Filed Pursuant to Rule 424(b)(3)
Registration No. 333-67446
This prospectus supplement and the prospectus to which it relates
constitutes a public offering of these securities only in those jurisdictions
where they may be lawfully offered for sale and in those jurisdictions only by
persons permitted to sell such securities. No securities commission or similar
regulatory authority in Canada or the United States of America has in any way
passed upon the merits of the securities offered by this prospectus supplement
and the prospectus to which it relates and any representation to the contrary is
an offense.
(Calpine Logo)
CALPINE CANADA ENERGY FINANCE ULC
C$200,000,000
8 3/4% Senior Notes Due October 15, 2007
Fully and Unconditionally Guaranteed By
CALPINE CORPORATION
------------------
We will pay interest on the senior notes each April 15 and October 15. The
first interest payment will be made on April 15, 2002.
We may redeem any and all of the senior notes at any time prior to their
stated maturity at the redemption price described herein. 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.
THIS OFFERING IS BEING MADE BY CALPINE CANADA ENERGY FINANCE, A CANADIAN
ISSUER, WHOSE OBLIGATIONS UNDER THE SENIOR NOTES WILL BE GUARANTEED BY CALPINE
CORPORATION, A U.S. ISSUER, USING DISCLOSURE DOCUMENTS PREPARED IN ACCORDANCE
WITH U.S. SECURITIES LAWS. PURCHASERS SHOULD BE AWARE THAT THESE REQUIREMENTS
MAY DIFFER FROM THOSE OF CANADIAN SECURITIES LAWS. THE FINANCIAL STATEMENTS
INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT HAVE NOT
BEEN PREPARED IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND MAY NOT BE COMPARABLE TO FINANCIAL STATEMENTS OF CANADIAN
ISSUERS. THIS OFFERING IS BEING MADE IN ALL OF THE PROVINCES OF CANADA, EXCEPT
QUEBEC, PURSUANT TO DECISIONS ISSUED BY THE SECURITIES COMMISSION OR SIMILAR
REGULATORY AUTHORITY OF EACH SUCH PROVINCE.
Concurrently with the offering of the senior notes, we are offering $530
million of 8 1/2% Senior Notes Due May 1, 2008, our affiliate Calpine Canada
Energy Finance II ULC is offering L200 million of 8 7/8% Senior Notes Due
October 15, 2011 and E175 million of 8 3/8% Senior Notes Due October 15, 2008,
and Calpine is offering $850 million of 8 1/2% Senior Notes Due February 15,
2011. All senior notes issued by subsidiaries of Calpine will be fully and
unconditionally guaranteed by Calpine. In addition, concurrently with this
offering, certain pass through trusts created as part of three leveraged lease
transactions to be consummated by affiliates of ours are offering $654.5 million
of pass through certificates by means of a separate offering circular in
transactions exempt from registration under Rule 144A of the Securities Act.
Calpine will fully and unconditionally guarantee the lease obligations of our
affiliates that are underlying the pass through certificates. Delivery of the
US$-denominated senior notes will be made on or about October 16, 2001 and
delivery of these senior notes, the euro and pound sterling-denominated senior
notes and the pass through certificates will be made on or about October 18,
2001. This offering is not contingent on the consummation of the concurrent
offerings.
INVESTING IN THE SENIOR NOTES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE S-7
AND PAGE 12 IN THE ACCOMPANYING PROSPECTUS. THE SENIOR NOTES WILL NOT BE LISTED
OR POSTED FOR TRADING ON ANY STOCK EXCHANGE. THERE IS NO MARKET THROUGH WHICH
THE SENIOR NOTES MAY BE SOLD AND NONE IS EXPECTED TO DEVELOP.
<Table>
<Caption>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS ISSUER(1)
------------- ------------- -------------
Per Senior Note...................................... 99.18% 1.00% 98.18%
Total................................................ C$198,360,000 C$2,000,000 C$196,360,000
</Table>
---------------
(1) Plus accrued interest, if any, from October 18, 2001.
Delivery of the senior notes in book-entry form only through The Canadian
Depository for Securities Limited will be made on or about October 18, 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of 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.
Certain of the directors and officers of Calpine and Calpine Canada Energy
Finance and the experts named in this prospectus supplement or the prospectus to
which it relates reside outside of Canada. Certain of the assets of these
persons and Calpine and Calpine Canada Energy Finance may be located outside
Canada. Calpine and Calpine Canada Energy Finance have appointed McCarthy
Tetrault LLP, Suite 3300, 421-7th Avenue S.W., Calgary, Alberta T2P 4K9 as their
agent for service of process in Canada, but it may not be possible for investors
to effect service of process within Canada upon all of the directors, officers
and experts referred to above. It may also not be possible to enforce against
Calpine and Calpine Canada Energy Finance, their directors and officers and the
experts named in this prospectus supplement or the prospectus to which it
relates, judgments obtained in Canadian courts predicated upon the civil
liability provisions of applicable securities laws in Canada.
TD SECURITIES
LEAD MANAGER & SOLE BOOKRUNNER
SCOTIA CAPITAL INC.
BMO NESBITT BURNS
CIBC WORLD MARKETS
RBC DOMINION SECURITIES INC.
The date of this prospectus supplement is October 11, 2001.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<Table>
<Caption>
PAGE
----
About This Prospectus Supplement............................ S-1
Eligibility for Investment.................................. S-1
Calpine Corporation......................................... S-2
Calpine Canada Energy Finance ULC........................... S-2
Use of Proceeds............................................. S-3
Where You Can Find More Information; Documents Incorporated S-5
by Reference..............................................
Risk Factors................................................ S-7
Forward-Looking Statements.................................. S-7
Calpine Consolidated Ratio of Earnings to Fixed Charges..... S-8
Capitalization.............................................. S-9
Description of the Senior Notes and the Guarantees.......... S-10
Underwriting................................................ S-14
Legal Matters............................................... S-15
Experts..................................................... S-15
Certificate of the Underwriters............................. S-16
</Table>
PROSPECTUS
<Table>
<Caption>
PAGE
----
About This Prospectus....................................... 1
Calpine Corporation......................................... 3
Calpine Canada Energy Finance ULC........................... 10
Calpine Canada Energy Finance II ULC........................ 10
Risk Factors................................................ 12
Where You Can Find More Information; Documents Incorporated 12
by Reference..............................................
Forward-Looking Statements.................................. 14
Calpine Consolidated Ratio of Earnings to Fixed Charges..... 15
Use of Proceeds............................................. 15
Plan of Distribution........................................ 15
Description of Capital Stock................................ 17
Description of the Debt Securities.......................... 22
Certain U.S. Tax and Information Reporting Matters.......... 37
Certain Canadian Federal Income Tax Considerations.......... 40
Legal Matters............................................... 41
Experts..................................................... 41
Purchasers' Statutory Rights................................ 41
Certificate of Calpine Corporation.......................... 42
Certificate of Calpine Canada Energy Finance ULC............ 43
Certificate of Calpine Canada Energy Finance II ULC......... 44
</Table>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND 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.
i
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 this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this 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. References in this prospectus supplement to "$" or
"dollar" are to the lawful currency of the United States and references to "C$"
or "Canadian dollar" are to the lawful currency of Canada. On April 19, 2001, we
acquired Encal Energy Ltd. in a merger transaction that was accounted for as a
pooling-of-interests under U.S. GAAP. All financial information contained in
this prospectus supplement has been restated for all periods presented as if
Encal and Calpine had always been combined. As used in this prospectus
supplement, "EBITDA" is defined as net income less income from unconsolidated
investments, plus cash received from unconsolidated investments, plus provision
for tax, plus interest expense, plus one-third of operating lease expenses, plus
depreciation and amortization, plus distributions on our company-obligated
mandatorily redeemable convertible preferred securities of subsidiary trusts
("HIGH TIDES"(SM)). This non-GAAP measure is presented not as a measure of
operating results, but rather as a measure of Calpine's ability to service debt.
EBITDA should not be construed as an alternative to either (i) income from
operations (determined in accordance with U.S. GAAP) or (ii) cash flows from
operating activities (determined in accordance with U.S. GAAP).
ELIGIBILITY FOR INVESTMENT
In the opinion of McCarthy Tetrault LLP, Canadian counsel to Calpine and
Calpine Canada Energy Finance, and Torys, Canadian counsel to the underwriters,
subject to compliance with the prudent investment standards and general
investment provisions and restrictions of the following statutes (and, where
applicable, the regulations thereunder) and, in certain cases, subject to the
satisfaction of additional requirements relating to investment or lending
policies, procedures or goals, and, in certain cases, the filing of such
policies, procedures or goals, the senior notes will not at the date of their
issue be precluded as investments under the following statutes:
<Table>
Insurance Companies Act (Canada) Pension Benefits Standards Act (British Columbia)
Trust and Loan Companies Act (Canada) Loan and Trust Corporations Act (Alberta)
Pension Benefits Standards Act, 1985 (Canada) Alberta Heritage Savings Trust Fund Act (Alberta)
Cooperative Credit Associations Act (Canada) Employment Pension Plans Act (Alberta)
Pension Benefits Act (Nova Scotia) Insurance Act (Alberta)
Trustee Act (Nova Scotia) The Pension Benefit Act, 1992 (Saskatchewan)
Pension Benefits Act (Ontario) The Pension Benefits Act, 1992 (Manitoba)
Loan and Trust Corporations Act (Ontario) The Insurance Act (Manitoba)
Trustee Act (Ontario) The Trustee Act (Manitoba)
Financial Institutions Act (British Columbia)
</Table>
In the opinion of McCarthy Tetrault LLP and Torys, provided that at the
time of issue, senior notes are held by at least 300 different persons, the
senior notes at that time will be qualified investments under the Income Tax Act
(Canada) (the "Tax Act") for trusts governed by registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans
(collectively, the "Deferred Income Plans"), other than trusts governed by
deferred profit sharing plans for which any of the employers is Calpine Canada
Energy Finance or is a corporation which does not deal at arm's length with
Calpine Canada Energy Finance. In the opinion of such counsel, based on a
certificate of Calpine Canada Energy Finance as to the use of proceeds from the
issue of senior notes and other matters, the senior notes will not, on the date
of issue, be "foreign property" for purposes of the Tax Act for Deferred Income
Plans and other persons subject to tax under Part XI of the Tax Act.
S-1
CALPINE CORPORATION
We are a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity and steam in the United States, Canada and the United Kingdom. We
have experienced significant growth in all aspects of our business over the last
five years. Currently, we own interests in 61 power plants having a net capacity
of 11,085 megawatts. We also have 30 gas-fired projects under construction
having a net capacity of 16,673 megawatts and have announced plans to develop 26
gas-fired projects (power plants and expansions of current facilities) with a
net capacity of 14,915 megawatts. Upon completion of the projects under
construction, we will have interests in 87 power plants located in 22 U.S.
states, three Canadian provinces and the United Kingdom, having a net capacity
of 27,758 megawatts. Of this total generating capacity, 97% will be attributable
to gas-fired facilities and 3% will be attributable to geothermal facilities. As
a result of our expansion program, our revenues, EBITDA, earnings and assets
have grown significantly over the last five years, as shown in the table below.
<Table>
<Caption>
COMPOUND ANNUAL
1996 2000 GROWTH RATE
-------- --------- ---------------
(IN MILLIONS)
Total Revenue................................. $ 291.5 $ 2,547.1 72%
EBITDA........................................ 144.2 1,017.2 63%
Net Income.................................... 14.8 372.6 124%
Total Assets.................................. 1,245.0 10,323.2 70%
</Table>
Since our inception in 1984, we have developed substantial expertise in all
aspects of the development, acquisition and operation of power generation
facilities. We believe that the vertical integration of our extensive
engineering, construction management, operations, fuel management, 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.
We are a corporation organized and existing under the laws of the State of
Delaware. Our principal executive office is located at 50 West San Fernando
Street, San Jose, California 95113. Our registered office is located at 9 East
Loockerman Street, Dover, Delaware 19901, c/o National Registered Agents, Inc.
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. It is an indirect
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. Its direct parent company is Quintana Canada Holdings, LLC, a
Delaware limited liability company. Calpine Canada Energy Finance will issue the
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.
S-2
USE OF PROCEEDS
The net proceeds from the sale of the senior notes by the issuer, Calpine
Canada Energy Finance, to which this prospectus supplement relates are expected
to be approximately C$196.2 million. The net proceeds from the sale of the
8 1/2% senior notes by Calpine Canada Energy Finance described on the cover page
of this prospectus supplement are expected to be approximately $525.0 million.
The net proceeds from the sale of the senior notes by Calpine Canada Energy
Finance's affiliate, Calpine Canada Energy Finance II ULC, described on the
cover page of this prospectus supplement are expected to be approximately L304.9
million (converting the euro tranche into pounds sterling at a recent exchange
rate). The net proceeds from the sale of the 8 1/2% senior notes by the
guarantor, Calpine, described on the cover page of this prospectus supplement
are expected to be approximately $839.4 million. Each of the foregoing estimates
is after deducting underwriting discounts and commissions and estimated offering
expenses. We estimate that the gross proceeds to Calpine and its affiliates of
the concurrent offering of the pass through certificates will be $654.5 million.
The offerings described above, including the offering of senior notes to which
this prospectus supplement relates, are referred to as the "Concurrent
Offerings". The offering of the senior notes to which this prospectus supplement
relates is not contingent on the consummation of the other Concurrent Offerings.
The net proceeds from the sale by Calpine Canada Energy Finance of the
senior notes to which this prospectus supplement relates and of the 8 1/2%
senior notes described above will be lent to Calpine and its affiliates by
Calpine Canada Energy Finance pursuant to one or more intercompany loans. The
net proceeds from the sale of the senior notes by Calpine Canada Energy Finance
II ULC described above will be lent to Calpine and its affiliates by Calpine
Canada Energy Finance II ULC pursuant to one or more intercompany loans. Calpine
expects to use the net proceeds from the Concurrent Offerings as follows: (i) to
refinance the $275,000,000 Bridge Credit Agreement, dated as of August 15, 2001,
among Calpine, as borrower, certain commercial lending institutions parties
thereto as lenders, Credit Suisse First Boston, as co-arranger and documentation
agent, Bayerische Landesbank Girozentrale, as lead arranger and syndication
agent, and The Bank of Nova Scotia, as lead arranger and administrative agent;
(ii) to refinance the $525,000,000 Bridge Credit Agreement, dated as of August
20, 2001, among Calpine Canada Energy Finance, as borrower, certain commercial
lending institutions parties thereto as lenders, Credit Suisse First Boston, as
co-arranger and documentation agent, Bayerische Landesbank Girozentrale, as lead
arranger and syndication agent, and The Bank of Nova Scotia, as lead arranger
and administrative agent; (iii) to refinance the $400,000,000 Bridge Credit
Agreement, dated as of August 22, 2001, among Calpine Canada Energy Finance II
ULC, as borrower, certain commercial lending institutions parties thereto as
lenders, Credit Suisse First Boston, as co-arranger and documentation agent,
Bayerische Landesbank Girozentrale, as lead arranger and syndication agent, and
The Bank of Nova Scotia, as lead arranger and administrative agent (the Bridge
Credit Agreements referred to in clauses (i), (ii) and (iii) above are
collectively referred to in this prospectus supplement as the "Bridge Credit
Facilities"); and (iv) the balance for working capital and general corporate
purposes, including repayment of outstanding borrowings under Calpine's
construction loan credit facilities. The weighted average interest rate of
outstanding advances under the Bridge Credit Facilities at October 10, 2001 was
4.89% per annum and such advances had various scheduled maturity dates. The
indebtedness under the Bridge Credit Facilities was incurred to finance
acquisitions recently consummated by Calpine. Each of the Bridge Credit
Facilities shall terminate upon the consummation of the respective refinancings
described above.
The facility lessees under the three leveraged lease transactions referred
to above will use the $654.5 million of proceeds from the sale of the pass
through certificates to purchase $654.5 million of lessor notes issued by
certain owner lessors pursuant to these transactions. The owner lessors will use
the proceeds from the sale of the lessor notes, together with $145.5 million of
equity contributed to the owner lessors by certain owner participants under the
leveraged lease transactions, to purchase from the facility lessees and Calpine
Construction Finance Company, as applicable, facility interests in the
respective facilities under the leveraged lease transactions. In addition, the
owner participants will, directly or through the owner lessor, pay approximately
$16.0 million of transaction expenses associated with the leveraged lease
transactions.
S-3
Calpine Construction Finance Company, as assignor of facility interests in
a certain facility under the leveraged lease transactions will use the proceeds
of such assignment to repay outstanding borrowings under the Calpine
Construction Finance Company construction loan facility. The facility lessees
will use the proceeds of the sale or assignment of the two facilities under the
leveraged lease transactions to repay outstanding project debt at one of these
facilities and to make loans to Calpine. Calpine will use the proceeds of such
loans to repay outstanding borrowings under its other construction loan facility
and its revolving credit facility and for working capital and general corporate
purposes. The outstanding project debt and borrowings under the facilities
anticipated to be repaid, bear interest at floating rates established in
relation to LIBOR, which are reset periodically, and mature from 2003 to 2007.
Pending such uses, Calpine expects to invest the net proceeds of the
Concurrent Offerings in short-term, interest bearing securities.
S-4
WHERE YOU CAN FIND MORE INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE
Calpine files annual, quarterly and current 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 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 website at http://www.sec.gov.
Pursuant to Rule 3-10 of Regulation S-X promulgated by the SEC, Calpine
Canada Energy Finance is not required to file separate reports with the SEC
under the Securities Exchange Act of 1934 and we are not required to include
separate financial statements for Calpine Canada Energy Finance in this
prospectus supplement because:
- all of the voting rights of Calpine Canada Energy Finance are owned by
Calpine, either directly or through its wholly-owned subsidiaries, and
Calpine files periodic and other reports with the SEC pursuant to the
Securities Exchange Act;
- Calpine Canada Energy Finance's sole operations are the investment of
funds in Calpine and its subsidiaries; and
- Calpine will fully and unconditionally guarantee Calpine Canada Energy
Finance's obligations and the rights of holders under the senior notes
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
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 Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act 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;
- Calpine's Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001 and June 30, 2001; and
- Calpine's Current Reports on Form 8-K filed on February 9, 2001, April
10, 2001, April 19, 2001, April 30, 2001, June 26, 2001, July 9, 2001,
July 13, 2001, July 17, 2001, July 27, 2001, September 5, 2001, September
10, 2001, September 28, 2001 and October 9, 2001.
The foregoing documents have been, and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act before
the termination of this offering will be, filed with the securities commission
or similar regulatory authority in each of the Provinces of Canada where this
offering is made. Such documents may also be obtained from the website
maintained by Canadian securities regulatory authorities, www.sedar.com. Each of
Calpine and Calpine Canada Energy Finance is a reporting issuer or equivalent in
each of the Provinces of Canada (except, with respect to Calpine Canada Energy
Finance, the Province of Quebec). Pursuant to applicable securities legislation,
Calpine will be permitted to satisfy the continuous disclosure requirements of
securities legislation in these Provinces essentially by: (i) complying with
applicable requirements of the New York Stock Exchange and U.S. federal
securities laws applicable to it; (ii) filing its continuous disclosure
documents with the securities commission or similar regulatory authority in each
of the above Provinces in the manner and in the time required under U.S. federal
securities laws; and (iii) where applicable, sending the continuous disclosure
documents to securityholders of Calpine having an address in each of the
Provinces. Application has been made to the securities commissions or similar
regulatory authorities in such Provinces for relief under
S-5
applicable securities legislation that will permit Calpine Canada Energy Finance
to also satisfy the continuous disclosure requirements of securities legislation
in these Provinces on the basis of Calpine's compliance with the foregoing
requirements, and it is expected that such relief will be obtained substantially
on the basis sought.
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 joint registration statement on Form S-3 under
the Securities Act of 1933 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. Copies of documents described herein are available free
of charge upon request as provided in the preceding paragraph.
S-6
RISK FACTORS
Investing in these senior notes involves risk. Please see the risk factors
described in Calpine's Annual Report on Form 10-K for the year ended December
31, 2000, Calpine's Quarterly Reports on Form 10-Q for the quarters ended March
31, 2001 and June 30, 2001 and Calpine's Current Report on Form 8-K, filed on
September 10, 2001, each of 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 us. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations.
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 the
following:
- 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 risks associated with 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;
S-7
- the uncertainty of the California power market. We are working closely
with a number of parties to resolve the current uncertainty. This is an
ongoing process and, therefore, the outcome cannot be predicted. It is
possible that any such outcome will include changes in government
regulations, business and contractual relationships or other factors that
could materially affect us; however, we believe that a final resolution
will not have a material adverse impact on us;
- the direct and indirect effects of the terrorist incidents that occurred
on September 11, 2001, and subsequent developments related to those
attacks; and
- other risks identified from time to time in Calpine's reports and
registration statements filed with the SEC, including the risk factors
identified in Calpine's Annual Report on Form 10-K for the year ended
December 31, 2000, Calpine's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2001 and June 30, 2001 and Calpine's Current
Report on Form 8-K, filed on September 10, 2001, each of 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.
CALPINE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Calpine's consolidated ratio of earnings to
fixed charges for the indicated periods.
<Table>
<Caption>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------------ ENDED JUNE 30,
1996 1997 1998 1999 2000 2001
----- ----- ----- ----- ----- --------------
1.30x 1.68x 1.52x 1.83x 2.26x 1.51x
</Table>
For purposes of computing our consolidated ratio of earnings to fixed
charges, earnings consist of pretax income before adjustment for minority
interests in our 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 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.
S-8
CAPITALIZATION
The following table sets forth, as of June 30, 2001, (1) Calpine's actual
consolidated capitalization, and (2) on an estimated basis for purposes of this
prospectus supplement, Calpine's consolidated capitalization as adjusted to
reflect the net effect of (a) the amendment on July 26, 2001 of Calpine's
Amended and Restated Certificate of Incorporation to increase from 500,000,000
to 1,000,000,000 the number of shares of common stock that Calpine has the
authority to issue, (b) borrowings under the Bridge Credit Facilities, (c)
Calpine's acquisition of Michael Petroleum Corporation, including the assumption
of debt in connection therewith, (d) the senior notes offered hereby and the
anticipated use of proceeds therefrom and (e) the other issuances comprising the
Concurrent Offerings and the anticipated use of proceeds therefrom. 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 consolidated condensed financial statements and
related notes thereto incorporated by reference in this prospectus supplement.
All non-dollar amounts are translated into dollar amounts using recent exchange
rates.
<Table>
<Caption>
JUNE 30, 2001
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
SHORT-TERM DEBT:
Notes payable and borrowings under lines of credit, current
portion................................................... $ 1,258 $ 1,258
Project financing, current portion.......................... 1,396 1,305
Capital lease obligation, current portion................... 2,251 2,251
Zero-Coupon Convertible Debentures Due 2021................. 1,000,000 1,000,000
----------- -----------
Total short-term debt............................. $ 1,004,905 $ 1,004,814
----------- -----------
LONG-TERM DEBT:
Notes payable and borrowings under lines of credit, net of
current portion........................................... $ 10,587 $ 65,087
Project financing, net of current portion................... 1,776,435 245,232
Senior notes................................................ 5,096,750 7,054,000
Capital lease obligation, net of current portion............ 208,839 208,839
----------- -----------
Total long-term debt.............................. $ 7,092,611 $ 7,573,158
----------- -----------
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts................. $ 1,122,706 $ 1,122,706
Minority interests.......................................... 40,733 82,579
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value:
10,000,000 shares authorized; one share outstanding,
actual and as adjusted................................. $ -- $ --
----------- -----------
Common stock, $.001 par value:
500,000,000 shares authorized, actual, and 1,000,000,000
shares authorized, as adjusted; 304,162,586 shares
outstanding, actual and as adjusted.................... $ 304 $ 304
Additional paid-in capital.................................. 1,993,849 1,993,849
Retained earnings........................................... 775,223 775,223
Accumulated other comprehensive income...................... 78,411 78,411
----------- -----------
Total stockholders' equity............................. $ 2,847,787 $ 2,847,787
----------- -----------
Total capitalization................................... $12,108,742 $12,631,044
=========== ===========
</Table>
S-9
DESCRIPTION OF THE SENIOR NOTES AND THE 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, as amended by the Amended and Restated
Indenture, dated as of October 16, 2001. The related guarantees will be issued
by Calpine under a Guarantee Agreement dated as of April 25, 2001, as amended by
the First Amendment to Guarantee Agreement, dated as of October 16, 2001. The
senior notes will be issued in the form of one or more global securities
registered in the name of The Canadian Depository for Securities Limited ("CDS")
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 and the
guarantees and is subject to the detailed provisions of the indenture and
guarantee agreement, copies of which are filed as exhibits to the Registration
Statement of which this prospectus supplement is a part and are available upon
request made to us. Copies of these documents can also be accessed through the
website, www.sedar.com. Whenever particular provisions of the indenture or
guarantee agreement or terms defined therein are referred to, those provisions
or definitions are incorporated by reference herein and such descriptions are
qualified in their entirety by such reference. 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 and
the guarantees and describe every detail of the terms of the senior notes and
the guarantees.
This description of the senior notes and the guarantees in this prospectus
supplement replaces 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, INTEREST AND RANKING
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, and interest. There is no sinking
fund for the senior notes.
The senior notes will mature on October 15, 2007. Interest on the senior
notes will accrue at the rate of 8 3/4% per year and will be payable
semi-annually in arrears on April 15 and October 15 of each year, commencing on
April 15, 2002. 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 1 or October 1, 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. Principal, premium, if any, and
interest on the senior notes will be payable in Canadian dollars.
Interest on the senior notes will accrue from October 18, 2001 and will be
computed on the basis of a 365-day year and will be payable in two equal
semi-annual installments.
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.
For purposes of these senior notes, the term "business day," unless
otherwise specified herein, means a day other than a Saturday, a Sunday or a day
on which banking institutions are not required to be open in either the State of
New York or the Province of Ontario.
The guarantee of the senior notes by Calpine will be on a senior unsecured
basis, and the guarantee will rank equally and ratably with all other unsecured
and unsubordinated indebtedness of Calpine. At June 30, 2001, Calpine had
approximately $6.1 billion of indebtedness outstanding that would rank equally
with the Calpine guarantee.
S-10
OPTIONAL 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 registered holders of the senior
notes, on any date prior to their maturity (a "Redemption Date") at a redemption
price equal to the greater of (a) the Discounted Value of the senior notes or
(b) 100% of the principal amount thereof. In addition, accrued and unpaid
interest, if any, will be paid to the date fixed for redemption.
"Discounted Value" shall mean an amount equal to the sum of the present
values of all remaining scheduled payments of principal and interest (not
including any portion of the payment of interest accrued as of the date of
redemption) from the Redemption Date to the respective due dates for such
payments until maturity of the senior notes computed on a semi-annual basis by
discounting such payments (assuming a 365 day year) to the Redemption Date at
the Government of Canada Yield plus 37.5 basis points.
"Government of Canada Yield" shall mean, with respect to any Redemption
Date, the mid market yield to maturity on the third Toronto business day (the
"Determination Date") preceding the Redemption Date, compounded semi-annually,
which a non-callable Government of Canada bond would carry if issued, in
Canadian dollars in Canada, at 100% of its principal amount on such date with a
term to maturity which most closely approximates the remaining term to maturity
of the senior notes from such Redemption Date as quoted by a dealer nationally
recognized as being active in fixed income markets in Canada selected from time
to time by Calpine Canada Energy Finance and approved by the Trustee at noon
(Toronto time) on such Determination Date.
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, except that each reference to "U.S. Government
Obligations" under that caption shall instead be a reference to securities
issued or guaranteed by the Government of Canada.
BOOK-ENTRY; DELIVERY AND FORM
The senior notes will be issued in fully registered form without interest
coupons in denominations of C$1,000 principal amount and integral multiples of
C$1,000.
The senior notes will initially be represented by one or more global notes
in definitive, fully registered form without interest coupons. The global notes
will be held by, or on behalf of, CDS as depositary and registered in the name
of CDS or its nominee, CDS & Co., except in certain circumstances described
below. Direct and indirect participants in CDS, including The Depository Trust
Company ("DTC") on behalf of its accountholders, will record beneficial
ownership of the senior notes by their respective accountholders. 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 CDS or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
So long as CDS or its nominee is the registered owner or holder of the
global notes, CDS or such nominee, as the case may be, will be considered the
sole owner or holder of the senior notes represented by such global notes for
all purposes under the indenture and the senior notes. No beneficial owner of an
interest in the global notes will be able to transfer that interest except in
accordance with CDS's applicable procedures, in addition to those provided for
under the indenture.
Except in the limited circumstances described below under "-- Certificated
Notes", owners of beneficial interests in the global notes will not be entitled
to receive physical delivery of certificated notes.
Payments of the principal, premium, if any, and interest on the global
notes will be made to CDS or its nominee, as the case may be, as the registered
owner of the global notes. Although Calpine Canada
S-11
Energy Finance will make all payments of principal, premium, if any, and
interest on the senior notes in Canadian dollars, holders of senior notes held
through DTC will receive such payments in U.S. dollars, except as set forth
below. Canadian dollar payments received by CDS will be exchanged into U.S.
dollars and paid directly to DTC in accordance with procedures established from
time to time by CDS and DTC. All costs of conversion will be borne by holders of
senior notes held through DTC who receive payments in U.S. dollars. Holders of
senior notes held through DTC may elect, through procedures established from
time to time by DTC and its participants, to receive Canadian dollar payments,
in which case such Canadian dollar amounts will be transferred directly to
Canadian dollar accounts designated by such holders to DTC. None of Calpine
Canada Energy Finance, Calpine, 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.
Calpine Canada Energy Finance expects that CDS or its nominee, upon receipt
of any payment of principal, premium, if any, 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 CDS or its nominee. Calpine
Canada Energy Finance also expects 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 CDS participants will be effected in the ordinary way in
accordance with CDS rules and will be settled in same-day funds.
The policies of CDS and DTC will govern payments, transfers, exchange and
other matters relating to your interest in the global notes. Calpine Canada
Energy Finance has obtained the foregoing information from sources it believes
to be reliable, including from CDS and DTC. CDS and DTC are under no obligation
to perform or continue to perform the procedures described above, and they may
modify or discontinue them at any time. None of Calpine Canada Energy Finance,
Calpine, the trustee, any paying agent or any transfer agent will have any
responsibility for the performance by CDS or DTC or their respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
Under the terms of the indenture, owners of senior notes will receive
certificated notes with the guarantee endorsed thereon:
- if CDS notifies Calpine Canada Energy Finance that it is unwilling or
unable to continue to act as depositary and a successor depositary is not
appointed by Calpine Canada Energy Finance within 90 days;
- if at any time Calpine Canada Energy Finance in its sole discretion
determines that the global notes should be exchanged for certificated
notes; or
- if an Event of Default with respect to the senior notes has occurred and
is continuing.
In any such instance, an owner of a beneficial interest in a global note
will be entitled to have senior notes equal in principal amount to such
beneficial interest registered in its name and will be entitled to physical
delivery of certificated notes with the guarantee endorsed thereon in accordance
with the relevant provisions of the senior notes, the indenture, the guarantee
agreement and the rules and procedures of CDS. Senior notes in certificated form
will be issued in denominations of C$1,000 and integral multiples of C$1,000 and
will be issued in registered form only, without coupons. Holders of interests in
the global notes that receive certificated notes in such circumstances may
receive senior notes with the guarantee endorsed thereon, in accordance with the
relevant provisions of the senior notes, the indenture, the guarantee agreement
and the rules and procedures of CDS and DTC, as applicable.
S-12
Calpine Canada Energy Finance will maintain in the Borough of Manhattan,
the City of New York, one or more offices or agencies where senior notes may be
presented for payment and may be transferred or exchanged. No service charge
will be made for any registration of transfer or exchange of certificated notes,
but Calpine Canada Energy Finance may require payment of a sum sufficient to
cover any tax or governmental charge payable in connection with that
registration.
S-13
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated October 11, 2001, Calpine and Calpine Canada Energy Finance have
agreed to sell to the underwriters named below, for whom TD Securities Inc. is
acting as representative, the following respective principal amounts of senior
notes and accompanying guarantees:
<Table>
<Caption>
PRINCIPAL AMOUNT OF
NAME SENIOR NOTES
---- -------------------
TD Securities Inc........................................... C$110,000,000
Scotia Capital Inc. ........................................ 45,000,000
BMO Nesbitt Burns Inc. ..................................... 15,000,000
CIBC World Markets Inc. .................................... 15,000,000
RBC Dominion Securities Inc. ............................... 15,000,000
-------------
Total..................................................... C$200,000,000
=============
</Table>
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 in certain circumstances be reduced or 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 0.65% of the principal
amount per C$1,000. The underwriters and the selling group members may allow a
discount of 0.65% of the principal amount per C$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.
The following table summarizes the compensation and estimated expenses we
will pay.
<Table>
<Caption>
PER SENIOR NOTE TOTAL
--------------- -----------
Underwriting discount and commissions paid by Calpine....... C$10.00 C$2,000,000
Expenses payable by Calpine................................. C$ 0.68 C$136,000
</Table>
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.
Other than the Concurrent Offerings, Calpine and Calpine Canada Energy
Finance 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 of 1933
relating to, any additional non-convertible debt securities having a maturity in
excess of one year from the date of issue, or publicly disclose their intention
to make any offer, sale, disposition or filing, without the prior written
consent of TD Securities Inc. 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 of 1933 and Canadian
securities laws, 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. We intend to use more than 10% of the proceeds of this offering to repay
indebtedness owed by us to various lenders, including affiliates of Scotia
Capital Inc. Accordingly, this offering is being made in compliance with the
requirements of Rule 2710(c)(8) of the Conduct Rules of the National Association
of Securities Dealers, Inc. The decision of the underwriters to distribute the
senior notes was made independent of the lenders with which the underwriters are
affiliated, which lenders
S-14
had no involvement in determining whether or when to distribute the senior notes
under this offering or the terms of this offering. The underwriters, exclusive
of their affiliates that will receive proceeds from this offering as described
above, will not receive any benefit from this offering other than their
respective portions of the discount to the offering price described in this
prospectus supplement.
In connection with this 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.
We expect that delivery of the senior notes will be made against payment
therefor on or about the closing date specified on the cover page of this
prospectus supplement, which will be the fifth business day following the date
of the pricing of the senior notes (this settlement cycle being referred to as
"T+5"). Under Rule 15c6-1 of the Securities Exchange Act, trades in the
secondary market generally are required to settle in three business days, unless
the parties to that trade expressly agree otherwise. Accordingly, purchasers who
wish to trade the senior notes on the date of pricing or the next succeeding
business day will be required, by virtue of the fact that the senior notes
initially will settle in T+5, to specify an alternative settlement cycle at the
time of such trade to prevent a failed settlement and should consult their own
advisor.
LEGAL MATTERS
The validity of the senior notes of Calpine Canada Energy Finance offered
hereby and the guarantees of Calpine offered hereby will be passed upon for us
by Stewart McKelvey Stirling Scales, Halifax, Nova Scotia, Canada, and by
Covington & Burling, New York, New York. Calpine Canada Energy Finance and
Calpine have also been represented in Canada by McCarthy Tetrault LLP, Canada.
The underwriters have been represented by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York and by Torys, Toronto, Ontario, Canada. Hilary Prescott
is a member of the Boards of Directors of three wholly-owned subsidiaries of
Calpine, each of which is also an affiliate of Calpine Canada Energy Finance,
and is also a partner in the law firm of Covington & Burling.
EXPERTS
Our audited financial statements incorporated by reference in this
prospectus supplement 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. The report of Ernst and Young LLP, independent public accountants,
with respect to the audited financial statements of Encal Energy Ltd., which is
incorporated in this prospectus supplement by reference to our Current Report on
Form 8-K, filed on September 10, 2001, is included herein in reliance upon the
authority of said firm as experts in giving said report.
S-15
CERTIFICATE OF THE UNDERWRITERS
Dated October 11, 2001
To the best of our knowledge, information and belief, the MJDS prospectus,
together with the documents incorporated in the prospectus, as supplemented by
the foregoing, constitutes full, true and plain disclosure of all material facts
relating to the securities offered under the MJDS prospectus and this supplement
as required by the provinces of Alberta, British Columbia, Manitoba, Ontario,
Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland.
TD SECURITIES INC.
By: /s/ SCOTT NORTHEY
SCOTIA CAPITAL INC.
By: /s/ JOHN TKACH
BMO NESBITT BURNS INC.
By: /s/ COLLEEN R. CAMPBELL
CIBC WORLD MARKETS INC.
By: /s/ DAVID H. WILLIAMS
RBC DOMINION SECURITIES INC.
By: /s/ DAVID DALBELLO
S-16
This prospectus constitutes a public offering of these securities only in
those jurisdictions where they may be lawfully offered for sale and in those
jurisdictions only by persons permitted to sell such securities. No securities
commission or similar authority in Canada or the United States of America has in
any way passed upon the merits of the securities offered by this prospectus and
any representation to the contrary is an offence.
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 CANADA ENERGY FINANCE II 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.
Calpine Canada Energy Finance ULC and Calpine Canada Energy Finance II ULC
may each periodically sell debt securities to the public. Such debt securities
will be fully and unconditionally guaranteed by Calpine Corporation. Calpine
Canada Energy Finance ULC or Calpine Canada Energy Finance II ULC, as the case
may be, will provide specific terms of such debt securities in supplements to
this prospectus.
Notwithstanding the foregoing, in Canada, Calpine Corporation may only sell
non-convertible preferred stock and non-convertible senior debt securities.
Calpine Corporation will not offer any of its common shares, any convertible
preferred stock, any convertible debt securities or any subordinated debt
securities to purchasers in Canada pursuant to this prospectus. Calpine Canada
Energy Finance ULC and Calpine Canada Energy Finance II ULC may only sell
non-convertible senior debt securities, fully and unconditionally guaranteed on
a senior unsecured basis by Calpine Corporation, to purchasers in Canada
pursuant to this prospectus. Calpine Canada Energy Finance ULC and Calpine
Canada Energy Finance II ULC will not offer any of their convertible debt
securities or subordinated debt securities in Canada pursuant to this
prospectus.
You should read this prospectus and each applicable supplement carefully
before you invest.
INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON
PAGE 12.
THIS OFFERING IS BEING MADE BY CALPINE CORPORATION, A U.S. ISSUER, AND
CALPINE CANADA ENERGY FINANCE ULC AND CALPINE CANADA ENERGY FINANCE II ULC, EACH
A CANADIAN ISSUER, WHOSE OBLIGATIONS UNDER DEBT SECURITIES ISSUED BY THEM WILL
BE GUARANTEED BY CALPINE CORPORATION, A U.S. ISSUER, IN EACH CASE USING
DISCLOSURE DOCUMENTS PREPARED IN ACCORDANCE WITH U.S. SECURITIES LAWS.
PURCHASERS SHOULD BE AWARE THAT THESE REQUIREMENTS MAY DIFFER FROM THOSE OF
CANADIAN SECURITIES LAWS. THE FINANCIAL STATEMENTS INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS HAVE NOT BEEN PREPARED IN ACCORDANCE WITH CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND MAY NOT BE COMPARABLE TO FINANCIAL
STATEMENTS OF CANADIAN ISSUERS. THIS OFFERING IS BEING MADE BY CALPINE CANADA
ENERGY FINANCE ULC AND CALPINE CANADA ENERGY FINANCE II ULC IN THE PROVINCES OF
ALBERTA, BRITISH COLUMBIA, MANITOBA AND ONTARIO PURSUANT TO DECISIONS ISSUED BY
THE SECURITIES COMMISSION OR SIMILAR REGULATORY AUTHORITY OF THE ABOVE
PROVINCES. CALPINE CANADA ENERGY FINANCE ULC AND CALPINE CANADA ENERGY FINANCE
II ULC HAVE APPLIED FOR SIMILAR DECISIONS IN THE PROVINCES OF SASKATCHEWAN, NEW
BRUNSWICK, NOVA SCOTIA, PRINCE EDWARD ISLAND AND NEWFOUNDLAND. SUBJECT TO
RECEIPT OF THESE DECISIONS, THIS OFFERING WILL ALSO BE MADE IN THESE PROVINCES.
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 these securities unless it is
accompanied by a prospectus supplement.
Prospectus dated September 21, 2001.
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.
Certain of the directors and officers of the issuers and the experts named
in this prospectus reside outside of Canada. Certain of the assets of these
persons and the issuers may be located outside Canada. The issuers have
appointed McCarthy Tetrault LLP, Suite 3300, 421-7th Avenue S.W., Calgary,
Alberta T2P 4K9 as their agent for service of process in Canada, but it may not
be possible for investors to effect service of process within Canada upon all of
the directors, officers and experts referred to above. It may also not be
possible to enforce against the issuers, their directors and officers and the
experts named in this prospectus judgments obtained in Canadian courts
predicated upon the civil liability provisions of applicable securities laws in
Canada.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
About This Prospectus................. 1
Calpine Corporation................... 3
Calpine Canada Energy Finance ULC..... 10
Calpine Canada Energy Finance II
ULC................................. 10
Risk Factors.......................... 12
Where You Can Find More Information;
Documents Incorporated by
Reference........................... 12
Forward-Looking Statements............ 14
Calpine Consolidated Ratio of Earnings
to Fixed Charges.................... 15
Use of Proceeds....................... 15
Plan of Distribution.................. 15
Description of Capital Stock.......... 17
</Table>
<Table>
<Caption>
PAGE
----
Description of the Debt Securities.... 22
Certain U.S. Tax and Information
Reporting Matters................... 37
Certain Canadian Federal Income Tax
Considerations...................... 40
Legal Matters......................... 41
Experts............................... 41
Purchasers' Statutory Rights.......... 41
Certificate of Calpine Corporation.... 42
Certificate of Calpine Canada Energy
Finance ULC......................... 43
Certificate of Calpine Canada Energy
Finance II ULC...................... 44
</Table>
In this prospectus, unless otherwise specified, all dollar amounts are expressed
in U.S. dollars.
i
ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a joint registration
statement that Calpine Corporation, Calpine Canada Energy Finance ULC and
Calpine Canada Energy Finance II ULC, which we refer to as "Energy Finance" and
"Energy Finance II," respectively, 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 its common stock, preferred stock
and debt securities described in this prospectus, and Energy Finance and Energy
Finance II may from time to time sell their respective debt securities fully and
unconditionally guaranteed by Calpine described in this prospectus, in one or
more offerings which will aggregate up to a total dollar amount of
$2,775,000,000, which amount includes over-allotment options with regard to
certain securities. Unless otherwise indicated, references in this prospectus to
"$" are to the lawful currency of the United States.
In Canada, Calpine Corporation may only sell non-convertible preferred
stock and non-convertible senior debt securities. Calpine Corporation will not
offer any of its common shares, any convertible preferred stock, any convertible
debt securities or any subordinated debt securities to purchasers in Canada
pursuant to this prospectus. Calpine Canada Energy Finance ULC and Calpine
Canada Energy Finance II ULC may only sell non-convertible senior debt
securities, fully and unconditionally guaranteed on a senior unsecured basis by
Calpine Corporation, to purchasers in Canada pursuant to this prospectus.
Calpine Canada Energy Finance ULC and Calpine Canada Energy Finance II ULC will
not offer any of their convertible debt securities or subordinated debt
securities in Canada pursuant to this prospectus. This offering is being made by
Calpine Canada Energy Finance ULC and Calpine Canada Energy Finance II ULC in
the Provinces of Alberta, British Columbia, Manitoba and Ontario pursuant to
decisions issued by the securities commission or similar regulatory authority of
the above provinces. Calpine Canada Energy Finance ULC and Calpine Canada Energy
Finance II ULC have applied for similar decisions in the Provinces of
Saskatchewan, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland.
Subject to receipt of these decisions, this offering will also be made in these
Provinces.
Pursuant to Rule 3-10 of Regulation S-X promulgated by the SEC, we are not
required to include separate financial statements of Energy Finance or Energy
Finance II in this prospectus, because:
- all of the voting rights of each of Energy Finance and Energy Finance II
are owned by Calpine, either directly or through wholly-owned
subsidiaries of Calpine, which files periodic and other reports with the
SEC pursuant to the Securities Exchange Act of 1934, as amended;
- Neither Energy Finance nor Energy Finance II has operations other than
the investment of funds in Calpine or its subsidiaries; and
- Calpine will fully and unconditionally guarantee the obligations of
Energy Finance and Energy Finance II, and the rights of holders of their
debt securities, and no subsidiary of Calpine will guarantee the
obligations of Energy Finance or Energy Finance II.
This prospectus provides you with a general description of the common
stock, preferred stock and debt securities we may offer. Each time we sell such
securities, whether by Calpine, Energy Finance or Energy Finance II, 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; Documents Incorporated by Reference."
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 the website
maintained by Canadian securities regulatory authorities, www.sedar.com, or at
the SEC offices mentioned under the heading "Where You Can Find More
Information; Documents Incorporated by Reference."
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
1
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 "Energy Finance" are to
Calpine Canada Energy Finance ULC, references to "Energy Finance II" are to
Calpine Canada Energy Finance II 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. On April 19, 2001, we acquired Encal Energy Ltd.
("Encal") in a merger transaction that was accounted for as a
pooling-of-interests. All financial information contained in this prospectus has
been restated for all periods presented as if Encal and Calpine had always been
combined.
2
CALPINE CORPORATION
We are a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity and steam in the United States, Canada and the United Kingdom. We
have experienced significant growth in all aspects of our business over the last
five years. Currently, we own interests in 59 power plants having a net capacity
of 10,826 megawatts. We also have 29 gas-fired projects under construction
having a net capacity of 16,032 megawatts and have announced plans to develop 27
gas-fired projects (power plants and expansions of current facilities) with a
net capacity of 15,505 megawatts. Upon completion of the projects under
construction, we will have interests in 84 power plants located in 22 U.S.
states, Canada and the United Kingdom, having a net capacity of 26,858
megawatts. Of this total generating capacity, 97% will be attributable to
gas-fired facilities and 3% will be attributable to geothermal facilities. As a
result of our expansion program, our revenues, earnings and assets have grown
significantly over the last five years, as shown in the table below.
<Table>
<Caption>
COMPOUND ANNUAL
1996 2000 GROWTH RATE
-------- --------- ---------------
(IN MILLIONS)
Total Revenue................................. $ 291.5 $ 2,547.1 72%
Net Income.................................... 14.8 372.6 124%
Total Assets.................................. 1,245.0 10,323.2 70%
</Table>
Since our inception in 1984, we have developed substantial expertise in all
aspects of the development, acquisition and operation of power generation
facilities. We believe that the vertical integration of our extensive
engineering, construction management, operations, fuel management, 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.
We are a corporation organized and existing under the laws of the State of
Delaware. Our principal executive office is located at 50 West San Fernando
Street, San Jose, California 95113. Our registered office is located at 9 East
Loockerman Street, Dover, Delaware 19901, c/o National Registered Agents, Inc.
3
CAPITALIZATION
The following table sets forth, as of June 30, 2001 (1) Calpine's actual
consolidated capitalization; and (2) Calpine's consolidated capitalization as
adjusted to reflect the net effect of (a) the amendment on July 26, 2001 of
Calpine's Amended and Restated Certificate of Incorporation to increase from
500,000,000 to 1,000,000,000 the number of shares of common stock that Calpine
has the authority to issue, (b) the borrowings under the Calpine Construction
Finance Company debt revolvers during July and August of 2001, (c) borrowings
under the $275,000,000 Bridge Credit Agreement, dated as of August 15, 2001,
among Calpine, as borrower, the various financial institutions parties thereto
as lenders, Credit Suisse First Boston, as co-arranger and documentation agent,
Bayerische Landesbank Girozentrale, as lead arranger and syndication agent, and
The Bank of Nova Scotia, as lead arranger and administrative agent, (d)
borrowings under the $525,000,000 Bridge Credit Agreement, dated as of August
20, 2001, among Calpine Canada Energy Finance, as borrower, the various
financial institutions parties thereto, as lenders, Credit Suisse First Boston,
as co-arranger and documentation agent, Bayerische Landesbank Girozentrale, as
lead arranger and syndication agent, and The Bank of Nova Scotia, as lead
arranger and administrative agent, (e) borrowings under the $400,000,000 Bridge
Credit Agreement, dated as of August 22, 2001, among Calpine Canada Energy
Finance II ULC, as borrower, the various financial institutions parties thereto
as lenders, Credit Suisse First Boston, as co-arranger and documentation agent,
Bayerische Landesbank Girozentrale, as lead arranger and syndication agent, and
The Bank of Nova Scotia, as lead arranger and administrative agent, (f)
Calpine's acquisition of Michael Petroleum Corporation, including the assumption
of debt in connection therewith as described below under "-- Recent
Developments", (g) Calpine's acquisition of the Saltend, Yorkshire, England
cogeneration facility as described below under "-- Recent Developments" and (h)
borrowings under the $400 million revolving line of credit with a consortium of
commercial lending institutions with The Bank of Nova Scotia as agent. The
adjustments do not reflect normal day-to-day operations or the potential
issuance of securities offered hereby. This table should be read in conjunction
with the consolidated financial statements and related notes thereto and the
unaudited consolidated condensed financial statements and related notes thereto
incorporated by reference in this prospectus.
4
<Table>
<Caption>
JUNE 30, 2001
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
SHORT-TERM DEBT:
Notes payable and borrowings under lines of credit, current
portion................................................... $ 1,258 $ 1,258
Project financing, current portion.......................... 1,396 1,396
Capital lease obligation, current portion................... 2,251 2,251
Zero-Coupon Convertible Debentures Due 2021................. 1,000,000 1,000,000
----------- -----------
1,004,905 1,004,905
LONG-TERM DEBT:
Notes payable and borrowings under lines of credit, net of
current portion........................................... 10,587 1,204,337
Project financing, net of current portion................... 1,776,435 2,437,418
Senior notes................................................ 5,096,750 5,096,750
Capital lease obligation, net of current portion............ 208,839 208,839
----------- -----------
Total long-term debt.................................... 7,092,611 8,947,344
----------- -----------
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts................. 1,122,706 1,122,706
Minority interests.......................................... 40,733 82,579
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value:
10,000,000 shares authorized; one share outstanding,
actual and as adjusted.................................. -- --
----------- -----------
Common stock, $.001 par value:
500,000,000 shares authorized, actual, and 1,000,000,000
shares authorized, as adjusted; 304,162,586 shares
outstanding, actual and as adjusted..................... 304 304
Additional paid-in capital.................................. 1,993,849 1,993,849
Retained earnings........................................... 775,223 775,223
Accumulated other comprehensive income...................... 78,411 78,411
----------- -----------
Total stockholders' equity.............................. 2,847,787 2,847,787
----------- -----------
Total capitalization.................................... $12,108,742 $14,005,321
=========== ===========
</Table>
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, as well as to
replace old and inefficient generating facilities. Due to environmental and
economic considerations, we believe this new capacity will be provided
predominantly by gas-fired facilities. We believe that these market trends will
create substantial opportunities for efficient, low-cost power producers that
can produce and sell energy to customers at competitive rates.
In addition, as a result of a variety of factors, including deregulation of
the power generation market, utilities, independent power producers and
industrial companies are disposing of power generation facilities. To date,
numerous utilities have sold or announced their intentions to sell their power
generation facilities and have focused their resources on the transmission and
distribution business segments. Many
5
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 this 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,
acquisition, operations and power marketing, which we believe provides us with a
competitive advantage. The key elements of our strategy are as follows:
- Development of new and expansion of existing power plants. We are
actively pursuing the development of new and expansion of our existing
highly efficient, low-cost, gas-fired power plants to replace old and
inefficient generating facilities and meet the demand for new generation.
- Acquisition of power plants. Our strategy is to acquire power generating
facilities that meet our stringent criteria, provide significant
potential for revenue, cash flow and earnings growth and provide the
opportunity to enhance the operating efficiencies of the plants.
- Enhancement of existing power plants. We continually seek to maximize the
power generation and revenue potential of our operating assets and
minimize our operating and maintenance expenses and fuel costs.
RECENT DEVELOPMENTS
In addition to the recent developments described below, please see the
recent developments described in our Annual Report on Form 10-K for the year
ended December 31, 2000, our Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2001 and June 30, 2001, and our Current Reports on Form 8-K
filed on April 10, 2001, April 19, 2001, April 30, 2001, June 26, 2001, July 9,
2001, July 13, 2001, July 17, 2001, July 27, 2001, September 5, 2001 and
September 10, 2001, each of which are incorporated by reference in this
prospectus.
On July 5, 2001, we announced an agreement to acquire a 1,200-megawatt
natural gas-fired power plant at Saltend near Hull, Yorkshire, England from
Entergy Wholesale Operations for up to approximately L562.5 million
(approximately U.S.$800 million at current exchange rates). The Saltend
facility, a cogeneration facility, provides electricity and steam for BP
Chemical's Hull Works plant under a 15-year agreement. The balance of the
Saltend facility's electricity output is sold into the deregulated UK power
market. The Saltend transaction is our first acquisition of a power facility in
Europe. The acquisition closed on August 24, 2001.
On July 10, 2001, we announced an agreement to acquire approximately 85% of
the voting stock of Michael Petroleum Corporation, a Houston, Texas-based
natural gas exploration and development company, for approximately $338.5
million and the assumption of $54.5 million of debt. The acquisition includes
204 billion cubic feet equivalent of proven natural gas reserves currently
producing 43 mmcfe per day and an inventory of high quality, low risk drilling
locations within a 94,000 acreage position in close proximity to our South Texas
Magic Valley and Hidalgo Energy Centers. The acquisition closed on August 15,
2001.
California Power Market. The deregulation of the California power market
has produced significant unanticipated results in the past year and a half. The
deregulation froze the rates that utilities can charge their retail and business
customers in California, until recent rate increases approved by the California
Public Utilities Commission ("CPUC"), and prohibited the utilities from buying
power on a forward basis, while wholesale power prices were not subjected to
limits.
6
In the past year and a half, 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. 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 under Calpine's
long-term qualifying facility ("QF") contracts, which are subject to federal
regulation under the Public Utility Regulatory Policies Act of 1978, as amended
("PURPA"). The PG&E QF contracts are in place at 11 of our facilities and
represent nearly 600 megawatts of electricity for Northern California customers.
PG&E Bankruptcy Proceedings. On April 6, 2001, PG&E filed for bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code. As of April 6,
2001, Calpine had recorded approximately $266 million in accounts receivable
with PG&E under its QF contracts, plus a $69 million note receivable not yet due
and payable. Calpine is currently selling power to PG&E pursuant to its long-
term QF contracts, and PG&E has been paying on a current basis for these
purchases since its bankruptcy filing. With respect to the receivables recorded
under these contracts on July 6, 2001, Calpine announced that it had entered
into a binding agreement with PG&E to modify all of Calpine's QF contracts with
PG&E and that, based upon such modification, PG&E had agreed to assume all of
the QF contracts. Under the terms of this agreement, Calpine will continue to
receive its contractual capacity payments under the QF contracts, plus a
five-year fixed energy component that averages 5.37 cents per kilowatt-hour. In
addition, all past due receivables under the QF contracts will be elevated to
administrative priority status in the PG&E bankruptcy proceeding and will be
paid to Calpine, with interest, upon the effective date of a confirmed plan of
reorganization. Administrative claims enjoy priority over payments made to the
general unsecured creditors in bankruptcy. The bankruptcy court approved the
agreement on July 12, 2001. Calpine cannot predict when the bankruptcy court
will confirm a plan of reorganization for PG&E.
CPUC Proceedings Regarding QF Contract Pricing. Our QF contracts with PG&E
provide that the 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. The CPUC has issued a proposed decision to the effect that
the PX price was the appropriate price for energy
7
payments under the California Public Utility Code. However, a final decision has
not been issued to date. Therefore, 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.
On March 28, 2001, the CPUC issued an order (Decision 01-03-067) (the
"March 2001 Decision") proposing to change, on a prospective basis, the
composition of the short run avoided cost ("SRAC") energy price formula, which
is reset monthly, used by the California utilities in QF contracts. Prior to the
March 2001 Decision, CPUC regulations calculated SRAC based on 50% Topock and
50% Malin border gas indices. In the March 2001 Decision, the CPUC changed this
formulation to eliminate the prices at Topock from the SRAC formula. The March
2001 Decision is subject to challenges at the CPUC and the Federal Regulatory
Energy Commission.
On June 14, 2001, however, the CPUC issued an order (Decision 01-06-015)
(the "June 2001 Decision") that authorized the California utilities, including
PG&E, to amend QF contracts to elect a fixed energy price component that
averages 5.37 cents per kilowatt-hour for a five-year term under those contracts
in lieu of using the SRAC energy price formula. By this order, the CPUC
authorized the QF contract energy price amendments without further CPUC
concurrence. As part of the agreement we entered into with PG&E pursuant to
which PG&E agreed to assume its QF contracts with us in bankruptcy, PG&E agreed
with us to amend these contracts to adopt the fixed price component that
averages 5.37 cents pursuant to the June 2001 Decision. This election became
effective as of July 16, 2001. As a result of the June 2001 Decision and our
agreement with PG&E to amend the QF contracts to adopt the fixed price energy
component, the energy price component in our QF contracts is now fixed for five
years and we are no longer subject to any uncertainty that may have existed with
respect to this component of our QF contract pricing as a result of the March
2001 Decision. Further, the March 2001 Decision has no bearing on PG&E's
agreement with us to assume the QF contracts in bankruptcy or on the amount of
the receivable that was so assumed.
California Long-Term Supply Contracts. California has 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 in a publicly announced
auction. Calpine successfully bid in that auction and signed several 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, which increases to 1,000
megawatts by January 1, 2004. The electricity will be sold directly to DWR on a
24-hour, 7-day-a-week basis. This contract is contingent upon our satisfaction,
in our sole discretion, that adequate provisions have been made by DWR to assure
us of full payment under the terms of that contract (including the terms and
conditions of any bonds issued by DWR to provide funds for payment of its
obligations under the contract).
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, Calpine committed to sell up to 1,000 megawatts
of generation. Initial deliveries began 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. Each of these contracts is also contingent upon our
satisfaction, in our sole discretion, that adequate provisions have been made by
DWR to assure us of full payment under the terms of that contract (including,
but not limited to, the terms and conditions of any bonds issued by DWR to
provide funds for payment of its obligations under that contract).
FERC Investigation into California Wholesale Markets. In response to the
increase in wholesale energy prices in the California markets, on June 28, 2000,
the Board of Governors of the California
8
Independent System Operator (the "ISO"), which controls the long-distance
high-voltage power lines that deliver electricity throughout California and the
adjoining states, 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 effective August 7, 2000. During this period,
however, the 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, FERC instructed its
staff to initiate an investigation of the California power markets and to report
its findings to FERC and held further hearing procedures in abeyance pending the
outcome of this investigation. Under FERC regulations, QF contracts are exempt
from regulation under the Federal Power Act, which is the legislation that
provides the authority for FERC to investigate the California power markets and
frame equitable relief with respect to the California wholesale markets.
Therefore, any such relief will only apply to sales by Calpine in the short-term
market. None of our receivables related to power produced under our long-term QF
contracts with PG&E should be affected by any FERC findings pursuant to the
proceedings described below. See "Government Regulation -- Federal Energy
Regulation -- Federal Power Act Regulation" set forth in our Annual Report on
Form 10-K for the year ended December 31, 2000, which is incorporated by
reference in this prospectus.
On November 1, 2000, FERC released a Staff Report detailing the results of
the staff investigation, together with an "Order Proposing Remedies for
California Wholesale Markets" (the "November 1 Order"). In the November 1 Order,
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 would 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, 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 FERC not to be just and reasonable. While 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.
On December 15, 2000, 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 FERC's December 15 Order. The outcome of these proceedings, and the extent to
which 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.
On June 19, 2001, FERC ordered price mitigation in 11 states in the western
United States in an attempt to reduce the dependence of the California market on
the spot markets in favor of longer-term committed energy supplies. The order
provides for price mitigation in the spot market throughout the 11-state western
region during "reserve deficiency hours," which is when operating reserves in
California fall below 7%. This price will be a single market clearing price
based upon the marginal operating cost of the last unit dispatched by the
California ISO. In addition, FERC implemented price mitigation in non-reserve
deficiency hours, which will be set at 85% of the market clearing price during
the last reserve
9
deficiency period. These price mitigation procedures went into effect on June
20, 2001 and will remain in effect until September 30, 2002.
The retention by FERC of a market-based, rather than a cost-of-service
based, rate structure will enable us to continue to realize benefits from our
efficient, modern power plants. We believe that Calpine's marginal costs will
continue to be below any price cap imposed by FERC, whether during reserve
deficiency hours or at other times. Therefore, we believe that FERC's mitigation
plan will not have a material adverse effect on Calpine's financial condition or
results of operations.
FERC also ordered all sellers and buyers in wholesale power markets
administered by the California ISO, as well as representatives of the State of
California, to participate in a settlement conference before a FERC
administrative judge. The settlement discussions were intended to resolve all
issues that remain outstanding to resolve past accounts, including sellers'
claims for unpaid invoices, and buyers' claims for refunds of alleged
overcharges, for past periods. The settlement discussions began on June 25, 2001
and ended on July 9, 2001. The Chief Administrative Law Judge issued his report
and recommendation to FERC on July 12, 2001. On July 25, 2001, FERC ordered an
expedited fact-finding hearing to calculate refunds for spot market transactions
in California. The hearing must be completed within 45 days from the date the
California ISO provides certain critical data for the purpose of developing the
factual basis needed to implement the refund methodology and order refunds.
While it is not possible to predict the amount of any refunds until the hearings
take place, based upon the information available at this time, we do not believe
that this proceeding will result in a material adverse effect on Calpine's
financial condition or results of operations.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 50 West San Fernando Street,
San Jose, California 95113. Our telephone number is (408) 995-5115, and our home
page on the world wide web is at http://www.calpine.com. The contents of our
website are not part of this prospectus.
CALPINE CANADA ENERGY FINANCE ULC
Energy Finance is an unlimited liability company organized in March 2001
under the laws of Nova Scotia, Canada. It is an indirect, 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. Its
direct parent company is Quintana Canada Holdings, LLC, a Delaware limited
liability company. Energy Finance will issue debt securities which will be fully
and unconditionally guaranteed by Calpine.
Pursuant to Rule 3-10 of Regulation S-X promulgated by the SEC, we are not
required to include separate financial statements for Energy Finance in this
prospectus, because:
- all of the voting rights of Energy Finance are owned by Calpine, either
directly or through its wholly-owned subsidiaries, and Calpine files
periodic and other reports with the SEC pursuant to the Securities
Exchange Act of 1934;
- its sole operations are the investment of funds in Calpine and its
subsidiaries; and
- Calpine will fully and unconditionally guarantee its obligations and the
rights of holders under its debt securities and no subsidiary of Calpine
will guarantee its obligations.
The registered office of 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.
CALPINE CANADA ENERGY FINANCE II ULC
Energy Finance II is an unlimited liability company organized in July 2001
under the laws of Nova Scotia, Canada. It is an indirect, 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. Its
direct
10
parent company is Calpine Canada Resources Ltd., an Alberta, Canada corporation.
Energy Finance II will issue debt securities which will be fully and
unconditionally guaranteed by Calpine.
Pursuant to Rule 3-10 of Regulation S-X promulgated by the SEC, we are not
required to include separate financial statements for Energy Finance II in this
prospectus, because:
- all of the voting rights of Energy Finance II are owned by Calpine,
either directly or through its wholly-owned subsidiaries, and Calpine
files periodic and other reports with the SEC pursuant to the Securities
Exchange Act of 1934;
- its sole operations are the investment of funds in Calpine and its
subsidiaries; and
- Calpine will fully and unconditionally guarantee its obligations and the
rights of holders under its debt securities and no subsidiary of Calpine
will guarantee its obligations.
The registered office of Energy Finance II 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.
11
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, and our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001 and June 30, 2001, each of which are 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 us. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial may also impair our respective business operations.
WHERE YOU CAN FIND MORE INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE
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.
Neither Energy Finance nor Energy Finance II is currently subject to the
information reporting requirements of the Securities Exchange Act of 1934, as
amended, for the reasons set forth under the captions "Calpine Canada Energy
Finance ULC" and "Calpine Canada Energy Finance II ULC" above.
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 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;
- Calpine's Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001 and June 30, 2001;
- Calpine's Current Reports on Form 8-K filed on February 9, 2001, April
10, 2001, April 19, 2001, April 30, 2001, June 26, 2001, July 9, 2001,
July 13, 2001, July 17, 2001, July 27, 2001, September 5, 2001 and
September 10, 2001; and
- the description of Calpine's common stock contained in Calpine's
Registration Statement on Form 8-A (File No. 001-12079), filed with the
SEC on August 20, 1996, pursuant to Section 12 of the Securities Exchange
Act.
The foregoing documents have been, and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act before
the termination of this offering will be, filed with the securities commission
or similar regulatory authority in each of the Provinces of Canada where this
offering is made. Such documents may also be obtained from the web site
maintained by Canadian securities regulatory authorities, www.sedar.com. Each of
Calpine, Energy Finance and Energy Finance II will become reporting issuers or
acquire equivalent status in each of the Provinces of Canada where this
prospectus is filed effective upon receipts being issued for the final MJDS
prospectus. Pursuant to applicable securities legislation, Calpine will be
permitted to satisfy the continuous disclosure requirements of securities
legislation in these Provinces essentially by: (i) complying with applicable
requirements of the New York Stock Exchange and U.S. federal securities laws
applicable to it; (ii) filing its continuous disclosure documents with the
securities commission or similar regulatory authority in each of the above
12
Provinces in the manner and in the time required under U.S. federal securities
laws; and (iii) where applicable, sending the continuous disclosure documents to
securityholders of Calpine having an address in any of the above Provinces.
Application has been made to the securities commissions or similar regulatory
authorities in such Provinces for relief under applicable securities legislation
that will permit each of Energy Finance and Energy Finance II to also satisfy
the continuous disclosure requirements of securities legislation in these
Provinces on the basis of Calpine's compliance with the foregoing requirements,
and it is expected that such relief will be obtained substantially on the basis
sought.
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 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. Copies of documents described
herein are available free of charge upon request as provided in the preceding
paragraph.
13
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 respective, or
our respective 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
respective, or our respective 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;
- the uncertainty of the California power market. We are working closely
with a number of parties to resolve the current uncertainty. This is an
ongoing process and, therefore, the outcome cannot be predicted. It is
possible that any such outcome will include changes in government
regulations, business and contractual relationships or other factors that
could materially affect us; however, we believe that a final resolution
will not have a material adverse impact on us; 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, our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and
June 30, 2001, and our Current Report on Form 8-K, filed on September 10,
2001, each of which is incorporated by reference in this prospectus.
14
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.
CALPINE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Calpine's consolidated ratio of earnings to
fixed charges for the indicated periods.
<Table>
<Caption>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------------- ENDED JUNE 30,
1996 1997 1998 1999 2000 2001
----- ----- ----- ----- ----- ----
1.30x.. 1.68x 1.52x 1.83x 2.26x 1.51x
</Table>
For purposes of computing our consolidated ratio of earnings to fixed
charges, earnings consist of pretax income before adjustment for minority
interests in our 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 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
Company-obligated mandatorily redeemable convertible preferred securities of
subsidiary trusts ("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, directly or indirectly, 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 Energy Finance or Energy Finance II to which this prospectus
relates will be lent to Calpine or its affiliates by Energy Finance or Energy
Finance II, as applicable, pursuant to one or more intercompany loans.
PLAN OF DISTRIBUTION
We may sell our securities through agents, underwriters, dealers or
directly to purchasers.
- Unless we indicate otherwise in the 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.
If we use an underwriter or underwriters in the offer or sale of our
securities:
- 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.
15
If we use a dealer to sell our securities:
- 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.
- 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, Energy Finance
or Energy Finance II, 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.
16
DESCRIPTION OF CAPITAL STOCK
Calpine's authorized capital stock consists of 1,000,000,000 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 amended and restated certificate of incorporation and by-laws,
which have been incorporated by reference as exhibits to the Registration
Statement of which this prospectus constitutes a part. The information provided
below reflects the 2 for 1 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 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. Pursuant to a rights agreement
entered into in June 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. The
information in the following table reflects the 2 for 1 stock split that became
effective on October 7, 1999, the 2 for 1 stock split that became effective on
June 8, 2000, and the 2 for 1 stock split that became effective on November 14,
2000.
<Table>
<Caption>
HIGH LOW
------ ------
1999
First Quarter.............................................. $ 4.67 $ 3.16
Second Quarter............................................. 7.38 4.39
Third Quarter.............................................. 11.97 6.85
Fourth Quarter............................................. 16.38 10.63
2000
First Quarter.............................................. $30.75 $16.09
Second Quarter............................................. 35.22 18.13
Third Quarter.............................................. 52.25 32.25
Fourth Quarter............................................. 52.97 32.25
2001
First Quarter.............................................. $58.04 $29.00
Second Quarter............................................. 57.35 36.20
Third Quarter (through September 18, 2001)................. 46.00 24.06
</Table>
17
As of September 18, 2001, there were approximately 910 holders of record of
our common stock. On September 18, 2001, the last sale price reported on the New
York Stock Exchange for our common stock was $24.30 per share.
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 certain of 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 and Canadian
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 September 18, 2001, there was one share of our preferred stock
outstanding (see the discussion of Calpine's special voting preferred stock,
below). Our board of directors has the authority, without further vote or action
by the stockholders, to issue from time to time up to a total of 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 1,000,000
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. As of September 18, 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 Law -- Rights
Plan," below.
Upon consummation of the Encal business combination, a series of preferred
stock of Calpine, consisting of one share, was designated as Special Voting
Preferred Stock of Calpine, having a par value of $.001 per share and a
liquidation preference of $.001. Except as otherwise required by law or
Calpine's certificate of incorporation, the one share of special voting
preferred stock possesses 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, Calpine Canada Holdings Ltd., 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 vote together
as a single class on all matters on which holders of Calpine's common stock are
18
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 was issued to CIBC Mellon Trust Company, as
trustee under a voting and exchange trust agreement among Calpine, Calpine
Canada Holdings Ltd. 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
common stock equivalent shares outstanding not owned by Calpine or an entity
controlled by Calpine, the one 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.
19
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Calpine's amended and restated certificate of incorporation and bylaws
provide 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. Calpine's certificate of incorporation provides that a special meeting
of stockholders may be called only by the chairman of Calpine's board of
directors, or by the chairman or secretary upon the written request of a
majority of the total number of directors Calpine would have if there were no
vacancies on its board of directors. 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. 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. 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.
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The rights expire on June 18, 2007, unless redeemed earlier by Calpine.
Calpine can redeem the rights at a price of $.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 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 or
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 or 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 that subsidiary to the interested stockholder; (4)
any transaction involving the corporation or any of its direct or indirect
majority-owned subsidiaries that has the effect of increasing the proportionate
share of the stock of any class 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 or indirect majority-owned subsidiaries. In general, Section
203 defines an interested stockholder as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by such entity or
person.
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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; Energy Finance may issue from time to time one or more
series of debt securities under one or more indentures between Energy Finance
and Wilmington Trust Company, as trustee; and Energy Finance II may issue from
time to time one or more series of debt securities under one or more indentures
between Energy Finance II 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, to Energy Finance, in the case of
debt securities issued by Energy Finance and to Energy Finance II, in the case
of debt securities issued by Energy Finance II, and references to the
"guarantor" are to Calpine with respect to debt securities issued by Energy
Finance or Energy Finance II. Additionally, in the case of debt securities
issued by Energy Finance or Energy Finance II, the term "indenture" includes the
guarantee agreement pursuant to which Calpine 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, and on the debt securities of Energy Finance and Energy Finance II
under the guarantees, if the guarantees are enforced. 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. Each of Energy Finance
and Energy Finance II is a special purpose financing subsidiary formed solely as
a financing vehicle for Calpine and its subsidiaries. Therefore, the ability of
Energy Finance and Energy Finance II to pay their obligations under the debt
securities is dependent upon the receipt by them of payments from Calpine and
its subsidiaries to which they have made loans or otherwise under agreements
with them in connection with their respective financing activities. In addition,
under Canadian law, the respective direct parent companies of Energy Finance and
Energy Finance II will be liable for their subsidiary's indebtedness, including
any debt securities issued by such subsidiary, upon a winding-up of that
subsidiary. While each of Energy Finance and Energy Finance II believes that
payments made to it in connection with its financing activities will be
sufficient to pay the principal of, and interest on, any debt securities it
issues, if the responsible parties were not able to make such payments for any
reason, the holders of such 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.
Calpine's subsidiaries and other affiliates (other than Energy Finance (in the
case of debt securities issued by Energy Finance) and Energy Finance II (in the
case of debt securities issued by Energy Finance II) and their direct parent
companies, respectively, in the case of the winding-up of its subsidiary) will
not have any obligation to pay any amounts due on the debt securities issued by
Energy Finance or Energy Finance II hereunder and none of Calpine's subsidiaries
or other affiliates will guarantee the payment of
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interest on or principal of the debt securities issued by Energy Finance or
Energy Finance II 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 Energy
Finance and Energy Finance II). Similarly, the right of holders of Energy
Finance's or Energy Finance II's debt securities 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). As of June 30, 2001, Calpine's
subsidiaries had approximately $1.8 billion of project financing. Calpine
intends to utilize project financing when appropriate in the future, and this
financing will be effectively senior to the debt securities and the guarantees.
The following description of the debt securities is subject to the detailed
provisions of each indenture, a copy of each of which is filed as an exhibit to
the Registration Statement of which this prospectus is a part (and has been
filed with Canadian securities regulatory authorities) and is available upon
request made to us. Whenever particular provisions of any indenture or terms
defined therein are referred to, those provisions or definitions are
incorporated by reference herein and such descriptions are qualified in their
entirety by such reference. 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. 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.
TERMS APPLICABLE TO DEBT SECURITIES
The prospectus supplement for a particular series of debt securities will
specify the terms of the series of debt securities, including:
- 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 sinking fund obligation with respect to the debt securities;
- any special Canadian, and, in the case of debt securities issued by
Calpine, 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.
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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 applicable 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 chooses 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 maturity date
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 to the extent specified in the applicable
prospectus supplement.
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 (a) the Bridge Credit Agreement, dated as of August
15, 2001, among Calpine, as borrower, the various financial institutions party
thereto as lenders, Credit Suisse First Boston, as co-arranger and documentation
agent, Bayerische Landesbank Girozentrale, as lead arranger and syndication
agent, and The Bank of Nova Scotia, as lead arranger and administrative agent,
and (b) the Amended and Restated Credit Agreement, dated as of May 23, 2000, as
amended, among Calpine, the Bank of Nova Scotia, as Lead Arranger and
Administrative Agent, Bayerische Landesbank Girozentrale, as Co-Arranger and
Syndication Agent, and the various commercial lending institutions named therein
as lenders (as it may be further amended, refinanced, replaced, renewed or
extended from time to time), Calpine's other outstanding senior debt securities,
including Calpine's 7 5/8% Senior Notes Due 2006, (c) 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 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, Calpine's 8 1/2% Senior
Notes Due 2011 and Calpine's Zero-Coupon Convertible Debentures Due 2021, and
(d) indebtedness of its subsidiaries guaranteed by Calpine, including the 8 1/2%
Senior Notes Due 2008 issued by Energy Finance, the Bridge Credit Agreement,
dated as of August 20, 2001, among Energy Finance, Credit Suisse First Boston,
as co-arranger and syndication agent, Bayerische Landesbank Girozentrale, as
lead arranger and documentation agent, Bank of Nova Scotia, as lead arranger and
administrative agent, and the various commercial lending institutions named
therein as lenders and the Bridge Credit Agreement, dated as of August 22, 2001,
among Energy Finance II, Credit Suisse First Boston, as co-arranger and
syndication agent, Bayerische Landesbank Girozentrale, as lead arranger and
documentation agent, Bank of Nova Scotia, as lead arranger and administrative
agent, and the various commercial lending institutions named therein as lenders.
At June 30, 2001, Calpine had approximately $5.1 billion of indebtedness
outstanding that would rank equally with the senior debt securities.
Debt securities issued by Energy Finance or Energy Finance II will be:
- senior unsecured obligations of Energy Finance or Energy Finance II, as
applicable, and will rank equally and ratably with all of its other
unsecured and unsubordinated indebtedness, 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, including Calpine's indebtedness described above
including the other indebtedness of its subsidiaries guaranteed by
Calpine.
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GUARANTEES
Calpine will fully and unconditionally guarantee to each holder of a debt
security issued by Energy Finance or Energy Finance II 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 Energy Finance or Energy Finance II, as applicable.
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 Energy Finance or
Energy Finance II before exercising their rights under the guarantees.
COVENANTS
The indentures and the guarantee 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 or the guarantee, as applicable,
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,
and such other locations as may be required or specified in any supplement, 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 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
25
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).
"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
26
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
(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
27
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.
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,
28
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
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.
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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 AND SEDAR FILINGS
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; Documents Incorporated by Reference." 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.
Each of Calpine, Energy Finance and Energy Finance II will become reporting
issuers or acquire equivalent status in each of the Provinces of Canada where
this prospectus is filed effective upon receipts being issued for the final MJDS
prospectus. Pursuant to applicable securities legislation, Calpine will be
permitted to satisfy the continuous disclosure requirements of securities
legislation in these Provinces essentially by: (i) complying with applicable
requirements of the New York Stock Exchange and U.S. federal securities laws
applicable to it; (ii) filing its continuous disclosure documents with the
securities commission or similar regulatory authority in each of the above
Provinces in the manner and in the time required under U.S. federal securities
laws; and (iii) where applicable, sending the continuous disclosure documents to
securityholders of Calpine having an address in any of the above Provinces.
Application has been made to the securities commissions or similar regulatory
authorities in such Provinces for relief under applicable securities legislation
that will permit each of Energy Finance and Energy Finance II to also satisfy
the continuous disclosure requirements of securities legislation in these
Provinces on the basis of Calpine's compliance with the foregoing requirements,
and it is expected that such relief will be obtained substantially on the basis
sought. Such continuous disclosure documents will be accessible at the website
maintained by Canadian securities regulatory authorities, www.sedar.com.
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;
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(c) default in the making of any sinking fund payment or analogous
obligation on the debt securities of such series;
(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.
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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.
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
Unless otherwise provided in the applicable indenture and described in the
applicable prospectus supplement, 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
32
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,
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
In addition, unless otherwise provided in the applicable indenture and
described in the applicable prospectus supplement, with respect to a series of
debt securities issued under an indenture, the provisions of that indenture
described under "-- Covenants -- Limitation on Liens" and
"-- Covenants -- Limitation on Sale/Leaseback Transactions" will no longer be in
effect, clauses (c) (with respect to such covenants) 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.
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TERMINATION OF OBLIGATIONS IN CERTAIN CIRCUMSTANCES
Unless otherwise provided in the applicable indenture and described in the
applicable prospectus supplement, 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 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,
- an indenture with Calpine dated as of August 10, 2000, and
- an indenture with Energy Finance, dated as of April 25, 2001.
A number of Calpine's series of debt securities are presently outstanding
under the first two indentures above and additional securities of those series
and additional series may be issued under the second indenture above. A series
of Energy Finance's debt securities, guaranteed by Calpine, is currently
outstanding under the third indenture above and additional debt securities of
that series and other series, each guaranteed by Calpine, may be offered under
that indenture. We may have in the future other relationships with Wilmington
Trust Company.
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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.
The holders of a majority in principal amount of the outstanding senior
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. If an event of default occurs (and is not cured), the
trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of senior
notes, unless such holder shall have offered to the trustee security and
indemnity satisfactory to the trustee against any loss, liability or expense and
then only to the extent required by the terms of the indenture.
The registered office of the trustee is Rodney Square North, 1100 North
Market Street, Wilmington, Delaware.
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 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
35
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. 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.
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 U.S. TAX AND INFORMATION REPORTING MATTERS
THE DISCUSSION BELOW IS INTENDED TO BE A GENERAL DESCRIPTION ONLY OF
CERTAIN UNITED STATES FEDERAL INCOME TAX, INFORMATION REPORTING AND WITHHOLDING
REQUIREMENTS APPLICABLE TO THE OWNERSHIP AND DISPOSITION OF THE DEBT SECURITIES
ACQUIRED PURSUANT TO THIS OFFERING AND IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER. ACCORDINGLY
PURCHASERS OF DEBT SECURITIES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX, INFORMATION
REPORTING AND WITHHOLDING REQUIREMENTS TO THEIR PARTICULAR CIRCUMSTANCES, THE
AVAILABILITY OF ANY EXEMPTION THEREFROM, AND THE PROCEDURE FOR OBTAINING SUCH AN
EXEMPTION, IF AVAILABLE. HOLDERS SHOULD ALSO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
The discussion below relates only to debt securities of Energy Finance
acquired pursuant to this offering and does not address the income tax,
information reporting or withholding consequences to non-U.S. holders of the
ownership and disposition of any debt or equity securities of Calpine or debt
securities of Energy Finance II. Any such matters will be addressed in the
applicable prospectus supplement relating to such securities.
The following is a summary of the material United States federal income tax
consequences of the ownership and disposition of debt securities by non-U.S.
Holders (as defined below). "U.S. holders" are any beneficial owners of the debt
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, (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. In addition,
certain trusts in existence on August 20, 1996 and treated as a U.S. holder
prior to such date may also be treated as U.S. holders. "Non-U.S. holders" are
beneficial owners of the debt securities, other than partnerships, that are not
U.S. holders for United States federal income tax purposes. If a partnership
(including for this purpose any entity treated as a partnership for United
States federal tax purposes) is a beneficial owner of the debt 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. Partnerships and
partners in such partnerships should consult their tax advisors about the United
States federal income tax consequences of owning and disposing of the debt
securities.
The rules governing United States federal income taxation of a non-U.S.
holder of debt securities are complex and no attempt will be made herein to
provide more than a summary of such rules. This summary deals only with debt
securities that are held as capital assets by non-U.S. holders and 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 and disposing of debt
securities that are due to mature more than 30 years from the date of issue will
be discussed in an applicable prospectus supplement. The discussion regarding
U.S. income tax laws assumes that any debt securities will be issued, and
transfers thereof and payments thereon will be made, in accordance with the
applicable indenture and deposit agreement. This discussion also assumes that
the debt security or coupon is not subject to the rules of Section 871(h)(4)(A)
of the Internal Revenue Code of 1986, as amended, 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.
This discussion is based on the Internal Revenue Code the Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of which are subject
to change, possibly on a retroactive basis.
37
DEBT SECURITIES OF ENERGY FINANCE
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% or 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, 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 the issuer or the issuer's agent with a copy
thereof. The applicable United States Treasury regulations also provide
alternative methods for satisfying the certification requirements of clause (4)
above. 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 income tax treaty otherwise
provides, a non-U.S. holder generally will be taxed with respect to interest in
the same manner as a U.S. holder 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 an applicable
income tax 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 backup withholding tax will not apply to payments on the debt
securities to a non-U.S. holder if the statement described in clause 4 of
"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 may apply with respect to interest payments on the debt
securities, in which event the amount of interest paid and tax withheld (if any)
with respect to each non U.S.-holder
38
will be reported annually to the Internal Revenue Service. 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
(absent actual knowledge that the payee is a United States person), 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 clause 4 of "Interest
Income" or otherwise establishes an exemption.
39
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
THE DISCUSSION BELOW IS INTENDED TO BE A GENERAL DESCRIPTION ONLY OF
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO THE OWNERSHIP
AND DISPOSITION OF DEBT SECURITIES OF ENERGY FINANCE OR ENERGY FINANCE II
ACQUIRED PURSUANT TO THIS OFFERING AND IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR PURCHASER (AS DEFINED
BELOW). ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE CANADIAN FEDERAL AND PROVINCIAL TAX CONSEQUENCES OF
AN INVESTMENT IN THE DEBT SECURITIES.
In the opinion of McCarthy Tetrault LLP, Canadian tax counsel to Energy
Finance and Energy Finance II, the following is a summary of the principal
Canadian federal income tax considerations generally applicable under the Income
Tax Act (Canada) (the "Tax Act") to a person who acquires beneficial ownership
of debt securities of Energy Finance or Energy Finance II pursuant to this
offering (a "Purchaser") and who for the purposes of the Tax Act, and at all
relevant times, is or is deemed to be resident in Canada, holds the debt
securities as capital property, deals at arm's length with the issuer, is not
affiliated with the issuer and is not a "financial institution" for purposes of
certain provisions of the Tax Act relating to securities held by financial
institutions. The debt securities will generally be treated as capital property
of a Purchaser unless the Purchaser is considered to be a trader or dealer in
securities or has acquired the debt securities in a transaction or transactions
considered to be an adventure in the nature of trade or for a purpose other than
to hold as an investment.
This summary is based on the current provisions of the Tax Act and the
regulations thereunder (the "Regulations") in force on the date hereof, specific
proposals (the "Tax Proposals") to amend the Tax Act or the Regulations publicly
announced by the Minister of Finance prior to the date hereof, and counsel's
understanding of the current published administrative and assessing practices of
the Canada Customs and Revenue Agency (the "CCRA"). This summary is not
exhaustive of all possible Canadian income tax consequences and, except for the
Tax Proposals, does not take into account or anticipate any changes in law or in
the administrative and assessing practices of the CCRA, whether by legislative,
governmental or judicial action, nor does it take into account income tax laws
or considerations of any province or territory of Canada or any jurisdiction
other than Canada. No assurance can be given that the Tax Proposals will become
law in their present form or at all.
TAXATION OF INTEREST ON DEBT SECURITIES
A Purchaser that is a corporation, partnership, unit trust or any trust of
which a corporation or a partnership is a beneficiary will be required to
include in computing its income for a taxation year any interest that accrues to
the Purchaser on a debt security to the end of the year or that becomes
receivable or is received by the Purchaser before the end of the year, to the
extent that such interest was not included in computing the Purchaser's income
for a preceding taxation year.
Any other Purchaser will be required to include in computing its income for
a taxation year any interest on a debt security that is received or receivable
by the Purchaser in the taxation year (depending on the method regularly
followed by the Purchaser in computing the Purchaser's income) to the extent
that the interest was not included in computing the Purchaser's income for a
preceding taxation year. In addition, such Purchaser will be required to include
in computing its income for a taxation year any interest that accrued to the
Purchaser to the end of any "anniversary day" (as defined in the Tax Act) of the
debt security, to the extent that such amount was not otherwise included in
computing the Purchaser's income for the year or for any preceding taxation
year.
A Purchaser that is a Canadian-controlled private corporation (as defined
in the Tax Act) will be liable to pay an additional refundable tax of 6 2/3% on
investment income. For this purpose, investment income will generally include
interest income and taxable capital gains.
40
REDEMPTION OR OTHER DISPOSITION
On an assignment or other transfer of a debt security, a Purchaser will
generally be required to include in computing its income for the year of
transfer, the amount, if any, of interest that has accrued on the debt security
to the date of transfer, and which was not, in accordance with the terms of the
debt security, payable until after that date, to the extent that such amount has
not otherwise been included in computing the Purchaser's income for that year or
a preceding year.
On a redemption of a debt security before maturity, the amount, if any, by
which the redemption proceeds exceed the principal amount of the debt security
may be deemed to be interest received by the Purchaser.
In addition, a disposition of a debt security (including a redemption or
purchase by the issuer) will give rise to a capital gain (or a capital loss) to
the extent that a Purchaser's proceeds from the disposition of the debt security
net of accrued interest and amounts deemed to be interest exceed (or are less
than) the aggregate of the Purchaser's adjusted cost base of the debt security
and any reasonable costs of disposition.
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 Energy Finance and Energy Finance II offered
hereby will be passed upon for us by Covington & Burling, New York, New York and
by Stewart McKelvey Stirling Scales, Halifax, Nova Scotia, Canada. Any
underwriters will be represented by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
EXPERTS
Our 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. The report of Ernst
and Young LLP, independent public accountants, with respect to the audited
financial statements of Encal Energy Ltd., which is incorporated in this
prospectus by reference to our Current Report on Form 8-K, dated September 10,
2001, is included herein in reliance upon the authority of said firm as experts
in giving said report.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase securities
within two business days after receipt or deemed receipt of a prospectus and any
amendment. In several of the provinces of Canada, the securities legislation
further provides a purchaser with remedies for rescission or, in some
jurisdictions, damages if the prospectus and any amendment contains a
misrepresentation or is not delivered to the purchaser, provided that such
remedies for rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the purchaser's province.
The purchaser should refer to the applicable provisions of the securities
legislation of their province for particulars of these rights or consult with a
legal adviser. Rights and remedies also may be available to purchasers under
U.S. law; purchasers may wish to consult with a U.S. legal adviser for
particulars of these rights.
41
CERTIFICATE OF CALPINE CORPORATION
Dated September 21, 2001
This MJDS prospectus, together with the documents incorporated in this
prospectus by reference, will, as of the date of each supplement to this
prospectus, constitute full, true and plain disclosure of all material facts
relating to the securities offered by this MJDS prospectus and the supplement as
required by the provinces of Alberta, British Columbia, Manitoba, Ontario,
Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland.
<Table>
/s/ Peter Cartwright /s/ Ann B. Curtis
Peter Cartwright Ann B. Curtis
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
</Table>
On behalf of the Board of Directors:
<Table>
/s/ George J. Stathakis /s/ John O. Wilson
George J. Stathakis John O. Wilson
Director Director
</Table>
42
CERTIFICATE OF CALPINE CANADA ENERGY FINANCE ULC
Dated September 21, 2001
This MJDS prospectus, together with the documents incorporated in this
prospectus by reference, will, as of the date of each supplement to this
prospectus, constitute full, true and plain disclosure of all material facts
relating to the securities offered by this MJDS prospectus and the supplement as
required by the provinces of Alberta, British Columbia, Manitoba, Ontario,
Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland.
<Table>
/s/ Peter Cartwright /s/ Ann B. Curtis
Peter Cartwright Ann B. Curtis
Chairman and Chief Executive Officer Executive Vice President and
Chief Financial Officer
</Table>
On behalf of the Board of Directors:
<Table>
/s/ Daniel Allard /s/ David D. Johnson
Daniel Allard David D. Johnson
Director Director
</Table>
43
CERTIFICATE OF CALPINE CANADA ENERGY FINANCE II ULC
Dated September 21, 2001
This MJDS prospectus, together with the documents incorporated in this
prospectus by reference, will, as of the date of each supplement to this
prospectus, constitute full, true and plain disclosure of all material facts
relating to the securities offered by this MJDS prospectus and the supplement as
required by the provinces of Alberta, British Columbia, Manitoba, Ontario,
Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland.
<Table>
/s/ Peter Cartwright /s/ Ann B. Curtis
Peter Cartwright Ann B. Curtis
Chairman and Chief Executive Officer Executive Vice President and
Chief Financial Officer
</Table>
On behalf of the Board of Directors:
<Table>
/s/ Daniel Allard /s/ David D. Johnson
Daniel Allard David D. Johnson
Director Director
</Table>
44
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