1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-57338
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 19, 2001
CALPINE CORP. LOGO $1,500,000,000
CALPINE CANADA ENERGY FINANCE ULC
8 1/2% Senior Notes Due May 1, 2008
Fully and Unconditionally Guaranteed By
CALPINE CORPORATION
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We will pay interest on the senior notes each May 1 and November 1. The
first interest payment will be made on November 1, 2001.
We may redeem any and all of the senior notes at any time prior to their
stated maturity at a redemption price equal to 100% of the principal amount of
the senior notes being redeemed plus accrued and unpaid interest plus a
make-whole premium. There is no sinking fund for the senior notes.
The senior notes are fully and unconditionally guaranteed by Calpine
Corporation. The guarantee of the senior notes by Calpine Corporation will be on
a senior unsecured basis, and the guarantee will rank equally and ratably with
all other unsecured and unsubordinated indebtedness of Calpine Corporation.
INVESTING IN THE SENIOR NOTES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
S-6 AND PAGE 9.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS ISSUER(1)
--------------- ------------- ---------------
Per Senior Note...................................... 99.768% 1.000% 98.768%
Total................................................ $1,496,520,000 $15,000,000 $1,481,520,000
(1) Plus accrued interest, if any, from April 25, 2001.
Delivery of the senior notes in book-entry form only, will be made on or
about April 25, 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
CREDIT SUISSE FIRST BOSTON
SCOTIA CAPITAL
TD SECURITIES
BANC OF AMERICA SECURITIES LLC
The date of this prospectus supplement is April 20, 2001.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
ABOUT THIS PROSPECTUS SUPPLEMENT...... S-1
CALPINE CORPORATION................... S-2
CALPINE CANADA ENERGY FINANCE ULC..... S-2
USE OF PROCEEDS....................... S-2
RECENT DEVELOPMENTS................... S-3
WHERE YOU CAN FIND MORE INFORMATION... S-6
RISK FACTORS.......................... S-6
FORWARD-LOOKING STATEMENTS............ S-7
CONSOLIDATED RATIO OF EARNINGS TO
FIXED CHARGES....................... S-8
PAGE
----
CAPITALIZATION........................ S-9
DESCRIPTION OF SENIOR NOTES AND
GUARANTEES.......................... S-10
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS.................. S-12
CERTAIN CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS...................... S-12
UNDERWRITING.......................... S-13
LEGAL MATTERS......................... S-14
EXPERTS............................... S-14
PROSPECTUS
PAGE
----
ABOUT THIS PROSPECTUS................. 3
CALPINE............................... 4
CALPINE CANADA ENERGY FINANCE......... 8
RISK FACTORS.......................... 9
WHERE YOU CAN FIND MORE INFORMATION... 9
FORWARD-LOOKING STATEMENTS............ 11
CONSOLIDATED RATIO OF EARNINGS TO
FIXED CHARGES....................... 12
PAGE
----
USE OF PROCEEDS....................... 12
PLAN OF DISTRIBUTION.................. 12
DESCRIPTION OF CAPITAL STOCK.......... 14
DESCRIPTION OF THE DEBT SECURITIES.... 19
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES............. 33
NOTICE TO CANADIAN RESIDENTS.......... 43
LEGAL MATTERS......................... 44
EXPERTS............................... 44
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT, THE PROSPECTUS TO WHICH IT RELATES OR TO WHICH WE HAVE REFERRED YOU.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT MAY ONLY BE ACCURATE AS OF THE DATE OF
THIS PROSPECTUS SUPPLEMENT.
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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the senior notes being offered by
Calpine Canada Energy Finance ULC and the related guarantees being offered by
Calpine Corporation. The second part, the accompanying prospectus, gives more
general information, some of which may not apply to this offering. If the
description of the offering information varies between the prospectus supplement
and the accompanying prospectus, you should rely on the information in the
prospectus supplement. Unless we have indicated otherwise, references hereafter
in this prospectus supplement to "Calpine," "we," "us," and "our," or similar
terms are to Calpine Corporation and its consolidated subsidiaries, excluding
Calpine Capital Trust III, Calpine Capital Trust II and Calpine Capital Trust
and references to "Calpine Canada Energy Finance" are to Calpine Canada Energy
Finance ULC.
S-1
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CALPINE CORPORATION
Calpine is a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity predominantly in the United States. We have experienced
significant growth in all aspects of our business over the last five years.
Currently, we own interests in 50 power plants having a net capacity of 5,849
megawatts. We also have 25 gas-fired projects under construction having a net
capacity of 14,028 megawatts and have announced plans to develop 28 gas-fired
projects (power plants and expansions of current facilities) with a net capacity
of 15,142 megawatts. Upon completion of the projects under construction, we will
have interests in 74 power plants located in 21 states having a net capacity of
19,877 megawatts. Of this total generating capacity, 96% will be attributable to
gas-fired facilities and 4% 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.
This information does not reflect any impact on Calpine's financial position or
results of operations that will result from our recent business combination
under the pooling of interests method of accounting with Encal Energy Ltd.
("Encal") on April 19, 2001.
COMPOUND ANNUAL
1996 2000 GROWTH RATE
-------- -------- ---------------
(IN MILLIONS)
Total Revenue.......................... $ 214.6 $2,282.8 81%
EBITDA................................. 110.7 825.9 65%
Net Income............................. 18.7 323.5 104%
Total Assets........................... 1,031.4 9,737.3 75%
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, power
marketing 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.
CALPINE CANADA ENERGY FINANCE ULC
Calpine Canada Energy Finance is an unlimited liability company organized
in March 2001 under the laws of Nova Scotia, Canada. Calpine Canada Energy
Finance is a wholly-owned special purpose finance subsidiary of Calpine that
engages in financing activities to raise funds for the business operations of
Calpine and its subsidiaries. Calpine Canada Energy Finance will issue senior
notes which will be fully and unconditionally guaranteed by Calpine.
The registered office of Calpine Canada Energy Finance is: Suite 800,
Purdy's Wharf, Tower 1, 1959 Upper Water Street, P.O. Box 997, Halifax, Nova
Scotia B3J 3N2, telephone: (902) 420-3335.
USE OF PROCEEDS
The net proceeds from the sale of senior notes by Calpine Canada Energy
Finance to which this prospectus supplement relates will be lent to Calpine and
its affiliates by Calpine Canada Energy Finance pursuant to one or more
intercompany loans.
S-2
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RECENT DEVELOPMENTS
In addition to the recent developments described below, please see the
recent developments described in Calpine's Annual Report on Form 10-K for the
year ended December 31, 2000, which is incorporated by reference in the
prospectus of which this prospectus supplement is a part.
Acquisition of Encal Energy Ltd. On April 19, 2001, Calpine closed the
acquisition of all of the common shares of Encal Energy Ltd., a Calgary,
Alberta-based natural gas and petroleum exploration and development company,
through a stock-for-stock exchange in which Encal shareholders received, in
exchange for each share of Encal common stock, .1493 shares of Calpine common
equivalent shares (called "exchangeable shares") of Calpine's subsidiary,
Calpine Canada Holdings Ltd. A total of 16,603,633 exchangeable shares were
issued to Encal shareholders in exchange for their Encal common stock. Each
exchangeable share is exchangeable for one share of Calpine common stock. The
aggregate value of the transaction is approximately U.S. $1.1 billion, including
the assumed indebtedness of Encal. With the addition of Encal's assets, which
currently produce approximately 230 million cubic feet of gas equivalent
("mmcfe") per day, net of royalties, Calpine's net production is expected to
increase to 390 mmcfe per day in North America, enough to fuel approximately
2,300 megawatts of Calpine's power fleet.
California Power Market. The deregulation of the California power market
has produced significant unanticipated results in the past year. The
deregulation froze the rates that utilities can charge their retail and business
customers in California and prohibited the utilities from buying power on a
forward basis, while wholesale power prices were not subjected to limits.
In the past year, a series of factors have reduced the supply of power to
California, which has resulted in wholesale power prices that have been
significantly higher than historical levels. Several factors contributed to this
increase. These included:
- significantly increased volatility in prices and supplies of natural gas;
- an unusually dry fall and winter in the Pacific Northwest, which reduced
the amount of available hydroelectric power from that region (typically,
California imports a portion of its power from this source);
- the large number of power generating facilities in California nearing the
end of their useful lives, resulting in increased downtime (either for
repairs or because they have exhausted their air pollution credits and
replacement credits have become too costly to acquire on the secondary
market); and
- continued obstacles to new power plant construction in California, which
deprived the market of new power sources that could have, in part,
ameliorated the adverse effects of the foregoing factors.
As a result of this situation, two major California utilities that are
subject to the retail rate freeze, including Pacific Gas & Electric Company
("PG&E"), have faced wholesale prices that far exceed the retail prices they are
permitted to charge. This has led to significant under-recovery of costs by
these utilities, and they have been widely reported to be facing the prospect of
insolvency. As a consequence, these utilities have defaulted under a variety of
contractual obligations, including payment obligations to power generators. PG&E
has defaulted on payment obligations to Calpine. On April 6, 2001, PG&E filed
for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
As of March 31, 2001, Calpine had recorded approximately $267 million in
accounts receivable with PG&E, plus a $68 million note receivable not yet due
and payable. Calpine has discussed this situation with its advisors. Based upon
public statements made by PG&E since its bankruptcy filing, and a review of the
terms of Calpine's PG&E QF contracts, Calpine is confident that PG&E, through a
successful reorganization, will be able to pay Calpine for all past due power
sales, in addition to electricity deliveries made on a going-forward basis.
Therefore, Calpine has not provided for a reserve against collection
uncertainties for these PG&E receivables. However, Calpine continues to monitor
this situation and will consider any additional facts as they arise. (For
additional information, including information on certain receivables, see notes
15 and 19 of the Notes to Consolidated Financial Statements incorporated by
reference herein.)
S-3
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Calpine has historically sold power to PG&E, which is one of the California
utilities that is subject to the rate freeze. Calpine is currently selling power
to PG&E pursuant to long-term qualifying facility ("QF") contracts, which are
subject to federal regulation under the Public Utility Regulatory Policies Act
of 1978, as amended ("PURPA") (16 U.S.C. sec. 796 et seq.). The QF contracts,
which are in place at eleven facilities, representing nearly 600 megawatts of
electricity for Northern California customers, provide that the California
Public Utilities Commission ("CPUC") has the authority to determine the
appropriate utility "avoided cost" to be used to set energy payments for certain
QF contracts, including those for all of our QF plants in California which sell
power to PG&E. Section 390 of the California Public Utility Code provided QFs
the option to elect to receive energy payments based on the California Power
Exchange ("PX") market clearing price. In mid-2000, our QF facilities elected
this option and were paid based upon the PX zonal day ahead clearing price ("PX
Price") from summer 2000 until January 19, 2001, when the PX ceased operating a
day ahead market. Since that time, the CPUC has ordered that the price to be
paid for energy deliveries by QFs electing the PX Price shall be based on a
natural gas cost-based "transition formula." The CPUC has conducted proceedings
(R. 99-11-022) to determine whether the PX Price was the appropriate price for
the energy component upon which to base payments to QFs which had elected the PX
based pricing option. It is possible that the CPUC could order a payment
adjustment based on a different energy price determination. We believe that the
PX Price was the appropriate price for energy payments but there can be no
assurance that this will be the outcome of the CPUC proceedings. Legislation has
recently been introduced in the California legislature (SB 47X) that would
establish a fixed price for the QF contracts for a five year period and would
eliminate any PX Price adjustment prior to December 31, 2000. There can be no
assurances that this legislation will be enacted.
Calpine has continued to honor our contractual obligations to PG&E under
our QF contracts. To date, Calpine has refrained from pursuing our collection
remedies with respect to PG&E's default, however, Calpine has been actively
involved with the California utilities, the California legislature, and other
interested parties to develop legislation designed to stabilize energy prices
through the application of a long-term energy pricing methodology (for a
five-year period) in place of the short-term pricing methodology currently
utilized under the QF contracts, as discussed above. Calpine also expects
further legislation to enable the California utilities to finance over a longer
term the difference between the wholesale prices that have been paid and the
retail prices they received during last fall and into this winter. Calpine
believes that this should enhance PG&E's ability to make payment of all past due
amounts. However, management cannot predict the timing or ultimate outcome of
the legislative process or the payment of amounts due under these contracts.
As this situation has deteriorated, California has taken steps to restore a
predictable and reliable power market to the State. Recently, California adopted
legislation permitting it to issue long-term revenue bonds to provide funding
for wholesale purchases of power. The bonds will be repaid with the proceeds of
payments by retail customers over time. The California Department of Water
Resources ("DWR") sought bids for long-term power supply contracts. Calpine
successfully bid in that auction, and announced, as indicated below, that
Calpine has signed three significant long-term power supply contracts with DWR.
On February 7, 2001, Calpine announced the signing of a 10-year, $4.6
billion fixed-price contract with DWR to provide electricity to the State of
California. Calpine committed to sell up to 1,000 megawatts of electricity, with
initial deliveries of 200 megawatts starting October 1, 2001, and increasing to
1,000 megawatts by January 1, 2004. This contract will continue through 2011.
The electricity will be sold directly to DWR on a 24-hour, 7-day-a-week basis.
On February 28, 2001, Calpine announced the signing of two long-term power
sales contracts with DWR. Under the terms of the first contract, a $5.2 billion,
10-year, fixed-price contract, Calpine commited to sell up to 1,000 megawatts of
generation. Initial deliveries are scheduled to begin July 1, 2001 with 200
megawatts and increase to 1,000 megawatts by as early as July 2002. Under the
terms of the second contract, a 20-year contract totaling up to $3.1 billion,
Calpine will supply DWR with up to 495 megawatts of peaking generation,
beginning with 90 megawatts as early as August 2001, and increasing up to 495
megawatts as early as August 2002.
S-4
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On March 13, 2001, Calpine announced the signing of a two-month deal to
provide 555 megawatts of electricity to DWR from our new South Point Energy
Center during plant testing, effective immediately through May 15, 2001.
FERC Investigation into California Wholesale Markets. Beginning in May
2000, wholesale energy prices in the California markets increased to levels well
above 1999 levels. In response, on June 28, 2000, the ISO Board of Governors
reduced the price cap applicable to the ISO's wholesale energy and ancillary
services markets from $750/MWh to $500/MWh. The ISO subsequently reduced the
price cap to $250/MWh on August 1, 2000. During this period, however, the
California Power Exchange Corporation ("PX") maintained a separate price cap set
at a much higher level applicable to the "day-ahead" and "day-of" markets
administered by the PX. On August 23, 2000, the FERC denied a complaint filed
August 2, 2000 by San Diego Gas & Electric Company ("SDG&E") that sought to
extend the ISO's $250 price cap to all California energy and ancillary service
markets, not just the markets administered by the ISO. However, in its order
denying the relief sought by SDG&E, the FERC instructed its staff to initiate an
investigation of the California power markets and to report its findings to the
FERC and held further hearing procedures in abeyance pending the outcome of this
investigation.
On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff investigation, together with an "Order Proposing Remedies for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order, the
FERC found that the California power market structure and market rules were
seriously flawed, and that these flaws, together with short supply relative to
demand, resulted in unusually high energy prices. The November 1 Order proposed
specific remedies to the identified market flaws, including: (a) imposition of a
so-called "soft" price cap at $150/MWh to be applied to both the PX and ISO
markets, which would allow bids above $150/MWh to be accepted, but will subject
such bids to certain reporting obligations requiring sellers to provide cost
data and/or identify applicable opportunity costs and specifying that such bids
may not set the overall market clearing price, (b) elimination of the
requirement that the California utilities sell into and buy from the PX, (c)
establishment of independent non-stakeholder governing boards for the ISO and
the PX, and (d) establishment of penalty charges for scheduling deviations
outside of a prescribed range. In the November 1 Order the FERC established
October 2, 2000, the date 60 days after the filing of the SDG&E complaint, as
the "refund effective date." Under the November 1 Order, rates charged for
service after that date through December 31, 2002 will remain subject to refund
if determined by the FERC not to be just and reasonable. While the FERC
concluded that the Federal Power Act and prior court decisions interpreting that
act strongly suggested that refunds would not be permissible for charges in the
period prior to October 2, 2000, it noted that it was willing to explore
proposals for equitable relief with respect to charges made in that period. All
of Calpine's receivables from PG&E relate to energy generated by QF facilities.
Under FERC regulations, QF contracts are exempt from regulation under the
Federal Power Act, which is the legislation that provides the authority for the
FERC to compel refunds or frame other equitable relief with respect to the
California wholesale markets. See "Government Regulation -- Federal Energy
Regulation -- Federal Power Act Regulation" set forth in Calpine's Annual Report
on Form 10-K for the year ended December 31, 2000. Therefore, the Company
believes that any refund or other equitable remedy that the FERC may impose with
respect to the California wholesale markets will not affect the Company's
ability to pursue payment by PG&E of all past due amounts as described above.
On December 15, 2000, the FERC issued a subsequent order that affirmed in
large measure the November 1 Order (the "December 15 Order"). Various parties
have filed requests for administrative rehearing and for judicial review of
aspects of the FERC's December 15 Order. The outcome of these proceedings, and
the extent to which the FERC or a reviewing court may revise aspects of the
December 15 Order or the extent to which these proceedings may result in a
refund of or reduction in the amounts charged by Calpine's subsidiaries for
power sold in the ISO and PX markets, cannot be determined at this time.
S-5
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("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 SEC's public reference facilities 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 permits us to "incorporate by reference" into this prospectus
supplement 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 supplement, 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 made with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, until we
sell all of the securities being registered or until this offering is otherwise
terminated:
- Calpine's Annual Report on Form 10-K for the year ended December 31,
2000; and
- Calpine's Current Reports on Form 8-K dated February 6, 2001, April 9,
2001 and April 19, 2001.
If you request a copy of any or all of the documents incorporated by
reference, then we will send to you the copies you requested at no charge.
However, we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct
requests for such copies to 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 supplement.
This prospectus supplement does not contain all of the information included in
the registration statement. Any statement made in this prospectus supplement
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.
RISK FACTORS
Investing in these senior notes involves risk. Please see the risk factors
described in our Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated by reference in this prospectus supplement. Before
making an investment decision, you should carefully consider these risks as well
as other information contained or incorporated by reference in this prospectus
supplement. The risks and uncertainties described are not the only ones facing
our company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business operations.
S-6
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FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus supplement and
incorporated by reference into this prospectus supplement 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 Private 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:
- changes in government regulations, including pending changes in
California and anticipated deregulation of the electric energy industry;
- commercial operations of new plants that may be delayed or prevented
because of various development and construction risks, such as a failure
to obtain financing and the necessary permits to operate or the failure
of third-party contractors to perform their contractual obligations;
- cost estimates are preliminary and actual costs may be higher than
estimated;
- the assurance that Calpine will develop additional plants;
- a competitor's development of lower-cost generating gas-fired power
plants;
- the risks associated with marketing and selling power from power plants
in the newly competitive energy market;
- the risks associated with marketing and selling combustion turbine parts
and components in the competitive combustion turbine parts market;
- the risks associated with engineering, designing and manufacturing
combustion turbine parts and components;
- delivery and performance risks associated with combustion turbine parts
and components attributable to production, quality control, suppliers and
transportation;
- the successful exploitation of an oil or gas resource that ultimately
depends upon the geology of the resource, the total amount and costs to
develop recoverable reserves and operations factors relating to the
extraction of natural gas;
- 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, 2000,
which is incorporated by reference in this prospectus supplement.
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 supplement to conform such statements to actual results.
S-7
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CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Calpine's consolidated ratios of earnings to
fixed charges for the indicated periods. This information does not reflect any
impact on Calpine's financial position or results of operations that will result
from our recent business combination under the pooling of interests method of
accounting with Encal on April 19, 2001.
YEAR ENDED DECEMBER 31,
- ------------------------------------
1996 1997 1998 1999 2000
- ----- ----- ----- ----- -----
1.46x 1.72x 1.69x 1.77x 2.04x
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
company-obligated mandatorily redeemable convertible preferred securities of its
subsidiary trusts ("HIGH TIDES(SM)") 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 distributions on the HIGH TIDES(SM).
S-8
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CAPITALIZATION
The following table sets forth, as of December 31, 2000 (1) the actual
consolidated capitalization of Calpine; and (2) the consolidated capitalization
of Calpine as adjusted to reflect the net effect of (a) the sale of 8 1/2%
Senior Notes due 2011 on February 15, 2001 and the application of the proceeds
thereof, (b) the business combination with Encal, and (c) the senior notes
offered hereby and the anticipated use of the proceeds thereof. The adjustments
do not reflect normal day-to-day operations. This table should be read in
conjunction with the consolidated financial statements and related notes thereto
and the unaudited pro forma combined condensed financial statements and related
note thereto incorporated by reference in this prospectus supplement.
DECEMBER 31, 2000
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
LONG-TERM DEBT:
Notes payable, net of current portion....................... $ 195,862 $ 51,388
Project financing, net of current portion................... 1,473,869 1,073,869
Senior notes................................................ 2,551,750 5,201,750
Capital lease obligation, net of current portion............ 208,876 208,876
---------- -----------
Total long-term debt...................................... 4,430,357 6,535,883
---------- -----------
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts................. 1,122,490 1,122,490
Minority interests.......................................... 37,576 37,576
---------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value:
10,000,000 shares authorized; no shares outstanding,
actual and one share outstanding as adjusted........... -- --
---------- -----------
Common stock, $.001 par value:
500,000,000 shares authorized; 283,715,058 shares
outstanding, actual, and 300,318,691 shares
outstanding, as adjusted............................... 284 300
Additional paid-in capital.................................. 1,700,505 1,896,987
Retained earnings........................................... 536,617 512,636
Accumulated other comprehensive loss........................ (632) (21,282)
---------- -----------
Total stockholders' equity................................ 2,236,774 2,388,641
---------- -----------
Total capitalization...................................... $7,827,197 $10,084,590
========== ===========
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DESCRIPTION OF SENIOR NOTES AND GUARANTEES
Calpine Canada Energy Finance will issue the senior notes under an
indenture dated as of April 25, 2001 between Calpine Canada Energy Finance and
Wilmington Trust Company as trustee. The guarantees will be issued by Calpine
under a Guarantee Agreement to be dated as of April 25, 2001. The senior notes
will be issued in the form of one or more global securities registered in the
name of The Depository Trust Company or its nominee, as depositary. The
following description and the description in the accompanying prospectus is a
summary of the material provisions of the senior notes, the indenture and the
guarantee agreement. These descriptions do not restate the indenture or the
guarantee agreement in their entirety. Calpine and Calpine Canada Energy Finance
urge you to read the indenture and the guarantee agreement because they, and not
this description, define your rights as holders of the senior notes. Calpine and
Calpine Canada Energy Finance have filed copies of the indenture and the
guarantee agreement as exhibits to the registration statement, which includes
the accompanying prospectus.
This description of the senior notes and the guarantee in this prospectus
supplement replace the description of the general provisions of the senior
notes, the guarantee, the indenture and the guarantee agreement in the
accompanying prospectus to the extent that it is inconsistent with the
accompanying prospectus. The senior notes are "debt securities" as that term is
used in the accompanying prospectus.
PRINCIPAL, MATURITY AND INTEREST
The senior notes will be senior unsecured obligations of Calpine Canada
Energy Finance. Calpine will irrevocably and unconditionally guarantee the
senior notes as to principal, premium, if any, interest and additional amounts,
if any. There is no sinking fund for the senior notes.
The senior notes will mature on May 1, 2008. Interest on the senior notes
will accrue at the rate of 8 1/2% per year and will be payable semi-annually in
arrears on May 1 and November 1 of each year, commencing on November 1, 2001.
Calpine Canada Energy Finance will make each interest payment to the person in
whose name the senior notes are registered at the close of business on the
immediately preceding April 15 or October 15, as the case may be, whether or not
that date is a business day, and, until other arrangements are made, will pay
interest by check to such holders at their registered addresses as shown on the
register for the senior notes.
Interest on the senior notes will accrue from April 25, 2001 and will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
If any interest payment date, maturity date or redemption date falls on a
day that is not a business day, the payment will be made on the next business
day and, unless Calpine Canada Energy Finance defaults on the payment, no
interest will accrue for the period from and after the interest payment date,
maturity date or redemption date.
REDEMPTION AND DEFEASANCE
The senior notes will be redeemable, at the option of Calpine Canada Energy
Finance, at any time in whole or from time to time in part, on not less than 30
nor more than 60 days' prior notice to the holders of the senior notes, on any
date prior to its maturity (a "Redemption Date") at a redemption price equal to:
- 100% of the outstanding principal amount of the senior notes being
redeemed; plus
- accrued and unpaid interest on the senior notes being redeemed to, but
excluding, the Redemption Date; plus
- a Make-Whole Premium.
In no event will the redemption price on the senior notes ever be less than 100%
of the principal amount of the senior notes being redeemed plus accrued and
unpaid interest thereon.
S-10
13
"Make-Whole Premium" means an amount equal to the Discounted Present Value
calculated for any senior note subject to redemption less the unpaid principal
amount of such senior note; provided, however, that no Make-Whole Premium shall
be less than zero. For purposes of this definition, the "Discounted Present
Value" of any senior note subject to redemption shall be equal to the discounted
present value of all principal and interest payments scheduled to become due in
respect of such senior note after the Redemption Date, calculated using a
discount rate equal to the sum of (1) the yield to maturity on the United States
treasury security having a maturity date equal to the maturity date of such
senior note and trading in the secondary market at the price closest to par and
(2) 37.5 basis points; provided, however, that if there is no United States
treasury security having a maturity date equal to the maturity date of such
senior note, such discount rate shall be calculated using a yield to maturity
interpolated or extrapolated on a straight-line basis (rounding to the nearest
month, if necessary) from the yields to maturity for the two United States
treasury securities having maturity dates most closely corresponding to the
maturity date of such senior note and trading in the secondary market at the
price closest to par.
With certain exceptions and pursuant to certain requirements set forth in
the indenture, Calpine Canada Energy Finance may discharge its obligations under
the indenture with respect to the senior notes as described under "Description
of the Debt Securities -- Defeasance, Discharge and Termination" in the
accompanying prospectus.
S-11
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion supplements, and supersedes when so indicated, the
discussion under "Certain United States Federal Income Tax Consequences" in the
accompanying prospectus.
TAXATION OF DEBT SECURITIES -- U.S. HOLDERS OF DEBT SECURITIES -- INTEREST
INCOME
If Canadian withholding taxes are imposed on payments on the senior notes,
the eligibility of a U.S. holder for a United States foreign tax credit with
respect to such taxes may be limited because, for United States foreign tax
credit purposes, such payments would constitute income from sources within the
United States. Moreover, if such Canadian withholding taxes are imposed on
interest payments at a rate that equals or exceeds 5%, such interest income
would constitute "high withholding tax interest" for United States foreign tax
credit purposes. Alternatively, a U.S. holder may be entitled to a deduction for
United States federal income tax purposes with respect to any such Canadian
withholding taxes. The calculation of foreign tax credits or deductions involves
the application of complex rules that depend on a U.S. holder's particular
circumstances. Accordingly, you are urged to consult your tax advisor regarding
the creditability or deductibility of such taxes. For a discussion of the
Canadian income tax considerations, see "Certain Canadian Federal Income Tax
Considerations."
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Bennett Jones LLP, Calgary, Alberta, Canada, special
Canadian tax counsel to Calpine Canada Energy Finance, the following summary
addresses the material Canadian federal income tax considerations to persons who
are non-residents of Canada of purchasing, owning and disposing of senior notes
which constitute capital property, for the purpose of the Income Tax Act
(Canada) (the "ITA"), to such persons. This summary is based on the current
provisions of the ITA and the regulations thereunder, the understanding of
Bennett Jones LLP of the current assessing and administrative practices of
Canada Customs and Revenue Agency ("CCRA") and all specific proposals to amend
the ITA and the regulations thereunder publicly announced by the Minister of
Finance (Canada) before the date of this prospectus supplement. This summary
does not otherwise take into account or anticipate changes in the law or in the
assessment and administrative practices of CCRA, whether by judicial,
governmental or legislative decision or action, nor does it take into account
tax legislation or considerations of any province or territory of Canada or any
jurisdiction other than Canada. This summary is of a general nature only and is
not intended to be, and should not be interpreted as, legal or tax advice to any
holder of senior notes. This summary is not applicable to any holder other than
an initial holder who purchases senior notes pursuant to the offering.
The payment of interest, premium, if any, and principal by Calpine Canada
Energy Finance on the notes to initial holders who are non-residents of Canada
with whom Calpine Canada Energy Finance is dealing at arms' length, within the
meaning of the ITA, at the time of making the payment will be exempt from
non-resident withholding tax under the ITA. For the purposes of the ITA, related
persons (as defined therein) are deemed not to deal at arms' length and it is a
question of fact whether persons not related to each other deal at arm's length.
No other tax on income (including capital gains) will be payable under the
ITA in respect of the holding, repayment, redemption or disposition of the
notes, or the receipt of interest, premium, if any, or principal thereon by
holders who are not resident, or deemed to be resident, in Canada and who do not
use or hold, and are not deemed to use or hold, the notes in carrying on
business in Canada, for the purpose of the ITA, except that in certain
circumstances, holders who are non-resident insurers carrying on business in
Canada, and elsewhere, may be subject to such taxes.
S-12
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UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated April 20, 2001, Calpine and Calpine Canada Energy Finance have
agreed to sell to the underwriters named below, for whom Credit Suisse First
Boston Corporation is acting as representative, the following respective
principal amounts of senior notes and accompanying guarantees.
PRINCIPAL AMOUNT OF
NAME SENIOR NOTES
---- -------------------
Credit Suisse First Boston Corporation...................... $ 900,000,000
Scotia Capital (USA) Inc. .................................. 225,000,000
TD Securities (USA) Inc. ................................... 225,000,000
Banc of America Securities LLC.............................. 150,000,000
--------------
Total..................................................... $1,500,000,000
==============
The underwriting agreement provides that the underwriters are obligated to
purchase all of the senior notes if any are purchased. The underwriting
agreement also provides that if an underwriter defaults the purchase commitments
of non-defaulting underwriters may be increased or the offering of senior notes
may be terminated.
The underwriters propose to offer the senior notes initially at the public
offering price on the cover page of this prospectus supplement and to selling
group members at that price less a selling concession of 0.60% of the principal
amount per $1,000. The underwriters and the selling group members may allow a
discount of 0.25% of the principal amount per $1,000 on sales to other
broker/dealers. After the initial public offering the representative may change
the public offering price and concession and discount to broker/dealers.
Calpine Canada Energy Finance estimates that its out of pocket expenses for
this offering will be approximately $900,000.
The senior notes are a new issue of securities with no established trading
market. One or more of the underwriters intends to make a secondary market for
the senior notes. However they are not obligated to do so and may discontinue
making a secondary market for the senior notes at any time without notice. No
assurance can be given as to how liquid the trading market for the senior notes
will be.
Subject to certain exceptions, Calpine Canada Energy Finance and Calpine
have agreed that they will not offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
additional debt securities, or publicly disclose our intention to make any
offer, sale, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 30 days after the date of this
prospectus supplement.
Calpine Canada Energy Finance and Calpine have agreed to indemnify the
underwriters against liabilities under the Securities Act, or contribute to
payments which the underwriters may be required to make in that respect.
In the ordinary course of business, certain of the underwriters and their
affiliates have provided financial advisory, investment banking and general
financing and banking services for Calpine and its affiliates for customary
fees. Affiliates of several of the underwriters are also lenders under various
credit facilities. The decision of the underwriters to distribute the senior
notes was made independent of the banking affiliates of the underwriters who are
lenders under the various credit facilities, which lenders had no involvement in
determining whether or when to distribute the senior notes under this offering
or the terms of this offering. Except for a reasonable structuring fee received
by Credit Suisse First Boston Corporation in connection with intracompany
transactions relating to the proceeds of this offering, the underwriters will
not receive any benefit from this offering other than their respective portion
of the selling commission and discounts disclosed in this prospectus supplement.
S-13
16
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of senior notes in
excess of the principal amount the underwriters are obligated to
purchase, which creates a syndicate short position.
- Syndicate covering transactions involve purchases of the senior notes in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representative to reclaim a selling concession
from a syndicate member when the senior notes originally sold by such
syndicate member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
senior notes or preventing or retarding a decline in the market price of the
senior notes. As a result the price of the senior notes may be higher than the
price that might otherwise exist in the open market. These transactions, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the senior notes of Calpine Canada Energy Finance offered
hereby will be passed upon for us by Bennett Jones LLP, Calgary, Alberta,
Canada, and Covington & Burling, New York, New York. The underwriters have been
represented by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The audited financial statements incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
S-14
17
PROSPECTUS
CALPINE CORP. LOGO CALPINE CORPORATION
Common Stock
Preferred Stock
Debt Securities
CALPINE CANADA ENERGY FINANCE ULC
Debt Securities Fully and Unconditionally
Guaranteed by Calpine Corporation
------------------------
Calpine Corporation may periodically sell common stock, preferred stock and
debt securities to the public. We will provide specific terms of such securities
in supplements to this prospectus. You should read this prospectus and each
applicable supplement carefully before you invest.
Calpine Canada Energy Finance ULC may periodically sell debt securities to
the public. Such debt securities will be fully and unconditionally guaranteed by
Calpine Corporation. Calpine Canada Energy Finance ULC will provide specific
terms of such debt securities in supplements to this prospectus. You should read
this prospectus and each applicable supplement carefully before you invest.
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE
9.
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.
This prospectus may not be used to sell our securities unless it is
accompanied by a prospectus supplement.
Prospectus dated April 19, 2001.
18
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus or the accompanying prospectus supplement and, if given or made, such
information or representations must not be relied upon as having been
authorized. This prospectus and accompanying prospectus supplement do not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the securities described in this prospectus and the
accompanying prospectus supplement or an offer to sell or the solicitation of an
offer to buy such securities in any circumstance in which such offer or
solicitation is unlawful. Neither the delivery of this prospectus or the
accompanying prospectus supplement, nor any sale made under this prospectus or
accompanying prospectus supplement shall, under any circumstances, create any
implication that there has been no change in our affairs since the date of the
prospectus supplement accompanying this prospectus or that the information
contained or incorporated by reference in this prospectus or accompanying
prospectus supplement is correct as of any time subsequent to the date of such
information.
TABLE OF CONTENTS
PAGE
----
About This Prospectus................. 3
Calpine............................... 4
Calpine Canada Energy Finance......... 8
Risk Factors.......................... 9
Where You Can Find More Information... 9
Forward-Looking Statements............ 11
Consolidated Ratio of Earnings to
Fixed Charges....................... 12
Use of Proceeds....................... 12
PAGE
----
Plan of Distribution.................. 12
Description of Capital Stock.......... 14
Description of the Debt Securities.... 19
Certain United States Federal Income
Tax Consequences.................... 33
Notice to Canadian Residents.......... 43
Legal Matters......................... 44
Experts............................... 44
19
ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a joint registration
statement that we filed with the SEC using a "shelf" registration or continuous
offering process. Under this shelf process, Calpine may from time to time sell
any combination of the common stock, the preferred stock and the debt securities
of Calpine described in this prospectus, and Calpine Canada Energy Finance may
from time to time sell the debt securities of Calpine Canada Energy Finance
fully and unconditionally guaranteed by Calpine Corporation described in this
prospectus, in one or more offerings which will aggregate up to a total dollar
amount of $2,500,000,000, which amount includes over-allotment options with
regard to certain securities.
Pursuant to Rule 3-10 of Regulation S-X promulgated by the SEC, we are not
required to include separate financial statements of Calpine Canada Energy
Finance in this prospectus, because:
- all of the voting rights of Calpine Canada Energy Finance will be owned
by Calpine, either directly or through wholly-owned subsidiaries of
Calpine, which files regular reports with the SEC,
- Calpine Canada Energy Finance has no operations other than the transfer
of funds to Calpine or its subsidiaries, and
- Calpine will fully and unconditionally guarantee Calpine Canada Energy
Finance's obligations and the rights of holders and no subsidiary of
Calpine will guarantee the obligations of Calpine Canada Energy Finance.
This prospectus provides you with a general description of the common
stock, the preferred stock and the debt securities we may offer. Each time we
sell such securities, whether by Calpine or Calpine Canada Energy Finance, we
will provide a prospectus supplement containing specific information about the
terms of the securities being offered, including any guarantees. That prospectus
supplement may include a discussion of any 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 website or at the SEC offices
mentioned under the heading "Where You Can Find More Information."
You should rely only on the information incorporated by reference or
provided in this prospectus and the accompanying 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 accompanying 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 or delivered with this 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, in this prospectus references to
"Calpine" are to Calpine Corporation, references to "Calpine Canada Energy
Finance" are to Calpine Canada Energy Finance ULC and references to "we," "us"
and "our" or similar terms are, collectively, to Calpine Corporation and its
consolidated subsidiaries excluding Calpine Capital Trust III, Calpine Capital
Trust II and Calpine Capital Trust.
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20
CALPINE
Calpine is a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity predominantly in the United States. We have experienced
significant growth in all aspects of our business over the last five years.
Currently, we own interests in 50 power plants having a net capacity of 5,849
megawatts. We also have 25 gas-fired projects under construction having a net
capacity of 14,028 megawatts and have announced plans to develop 29 gas-fired
projects (power plants and expansions of current facilities) with a net capacity
of 15,478 megawatts. Upon completion of the projects under construction, we will
have interests in 74 power plants located in 21 states having a net capacity of
19,877 megawatts. Of this total generating capacity, 96% will be attributable to
gas-fired facilities and 4% 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.
This information does not reflect any impact on Calpine's financial position or
results of operations that will result from our recent business combination
under the pooling of interests method of accounting with Encal Energy Ltd.
("Encal") on April 19, 2001.
COMPOUND ANNUAL
1996 2000 GROWTH RATE
-------- -------- ---------------
(IN MILLIONS)
Total Revenue.......................................... $ 214.6 $2,282.8 81%
EBITDA................................................. 110.7 825.9 65%
Net Income............................................. 18.7 323.5 104%
Total Assets........................................... 1,031.4 9,737.3 75%
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.
CAPITALIZATION
The following table sets forth, as of December 31, 2000 (1) the actual
consolidated capitalization of Calpine; and (2) the consolidated capitalization
of Calpine as adjusted to reflect the net effect of the sale of the 8 1/2%
Senior Notes due 2011. The adjustments do not reflect normal day-to-day
operations. This table should be read in conjunction with the consolidated
financial statements and related notes thereto incorporated by reference in this
prospectus.
DECEMBER 31, 2000
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
CASH:
Cash and cash equivalents................................. $ 588,698 $1,720,955
========== ==========
LONG-TERM DEBT:
Notes payable, net of current portion....................... $ 195,862 $ 195,862
Project financing, net of current portion................... 1,473,869 1,473,869
Senior notes................................................ 2,551,750 3,701,750
Capital lease obligation, net of current portion............ 208,876 208,876
---------- ----------
Total long-term debt...................................... 4,430,357 5,580,357
---------- ----------
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts................. 1,122,490 1,122,490
Minority interests.......................................... 37,576 37,576
---------- ----------
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DECEMBER 31, 2000
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value:
10,000,000 shares authorized; no shares outstanding,
actual, and 300,318,691 shares outstanding, as
adjusted............................................... -- --
---------- ----------
Common stock, $0.001 par value:
500,000,000 shares authorized; 283,715,058 shares
outstanding, actual, and as adjusted................... 284 284
Additional paid-in capital.................................. 1,700,505 1,700,505
Retained earnings........................................... 536,617 536,617
Accumulated other comprehensive loss........................ (632) (632)
---------- ----------
Total stockholders' equity................................ 2,236,774 2,236,774
---------- ----------
Total capitalization...................................... $7,827,197 $8,977,197
========== ==========
THE MARKET
The power industry represents the third largest industry in the United
States, with an estimated end-user market of over $215 billion of electricity
sales in 2000 produced by an aggregate base of power generation facilities with
a capacity of approximately 860,000 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 and 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.
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- Acquisition of power plants. Our strategy is to acquire power generating
facilities that meet our stringent criteria, provide significant
potential for revenue, cash flow and earnings growth and provide the
opportunity to enhance the operating efficiencies of the plants.
- Enhancement of existing power plants. We continually seek to maximize
the power generation and revenue potential of our operating assets and
minimize our operating and maintenance expenses and fuel costs.
RECENT DEVELOPMENTS
Project Development and Construction. On February 12, 2001, we announced
that the Florida Public Service Commission approved a joint application filed by
Calpine and Seminole Electric Cooperative, Inc. ("Seminole"), under which we
will build the Osprey Energy Center to supply electric power to help meet
Seminole's members' power needs.
On March 16, 2001, we announced that our wholly-owned subsidiary, Skygen
Energy LLC, has entered into a ten-year agreement to supply Xcel Energy,
formerly Public Service Co. of Colorado, with 336 megawatts of peaking capacity.
Power will be delivered to our proposed Colorado Energy Center, a $100 million
electric generating facility to be located in an industrial area east of Denver
in the city of Aurora.
Issuance of Securities. On February 15, 2001, we completed a public
offering of $1.15 billion of our 8 1/2% Senior Noes due 2011. The Senior Notes
due 2011 bear interest at 8 1/2% per year, payable semi-annually, and mature on
February 15, 2011.
California Power Market. The deregulation of the California power market
has produced significant unanticipated results in the past year. The
deregulation froze the rates that utilities can charge their retail and business
customers in California and prohibited the utilities from buying power on a
forward basis, while wholesale power prices were not subjected to limits.
In the past year, a series of factors have reduced the supply of power to
California, which has resulted in wholesale power prices that have been
significantly higher than historical levels. Several factors contributed to this
increase. These included:
- significantly increased volatility in prices and supplies of natural gas;
- an unusually dry fall and winter in the Pacific Northwest, which reduced
the amount of available hydroelectric power from that region (typically,
California imports a portion of its power from this source);
- the large number of power generating facilities in California nearing the
end of their useful lives, resulting in increased downtime (either for
repairs or because they have exhausted their air pollution credits and
replacement credits have become too costly to acquire on the secondary
market); and
- continued obstacles to new power plant construction in California, which
deprived the market of new power sources that could have, in part,
ameliorated the adverse effects of the foregoing factors.
As a result of this situation, two major California utilities that are
subject to the retail rate freeze, including Pacific Gas & Electric Company
("PG&E"), have faced wholesale prices that far exceed the retail prices they are
permitted to charge. This has led to significant underrecovery of costs by these
utilities; and they have been widely reported to be facing the prospect of
insolvency. As a consequence, these utilities have defaulted under a variety of
contractual obligations, including payment obligations to power generators. PG&E
has defaulted on payment obligations to Calpine. On April 6, 2001, PG&E filed
for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
As of March 31, 2001, Calpine recorded approximately $267 million in accounts
receivable with PG&E, plus a $68 million note receivable not yet due and
payable. Calpine is confident that PG&E, through a successful reorganization,
will be able to pay Calpine for all past due power sales, in addition to
electricity deliveries made on a going-forward basis. (For additional
information, including information on certain receivables, see Notes 15 and 19
of the Notes to Consolidated Financial Statements incorporated by reference
herein).
Calpine has historically sold power to PG&E, which is one of the California
utilities that is subject to the rate freeze. Calpine is currently selling power
to PG&E pursuant to long-term qualifying facility ("QF") contracts, which are
subject to federal regulation under the Public Utility Regulatory Policies Act
of 1978, as
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amended ("PURPA") (16 U.S.C. sec. 796 et seq.). The QF contracts, which are in
place at eleven facilities, representing nearly 600 megawatts of electricity for
Northern California customers, provide that the California Public Utilities
Commission ("CPUC") has the authority to determine the appropriate utility
"avoided cost" to be used to set energy payments for certain QF contracts,
including those for all of our QF plants in California which sell power to PG&E.
Section 390 of the California Public Utility Code provided QFs the option to
elect to receive energy payments based on the California Power Exchange ("PX")
market clearing price. In mid- 2000, our QF facilities elected this option and
were paid based upon the PX zonal day ahead clearing price ("PX Price") from
summer 2000 until January 19, 2001, when the PX ceased operating a day ahead
market. Since that time, the CPUC has ordered that the price to be paid for
energy deliveries by QFs electing the PX Price shall be based on a natural gas
cost-based "transition formula." The CPUC has conducted proceedings (R.
99-11-022) to determine whether the PX Price was the appropriate price for the
energy component upon which to base payments to QFs which had elected the PX
based pricing option. It is possible that the CPUC could order a payment
adjustment based on a different energy price determination. We believe that the
PX Price was the appropriate price for energy payments but there can be no
assurance that this will be the outcome of the CPUC proceedings. Legislation has
recently been introduced in the California legislature (SB 47X) that would
establish a fixed price for the QF contracts for a five year period and would
eliminate any PX Price adjustment prior to December 31, 2000. There can be no
assurances that this legislation will be enacted.
We have continued to honor our contractual obligations to PG&E under our QF
contracts. To date, we have refrained from pursuing our collection remedies with
respect to PG&E's default, however, we have been actively involved with the
California utilities, the California legislature, and other interested parties
to develop legislation designed to stabilize energy prices through the
application of a long-term energy pricing methodology (for a five-year period)
in place of the short-term pricing methodology currently utilized under the QF
contracts, as discussed above. We also expect further legislation to enable the
California utilities to finance over a longer term the difference between the
wholesale prices that have been paid and the retail prices they received during
last fall and into this winter. We believe that this should enhance PG&E's
ability to make payment of all past due amounts. However, management cannot
predict the timing or ultimate outcome of the legislative process or the payment
of amounts due under our contracts.
As this situation has deteriorated, California has taken steps to restore a
predictable and reliable power market to the State. Recently, California adopted
legislation permitting it to issue long-term revenue bonds to provide funding
for wholesale purchases of power. The bonds will be repaid with the proceeds of
payments by retail customers over time. The California Department of Water
Resources ("DWR") sought bids for long-term power supply contracts. We
successfully bid in that auction, and announced, as indicated below, that we
have signed three significant long-term power supply contracts with DWR.
On February 7, 2001, we announced the signing of a 10-year, $4.6 billion
fixed-price contract with DWR to provide electricity to the State of California.
We committed to sell up to 1,000 megawatts of electricity, with initial
deliveries of 200 megawatts starting October 1, 2001, and increasing to 1,000
megawatts by January 1, 2004. This contract will continue through 2011. The
electricity will be sold directly to DWR on a 24-hour, 7-day-a-week basis.
On February 28, 2001, we announced the signing of two long-term power sales
contracts with DWR. Under the terms of the first contract, a $5.2 billion,
10-year, fixed-price contract, we commit to sell up to 1,000 megawatts of
generation. Initial deliveries are scheduled to begin July 1, 2001 with 200
megawatts and increase to 1,000 megawatts by as early as July 2002. Under the
terms of the second contract, a 20-year contract totaling up to $3.1 billion, we
will supply DWR with up to 495 megawatts of peaking generation, beginning with
90 megawatts as early as August 2001, and increasing up to 495 megawatts as
early as August 2002.
On March 31, 2001, we announced the signing of a two-month deal to provide
555 megawatts of electricity to DWR from our new South Point Energy Center
during plant testing, effective immediately through May 15, 2001.
FERC Investigation into California Wholesale Markets. Beginning in May
2000, wholesale energy prices in the California markets increased to levels well
above 1999 levels. In response, on June 28, 2000, the
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ISO Board of Governors reduced the price cap applicable to the ISO's wholesale
energy and ancillary services markets from $750/MWh to $500/MWh. The ISO
subsequently reduced the price cap to $250/MWh on August 1, 2000. During this
period, however, the California Power Exchange Corporation ("PX") maintained a
separate price cap set at a much higher level applicable to the "day-ahead" and
"day-of" markets administered by the PX. On August 23, 2000, the Federal Energy
Regulatory Commission ("FERC") denied a complaint filed August 2, 2000 by San
Diego Gas & Electric Company ("SDG&E") that sought to extend the ISO's $250
price cap to all California energy and ancillary service markets, not just the
markets administered by the ISO. However, in its order denying the relief sought
by SDG&E, the FERC instructed its staff to initiate an investigation of the
California power markets and to report its findings to the FERC and held further
hearing procedures in abeyance pending the outcome of this investigation.
On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff investigation, together with an "Order Proposing Remedies for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order, the
FERC found that the California power market structure and market rules were
seriously flawed, and that these flaws, together with short supply relative to
demand, resulted in unusually high energy prices. The November 1 Order proposed
specific remedies to the identified market flaws, including: (a) imposition of a
so-called "soft" price cap at $150/MWh to be applied to both the PX and ISO
markets, which would allow bids above $150/MWh to be accepted, but will subject
such bids to certain reporting obligations requiring sellers to provide cost
data and/or identify applicable opportunity costs and specifying that such bids
may not set the overall market clearing price, (b) elimination of the
requirement that the California utilities sell into and buy from the PX, (c)
establishment of independent non-stakeholder governing boards for the ISO and
the PX, and (d) establishment of penalty charges for scheduling deviations
outside of a prescribed range. In the November 1 Order the FERC established
October 2, 2000, the date 60 days after the filing of the SDG&E complaint, as
the "refund effective date." Under the November 1 Order, rates charged for
service after that date through December 31, 2002 will remain subject to refund
if determined by the FERC not to be just and reasonable. While the FERC
concluded that the Federal Power Act and prior court decisions interpreting that
act strongly suggested that refunds would not be permissible for charges in the
period prior to October 2, 2000, it noted that it was willing to explore
proposals for equitable relief with respect to charges made in that period. All
of the Company's receivables from PG&E relate to energy generated by QF
facilities. Under FERC regulations, QF contracts are exempt from regulation
under the Federal Power Act, which is the legislation that provides the
authority for the FERC to compel refunds or frame other equitable relief with
respect to the California wholesale markets. Therefore, the Company believes
that any refund or other equitable remedy that the FERC may impose with respect
to the California wholesale markets will not affect the Company's ability to
pursue payment by PG&E of all past due amounts as described above.
On December 15, 2000, the FERC issued a subsequent order that affirmed in
large measure the November 1 Order (the "December 15 Order"). Various parties
have filed requests for administrative rehearing and for judicial review of
aspects of the FERC's December 15 Order. The outcome of these proceedings, and
the extent to which the FERC or a reviewing court may revise aspects of the
December 15 Order or the extent to which these proceedings may result in a
refund of or reduction in the amounts charged by the Company's subsidiaries for
power sold in the ISO and PX markets, cannot be determined at this time.
CALPINE CANADA ENERGY FINANCE
Calpine Canada Energy Finance ULC is an unlimited liability company
organized in March 2001 under the laws of Nova Scotia, Canada. Calpine Canada
Energy Finance is a wholly-owned special purpose finance subsidiary of Calpine
Corporation that engages in financing activities to raise funds for the business
operations of Calpine and its subsidiaries. Calpine Canada Energy Finance will
issue debt securities which will be fully and unconditionally guaranteed by
Calpine.
The registered office of Calpine Canada Energy Finance ULC is Suite 800,
Purdy's Wharf, Tower 1, 1959 Upper Water Street, P.O. Box 997, Halifax, Nova
Scotia B3J 3N2, telephone (902) 420-3335.
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RISK FACTORS
Investing in our securities involves risk. Please see the risk factors
described in our Annual Report on Form 10-K for the year ended December 31,
2000, which is incorporated by reference in this prospectus.
Before making an investment decision, you should carefully consider these
risks as well as other information contained or incorporated by reference in
this prospectus. The risks and uncertainties described are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business operations.
WHERE YOU CAN FIND MORE INFORMATION
Calpine files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may obtain any document we file with the SEC at the SEC's public reference room
in Washington, D.C., Chicago, Illinois and New York, New York. You may obtain
information on the operation of the SEC's public reference facilities by calling
the SEC at 1-800-SEC-0330. You can 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 website at http://www.sec.gov.
Calpine Canada Energy Finance is not currently subject to the information
reporting requirements of the Securities Exchange Act of 1934. Although Calpine
Canada Energy Finance will become subject to such requirements upon the
effectiveness of this Registration Statement, it is not expected that Calpine
Canada Energy Finance will be required to file separate reports under the
Securities Exchange Act of 1934 because, in reliance upon the applicable
exemption to such requirements:
- all of the voting rights of Calpine Canada Energy Finance will be owned
by Calpine, either directly or through wholly-owned subsidiaries of
Calpine, which files regular reports with the SEC,
- Calpine Canada Energy Finance has no operations other than transferring
funds to Calpine or its subsidiaries, and
- Calpine will fully and unconditionally guarantee Calpine Canada Energy
Finance's obligations and the rights of holders and no subsidiary of
Calpine will guarantee the obligations of Calpine Canada Energy Finance.
The SEC permits 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 made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, until we sell all
of the securities being registered or until this offering is otherwise
terminated:
- Calpine's Annual Report on Form 10-K for the year ended December 31,
2000; and
- Calpine's Current Reports on Form 8-K dated February 6, 2001 and April 9,
2001.
If you request a copy of any or all of the documents incorporated by
reference, then we will send to you the copies you requested at no charge.
However, we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct
requests for such copies to Calpine Corporation, 50 West San Fernando Street,
San Jose, California 95113, attention: Lisa M. Bodensteiner, Assistant
Secretary, telephone: (408) 995-5115.
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We have filed with the SEC a joint 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.
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FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus or any prospectus
supplement and incorporated by reference into this prospectus or any prospectus
supplement 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 Private 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:
- changes in government regulations, including pending changes in
California and anticipated deregulation of the electric energy industry;
- commercial operations of new plants that may be delayed or prevented
because of various development and construction risks, such as a failure
to obtain financing and the necessary permits to operate or the failure
of third-party contractors to perform their contractual obligations;
- cost estimates are preliminary and actual costs may be higher than
estimated;
- the assurance that Calpine will develop additional plants;
- a competitor's development of lower-cost generating gas-fired power
plants;
- the risks associated with marketing and selling power from power plants
in the newly competitive energy market;
- the risks associated with marketing and selling combustion turbine parts
and components in the competitive combustion turbine parts market;
- the risks associated with engineering, designing and manufacturing
combustion turbine parts and components;
- delivery and performance risks associated with combustion turbine parts
and components attributable to production, quality control, suppliers and
transportation;
- the successful exploitation of an oil or gas resource that ultimately
depends upon the geology of the resource, the total amount and costs to
develop recoverable reserves and operations factors relating to the
extraction of natural gas; 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, 2000,
which is incorporated by reference in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform such statements to actual results.
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CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Calpine's consolidated ratios of earnings to
fixed charges for the indicated periods. This information does not reflect any
impact on Calpine's financial position or results of operations that will result
from our recent business combination under the pooling of interests method of
accounting with Encal on April 19, 2001.
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
1.46x 1.72x 1.69x 1.77x 2.04x
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
company-obligated mandatorily redeemable convertible preferred securities of its
subsidiary trusts ("HIGH TIDES(SM)") 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 distributions on the HIGH TIDES(SM).
USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement accompanying this
prospectus, we will add the net proceeds from the sale of the securities to
which this prospectus and the prospectus supplement relate to our general funds,
which we will use for financing power projects under development or
construction, working capital, general corporate purposes and any other purpose
specified in a prospectus supplement. We may conduct concurrent or additional
financings at any time. The net proceeds from the sale of debt securities by
Calpine Canada Energy Finance to which this prospectus relates will be lent to
Calpine and its affiliates by Calpine Canada Energy Finance pursuant to an
intercompany loan.
PLAN OF DISTRIBUTION
We may sell our securities through agents, underwriters, dealers or
directly to purchasers.
- Unless we indicate otherwise in our prospectus supplement, our agents
will act on a best efforts basis for the period of their appointment.
- Our agents may be deemed to be underwriters under the Securities Act of
any of our securities that they offer or sell.
We may use an underwriter or underwriters in the offer or sale of our
securities.
- If we use an underwriter or underwriters, we will execute an underwriting
agreement with the underwriter or underwriters at the time that we reach
an agreement for the sale of our securities.
- We will include the names of the specific managing underwriter or
underwriters, as well as any other underwriters, and the terms of the
transactions, including the compensation the underwriters and dealers
will receive, in our prospectus supplement.
- The underwriters will use our prospectus supplement to sell our
securities.
We may use a dealer to sell our securities.
- If we use a dealer, we, as principal, will sell our securities to the
dealer.
- The dealer will then sell our securities to the public at varying prices
that the dealer will determine at the time it sells our securities.
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- We will include the name of the dealer and the terms of our transactions
with the dealer in our prospectus supplement.
We may directly solicit offers to purchase our securities, and we may
directly sell our securities to institutional or other investors. We will
describe the terms of our direct sales in our prospectus supplement.
Agents, underwriters, and dealers may be entitled, under agreements entered
into with us, to indemnification by Calpine and, if applicable, Calpine Canada
Energy Finance against certain liabilities, including liabilities under the
Securities Act. Our agents, underwriters, and dealers, or their affiliates, may
be customers of, engage in transactions with or perform services for us, in the
ordinary course of business.
We may authorize our agents and underwriters to solicit offers by certain
institutions to purchase our securities at the public offering price under
delayed delivery contracts.
- If we used delayed delivery contracts, we will disclose that we are using
them in our prospectus supplement and will tell you when we will demand
payment and delivery of the securities under the delayed delivery
contracts.
- These delayed delivery contracts will be subject only to the conditions
that we set forth in our prospectus supplement.
- We will indicate in our prospectus supplement the commission that
underwriters and agents soliciting purchases of our securities under
delayed contracts will be entitled to receive.
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DESCRIPTION OF CAPITAL STOCK
Calpine's authorized capital stock consists of 500,000,000 shares of common
stock, $.001 par value, and 10,000,000 shares of preferred stock, $.001 par
value. The following summary is qualified in its entirety by the provisions of
Calpine's certificate of incorporation and by-laws, which have been filed as
exhibits to the Registration Statement of which this prospectus constitutes a
part. The information provided below reflects the 2 for 1 split of Calpine's
common stock that became effective on October 7, 1999, the 2 for 1 split of
Calpine's common stock that became effective on June 8, 2000 and the 2 for 1
split of Calpine's common stock that became effective on November 14, 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 legally available funds. 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 shares of common stock to be
outstanding upon the redemption or exchange of the exchangeable shares will be
fully paid and non-assessable. Pursuant to a rights agreement entered into in
June of 1997, Calpine's shares of common stock outstanding prior to the
occurrence of events specified in the rights agreement have certain preferred
share purchase rights, which are set forth in more detail in the rights
agreement incorporated by reference as an exhibit to the Registration Statement
of which this prospectus constitutes a part. See "-- Anti-Takeover Effects of
Provisions of the Certificate of Incorporation, Bylaws, Rights Plan and Delaware
Law -- Rights Plan."
PRICE RANGE OF COMMON STOCK
Calpine's common stock is traded on the New York Stock Exchange under the
symbol "CPN." Public trading of the common stock commenced on September 20,
1996. Prior to that, there was no public market for the common stock. The
following table sets forth, for the periods indicated, the high and low sale
price per share of the common stock on the New York Stock Exchange.
HIGH LOW
------- -------
1999
First Quarter............................................... $ 4.672 $ 3.157
Second Quarter.............................................. 7.375 4.391
Third Quarter............................................... 11.969 6.852
Fourth Quarter.............................................. 16.375 10.633
2000
First Quarter............................................... $30.750 $ 16.094
Second Quarter.............................................. 35.219 18.125
Third Quarter............................................... 52.250 32.250
Fourth Quarter.............................................. 52.969 32.250
2001
First Quarter............................................... $58.04 $ 29.00
Second Quarter (through April 12, 2001)..................... 56.25 45.00
As of April 12, 2001, there were approximately 667 holders of record of our
common stock. On April 12, 2001, the last sale price reported on the New York
Stock Exchange for our common stock was $51.38 per share.
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DIVIDEND POLICY
We do not anticipate paying any cash dividends on Calpine's 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.
PREFERRED STOCK
The following description of preferred stock and the description of the
terms of a particular series of preferred stock that will be set forth in the
related prospectus supplement are not complete. These descriptions are qualified
in their entirety by reference to the certificate of designation relating to
that series. The rights, preferences, privileges and restrictions of the
preferred stock of each series will be fixed by the certificate of designation
relating to that series that will be filed as an amendment to this registration
statement at the time such series of preferred stock is offered. The prospectus
supplement also will contain a description of certain United States federal
income tax consequences relating to the purchase and ownership of the series of
preferred stock that is described in the prospectus supplement.
As of April 16, 2001, there were no shares of preferred stock outstanding.
The board of directors has the authority, without further vote or action by the
stockholders, to issue from time to time up to 10,000,000 shares of preferred
stock 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 Calpine's company, or
could delay or prevent a transaction that might otherwise give Calpine's
stockholders an opportunity to realize a premium over the then prevailing market
price of the common stock.
Calpine's board of directors has authorized the issuance of up to 500,000
shares of Series A Participating Preferred Stock, par value $.001 per share,
pursuant to a rights plan adopted by Calpine's board of directors on June 5,
1997. On April 16, 2001, no shares of Calpine's participating preferred stock
were outstanding. A description of the rights plan and the participating
preferred stock is set forth under "-- Anti-Takeover Effects of Provisions of
the Certificate of Incorporation, Bylaws, Rights Plan and Delaware -- Rights
Plan," below.
Upon consummation of the Encal acquisition, a series of preferred stock,
consisting of one share, will be designated as special voting preferred stock,
having a par value of $.001 per share and a liquidation preference of $.01.
Except as otherwise required by law or Calpine's certificate of incorporation,
the one share of special voting preferred stock will possess a number of votes
for the election of directors and on all other matters submitted to a vote of
Calpine's stockholders equal to the number of outstanding Calpine common stock
equivalent shares issued by Calpine's wholly-owned subsidiary from time to time
and not owned by Calpine or any entity controlled by Calpine. The holders of
Calpine common stock and the holder of the special voting preferred stock will
vote together as a single class on all matters on which holders of Calpine's
common stock are eligible to vote. In the event of Calpine's liquidation,
dissolution or winding-up, all outstanding Calpine common stock equivalent
shares will automatically be exchanged for shares of Calpine's common stock, and
the holder of the special voting preferred stock will not be entitled to receive
any assets available for distribution to Calpine's stockholders. The holder of
the special voting preferred stock will not be entitled to receive dividends.
The share of special voting preferred stock will be issued to a Canadian trust
company, as trustee under a voting and exchange trust agreement among Calpine,
Calpine Canada and the trustee. At such time as the one share of special voting
preferred stock has no votes attached to it because there are no Calpine
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common stock equivalent shares outstanding not owned by Calpine or an entity
controlled by Calpine, the share of special voting preferred stock will be
canceled.
A prospectus supplement with respect to the issuance of a series of
preferred stock will specify:
- the maximum number of shares,
- the designation of the shares,
- the annual dividend rate, if any, whether the dividend rate is fixed or
variable, whether the series of preferred stock will be issued with
original issue discount and, if so, the computed dividend rate thereon,
the date dividends will accrue, the dividend payment dates, and whether
dividends will be cumulative,
- the price and the terms and conditions for redemption, if any, including
redemption at our option or at the option of the holders, including the
time period for redemption, and any accumulated dividends or premiums,
- the liquidation preference, if any, and any accumulated dividends upon
the liquidation, dissolution or winding up Calpine's affairs,
- any sinking fund or similar provision, and, if so, the terms and
provisions relating to the purpose and operation of the fund,
- the terms and conditions, if any, for conversion or exchange of shares of
any other class or classes of our capital stock or any series of any
other class or classes, or of any other series of the same class, or any
other securities or assets, including the price or the rate of conversion
or exchange and the method, if any, of adjustment,
- the voting rights, if any, and
- any or all other preferences and relative, participating, optional or
other special rights, privileges or qualifications, limitations or
restrictions.
Preferred stock will be fully paid and nonassessable upon issuance. The
preferred stock or any series of preferred stock may be represented, in whole or
in part, by one or more global certificates, which will have an aggregate
liquidation preference equal to that of the preferred stock represented by the
global certificate.
Each global certificate will:
- be registered in the name of a depositary or a nominee of the depositary
identified in the prospectus supplement,
- be deposited with such depositary or nominee or a custodian for the
depositary, and
- bear a legend regarding the restrictions on exchanges and registration of
transfer and any other matters as may be provided for under the
certificate of designation.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Calpine's certificate of incorporation provides that Calpine's board of
directors is classified into three classes of directors serving staggered,
three-year terms. The certificate of incorporation also provides that directors
may be removed only by the affirmative vote of the holders of two-thirds of the
shares of Calpine's capital stock entitled to vote, voting together as single
class. Any vacancy on the board of directors may be filled only by vote of the
majority of directors then in office. Further, the certificate of incorporation
provides that any business combination (as defined therein) requires the
affirmative vote of the holders of two-thirds of the shares of Calpine's capital
stock entitled to vote, voting together as a single class. The certificate of
incorporation also provides that all stockholder actions must be effected at a
duly called meeting and not by a consent in writing. The bylaws provide that
Calpine's stockholders may call a special meeting of stockholders
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only upon a request of stockholders owning at least 50% of Calpine's capital
stock. These provisions of the certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of Calpine's 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 Calpine's company. These provisions are designed
to reduce Calpine's 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 Calpine's shares and, as a consequence,
they also may inhibit fluctuations in the market price of Calpine's shares that
could result from actual or rumored takeover attempts. Such provisions also may
have the effect of preventing changes in Calpine's management.
Rights Plan. On June 5, 1997, Calpine adopted a stockholders' rights plan
to strengthen Calpine's ability to protect Calpine's stockholders. The rights
plan is designed to protect against abusive or coercive takeover tactics that
are not in the best interests of Calpine or its stockholders. To implement the
rights plan, Calpine declared a dividend of one preferred share purchase right
for each outstanding share of Calpine's common stock held on record as of June
18, 1997, and directed the issuance of one preferred share purchase right with
respect to each share of Calpine's common stock that shall become outstanding
thereafter until the rights become exercisable or they expire as described
below. Each right initially represents a contingent right to purchase, under
certain circumstances, one one-thousandth of a share, called a "unit," of
Calpine's Series A Participating Preferred Stock, par value $.001 per share, at
a price of $80.00 per unit, subject to adjustment. The rights become exercisable
and trade independently from Calpine's common stock upon the public announcement
of the acquisition by a person or group of 15% or more of Calpine's common
stock, or ten days after commencement of a tender or exchange offer that would
result in the acquisition of 15% or more of Calpine's common stock. Each unit
purchased upon exercise of the rights will be entitled to a dividend equal to
any dividend declared per share of common stock and will have one vote, voting
together with the common stock. In the event of Calpine's liquidation, each
share of the participating preferred stock will be entitled to any payment made
per share of common stock.
If Calpine is acquired in a merger or other business combination
transaction after a person or group has acquired 15% or more of Calpine's common
stock, each right will entitle its holder to purchase at the right's exercise
price a number of the acquiring company's shares of common stock having a market
value of twice the right's exercise price. In addition, if a person or group
acquires 15% or more of Calpine's common stock, each right will entitle its
holder (other than the acquiring person or group) to purchase, at the right's
exercise price, a number of fractional shares of Calpine's participating
preferred stock or shares of Calpine's common stock having a market value of
twice the right's exercise price.
The rights expire on June 18, 2007, unless redeemed earlier by Calpine.
Calpine can redeem the rights at a price of $0.01 per right at any time before
the rights become exercisable, and thereafter only in limited circumstances.
DELAWARE ANTI-TAKEOVER STATUTE
Calpine is subject to Section 203 of the Delaware General Corporation Law
("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (1) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(2) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (3) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting
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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 the term business combination to include: (1) any
merger or consolidation involving the corporation or any of its direct of
indirect majority-owned subsidiaries and the interested stockholder; (2) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation or any of its direct of indirect majority-owned subsidiaries
involving the interested stockholder; (3) subject to certain exceptions, any
transaction that results in the issuance or transfer by the corporation of any
stock of the corporation or any of its direct of indirect majority-owned
subsidiaries of any stock of the corporation or that subsidiary to the
interested stockholder; (4) any transaction involving the corporation or any of
its direct of indirect majority-owned subsidiaries that has the effect of
increasing the proportionate share of the stock of any class or series of the
corporation or that subsidiary beneficially owned by the interested stockholder;
or (5) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or any of its direct of 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.
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DESCRIPTION OF THE DEBT SECURITIES
The following is a general description of the debt securities to which this
prospectus and any prospectus supplement may relate. The particular terms
relating to each debt security will be set forth in a prospectus supplement.
Unless otherwise stated, the senior debt securities and the subordinated debt
securities are together referred to as the "debt securities."
GENERAL
Calpine may issue from time to time one or more series of debt securities
under one or more separate indentures between Calpine and Wilmington Trust
Company, as trustee, and Calpine Canada Energy Finance may issue from time to
time one or more series of debt securities under an indenture between Calpine
Canada Energy Finance and Wilmington Trust Company, as trustee.
For purposes of this section, references to the "issuer" are to Calpine, in
the case of debt securities issued by Calpine, and to Calpine Canada Energy
Finance, in the case of debt securities issued by Calpine Canada Energy Finance,
and references to the "guarantor" are to Calpine with respect to debt securities
issued by Calpine Canada Energy Finance. Additionally, in the case of debt
securities issued by Calpine Canada Energy Finance, the term "indenture"
includes the guarantee agreement pursuant to which the guarantor guarantees the
debt securities.
The debt securities will be direct, unsecured obligations of the issuer.
The senior debt securities will rank equally with all other senior debt of the
issuer. The indentures will not limit the amount of debt securities which the
issuer may issue. The subordination provisions of any subordinated debt
securities will be described in an applicable prospectus supplement.
Almost all of Calpine's operations are conducted through Calpine's
subsidiaries and other affiliates. As a result, Calpine depends almost entirely
upon their earnings and cash flow to service Calpine's indebtedness, including
Calpine's ability to pay the interest on and principal of Calpine's debt
securities. The non-recourse project financing agreements of certain of
Calpine's subsidiaries and other affiliates generally restrict their ability to
pay dividends, make distributions or otherwise transfer funds to Calpine prior
to the payment of other obligations, including operating expenses, debt service
and reserves. Calpine Canada Energy Finance is a special purpose financing
subsidiary formed solely as a financing vehicle for Calpine and its
subsidiaries. Therefore, the ability of Calpine Canada Energy Finance to pay its
obligations under the debt securities is dependent upon the receipt by it of
payments from Calpine and its subsidiaries. If Calpine were not to make such
payments for any reason, the holders of the debt securities would have to rely
on the enforcement of Calpine's guarantee described below.
Calpine's subsidiaries and other affiliates are separate and distinct legal
entities and will have no obligation to pay any amounts due on the debt
securities issued by Calpine hereunder, and will not guarantee the payment of
interest on or principal of the debt securities issued by Calpine hereunder. The
right of Calpine's debt security holders to receive any assets of any of
Calpine's subsidiaries or other affiliates upon Calpine's liquidation or
reorganization will be subordinated to the claims of any subsidiaries' or other
affiliates' creditors (including trade creditors and holders of debt issued by
Calpine's subsidiaries or affiliates including Calpine Canada Energy Finance).
As of December 31, 2000, Calpine's subsidiaries had $1.5 billion of project
financing. Calpine intends to utilize non-recourse project financing when
appropriate in the future, and this financing will be effectively senior to
Calpine's debt securities.
The following description is only a summary of the material provisions of
the proposed indentures for the debt securities. We urge you to read the forms
of indentures because they, and not this description, describe every detail of
the terms of the debt securities. A copy of each form of indenture is included
as an exhibit to this registration statement and is available upon request made
to us. The summary below of the general terms of the debt securities will be
supplemented by the more specific terms in a prospectus supplement. Unless
otherwise stated herein or in an applicable prospectus supplement, the following
indenture description will apply to both senior and subordinated debt
securities.
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TERMS APPLICABLE TO DEBT SECURITIES
The prospectus supplement for a particular series of debt securities will
specify the following terms of the series of debt securities:
- the designation, the aggregate principal amount and the authorized
denominations, if other than $1,000 and integral multiples of $1,000;
- the percentage of the principal amount at which the debt securities will
be issued;
- the date or date on which the debt securities will mature;
- the currency, currencies or currency units in which payments on the debt
securities will be payable;
- the rate or rates at which the debt securities will bear interest, if
any, or the method of determination of such rate or rates;
- the date or dates from which the interest, if any, shall accrue, the
dates on which the interest, if any, will be payable and the method of
determining holders to whom any of the interest shall be payable;
- the prices, if any, at which, and the dates at or after which, the issuer
may or must repay, repurchase or redeem the debt securities;
- any right to covert the debt securities into, or exchange the debt
securities for, shares of Calpine common stock or other securities or
property;
- any sinking fund obligation with respect to the debt securities;
- any special United States federal income tax consequences;
- the exchanges, if any, on which the debt securities may be listed; and
- any other material terms of the debt securities consistent with the
provisions of the indenture.
Unless otherwise specified in the prospectus supplement, the issuer will
compute interest payments on the basis of a 360-day year consisting of twelve
30-day months.
Some of the debt securities may be issued as discounted debt securities to
be sold at a substantial discount below their stated principal amount. The
prospectus supplement relating to any discounted series of debt securities will
describe any Federal income tax consequences and other special consequences
applicable to discounted debt securities.
The indentures governing the senior debt does not contain any provisions
that:
- limit the issuer's ability to incur indebtedness; or
- provide protection in the event the issuer choose to engage in a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
REOPENING OF ISSUE
The issuer may, from time to time, reopen an issue of debt securities and
issue additional debt securities with the same terms (including issue date,
maturity and interest rate) as debt securities issued on an earlier date. After
such additional debt securities are issued, they will be fungible with the debt
securities issued on the earlier date.
RANKING
The senior debt securities issued by Calpine will be unsecured and will
rank equal in right of payment with all of Calpine's existing and future
unsecured and unsubordinated indebtedness, including, without limitation,
Calpine's obligations under the Amended and Restated Credit Agreement, dated as
of May 23, 2000, as amended, among Calpine, Bank of Nova Scotia, as Lead
Arranger and Administrative Agent, and Bayerische Landesbank, as Co-Arranger and
Syndication Agent, and the various commercial lending
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institutions named therein as lenders (as it may be further amended, refinanced,
replaced, renewed or extended from time to time) and Calpine's other outstanding
senior debt securities, including Calpine's 7 5/8% Senior Notes due 2006,
Calpine's 7 3/4% Senior Notes due 2009, Calpine's 7 7/8% Senior Notes due 2008,
Calpine's 8 3/4% Senior Notes due 2007, Calpine's 9 1/4% Senior Notes due 2004,
Calpine's 10 1/2% Senior Notes due 2006, Calpine's 8 1/4% Senior Notes due 2005,
Calpine's 8 5/8% Senior Notes due 2010 and Calpine's 8 1/2% Senior Notes due
2011. At December 31, 2000, Calpine had approximately $2.6 billion of
indebtedness outstanding that would rank equally with the senior debt
securities.
Unless otherwise provided in the prospectus supplement relating to such
securities, debt securities issued by Calpine Canada Energy Finance will be:
- senior unsecured obligations of Calpine Canada Energy Finance and will
rank equally and ratably with all other unsecured and unsubordinated
indebtedness of Calpine Canada Energy Finance, and
- guaranteed on a senior unsecured basis by Calpine, which guarantee will
rank equally and ratably with all other unsecured and unsubordinated
indebtedness of Calpine.
The subordinated debt securities issued by Calpine will be subordinate and
junior in right of payment to all of Calpine's senior indebtedness, including
any guarantee by Calpine of Calpine Canada Energy Finance's senior debt
securities. The subordinated debt securities of Calpine Canada Energy Finance
will be subordinate and junior in right of payment to all of Calpine Canada
Energy Finance's senior indebtedness.
GUARANTEES
Calpine will fully and unconditionally guarantee to each holder of a debt
security issued by Calpine Canada Energy Finance and authenticated and delivered
by the trustee the due and punctual payment of the principal of, and any premium
and interest on, the debt security, when and as it becomes due and payable,
whether at maturity, upon acceleration, by call for redemption, repayment or
otherwise in accordance with the terms of the debt securities and of the related
indenture. The claims of holders under the guarantee by Calpine will be
effectively subordinated to the claims of creditors of Calpine's subsidiaries
other than Calpine Canada Energy Finance.
Under its guarantee agreement, Calpine will:
- agree that, if an event of default occurs under the debt securities, its
obligations under the guarantees will be absolute and unconditional and
will be enforceable irrespective of any invalidity, irregularity or
unenforceability of any series of the debt securities or the related
indenture or any supplement thereto, and
- waive its right to require the trustee or the holders to pursue or
exhaust their legal or equitable remedies against Calpine Canada Energy
Finance before exercising their rights under the guarantees.
COVENANTS
The indentures shall provide that, except as otherwise set forth under "--
Defeasance," below, for so long as any debt securities remain outstanding or any
amount remains unpaid on any of the debt securities, the issuer and the
guarantor, if any, will comply with the applicable terms of the covenants
contained in the indentures including the following:
PAYMENT OF SECURITIES
The issuer will duly and punctually pay the principal of and interest on
the debt securities in accordance with the terms of the debt securities and the
indenture.
MAINTENANCE OF OFFICE OR AGENCY
The issuer will maintain in the Borough of Manhattan, the City of New York,
an office or agency where the debt securities may be paid and notices and
demands to or upon the issuer in respect of the debt securities
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and the indentures may be served and an office or agency where debt securities
may be surrendered for registration of transfer or exchange. The issuer will
give prompt written notice to the trustee of the location, and any change in the
location, of any such office or agency. If at any time the issuer shall fail to
maintain any required office or agency or shall fail to furnish the trustee with
the address of any required office or agency, all presentations, surrenders,
notices and demands may be served at the office of the trustee.
FURTHER ASSURANCES
The issuer, the guarantor, if any, and the trustee will execute and deliver
all documents, instruments and agreements, and do all other acts and things as
may be reasonably required, to enable the trustee to exercise and enforce its
rights under the indentures and under the documents, instruments and agreements
required under the indentures and to carry out the intent of the indentures.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
Under the terms of the indentures, the issuer and the guarantor, if any,
shall not, and shall not permit any of their respective Restricted Subsidiaries
to, enter into any Sale/Leaseback Transaction unless:
(a) the issuer or the guarantor, as the case may be, or the Restricted
Subsidiary would be entitled to create a Lien on the property or asset
subject to the Sale/Leaseback Transaction securing Indebtedness in an
amount equal to the Attributable Debt with respect to that transaction
without equally and ratably securing the debt securities pursuant to the
covenant entitled "Limitation on Liens"; or
(b) the net proceeds of the sale are at least equal to the fair value
(as determined by board of directors of the issuer or the guarantor, as the
case may be) of the property or asset subject to the Sale/ Leaseback
Transaction and the issuer or the guarantor, as the case may be, or the
Restricted Subsidiary applies or causes to be applied, within 180 days of
the effective date of the Sale/Leaseback Transaction, an amount in cash
equal to the net proceeds of the sale to the retirement of Indebtedness of
the issuer or the guarantor, as the case may be, or of the Restricted
Subsidiary.
In addition to the transactions permitted pursuant to the above clauses (a) and
(b), the issuer and the guarantor, if any, or any of their respective Restricted
Subsidiaries may enter into a Sale/Leaseback Transaction as long as the sum of:
- the Attributable Debt with respect to that Sale/Leaseback Transaction and
all other Sale/Leaseback Transactions entered into pursuant to this
provision; plus
- the amount of outstanding Indebtedness secured by Liens incurred pursuant
to the final provision to the covenant described under "-- Limitation on
Liens" below;
does not exceed 15% of Consolidated Net Tangible Assets as determined based on
Calpine's consolidated balance sheet as of the end of the most recent fiscal
quarter for which financial statements are available. In addition, any
Restricted Subsidiary of the issuer or the guarantor, if any, may enter into a
Sale/Leaseback Transaction with respect to property or assets owned by that
Restricted Subsidiary, so long as the proceeds of that Sale/Leaseback
Transaction are used to acquire, develop, construct, or repay (within 365 days
of the commencement of full commercial operation of any such property or assets)
Indebtedness incurred to acquire, develop or construct property or assets of any
Restricted Subsidiary.
As used in the indentures, the following terms are defined as follows:
"Attributable Debt" means, as at the time of determination, the present
value (discounted at the rate of interest set forth or implicit in terms of the
lease (or, if not practicable to determine that rate, the weighted average rate
of interest borne by the debt securities outstanding hereunder (calculated, in
the event of the issuance of any original issue discount debt securities, based
on the computed interest rate with respect thereto)), compounded annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
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"Capitalized Lease Obligations" of a person means the rental obligations
under any lease of any property (whether real, personal or mixed) of which the
discounted present value of the rental obligations of that person as lessee, in
conformity with generally accepted accounting principals, is required to be
capitalized on the balance sheet of that person; the stated maturity of any such
lease shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"Consolidated Current Liabilities," as of the date of determination, means
the aggregate amount of consolidated liabilities of Calpine and Calpine's
consolidated Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), after eliminating (i) all
inter-company items between Calpine and its subsidiaries and (ii) all current
maturities of long-term Indebtedness, all as determined in accordance with
generally accepted accounting principles.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the total amount of Calpine's consolidated assets (less accumulated depreciation
or amortization, allowances for doubtful receivables, other applicable reserves
and other properly deductible items) under generally accepted accounting
principles which would appear on Calpine's consolidated balance sheet,
determined in accordance with generally accepted accounting principles, and
after giving effect to purchase accounting and after deducting therefrom, to the
extent otherwise included, the amounts of:
(a) Consolidated Current Liabilities;
(b) minority interests in Calpine's consolidated subsidiaries held by
persons other than Calpine or any of its Restricted Subsidiaries;
(c) excess of cost over fair value of assets of businesses acquired,
as determined in good faith by Calpine's board of directors;
(d) any revaluation or other write-up in value of assets subsequent to
December 31, 1993 as a result of a change in the method of valuation in
accordance with generally accepted accounting principles;
(e) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade
names, copyrights, licenses, organization or developmental expenses and
other intangible items;
(f) treasury stock; and
(g) any cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of capital
stock to the extent such obligation is not reflected in Consolidated
Current Liabilities.
"Indebtedness" of any person means, without duplication:
(a) the principal of and premium (if any premium is then due and
owing) in respect of indebtedness of that person for money borrowed;
(b) all Capitalized Lease Obligations of that person;
(c) all obligations of that person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (a) and
(b) above) entered into in the ordinary course of business of that person
to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, that drawing is reimbursed no later than the tenth
business day following receipt by that person of a demand for reimbursement
following payment on the letter of credit;
(d) all obligations of the type referred to in clauses (a) through (c)
above of other persons and all dividends of other persons for the payment
of which, in either case, that person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise; and
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(e) all obligations of the type referred to in clauses (a) through (d)
above of other persons secured by any Lien on any property or asset of that
person (whether or not such obligation is assumed by that person), the
amount of the obligation on any date of determination being deemed to be
the lesser of the value of the property or assets or the amount of the
obligation so secured.
The amount of Indebtedness of any person at any date shall be, with respect
to unconditional obligations, the outstanding balance at such date of all such
obligations as described above and, with respect to any contingent obligations
at such date, the maximum liability determined by that person's board of
directors, in good faith, as in light of the facts and circumstances existing at
the time, reasonably likely to be incurred upon the occurrence of the
contingency giving rise to such obligation.
"Lien" means any mortgage, lien, pledge, charge, or other security interest
or encumbrance of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof).
"Preferred Stock," as applied to the capital stock of any corporation,
means capital stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of capital stock of any other class of such
corporation.
"Restricted Subsidiary" means any subsidiary of a person that is not
designated an Unrestricted Subsidiary by that person's board of directors.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or later acquired whereby a person or one of such person's subsidiaries
transfers that property to another person and then leases it back from that
person, other than leases for a term of not more than 36 months or leases
between such person and a wholly owned subsidiary of such person or between such
person's wholly owned subsidiaries.
"Senior Indebtedness" means all indebtedness incurred, assumed or
guaranteed by a person, whether or not represented by bonds, debentures notes or
other securities, for money borrowed, and any deferrals, renewals or extensions
or refunding of any such indebtedness, unless in the instrument creating or
evidencing any such indebtedness or pursuant to which the same is outstanding it
is specifically stated, at or prior to the time such person becomes liable in
respect thereof, that any such indebtedness or such deferral, renewal, extension
or refunding thereof is not Senior Indebtedness.
"Subordinated Security" means any security issued under an Indenture which
is designated as a Subordinated Debt Security.
"Unrestricted Subsidiary" means (i) any subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by a person's board
of directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. A person's board of directors may designate any
subsidiary (including any newly acquired or newly formed subsidiary) to be an
Unrestricted Subsidiary unless such subsidiary owns any capital stock of, or
owns or holds any Lien on any property of, that person or any other subsidiary
of that person that is not a subsidiary of the subsidiary to be so designated,
so long as the subsidiary to be designated an Unrestricted Subsidiary and all
other subsidiaries previously so designated at the time of any determination
hereunder shall, in the aggregate, have total assets not greater than 5% of
Consolidated Net Tangible Assets as determined based on Calpine's consolidated
balance sheet as of the end of the most recent financial quarter for which
financial statements are available. A person's board of directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however,
that immediately after giving effect to that designation no Default or Event of
Default under the indentures shall have occurred and be continuing. Any such
designation by a person's board of directors shall be evidenced to the trustee
by promptly filing with the trustee a copy of the board resolution giving effect
to the designation and a certificate signed by two of that person's officers
certifying that the designation complied with these provisions. However, the
failure to file the resolution and/or certificate with the trustee shall not
impair or affect the validity of the designation.
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LIMITATION ON LIENS
Under the terms of the indentures, the issuer and the guarantor, if any,
shall not, and shall not permit any of their respective Restricted Subsidiaries
to, incur any Lien upon any properties (including capital stock) without
effectively providing that the outstanding debt securities shall be secured
equally and ratably with (or prior to) that Indebtedness, so long as that
Indebtedness shall be so secured. The above restriction on Liens will not,
however, apply to:
(a)(1) Liens securing Indebtedness incurred to finance the
exploration, drilling, development, construction or purchase of or by, or
repairs, improvements or additions to, property or assets, which Liens may
include Liens on the capital stock of a Restricted Subsidiary or (2) Liens
incurred by any Restricted Subsidiary that does not own, directly or
indirectly, at the time of such original incurrence of such Lien under this
clause (2) any operating properties or assets securing Indebtedness
incurred to finance the exploration, drilling, development, construction or
purchase of or by or repairs, improvements or additions to, property or
assets of any Restricted Subsidiary that does not, directly or indirectly,
own any operating properties or assets at the time of such original
incurrence of such Lien, which Liens may include Liens on the capital stock
of one or more Restricted Subsidiaries that do not, directly or indirectly,
own any operating properties or assets at the time of such original
incurrence of such Lien, provided, however, that the Indebtedness secured
by any such Lien may not be issued more than 365 days after the later of
the exploration, drilling, development, completion of construction,
purchase, repair, improvement, addition or commencement of full commercial
operation of the property or assets being so financed;
(b) Liens existing on the date of issuance of a series of debt
securities, other than Liens relating to Indebtedness or other obligations
being repaid or Liens that are otherwise extinguished with the proceeds of
any offering of debt securities pursuant to the indenture;
(c) Liens on property, assets or shares of stock of a person at the
time that person becomes a subsidiary of the issuer or the guarantor, as
applicable; provided, however, that any such Lien may not extend to any
other property or assets owned by such issuer or guarantor or any of its
Restricted Subsidiaries;
(d) Liens on property or assets existing at the time that the issuer
or the guarantor, as the case may be, or one of its subsidiaries, acquires
the property or asset, including any acquisition by means of a merger or
consolidation with or into the issuer or the guarantor, as applicable, or
one of its subsidiaries; provided, however, that such Liens are not
incurred in connection with, or in contemplation of, that merger or
consolidation and provided, further, that the Lien may not extend to any
other property or asset owned by the issuer or the guarantor, as
applicable, or any of its Restricted Subsidiaries;
(e) Liens securing Indebtedness or other obligations of one of the
subsidiaries of the issuer or the guarantor, as the case may be, that is
owing to such issuer or guarantor or any of its Restricted Subsidiaries, or
Liens securing Indebtedness of the issuer or the guarantor, as the case may
be, or other obligations that are owing to one of the subsidiaries of such
issuer or guarantor;
(f) Liens incurred on assets that are the subject of a Capitalized
Lease Obligation to which the issuer or the guarantor, as the case may be,
or any of its subsidiaries is a party, which shall include Liens on the
stock or other ownership interest in one or more Restricted Subsidiaries of
such issuer or guarantor, leasing such assets;
(g) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness secured by any
Lien referred to in clauses (a), (b), (c), (d) and (f) above, provided,
however, that (1) such new Lien shall be limited to all or part of the same
property or assets that secured the original Lien (plus repairs,
improvements or additions to that property or assets and Liens on the stock
or other ownership interest in one or more Restricted Subsidiaries
beneficially owning that property or assets) and (2) the amount of
Indebtedness secured by such Lien is not increased, other than by an amount
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necessary to pay fees and expenses, including premiums, related to the
refinancing, refunding, extension, renewal or replacement of the
Indebtedness; and
(h) Liens by which the debt securities are secured equally and ratably
with other Indebtedness pursuant to this covenant.
However, the issuer and the guarantor, if any, and any one or more of their
respective Restricted Subsidiaries may incur other Liens to secure Indebtedness
as long as the sum of:
- the lesser of (1) the amount of outstanding Indebtedness secured by Liens
incurred pursuant to this provision and (2) the fair market value of the
property securing that item of Indebtedness; plus
- the Attributable Debt with respect to all Sale/Leaseback Transactions
entered into pursuant to clause (a) described under the covenant
"Limitation on Sale/Leaseback Transactions";
does not exceed 15% of Consolidated Net Tangible Assets as determined based on
Calpine's consolidated balance sheet as of the end of the most recent fiscal
quarter for which financial statements are available.
MERGER, CONSOLIDATION, SALE OR LEASE
Nothing in the indentures shall prevent the issuer and the guarantor, if
any, from consolidating with or merging into another corporation or conveying,
transferring or leasing their respective properties and assets substantially as
an entirety to any person, provided that (a) the successor entity assumes the
obligations of the issuer or the guarantor, as the case may be, on each series
of debt securities outstanding and (b) immediately after giving effect to the
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing.
SEC REPORTS
Calpine is subject to the informational reporting requirements of Sections
13 and 15(d) under the Securities Exchange Act and, in accordance with those
requirements, files certain reports and other information with the SEC. See
"Where You Can Find More Information." In addition, if Sections 13 and 15(d)
cease to apply to Calpine, Calpine will covenant in the indentures to file those
reports and information with the trustee, and to mail such reports and
information to holders of the debt securities at their registered addresses, for
so long as any debt securities remain outstanding.
COMPLIANCE CERTIFICATES
The indentures will require that the issuer and the guarantor, if any, file
annually with the trustee a certificate describing any "Default," which is
defined in the indentures as any event which is, or after notice or passage of
time or both would be, an Event of Default, by the issuer or the guarantor, as
the case may be, in the performance of any conditions or covenants under the
indentures and the status of any such Default. The issuer and the guarantor, if
any, also must give the trustee written notice within 30 days of the occurrence
of certain Defaults under the indentures that could mature into Events of
Default, as described under the caption "-- Events of Default" below.
EVENTS OF DEFAULT
"Events of Default" are defined in the indentures with respect to any
series of debt securities as any of the following:
(a) default for 30 days in payment of any interest installment due and
payable on any debt securities of such series;
(b) default in payment of principal or premium, if any, when due on
the debt securities of such series;
(c) default in the making of any sinking fund payment or analogous
obligation on the debt securities of such series;
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(d) material default in performance by the issuer or the guarantor, if
any, of any other covenants or agreements in respect of the debt securities
of such series contained in the applicable indenture or the debt securities
for 60 days after written notice to the issuer and the guarantor, if any,
or to the issuer, the guarantor, if any, and the trustee by the holders of
at least 25% in aggregate principal amount of the debt securities of such
series then outstanding;
(e) there shall have occurred a default in the payment of the
principal or premium, if any, of any bond, debenture, note or other
evidence of indebtedness of the issuer or the guarantor, if any, in each
case for money borrowed, or in the payment of principal or premium, if any,
under any mortgage, indenture, agreement or instrument under which there
may be issued or by which there may be secured or evidenced any
indebtedness of the issuer or the guarantor, if any, for money borrowed
(including any other series of debt securities issued under the indenture),
which default for payment of principal or premium, if any, is in an
aggregate principal amount exceeding $50,000,000 (or its equivalent in any
other currency or currencies) when such indebtedness becomes due and
payable (whether at maturity, upon redemption or acceleration or
otherwise), if such default shall continue unremedied or unwaived for more
than 30 business days after the expiration of any grace period or extension
of the time for payment applicable thereto;
(f) certain events of bankruptcy, insolvency and reorganization with
respect to the issuer or guarantor, if any; and
(g) the guarantee, if any, ceases to be in full force and effect
(other than in accordance with terms of the guarantee agreement) or the
guarantor denies or disaffirms its obligations under the guarantee.
An Event of Default under one series of debt securities does not
necessarily constitute an Event of Default under any other series of debt
securities.
The indentures provide that if an Event of Default occurs and is continuing
with respect to any series of debt securities, either the trustee or the
registered holders of at least 25% in aggregate principal amount of that series
of debt securities, may declare the principal amount of those debt securities
and any accrued and unpaid interest on those debt securities to be due and
payable immediately. At any time after a declaration of acceleration, but before
a judgment or decree for payment of money has been obtained, if all Events of
Default with respect to those debt securities have been cured (other than the
nonpayment of principal of such debt securities which has become due solely by
reason of the declaration of acceleration) then the declaration of acceleration
shall be automatically annulled and rescinded.
The indentures will require that the issuer and the guarantor, if any, file
annually with the trustee a certificate describing any Default by the issuer or
the guarantor, as the case may be, in the performance of any conditions or
covenants that has occurred under the indentures and its status. See
"Covenants -- Compliance Reports." The issuer and the guarantor, if any, must
give the trustee written notice within 30 days of any Default under the
indentures that could mature into an Event of Default described in clause (d),
(e) or (f).
The trustee will be entitled under the indentures, subject to the duty of
the trustee during a Default to act with the required standard of care, to be
indemnified before proceeding to exercise any right or power under the
indentures at the direction of the registered holders of the debt securities or
which requires the trustee to expend or risk its own funds or otherwise incur
any financial liability. The indentures will also provide that the registered
holders of a majority in principal amount of the outstanding debt securities of
any series issued under any indenture may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee with respect to that series of debt
securities. The trustee, however, may refuse to follow any such direction that
conflicts with law or such indenture, is unduly prejudicial to the rights of
other registered holders of that series of debt securities, or would involve the
trustee in personal liability.
The indentures will provide that while the trustee generally must mail
notice of a Default or Event of Default to the registered holders of the debt
securities of any series issued under any indenture within 90 days of
occurrence, the trustee may withhold notice of any Default or Event of Default
(except in payment on the debt securities) if the trustee in good faith
determines that the withholding of such notice is in the interest of the
registered holders of that series of debt securities.
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MODIFICATION OF THE INDENTURES
The issuer, the guarantor, if any, and the trustee may amend or supplement
the indentures, including any guarantee agreement, if the holders of a majority
in principal amount of the outstanding debt securities of each series of debt
securities affected by the amendment or supplement consent to it, except that no
amendment or supplement may, without the consent of each affected registered
holder of that series:
- reduce the amount of principal the issuer has to repay or change the date
of maturity,
- reduce the rate or change the time of payment of interest,
- change the currency of payment,
- modify any redemption or repurchase right to the detriment of the holder,
- reduce the percentage of the aggregate principal amount of debt
securities needed to consent to an amendment or supplement,
- change the provisions of the indentures relating to waiver of past
defaults, rights of registered holders of the debt securities to receive
payments or the provisions relating to amendments of the indentures that
require the consent of registered holders of each affected series or
- release the guarantee, if any, except in compliance with the terms of the
guarantee agreement and related indenture.
ACTIONS BY HOLDERS
A holder of any series of debt securities may not pursue any remedy with
respect to the indentures or the debt securities of such series (except a
registered holder of a series of debt securities may bring an action for payment
of overdue principal, premium, if any, or interest on that series), unless:
- the registered holder has given notice to the trustee of such series of a
continuing Event of Default,
- registered holders of at least 25% in principal amount of that series of
debt securities have made a written request to the trustee of such series
to pursue such remedy,
- such registered holder or holders have offered the trustee of such series
security or indemnity reasonably satisfactory to the trustee against any
loss, liability or expense,
- the trustee of such series has not complied with such request within 60
days of such request and offer, and
- the registered holders of a majority in principal amount of that series
of debt securities have not given the trustee of such series an
inconsistent direction during that 60-day period.
DEFEASANCE, DISCHARGE AND TERMINATION
DEFEASANCE AND DISCHARGE.
The indentures will provide that the issuer may discharge the issuer and
the guarantor, if any, from any and all obligations in respect of a series of
debt securities, and the provisions of the related indenture will no longer be
in effect with respect to that series of debt securities (except for, among
other matters, certain obligations to register the transfer or exchange of those
debt securities, to replace stolen, lost or mutilated debt securities, to
maintain paying agencies and to hold monies for payment in trust, and the rights
of holders of that series to receive payments of principal, premium, if any, and
interest), on the 123rd day after the date of the deposit with the trustee, in
trust, of money or U.S. Government Obligations that, through the payment of
interest, principal and premium, if any, in respect thereof in accordance with
their terms, will provide money, or a combination thereof, in an amount
sufficient to pay the principal, premium, if any, and interest on that series of
debt securities, when due in accordance with the terms of that indenture and
those debt securities. Such a trust may only be established if, among other
things,
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a. the issuer has delivered to the trustee either
- an opinion of counsel (who may not be an employee of ours) to the effect
that registered holders of that series will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not occurred,
which opinion of counsel must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax law
occurring after the date of that indenture or
- a ruling of the Internal Revenue Service to such effect, and
b. no Default under the indenture with respect to that series shall have
occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after such date of deposit and such deposit
shall not result in or constitute a Default or result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the issuer or the guarantor, if any, is a party or by
which the issuer or the guarantor, if any, is bound.
"U.S. Government Obligations" are defined under the indentures as
securities that are (x) direct obligations of the United States for the payment
of which its full faith and credit is pledged or (y) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States and which, in either case, are not
callable or redeemable before their maturity.
DEFEASANCE OF COVENANTS AND CERTAIN EVENTS OF DEFAULT.
The indentures will further provide that, with respect to a series of debt
securities issued under an indenture, the provisions of that indenture described
under "-- Covenants -- Limitations on Liens" will no longer be in effect,
clauses (d) (with respect to such covenant) and (d) under "-- Events of Default"
shall be deemed not to be Events of Default under that indenture, and the
provisions described herein under "-- Ranking" shall not apply, upon the deposit
with the trustee, in trust, of money or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal,
premium, if any, and interest on that series of debt securities when due in
accordance with the terms of that indenture. Such a trust may only be
established if, among other things, the provisions described in clause (b) of
the immediately preceding paragraph have been satisfied and the issuer has
delivered to the trustee an opinion of counsel (who may not be an employee of
ours) to the effect that the registered holders of that series will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance, and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred.
In the event the issuer exercises its option not to comply, or to discharge
the guarantor, if any, from compliance, with the covenants and certain other
provisions of an indenture with respect to a series of debt securities as
described in the immediately preceding paragraph, and that series of debt
securities are declared due and payable because of the occurrence of an Event of
Default that remains applicable, while the amount of money or U.S. Government
Obligations on deposit with the trustee will be sufficient to pay principal of
and interest on that series on the respective dates on which such amounts are
due, they may not be sufficient to pay amounts due on that series at the time of
the acceleration resulting from such Event of Default. However, the issuer and
the guarantor, if any, shall remain liable for such payments.
TERMINATION OF OBLIGATIONS IN CERTAIN CIRCUMSTANCES.
The indentures will further provide that the issuer may discharge the
issuer and the guarantor, if any, from any and all obligations in respect of a
series of debt securities and the provisions of the related indenture will no
longer be in effect with respect to that series of debt securities (except to
the extent provided under "--Defeasance and Discharge") if that series of debt
securities mature within one year and the issuer deposits
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with the trustee, in trust, money or U.S. Government Obligations that, through
the payment of interest and principal in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on that series of debt securities when due
in accordance with the terms of that indenture and the debt securities. Such a
trust may only be established if, among other things,
- no Default under the indenture with respect to that series shall have
occurred and be continuing on the date of such deposit,
- such deposit will not result in or constitute a Default or result in a
breach or violation of, or constitute a Default under, any other
agreement or instrument to which the issuer or the guarantor, if any, is
a party or by which the issuer or the guarantor, if any, is bound and
- the issuer has delivered to the trustee an opinion of counsel stating
that such conditions have been complied with.
Pursuant to this provision, the issuer is not required to deliver an
opinion of counsel to the effect that registered holders of that series will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such deposit and termination, and there is no assurance that registered
holders of that series would not recognize income, gain or loss for U.S. federal
income tax purposes as a result thereof or that they would be subject to U.S.
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and termination had not
occurred.
UNCLAIMED MONEY
Subject to any applicable abandoned property law, the indentures will
provide that the trustee will pay to the issuer upon request any money held by
the trustee for the payment of principal, premium, if any, or interest that
remains unclaimed for two years. After payment to the issuer, registered holders
of debt securities entitled to such money must look to the issuer for payment as
general creditors.
CONCERNING THE TRUSTEE AND PAYING AGENT
Wilmington Trust Company will initially act as Trustee and paying agent for
the debt securities. Wilmington Trust Company currently acts as trustee under:
- an indenture with Calpine and Calpine's subsidiary, Calpine Capital Trust
III, dated as of August 9, 2000, and
- an indenture with Calpine dated as of August 10, 2000.
A number of Calpine's series of debt securities are presently outstanding
under each of the above indentures. We may have in the future other
relationships with Wilmington Trust Company.
We will describe in the prospectus supplement any material business and
other relationships (including additional trusteeships), other than the
trusteeship under the indentures, between us and any of our affiliates, on the
one hand, and each trustee and paying agent under the indentures, on the other
hand.
GOVERNING LAW
The laws of the State of New York will govern the indentures and each
series of debt securities.
BOOK-ENTRY SYSTEM
Unless otherwise specified in the prospectus supplement, each series of
debt securities will be represented by one or more global notes registered in
the name of a nominee of The Depository Trust Company ("DTC"), as depositary.
Upon the issuance of the global notes, DTC or its custodian will credit, on its
internal system, the respective principal amount of the individual beneficial
interests represented by the global notes to the accounts of persons who have
accounts with DTC. Each account initially will be designated by or on behalf of
the underwriters, dealer or agents. Ownership of beneficial interests in a
global note will be limited to persons
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who have accounts with DTC ("participants") or persons who hold interests
through participants. Ownership of beneficial interests in the global notes will
be shown on, and transfers of their ownership may be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). DTC currently limits the maximum denomination
of any single global note to $400,000,000.
So long as DTC or its nominee is the registered owner or holder of the
global notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the debt securities represented by such global notes for
all purposes under the applicable indenture and the debt securities. No
beneficial owner of an interest in the global notes will be able to transfer
that interest except in accordance with DTC's applicable procedures, in addition
to those provided for under the indenture.
Payments of the principal of, and interest on, the global notes will be
made to DTC or its nominee, as the case may be, as the registered owner of the
global notes. Neither we, the trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of the global notes will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the global notes as shown on the records of DTC or
its nominee. We also expect that payments by participants to owners of
beneficial interests in the global notes held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a certificated note for any reason, including to
sell debt securities to persons in states which require delivery of certificated
notes or to pledge their debt securities, such holder must transfer its interest
in the global notes in accordance with the normal procedures of DTC and the
procedures set forth in the indenture.
DTC has advised us that it will take any action permitted to be taken by a
holder of a series of debt securities (including the presentation of debt
securities for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the global notes relating to
such series is credited and only in respect of such portion of the aggregate
principal amount of debt securities as to which such participant or participants
has or have given such direction. However, if there is an Event of Default under
a series of debt securities, DTC will exchange the global notes relating to such
series for certificated notes which it will distribute to its participants.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to "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.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the global notes among participants of DTC, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the trustee will have
any responsibility for the performance by DTC or its respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
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CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the global notes and a successor depositary is not appointed by us within 90
days, or if the issuer otherwise chooses to issue definitive debt securities,
the issuer will issue certificated notes in exchange for the global notes. In
either instance, an owner of a beneficial interest in a global note will be
entitled to have debt securities equal in principal amount to such beneficial
interest registered in its name and will be entitled to physical delivery of
debt securities in definitive form. Debt securities in definitive form will be
issued in denominations of $1,000 and integral multiples of $1,000 and will be
issued in registered form only, without coupons. The issuer will maintain in the
Borough of Manhattan, The City of New York, one or more offices or agencies
where debt securities may be presented for payment and may be transferred or
exchanged. You will not be charged a fee for any transfer or exchange of your
debt securities, but the issuer may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
SAME-DAY SETTLEMENT IN RESPECT OF GLOBAL NOTES
Global notes held by DTC will trade in DTC's Same-Day Funds Settlement
System until maturity and secondary market trading activity in the debt
securities will settle in immediately available funds. No assurance can be given
as to the effect, if any, of settlement in immediately available funds on the
trading activity in the debt securities.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the securities.
Unless otherwise stated, this summary deals only with the securities held as
capital assets by U.S. holders. As used herein, "U.S. holders" are any
beneficial owners of the securities, that are, for United States federal income
tax purposes, (1) citizens or residents of the United States, (2) corporations
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. As used herein, "non-U.S.
holders" are holders of the securities that are, for United States federal
income tax purposes (1) nonresident alien individuals; (2) foreign corporations;
or (3) foreign estates or trusts that are not subject to U.S. federal income
taxation on their worldwide income. If a partnership (including for this purpose
any entity treated as a partnership for U.S. tax purposes) is a beneficial owner
of the securities, the treatment of a partner in the partnership will generally
depend upon the status of the partner and upon the activities of the
partnership. A holder of securities that is a partnership and partners in such
partnership, should consult their tax advisers about the U.S. federal income tax
consequences of holding and disposing of the securities. This summary 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
securities 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 the
securities. 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 securities. This summary is
based on the Internal Revenue Code of 1986, as amended, 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.
You should 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 and disposition of the securities.
TAXATION OF COMMON STOCK
The subsection describes the material United States federal income tax
consequences of owning, selling and disposing of the common stock that Calpine
may offer.
U.S. HOLDERS OF COMMON STOCK
Dividends
The amount of any distribution Calpine makes in respect of Calpine's 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
Calpine's 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). The dividends received deduction is subject
to certain holding period, taxable income, and other limitations (see "Taxation
of Preferred Stock -- U.S. Holders of Preferred Stock -- Dividends to Corporate
Holders", below). In addition, the benefit of a dividends-received deduction may
be reduced by the corporate alternative minimum tax.
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Sale or Exchange 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 in the common
stock is generally equal to its initial purchase price.
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
dividends on common stock 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
fails to comply with certain identification requirements. 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 OF COMMON STOCK
The rules governing United States federal income taxation of a beneficial
owner of common stock that is a non-U.S. holder 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 common stock, including any reporting requirements.
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 U.S. holder 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 W-8EC1 (or successor
form) to the payor.
A non-U.S. holder who wishes to claim the benefit of an applicable treaty
rate is required to satisfy applicable certification and other requirements. If
you are eligible for a reduced rate of United States withholding tax pursuant to
an income tax treaty, you may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the Internal Revenue Service.
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 (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 (A) such holder has a "tax home" in the United States or (B) 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.
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holders beneficial and/or constructive ownership of common stock exceeds 5% of
the total fair market value of the common stock.
Information Reporting and Backup Withholding Tax
United States information reporting requirements and backup withholding tax
will not apply to 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, (3) is a controlled foreign
corporation for United States federal income tax purposes or (4) is a foreign
partnership with certain U.S. connections. Payment of the proceeds of any such
sale effected outside the United States by a foreign office of any broker that
is described in the preceding sentence may be subject to backup withholding tax
and 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. If paid to an address outside the United States, dividends on
common stock held by a non-U.S. holder may be subject to the information
reporting and backup withholding requirements described in this section unless
certain certification requirements are satisfied.
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." We can give no assurance as to whether we are, at any time within
the past five 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 common stock except with
respect to a non-U.S. holder whose beneficial and/or constructive ownership of
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 common stock
may be required to inform its transferee whether such common stock constitutes a
United States real property interest.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
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.
TAXATION OF PREFERRED STOCK
This subsection describes the material United States federal income tax
consequences of owning, selling and disposing of the preferred stock that
Calpine may offer.
U.S. HOLDERS OF PREFERRED STOCK
Dividends
The amount of any distribution Calpine makes in respect of Calpine's
preferred stock will be equal to the amount of cash and the fair market value,
on the date of distribution, of any property (including common stock)
distributed. Generally, distributions will be treated as a dividend, subject to
tax as ordinary income, to the extent of Calpine's current or accumulated
earnings and profits, then as a tax-free return of capital to the
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extent of a holder's tax basis in the preferred stock and thereafter as gain
from the sale or exchange of such stock as described below.
Dividends to Corporate Holders
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 preferred stock (other than any non-voting,
non-convertible, non-participating preferred stock). In addition, the benefit of
a dividends received deduction may be reduced by the corporate alternative
minimum tax.
In determining entitlement to the dividends received deduction, corporate
holders of preferred stock should also consider the provisions of Sections
246(c), 246A and 1059 of the Internal Revenue Code and Treasury regulations
promulgated thereunder, and Internal Revenue Service rulings and administrative
pronouncements relating to such provisions. Under current law, Section 246(c) of
the Internal Revenue Code disallows the dividends received deduction in its
entirety if the holder does not satisfy the applicable holding period
requirement for the dividend-paying stock for a period immediately before or
immediately after such holder becomes entitled to receive each dividend on the
stock. Section 246(c)(4) of the Internal Revenue Code provides that a holder may
not count toward this minimum holding period any period in which the holder (1)
has, among other things, an option to sell preferred stock which it owns, (2) is
under a contractual obligation to sell preferred stock which it owns, (3) has
made (and not closed) a short sale of substantially identical stock or
securities, or (4) has diminished its risk of loss by holding one or more
positions with respect to substantially similar or related property. Under
certain circumstances, Section 1059 of the Internal Revenue Code (A) reduces the
tax basis of stock by a portion of any "extraordinary dividends" that are
eligible for the dividends received deduction and (B) to the extent that the
basis reduction would otherwise reduce the tax basis of the preferred stock
below zero, requires immediate recognition of gain, which is treated as gain
from the sale or exchange of the stock. In the case of preferred stock, an
"extraordinary dividend" would include any amount treated as a dividend with
respect to a redemption that is not pro rata to all stockholders (or meets
certain other requirements), without regard to either the relative amount of the
dividend or the holder's holding period for the preferred stock. Section 246A of
the Internal Revenue Code contains the "debt-financed" portfolio stock rules,
under which the dividends received deduction could be reduced to the extent that
a holder incurs indebtedness directly attributable to its investment in the
preferred stock.
Receipt of Common Stock Upon Conversion of the Preferred Stock
If the preferred stock is convertible into common stock of Calpine, gain or
loss will not be recognized by a holder upon the conversion of such preferred
stock into common stock if no cash is received. A holder who receives cash in
lieu of a fractional share of common stock will in general be treated as having
received such fractional share and having exchanged it for cash in a redemption,
which would be treated in the manner described under "Sale, Exchange or
Redemption of Preferred stock" below. As discussed therein, a holder who cannot
qualify for sale or exchange treatment under the rules applicable to redemptions
will generally be taxable on the cash received in lieu of a fractional share as
a distribution described in "Dividends" above.
Generally, a holder's tax basis in the common stock received upon
conversion will generally be equal to the holder's tax basis in the preferred
stock less the tax basis allocated to any fractional share for which cash is
received, and a holder's holding period in the common stock received upon
conversion generally will include the period during which the preferred stock
was held by such holder.
Adjustments of Conversion Price in Respect of Preferred Stock
If the preferred stock is convertible into common stock of Calpine,
adjustments to the conversion price ratio of common stock to take into account a
stock dividend or stock split generally will not be taxable. However, an
adjustment to the conversion price ratio to reflect the issuance of certain
rights, warrants, evidences of indebtedness, securities or other assets to
holders of common stock (an "Adjustment") may result in constructive
distributions to the holders of the preferred stock. The amount of any such
constructive distribution would be the fair market value on the date of the
Adjustment of the number of shares of common stock which, if actually
distributed to holders of preferred stock, would produce the same increase in
the
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proportionate interests of such holders in the assets or earnings and profits of
Calpine as that produced by the Adjustment. The distribution would be treated in
the manner described above under "Dividends."
Excessive Redemption Price of Preferred Stock
Under Section 305 of the Internal Revenue Code and Treasury regulations, if
preferred stock with a mandatory redemption date or preferred stock subject to
certain redemption rights on the part of either Calpine or the holder of such
stock has a redemption price that exceeds its issue price (i.e., its fair market
value at its date of original issuance) by more than a de minimis amount, such
excess may be treated as a constructive distribution that will be treated in the
same manner as distribution described above under "Dividends." A holder of such
preferred stock would be required to treat such excess as a constructive
distribution received by the holder over the life of such stock under a constant
interest (economic yield) method that takes into account the compounding of
yield.
Accrual Dividends on the Preferred Stock
The tax treatment of accrued dividends that are payable upon a redemption
of the preferred stock will be addressed in the applicable prospectus
supplement.
Sale, Exchange or Redemption of Preferred Stock
Upon the sale or exchange of preferred 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 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 stock exceeds one year. A holder's basis in the stock is generally
equal to its initial purchase price.
Gain or loss recognized by a holder on a redemption of the preferred stock
should be treated as a sale or exchange and therefore qualify for the treatment
described above if, taking into account stock that is actually or constructively
owned under the constructive ownership rules of Section 318 of the Internal
Revenue Code by such holder, either (1) the holder's interest in the stock of
Calpine is completely terminated as a result of such redemption, (2) such
holder's percentage ownership of Calpine's voting stock immediately after the
redemption is less than 80% of such holder's percentage ownership immediately
before the redemption or (3) the redemption is "not essentially equivalent to a
dividend." Under Section 318 of the Internal Revenue Code, a person generally
will be treated as the owner of stock of Calpine owned by certain related
parties or certain entities in which the person owns an interest and stock that
a holder could acquire through exercise of an option. For this purpose, an
option would include the conversion right under the preferred stock. Whether a
redemption is not essentially equivalent to a dividend depends on each holder's
facts and circumstances, but in any event requires a "meaningful reduction" in
such holder's equity interest in Calpine. A holder of the preferred stock who
sells some or all of the stock of Calpine owned by it may be able to take such
sales into account to satisfy one of the foregoing conditions. Conversely, a
holder who purchases additional shares of stock of Calpine may be required to
take such shares into account in determining whether any of the foregoing
conditions are satisfied.
If none of the above conditions is satisfied to qualify for sale or
exchange treatment, the entire amount of the cash (or property) received on a
redemption will be treated as a distribution (without offset by the holder's tax
basis in the redeemed shares), which will be treated in the same manner as
distributions described above under "Dividends." In such case, the holder's
basis in the redeemed preferred stock would be transferred to the holder's
remaining shares of Calpine stock (if any). If the holder does not retain any
shares of Calpine's stock but dividend treatment arises because of the
constructive ownership rules, such basis will be entirely lost to the holder.
Other Preferred Stock
Special tax rules may apply to certain types of preferred stock including,
but not limited to, preferred stock issued at a discount. The applicable
prospectus supplement will discuss any such special United States federal income
tax rules with respect to such preferred stock.
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Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
dividends on the preferred stock and payments of the proceeds of the sale of the
preferred stock, and a 31% backup withholding tax may apply to such payments if
the holder fails to comply with certain identification requirements. 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 OF PREFERRED STOCK
The rules governing United States federal income taxation of a beneficial
owner of preferred stock that is a non-U.S. holder 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 preferred stock, including any reporting
requirements.
Dividends
Distributions by Calpine with respect to the preferred stock that are
treated as dividends paid (or deemed paid), as described above under "Dividends"
and "Sale, Exchange or Redemption of Preferred Stock," 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 W-8ECI (or successor form) to
the payor.
A non-U.S. holder who wishes to claim the benefit of an applicable treaty
rate is required to satisfy applicable certification and other requirements. If
you are eligible for a reduced rate of United States withholding tax pursuant to
an income tax treaty, you may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the Internal Revenue Service.
Receipt of Common Stock Upon Conversion of the Preferred Stock
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of preferred stock 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 below under "Sale or
Exchange of Preferred stock" is satisfied).
Sale or Exchange of Preferred 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
preferred 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 (A) such holder has a "tax home" in the United States or
(B) 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.
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holders beneficial and/or constructive ownership of preferred stock exceeds 5%
of the total fair market value of the preferred stock.
If an individual non-U.S. holder falls under clause (1) above, such
individual generally will be taxed on the net gain derived from a sale under
regular graduated United States federal income tax rates. If an individual
non-U.S. holder falls under clause (2) above, such individual generally will be
subject to a flat 30% tax on the gain derived from a sale, which may be offset
by certain United States capital losses (notwithstanding the fact that such
individual is not considered a resident of the United States). Thus, individual
non-U.S. holders who have spent (or expect to spend) 183 days or more in the
United States in the taxable year in which they contemplate a sale of preferred
stock are urged to consult their tax advisors as to the tax consequences of such
sale.
If a non-U.S. holder that is a foreign corporation falls under clause (1)
of the first sentence above, it generally be taxed on its net gain under regular
graduated United States federal income tax rates and, in addition, will be
subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits," as defined in the Internal Revenue Code, for the taxable
year, as adjusted for certain items, unless it qualifies for a lower rate under
an applicable income tax treaty.
Information Reporting and Backup Withholding Tax
United States information reporting requirements and backup withholding tax
will not apply to any payment of the proceeds of the sale of preferred 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, (3) is a controlled foreign
corporation for United States federal income tax purposes or (4) is a foreign
partnership with certain U.S. connections. Payment of the proceeds of any such
sale effected outside the United States by a foreign office of any broker that
is described in the preceding sentence may be subject to backup withholding tax
and 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. If paid to an address outside the United States, dividends on
preferred stock held by a non-U.S. may be subject to the information reporting
and backup withholding requirements described in this section unless certain
certification requirements are satisfied.
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." We can give no assurance 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 (including the preferred stock) is regularly
traded on an established securities market, an exemption should apply to the
preferred stock except with respect to a non-U.S. holder whose beneficial and/or
constructive ownership of preferred stock exceeds 5% of the total fair market
value of the preferred 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 preferred stock
may be required to inform its transferee whether such preferred stock
constitutes 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
PREFERRED 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.
TAXATION OF DEBT SECURITIES
This subsection describes the material United States federal income tax
consequences of owning, selling and disposing of the debt securities offered by
Calpine or Calpine Canada Energy Finance, as the case may be. It deals only with
debt securities that are due to mature 30 years or less from the date on which
they are issued. The United States federal income tax consequences of owning
debt securities that are due to mature more than 30 years from the date of issue
will be discussed in an applicable prospectus supplement. In addition, this
subsection assumes that the debt securities will not be offered at a discount.
U.S. HOLDERS OF DEBT SECURITIES
Interest Income
Payments of interest on a debt security generally will be taxable to a U.S.
holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the holder's regular method of tax accounting).
Debt Securities Purchased at a Market Discount
A holder who purchases a debt security will be considered to have purchased
the underlying debenture at a "market discount" if the holder's adjusted basis
in the debt security is less than its issue price, unless such market discount
is a de minimis amount (generally up to 1/4 of 1 percent of the adjusted issue
price of the debt security 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 debt security 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 debt security may elect to include market discount in income currently over
the life of the debt security. 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.
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 debt security with respect to which it is made and is
irrevocable. A holder of a debt security 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 debt security in an amount not
exceeding the accrued market discount on such debt security until the maturity
or disposition of such debt security.
Debt Securities Purchased at a Premium
Under the Internal Revenue Code, a holder that purchases a debt security
will be considered to have purchased the debt security at a premium if the
holder's adjusted basis in the debt security immediately after the purchase is
greater than the issue price of such debt security. Such a holder may 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 debt security will be reduced by the
amount of the amortizable bond premium allocable (based on the debt security's
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.
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Sale or Exchange of Debt Securities
A holder will generally recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or other
disposition of the debt security and the holder's adjusted tax basis in such
debt security (subject to the discussion above regarding market discount, which
may be treated as ordinary income). A holder's adjusted tax basis in the debt
security 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 on the sale of a debt security is
20% if such holder's holder period for such debt security 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.
Other Debt Securities
Special tax rules may apply to certain types of debt securities including,
but not limited to, debt securities issued at a discount, debt securities
subject to contingencies, variable rate debt securities and debt securities
convertible into equity of Calpine. The applicable prospectus supplement will
discuss any such special United States federal income tax rules with respect to
such debt securities.
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on the debt securities and payments of
the proceeds of the sale of the debt securities, and a 31% backup withholding
tax may apply to such payments if the holder fails to comply with certain
identification requirements. 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 OF DEBT SECURITIES
The rules governing United States federal income taxation of a beneficial
owner of debt securities that is a non-U.S. holder 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 debt securities, including any reporting
requirements.
This discussion assumes that the debt security or coupon is not subject to
the rules of Section 871(h)(4)(A) of the Internal Revenue Code, relating to
interest payments that are determined by reference to income, profits, changes
in value of property or other attributes of the issuer or a related party.
Interest Income
Generally, interest income of a non-U.S. holder that is not effectively
connected with a United States trade or business will be subject to a
withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by
a treaty). However, interest income earned on a debt security 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 own 10% of more of the total combined
voting power of all classes of Calpine stock entitled to vote; (2) the non-U.S.
holder is not a controlled foreign corporation that is related to the issuer or
Calpine through stock ownership; (3) the non-U.S. holder is not a bank which
acquired the debt security in consideration for an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of business;
and (4) either (A) the non-U.S. holder certifies to the issuer or the issuer's
agent, under penalties of perjury, that it is not a United States person and
provides its name, address, and certain other information on a properly executed
Internal Revenue Service Form W-8BEN or a suitable substitute form 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
the debt securities in such capacity, certifies to the issuer or the issuer's
agent,
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under penalties of perjury, that such a statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes to the issuer or the issuer's agent with a copy
thereof. If a non-U.S. holder holds the debt security through certain foreign
intermediaries or partnerships, such holder and the foreign intermediary or
partnership may be required to satisfy certification requirements under
applicable United States Treasury regulations.
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 is effectively
connected with a United States trade or business of the non-U.S. holder.
Effectively connected interest income 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, at a lower tax
rate specified by a treaty). Even though such effectively connected income 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 W-8ECI (or successor form) to the payor.
Sale or Exchange of Debt Securities
A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on any gain realized on the sale, exchange or
other disposition of a debt security unless (1) the gain is effectively
connected with a United States trade or business of the non-U.S. holder, (2) in
the case of a non-U.S. holder who is an individual, such holder is present in
the United States for a period or periods aggregating 183 days or more during
the taxable year of the disposition, and either such holder has a "tax home" in
the United States or the disposition is attributable to an office or other fixed
place of business maintained by such holder in the United States, or (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.
Information Reporting and Backup Withholding Tax
United States information reporting requirements and backup withholding tax
will not apply to payments on the debt securities to a non-U.S. holder if the
statement described in "Interest Income" is duly provided by such holder,
provided that the payor does not have actual knowledge that the holder is a
United States person. Information reporting requirements and backup withholding
tax will not apply to any payment of the proceeds of the sale of debt securities
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, (3) is a controlled foreign
corporation for United States federal income tax purposes or (4) is a foreign
partnership with certain U.S. connections. Payment of the proceeds of any such
sale effected outside the United States by a foreign office of any broker that
is described in the preceding sentence may be subject to backup withholding tax
and 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 debt securities
provides the statement described in "Interest Income" or otherwise establishes
an exemption.
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
DEBT SECURITIES, 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.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the securities in Canada will be made only on a private
placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the securities are made. Any resale of the securities in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the securities.
REPRESENTATIONS OF PURCHASERS
By purchasing the securities in Canada and accepting a purchase
confirmation a purchaser is representing to the issuer and the dealer from whom
the purchase confirmation is received that
(i) the purchaser is entitled under applicable provincial securities
laws to purchase the securities without the benefit of a prospectus
qualified under those securities laws,
(ii) where required by law, that the purchaser is purchasing as
principal and not as agent, and
(iii) the purchaser has reviewed the text above under Resale
Restrictions.
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the securities to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
securities acquired by the purchaser pursuant to this offering. The report must
be in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed for the securities acquired on the same date and under the same prospectus
exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of the securities should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the
securities in their particular circumstances and about the eligibility of the
securities for investment by the purchaser under relevant Canadian legislation.
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LEGAL MATTERS
The validity of the debt and equity securities of Calpine offered hereby
will be passed upon for us by Covington & Burling, New York, New York. The
validity of the debt securities of Calpine Canada Energy Finance offered hereby
will be passed upon for us by Covington & Burling, New York, New York and by
Canadian counsel to be identified in the applicable Prospectus Supplement. Any
underwriters will be represented by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
EXPERTS
The audited financial statements incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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