as the holder of the Trust's outstanding common securities or as
depositor, 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.
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 holder of the
Trust's outstanding common securities or 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.
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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 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
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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 common securities of the Trust, 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.
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 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
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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 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 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 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;
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- 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,
-- 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 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. Either of these occurrences
are 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
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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. If an
extension occurs at a time between an interest payment date and the expiration
of the 30-day grace period for payment defaults under the indenture governing
the debentures, there will be no event of default under the debentures in
respect of such interest payment and, consequently, no event of 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 action may be taken under the first bullet above under 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 such 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
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- 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,
- 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 debentures or the indenture governing 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 governing the debentures 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 of the Trust 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.
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FORM, BOOK-ENTRY PROCEDURES AND TRANSFER
The HIGH TIDES were issued in the form of two fully registered global HIGH
TIDES certificates. The global HIGH TIDES certificate were deposited upon
issuance with the property trustee as custodian for DTC, in 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. 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
Corporation 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
banks, the ability of a person having beneficial interests in a global HIGH
TIDES certificate to pledge those
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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 trade and settle according
to the rules and procedures of DTC and its participants. Transfers and
settlements between participants in DTC are 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 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
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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 $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,
- 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
- an event of default under the declaration of trust 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.
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
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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 acts 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 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,
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- 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 are governed by and construed
in accordance with the laws of the State of Delaware.
DESCRIPTION OF DEBENTURES
We issued the debentures under the indenture between us and The Bank of New
York, as debenture trustee. The indenture governing the debentures has been
qualified under and is subject to and governed by the Trust Indenture Act. This
summary of certain terms and provisions of the debentures and the indenture
governing the debentures is not complete. For a complete description of the
debentures, we encourage you to read the indenture governing the debentures, a
copy of which is available as described in "Where You Can Find More
Information." 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 invested the proceeds from issuing those securities in our
5 1/2% Convertible Subordinated Debentures due 2030. Interest commenced to
accrue on the debentures from the date of their original issuance, at the
applicable rate of the principal amount thereof, subject to the deferral rights
described below, and is payable quarterly in arrears on February 1, May 1,
August 1 and November 1, commencing May 1, 2000 to the person in whose name each
debenture is registered, at the close of business on the 15th day of the month
immediately preceding the applicable interest payment date.
The 15th day of the month immediately preceding each interest payment date
is the record date for determining which holders of debentures shall be paid the
interest and additional amounts, if any, payable on such interest payment date.
If the reset date is prior to the record date for the immediately following
interest payment date, then interest and additional amounts, if any, accrued
from and after the reset date to but excluding the immediately following
interest payment date shall be paid on such interest payment date to the person
in whose name each debenture is registered on the relevant record date, subject
to our right to initiate a deferral period. If the reset date is on or after the
record date for the immediately following interest payment date, then (1)
interest and additional amounts, if any, accrued from and after the record date
to but excluding the reset date shall be paid on the immediately following
interest payment date to the person in whose name each debenture is registered
on the relevant record date and (2) interest and additional amounts, if any,
accrued from and after the reset date to but excluding the immediately following
interest payment date shall be paid on the second interest payment date
immediately following the reset date to the person in whose name each debenture
is registered on the relevant record date for such second
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interest payment date, subject in each case to our right to initiate a deferral
period. The applicable rate will be 5 1/2% 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
paid on the basis of a 360-day year comprised 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
preceding 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 governing the debentures, they will mature on February 1, 2030.
See "-- Redemption -- Repayment at Maturity; Redemption of Debentures."
The debentures are unsecured, rank junior and subordinate in right of
payment to all of our senior debt and rank pari passu with our 5 3/4%
Convertible Subordinated Debentures due 2029 which we issued in conjunction with
the issuance of the 1999 HIGH TIDES. Our right to participate in any
distribution of assets of any of our subsidiaries upon the Trust'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 are subordinated to all of our senior debt and effectively
subordinated to all existing 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."
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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 make any of the payments described
below under "-- Restrictions on Payments."
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 or (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 written notice of our election of any
deferral period at least ten days prior to the record date for the interest
payment date for the interest payment that would have been payable on the HIGH
TIDES 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.
If we elect to defer interest payments of the debentures underlying the
1999 HIGH TIDES, we will in effect be required to defer interest payments on the
debentures. See "Risk Factors -- Risks Relating to the HIGH TIDES."
We have no current intention of exercising our right to defer payments of
interest on the debentures.
REDEMPTION
Repayment at Maturity; Redemption of Debentures
We must repay the debentures at their stated maturity on February 1, 2030,
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
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amount of HIGH TIDES and its common securities. See "Description of HIGH
TIDES -- Mandatory Redemption."
Optional Redemption
We have the right to redeem the debentures (1) in whole or in part, at any
time or from time to time, on or after February 5, 2003 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 interest on
the portion being redeemed, if redeemed during the 12-month period ending on
February 5:
<TABLE>
<CAPTION>
PRICE PER $50
YEAR PRINCIPAL AMOUNT
---- ----------------
<S> <C>
2004............................................ $50.6875
2005............................................ $50.0000
</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 or as a result of a failed final
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 any 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."
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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.
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 (other than withholding taxes)
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 governing the debentures 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 expressly 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 or the guarantee of
the Trust's common securities,
-- 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 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
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-- 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.
MODIFICATION OF INDENTURE
We and the debenture trustee may amend the indenture governing the
debentures 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 governing the debentures under the Trust Indenture Act.
We and the debenture trustee may amend the indenture governing the
debentures 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 the holder of each outstanding debenture affected thereby, no
amendment may:
- change the reset date or extend any date specified in the indenture
governing the debentures 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 for 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 governing the debentures; or
- have certain other effects as set forth in the indenture governing the
debentures.
If the property trustee is the sole holder of the debentures, then for so
long as the HIGH TIDES are outstanding the forgoing provisions shall also apply
to the holders of the HIGH TIDES.
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 at
maturity;
- our continued failure for 90 days to observe or perform, in any material
respect, any other covenant contained in the indenture governing the
debentures 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
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- 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.
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 governing the debentures
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 governing
the debentures.
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 governing the debentures, 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 governing the debentures
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. 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
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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.
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 consolidate with or merge with or into us or convey, 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 governing the debentures and provides for conversion rights
in accordance with the indenture governing the debentures;
- 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 governing the
debentures are met.
The general provisions of the indenture governing the debentures 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 governing the debentures are
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.
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
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"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 in cash, 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 net 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 and accrued liabilities arising 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.
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;
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- interest or obligations in respect of any indebtedness accruing after the
commencement of any insolvency or bankruptcy proceedings; and
- net payment obligations associated with derivative products such as
interest rate and currency exchange contracts, foreign exchange
contracts, commodity contracts and similar arrangements.
The indenture governing the debentures 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 March 31, 2000, our
aggregate outstanding senior debt was $1.6 billion. The indenture governing the
debentures also places no limitation on the debt of our subsidiaries, which
effectively ranks senior in right of payment to the debentures. As of March 31,
2000, our subsidiaries had debt of approximately $698.0 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, 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.
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
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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 governing the debentures and the debentures are governed by
and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The debenture trustee is 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 governing the
debentures 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.
DESCRIPTION OF THE GUARANTEE
When the HIGH TIDES were originally issued, we executed and delivered a
guarantee for the benefit of the holders of the HIGH TIDES. The Bank of New York
acts as guarantee trustee under the guarantee. 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 holds
the guarantee for the benefit of the holders of the HIGH TIDES. A copy of the
guarantee is available as described in "Where You Can Find More Information."
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 irrevocably agreed 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
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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 is 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 ranks 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 are effectively subordinated to all existing and
future liabilities of our subsidiaries, and 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 Debentures and the Guarantee"
for a discussion of other important terms and conditions of the guarantee.
STATUS OF THE GUARANTEE
The guarantee constitutes our unsecured obligation and ranks subordinate
and junior in right of payment to all senior debt in the same manner as the
debentures.
The guarantee constitutes 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 is being 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.
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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.
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.
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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 is governed by and construed in accordance with the laws of
the State of New York.
RELATIONSHIP AMONG THE HIGH TIDES,
THE DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We have irrevocably guaranteed 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 governing the debentures, 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;
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- 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 governing the debentures with and to the extent we have
already made, or are concurrently on the date of that payment making, any
payment under the guarantee used to satisfy the related payment of indebtedness
under the indenture governing the debentures.
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 an
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 governing the debentures 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 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 governing the debentures, 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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REGISTRATION RIGHTS
In connection with the original offering the HIGH TIDES, we and the Trust
entered into a registration rights agreement with the initial purchasers for the
benefit of the holders of the HIGH TIDES providing that we and the Trust would:
- file and use our best efforts to have declared effective the registration
statement of which this prospectus is a part covering the HIGH TIDES, the
debentures, the common stock issuable upon conversion of the HIGH TIDES
and the guarantee, and
- use our best efforts to keep the registration statement effective and
usable for two years or such other period as shall be required under Rule
144(k) of the Securities Act or any successor rule thereto or, if
earlier, such time as all of the applicable registerable securities have
been sold thereunder.
The registration statement of which this prospectus is a part was filed by us
and the Trust in satisfaction of our obligation to do so pursuant to the
registration rights agreement, and was declared effective by the SEC on June 23,
2000.
However, we and the Trust are permitted to suspend the use of the registration
statement during certain periods under certain circumstances.
We have provided to each holder for whom the registration statement was
filed, copies of this prospectus, have notified each such holder when the
registration statement became effective and have taken certain other actions as
are required to permit unrestricted resales of the securities. A holder that
sells securities pursuant to the registration statement will, under current SEC
rules and regulations, be required to deliver this prospectus, together with any
supplemental prospectus, to purchasers. Selling holders also will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a holder (including certain
indemnification rights and obligations).
A registration default will occur in the event that, after the registration
statement is declared effective by the SEC, we or the Trust fail to keep the
registration statement continuously effective and usable (subject to certain
exceptions) for the period required by the registration rights agreement.
If a registration default occurs, then the applicable rate at which
interest will accrue on the debentures (including on amounts accruing during any
deferral period), and corresponding distributions will accrue on the HIGH TIDES
and common securities, in each case from and including the day following such
registration default to but excluding the day on which such registration default
has been cured or has been deemed to have been cured, will be increased by 0.50%
per annum of the principal amount or liquidation amount, as applicable, subject
to certain exceptions. Following the cure of a registration default, the
applicable rate will become the rate in effect immediately prior to such
registration default.
Each security contains a legend to the effect that the holder thereof, by
its acceptance thereof, will be deemed to have agreed to be bound by the
provisions of the registration rights agreement.
The registration rights agreement is governed by, and construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the registration rights agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the registration rights agreement, a copy of which is
available as described in "Where You Can Find More Information."
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 500,000,000 shares of common
stock, $0.001 par value, of which 127,647,707 shares were outstanding as of June
20, 2000, and 10,000,000 shares of preferred stock, $0.001 par value, none of
which were outstanding as of June 20, 2000. The following summary is qualified
in its entirety by the provisions of our certificate of incorporation and
bylaws, which have been incorporated by reference as exhibits to the
registration statement of which this prospectus constitutes a part. The
information provided below reflects the 2 for 1 stock split that became
effective on October 7, 1999 and the 2 for 1 stock split that became effective
on June 8, 2000.
COMMON STOCK
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 any common stock
offering will be fully paid and non-assessable.
PREFERRED STOCK
The board of directors has the authority, without any further vote or
action by the stockholders, to issue preferred stock from time to time in one or
more series and to fix the rights, preferences, privileges, qualifications,
limitations and restrictions granted to or imposed upon any wholly unissued
shares of undesignated preferred stock, including without limitation, dividend
rights, if any, voting rights, if any, and liquidation and conversion rights, if
any. The board of directors has the authority 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.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation provides 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, voting together as a single class. Our bylaws
provide that any vacancy on the board of directors may be filled only by vote of
the majority of directors then in office or by a sole remaining director.
Further, the certificate of incorporation provides that any business combination
(as defined in the certificate of incorporation) 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
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certificate of incorporation also provides that all stockholder actions must be
effected at a duly called meeting and not by a consent in writing.
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,
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:
- 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;
- 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
- 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:
- any merger or consolidation involving the corporation or any of its
direct or indirect majority-owned subsidiaries and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation or any of its direct or indirect majority-owned
subsidiaries involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation or any of its direct or indirect
majority-owned subsidiaries of any stock of the corporation or that
subsidiary to the interested stockholder;
- any transaction involving the corporation or any of its direct or
indirect majority-owned subsidiaries that has the effect of increasing
the proportionate share of the stock of any class
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or series of the corporation or that subsidiary beneficially owned by the
interested stockholder; or
- 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 or any of its direct or indirect majority-owned
subsidiaries.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT
The transfer agent and registrar for the common stock is First Chicago
Trust Company of New York.
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. This summary
represents the views of Covington & Burling, New York, New York, 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 and does not discuss HIGH TIDES held as part
of a hedge, straddle, "synthetic security" or other integrated transaction. 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.
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CLASSIFICATION OF THE TRUST AS A GRANTOR TRUST
In connection with the original issuance of the HIGH TIDES, Covington &
Burling rendered 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.
CLASSIFICATION OF THE DEBENTURES AS INDEBTEDNESS
Calpine intends to take the position that the debentures will be classified
for federal income tax purposes as indebtedness of Calpine under current law. By
acceptance of the HIGH TIDES, each holder covenants to treat the debentures as
indebtedness and the HIGH TIDES as evidence of an indirect beneficial ownership
interest in the debentures. This position is not binding on the Internal Revenue
Service, and, accordingly, no assurance can be given that the classification of
the debentures as indebtedness will not be challenged by the Internal Revenue
Service or, if challenged, that such a challenge will 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 February 1, 2030.
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
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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 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. Calpine believes, although the matter is
not free from doubt, that the likelihood of interest payments being deferred is
remote. Based on the foregoing, Calpine believes 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 regular 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,
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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 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 were not 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.
HIGH TIDES PURCHASED AT A PREMIUM
Under the Internal Revenue Code, a holder that purchases a HIGH TIDES will
be considered to have purchased his undivided interest in the underlying
debentures at a premium if the holder's adjusted basis in the HIGH TIDES
immediately after the purchase is greater than the principal amount of the
underlying debenture. Such a holder will not be subject to the original issue
discount rules and may, except to the extent such premium is attributable to the
conversion premium on the HIGH TIDES, elect to treat such premium as
"amortizable bond premium," in which case the amount of qualified stated
interest required to be included in the holder's income each year with respect
to the interest on the HIGH TIDES will be reduced by the amount of the
amortizable bond premium allocable (based on the HIGH TIDES yield to maturity)
to such year. Any election to amortize bond premium is applicable to all bonds
(other than bonds the interest on which is excludible from gross income) held by
the holder at the beginning of the first taxable year to which the election
applies or thereafter acquired by the holder, and may not be revoked without the
consent of the Internal Revenue Service.
HIGH TIDES PURCHASED AT A MARKET DISCOUNT
The following discussion assumes that the debentures will not be considered
to be issued with original issue discount. If the debentures are considered to
be issued with original issue discount, holders should consult their tax
advisers as to the income tax consequences of the acquisition, ownership and
disposition of the HIGH TIDES acquired at a price that is less than the issue
price of the underlying debentures.
A holder who purchases a HIGH TIDES will be considered to have purchased
the underlying debenture at a "market discount" if the holder's adjusted basis
in the HIGH TIDES is less than the principal amount of the underlying debenture,
unless such market discount is a de minimis amount (generally up to 1/4 of 1
percent of the adjusted issue price of the debenture as of the purchase date
multiplied by its weighted average maturity as of such date). In general, any
partial payment of principal on, or gain recognized on the maturity or
disposition of, the HIGH TIDES or debenture will be treated as ordinary income
to the extent that such gain does not exceed the accrued market discount on the
underlying debenture. Alternatively, a holder of a HIGH TIDES may elect to
include market discount in income currently over the life of the HIGH TIDES or
debenture. Such an election applies to all debt instruments with market discount
acquired by the electing holder on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the Internal Revenue Service.
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Market discount accrues on a straight-line basis unless the holder elects
to accrue such discount on a constant yield to maturity basis. Such an election
is applicable only to the HIGH TIDES or debenture with respect to which it is
made and is irrevocable. A holder of a HIGH TIDES or debenture that does not
elect to include market discount in income currently generally will be required
to defer deductions for interest on borrowings allocable to such HIGH TIDES or
debenture in an amount not exceeding the accrued market discount on such HIGH
TIDES or debenture until the maturity or disposition of such HIGH TIDES or
debenture.
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 (subject to the
discussion above regarding Market Discount, which may be treated as ordinary
income). 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 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
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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 would be required to
include their allocable share of such deemed dividend income in gross income but
will not receive any cash related thereto.
Calpine takes the position that the adjustment to the initial conversion
ratio in connection with the remarketing constitutes 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
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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 United States 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.
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, assuming the debentures are classified as indebtedness of
Calpine for tax purposes, 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
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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. If the Internal Revenue Service were to
successfully recharacterize the debentures as equity interests in, rather than
indebtedness of, Calpine for United States federal income tax purposes, any
interest paid thereon would be treated as dividend income, to the extent it is
deemed paid out of Calpine's earnings and profits and would be subject to United
States federal withholding tax at a 30% (or lower treaty) rate.
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, (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 or (4)
in the event that Calpine is characterized as a United States real property
holding corporation (see discussion below under "Foreign Investment in Real
Property Tax Act"), the non-U.S. holders beneficial and/or constructive
ownership of HIGH TIDES or common stock exceeds 5% of the total fair market
value of the common stock.
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).
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SALE OR EXCHANGE OF COMMON STOCK
Subject to the discussion below regarding "Foreign Investment in Real
Property Tax Act," 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 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"
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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 "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." Covington & Burling 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
and/or constructive 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.
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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.
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 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
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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 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 governing the debentures, 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 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.
LEGAL MATTERS
The validity of the debentures, the guarantee and any common stock issuable
upon conversion of the HIGH TIDES offered hereby have been passed upon for us by
Covington & Burling, New York,
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New York. Richards, Layton & Finger, P.A., special Delaware counsel to the trust
and Calpine, have passed on certain matters of Delaware law relating to the
validity of the HIGH TIDES.
INDEPENDENT AUDITORS
The consolidated financial statements and schedules as of December 31,
1999, 1998 and 1997 incorporated by reference in this prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their reports. 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.
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