Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)	 	 	
þ	 	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	For the fiscal year ended December 31, 2003	
 	
or	
o	 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from           to	
Commission file number: 1-12079	

Calpine Corporation
(A Delaware Corporation)
I.R.S. Employer Identification No. 77-0212977
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
Securities registered pursuant to Section 12(b) of the Act:
Calpine Corporation Common Stock, $.001 Par Value Registered on the New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  þ           No  o
      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).     Yes  þ           No  o
      Aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter: approximately $2.5 billion. Common stock outstanding as of March 19, 2004: 415,736,644 shares. 
DOCUMENTS INCORPORATED BY REFERENCE
      Portions of the documents listed below have been incorporated by reference into the indicated parts of this report, as specified in the responses to the item numbers involved.

(1) Designated portions of the Proxy Statement relating to the 2004 Annual Meeting of Shareholders	 	Part III (Items 10, 11, 12, 13 and 14)	

FORM 10-K
ANNUAL REPORT
For the Year Ended December 31, 2003
TABLE OF CONTENTS

				Page	
					
  PART I	
  Item 1.	 	  Business	 	 	1	 	
  Item 2.	 	  Properties	 	 	41	 	
  Item 3.	 	  Legal Proceedings	 	 	45	 	
  Item 4.	 	  Submission of Matters to a Vote of Security Holders	 	 	50	 	
 	
  PART II	
  Item 5.	 	  Market for Registrant’s Common Equity and Related Stockholder Matters	 	 	51	 	
  Item 6.	 	  Selected Financial Data	 	 	53	 	
  Item 7.	 	  Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	56	 	
  Item 7A.	 	  Quantitative and Qualitative Disclosures About Market Risk	 	 	104	 	
  Item 8.	 	  Financial Statements and Supplementary Data	 	 	104	 	
  Item 9.	 	  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	 	 	105	 	
  Item 9A.	 	  Controls and Procedures	 	 	105	 	
 	
  PART III	
  Item 10.	 	  Directors and Executive Officers of the Registrant	 	 	106	 	
  Item 11.	 	  Executive Compensation	 	 	106	 	
  Item 12.	 	  Security Ownership of Certain Beneficial Owners and Management	 	 	106	 	
  Item 13.	 	  Certain Relationships and Related Transactions	 	 	107	 	
  Item 14.	 	  Principal Accounting Fees and Services	 	 	107	 	
 	
  PART IV	
  Item 15.	 	  Exhibits, Financial Statement Schedules, and Reports on Form 8-K	 	 	107	 	
  Signatures and Power of Attorney	 	 	121	 	
  Index to Consolidated Financial Statements and Other Information	 	 	F-1	 	
  EXHIBIT 4.14.3	
  EXHIBIT 4.14.4	
  EXHIBIT 4.16	
  EXHIBIT 4.17.1	
  EXHIBIT 4.17.2	
  EXHIBIT 4.19	
  EXHIBIT 4.20	
  EXHIBIT 4.21	
  EXHIBIT 10.1.1.2	
  EXHIBIT 10.1.2.6	
  EXHIBIT 10.1.2.7	
  EXHIBIT 10.1.2.8	
  EXHIBIT 10.1.2.9	
  EXHIBIT 10.1.7.2	
  EXHIBIT 10.1.8.2	
  EXHIBIT 10.1.10.2	
  EXHIBIT 10.1.25	
  EXHIBIT 10.2.2.3	
  EXHIBIT 10.2.2.4	
  EXHIBIT 10.2.3	
  EXHIBIT 10.2.4	
  EXHIBIT 10.3.1	
  EXHIBIT 10.3.7	
  EXHIBIT 12.1	
  EXHIBIT 21.1	
  EXHIBIT 23.1	
  EXHIBIT 23.2	
  EXHIBIT 23.3	
  EXHIBIT 23.4	
  EXHIBIT 31.1	
  EXHIBIT 31.2	
  EXHIBIT 32.1	
  EXHIBIT 99.1	
  EXHIBIT 99.2	

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PART I

Item 1.	Business	
      In addition to historical information, this report contains forward-looking statements. Such statements include those concerning Calpine Corporation’s (“the Company’s”) expected financial performance and its strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements such as, but not limited to, (i) the timing and extent of deregulation of energy markets and the rules and regulations adopted on a transitional basis with respect thereto, (ii) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity, and the impact of related derivatives transactions, (iii) unscheduled outages of operating plants, (iv) unseasonable weather patterns that produce reduced demand for power, (v) systemic economic slowdowns, which can adversely affect consumption of power by businesses and consumers, (vi) commercial operations of new plants that may be delayed or prevented because of various development and construction risks, such as a failure to obtain the necessary permits to operate, failure of third-party contractors to perform their contractual obligations or failure to obtain project financing on acceptable terms, (vii) cost estimates are preliminary and actual costs may be higher than estimated, (viii) a competitor’s development of lower-cost power plants or of a lower cost means of operating a fleet of power plants, (ix) risks associated with marketing and selling power from power plants in the evolving energy market, (x) 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 legal title, regulatory, gas administration, marketing and operational factors relating to the extraction of natural gas, (xi) our estimates of oil and gas reserves may not be accurate, (xii) the effects on the Company’s business resulting from reduced liquidity in the trading and power generation industry, (xiii) the Company’s ability to access the capital markets on attractive terms or at all, (xiv) sources and uses of cash are estimates based on current expectations; actual sources may be lower and actual uses may be higher than estimated, (xv) the direct or indirect effects on the Company’s business of a lowering of its credit rating (or actions it may take in response to changing credit rating criteria) including increased collateral requirements, refusal by the Company’s current or potential counterparties to enter into transactions with it and its inability to obtain credit or capital in desired amounts or on favorable terms, (xvi) possible future claims, litigation and enforcement actions pertaining to the foregoing, (xvii) effects of the application of regulations, including changes in regulations or the interpretation thereof; or (xviii) other risks as identified herein. Current information set forth in this filing has been updated to March 24, 2004, and Calpine undertakes no duty to further update this information. All other information in this filing is presented as of the specific date noted and has not been updated since that time.
      We file annual, quarterly and periodic reports, proxy statements and other information with the SEC. You may obtain and copy any document we file with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You can 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. The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our SEC filings are accessible through the Internet at that website.
      Our reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, are available for download, free of charge, as soon as reasonably practicable after these reports are filed with the SEC, at our website at www.calpine.com. The content of our website is not a part of this report. You may request a copy of our SEC filings, at no cost to you, by writing or telephoning us at: Calpine Corporation, 50 West San Fernando Street, San Jose, California 95113, attention: Lisa M. Bodensteiner, Assistant Secretary, telephone: (408) 995-5115. We will not send exhibits to the documents, unless the exhibits are specifically requested and you pay our fee for duplication and delivery.
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OVERVIEW
      We are a leading North American power company engaged in the development, construction, ownership and operation of power generation facilities and the sale of electricity predominantly in the United States, but also in Canada and the United Kingdom. We were established as a corporation in 1984. We focus on two efficient and clean types of power generation technologies, natural gas-fired combustion turbine and geothermal. We currently lease and operate the largest fleet of geothermal power plants in the world, and have increased our operating portfolio of clean burning natural gas power plants by 17,201 megawatts (“MW”) over the past three years. We have a proven track record in the development of new power facilities and may make acquisitions as opportunities arise. We also have in place an experienced gas production and management team to give us a broad range of fuel sourcing options, and we own over 800 billion cubic feet equivalent (“Bcfe”) of net proved natural gas reserves located in Alberta, Canada as well as in the Sacramento Basin, Rockies and Gulf Coast regions of the United States. Additionally, we own a 25% interest in Calpine Natural Gas Trust, which has proved reserves of approximately 72 Bcfe (18 Bcfe net to Calpine’s equity interest). We are currently capable of producing, net to Calpine’s interest, 215 million cubic feet equivalent (“MMcfe”) of natural gas per day, and Calpine Natural Gas Trust (“CNG Trust”) total production, net of royalties, is currently 25 MMcfe (6.2 MMcfe net to Calpine’s interest) of natural gas per day. Calpine has the first right to purchase all of CNG Trust’s production at market prices.
      Currently, we own interests in 87 power plants having a net capacity of 22,206 MW. We also have 12 gas-fired projects and 1 project expansion currently under construction collectively having a net capacity of 7,685 MW. The completion of the new projects currently under construction would give us interests in 99 power plants located in 22 states, 3 Canadian provinces and the United Kingdom, and we will own net capacity of 29,891 MW. Of this total generating capacity, 97% will be attributable to gas-fired facilities and 3% will be attributable to geothermal facilities.
      Calpine Energy Services, L.P. (“CES”) provides the trading and risk management services needed to schedule power sales and to ensure fuel is delivered to the power plants on time to meet delivery requirements and to manage and optimize the value of our physical power generation and gas production assets.
      Complementing CES’s activities, we have recently reorganized our marketing and sales organization to better meet the needs of our growing list of wholesale and large retail customers. We focus our sales activities on load serving entities such as local utilities, municipalities and cooperatives, as well as on large-scale end users such as industrial and commercial companies. See a further discussion of our marketing and sales organization in “Strategy” below. As a general goal, we seek to have 65% of our available capacity sold under long-term contracts or hedged by our risk management group. Currently we have 52% of our available capacity sold or hedged for 2004.
      We continue to strengthen our system operations management and information technology capabilities to enhance the economic performance of our portfolio of assets in our major markets and to provide load-following and other ancillary services to our customers. These operational optimization systems, combined with our sales, marketing and risk management capabilities, enable us to add value to traditional commodity products in ways that not all competitors can match.
      Our construction organization has assembled what we believe to be the best-in-industry team of construction management professionals to ensure that our projects are built using our standard design specifications reflecting our exacting operational standards. We have established strategic alliances with leading equipment manufacturers for gas turbine generators, steam turbine generators and heat recovery steam generators and other key equipment. We will continue to leverage these capabilities and relationships to ensure that our power plants are completed on time and are the best built and lowest cost energy facilities possible.
      With a vision of enhancing the performance of our modern portfolio of gas-fired power plants and lowering our replacement parts maintenance costs, we have fostered the development of our wholly owned subsidiary, Power Systems Manufacturing (“PSM”), to design and manufacture high performance combustion system and turbine blade parts. PSM manufactures new vanes, blades, combustors and other replacement
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parts for the industrial gas turbine industry. It offers a wide range of Low Emissions Combustion systems and advanced airfoils designed to be transparently compatible for retrofitting or replacing existing combustion systems or components operating in General Electric and Siemens Westinghouse turbines.
      In 2003 we expanded our energy services capabilities with the acquisition of Netherlands-based Thomassen Turbine Systems (“TTS”). TTS complements Calpine’s broad array of energy services by selling combustion turbine component parts and repair services worldwide.
      We established Calpine Power Services (“CPS”) to offer the unique skills that we have honed in building and operating our own power plants to third party customers. We are now selling, and have received contracts for, various engineering, procurement, construction management, plant commissioning, operations, and maintenance services through CPS.
      As we build the nation’s most modern and efficient portfolio of gas-fired generation assets and establish our low-cost position, our integrated operations and skill sets have allowed us to weather a multi-year downturn in the North American energy industry. We have demonstrated the flexibility to adapt to fundamental market changes. Specifically, we responded to the market downturn by reducing capital expenditures, selling or monetizing various gas, power, and contractual assets, restructuring our equipment procurement obligations, and reorganizing to reflect our transition from a development focused company to an operations focused company. These efforts have allowed us to cut costs and raise capital while positioning ourselves to continue our quest to be the power company in North America with the largest market capitalization. See Note 25 of the Notes to Consolidated Financial Statements for Operating Segments Disclosures.
THE MARKET
      The electric power industry represents one of the largest industries in the United States and impacts nearly every aspect of our economy, with an estimated end-user market of nearly $260 billion of electricity sales in 2003 based on information published by the Energy Information Administration of the Department of Energy (“EIA”). Historically, the power generation industry has been largely characterized by electric utility monopolies producing electricity from old, inefficient, polluting, high-cost generating facilities selling to a captive customer base. However, industry trends and regulatory initiatives have transformed some markets into more competitive grounds where load-serving entities and end-users may purchase electricity from a variety of suppliers, including independent power producers, power marketers, regulated public utilities and others. For the past decade, the power industry has been deregulated at the wholesale level allowing generators to sell directly to the load serving entities, such as public utilities, municipalities and electric cooperatives. Although industry trends and regulatory initiatives aimed at further deregulation have slowed, the power industry continues to transform into a more competitive market.
      The North American Electric Reliability Council (“NERC”) estimates that in the United States, peak (summer) electric demand in 2003 totaled approximately 720,000 MW, while summer generating capacity in 2003 totaled approximately 912,000 MW, creating a peak summer reserve margin of 192,000 MW, or 26.7%. Historically, utility reserve margins have been targeted to be 15% above peak demand to provide for load forecasting errors, scheduled and unscheduled plant outages and local area grid protection. Some regions have margins well in excess of the 15% target range, while other regions remain short of ideal reserve margins. The estimated 192,000 MW of reserve margin in 2003 compares to an estimated 120,000 MW in 2002. The increase is due in large part to the start-up of new low-cost, clean-burning, gas-fired power plants. The United States market consists of regional electric markets not all of which are effectively interconnected, so reserve margins vary from region to region.
      Even though most new power plants are fueled by natural gas, the majority of power generated in the U.S. is still produced by coal and nuclear power plants. The EIA has estimated that approximately 51% of the electricity generated in the U.S. is fueled by coal, 20% by nuclear sources, 17% by natural gas, 7% by hydro, and 5% from fuel oil and other sources. As regulations continue to evolve, many of the current coal plants will likely be faced with installing a significant amount of costly emission control devices. This activity could cause
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some of the oldest and dirtiest coal plants to be retired, thereby allowing a greater proportion of power to be produced by cleaner natural gas-fired generation.
      Due primarily to the completion of gas-fired combustion turbine projects, we have seen power supplies increase and higher reserve margins in the last two years accompanied by a decrease in liquidity in the energy trading markets, and a general lessening of enthusiasm for investing in energy companies. In 2003 while electricity prices generally increased, the cost of natural gas grew at an even greater rate, further depressing spark spreads (the margin between the value of the electricity sold and the cost of fuel to generate that electricity) from the low levels in 2002.
      Based on strength in residential and commercial demand, overall consumption of electricity was estimated to have grown by approximately 2.9% in 2004 through February compared to the same period in 2003, according to Edison Electric Institute (“EEI”) published data. The growth rate for calendar year 2003 was 1.8%. The growth rate in supply is diminishing with many developers canceling, or delaying completion of their projects as a result of current market conditions. The supply and demand balance in the natural gas industry continues to be strained with gas prices rising to over $6.40 per million btu (“MMbtu”) in the first quarter of 2004, compared to an average of approximately $5.50 per MMbtu in 2003 and $3 per MMbtu in 2002. In addition, capital market participants are slowly making progress in restructuring their portfolios, thereby stabilizing financial pressures on the industry. Overall, we expect the market to continue these trends and work through the current oversupply of power in several regions within the next few years. As the supply-demand picture improves, we expect to see spark spreads improve and capital markets regain their interest in helping to repower America with clean, highly efficient energy technologies.
STRATEGY
      Our vision is to become North America’s largest power company and ultimately become a major worldwide power company. In achieving our corporate strategic objectives, the number one priority for our company is maintaining the highest level of integrity in all of our endeavors. We have posted on our website (www.calpine.com <http://www.calpine.com>) our Code of Conduct applicable to all employees, including our principal executive officer, principal financial officer and principal accounting officer. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding any amendments to or waivers from the Code of Conduct by posting such information on our website at www.calpine.com.
      Our timeline to achieve our strategic objectives is flexible and will be guided by our view of market fundamentals. When necessary, we will slow or delay our growth activities in order to ensure that our financial health is secure and our investment opportunities meet our long-term rate of return requirements.
Near-Term Objectives
      Our ability to adapt as needed to market dynamics has led us to develop a set of near-term strategic objectives that will guide our activities until market fundamentals improve. These include:

			
 	• 	Continue to focus on our liquidity position as our second highest priority after integrity;	
 		
 	• 	Complete our 2004 refinancing program, which includes Calpine Generating Company, LLC (“CalGen”) (see “Recent Developments” for more information), the remaining outstanding 4% Convertible Senior Notes Due 2006, and the Remarketable Term Income Deferrable Equity Securities (“HIGH TIDES”);	
 		
 	• 	Complete our current construction program and start construction of new projects in strategic locations only when financing is available and attractive returns are expected;	
 		
 	• 	Continue to lower operating and overhead costs per megawatt hour produced and improve operating performance with an increasingly efficient power plant fleet; and	
 		
 	• 	Utilize our industry-leading marketing and sales capabilities to selectively increase our power contract portfolio.	
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Longer-Term Objectives
      We plan on realizing our strategy by (1) achieving the lowest-cost position in the industry by applying our fully integrated areas of expertise to the cost-effective development, construction, financing, fueling, and operation of the most modern and efficient power generation facilities and by achieving economies of scale in general, administrative and other support costs, and (2) enhancing the value of the power we generate in the marketplace (a) by operating our plants as a system, (b) by selling directly to load-serving entities and, to the extent allowable, to industrial customers, in each of the markets in which we participate, (c) by offering load-following and other ancillary services to our customers, and (d) by providing effective marketing, risk management and asset optimization activities through our CES and marketing and sales organizations.
      Our “system approach” refers to our ability to cluster our standardized, highly efficient power generation assets within a given energy market and to sell the energy from that system of power plants, rather than using “unit specific” marketing contracts. The clustering of standardized power generation assets allows for significant economies of scale to be achieved. Specifically, construction costs, supply chain activities such as inventory and warehousing costs, labor, and fuel procurement costs can all be reduced with this approach. The choice to focus on highly efficient and clean technologies reduces our fuel costs, a major expense when operating power plants. Furthermore, our lower-than-market heat rate (high efficiency advantage) provides us a competitive advantage in times of rising fuel prices, and our systems approach to fuel purchases reduces imbalance charges when a plant is forced out of service. Finally, utilizing our system approach in a sales contract allows us to provide power to a customer from whichever plant in the system is most economical at a given period of time. In addition, the operation of plants can be coordinated when increasing or decreasing power output throughout the day to enhance overall system efficiency, thereby enhancing the heat rate advantage already enjoyed by the plants. In total, this approach lays a foundation for a sustainable competitive cost advantage in operating our plants.
      The integration of gas production, hedging, optimization and marketing activities achieves additional cost reductions while simultaneously enhancing revenues. Our fleet of natural gas burning power plants requires a large amount of gas to operate. Our fuel strategy is to produce from our own gas reserves enough fuel to provide a natural hedge against gas price volatility, while providing a secure and reliable source of fuel and lowering our fuel costs over time. The ownership of gas provides our CES risk management organization with additional flexibility when structuring fixed price transactions with our customers.
      Recent trends confirm that both buyers and sellers of power benefit from signing long-term power contracts and avoiding the severe volatility often seen with power prices. The trend towards signing long-term contracts is creating opportunities for companies, such as ours, that own power plants and gas reserves to negotiate directly with buyers (end users and load serving entities) that need power, thereby skipping the trading middlemen, many of whom have now exited the market.
      Our marketing and sales organization is dedicated to serving wholesale and industrial customers with reliable, cost-effective electricity and a full range of services. The organization offers customers: (1) wholesale bulk energy; (2) firm supply energy; (3) fully dispatchable energy; (4) full service requirements energy; (5) renewable energy; (6) energy scheduling services; (7) engineering, construction, operations and maintenance services; and (8) critical reliability energy services. Our physical, financial and intellectual assets and our generating facilities that are pooled into unique energy centers in key markets, enable us to create customizable energy solutions for our customers. For example, our wholesale energy products deliver power when, where and in the capacity our customers need. Our power marketing experience gives us the know-how to structure innovative deals that meet our customers’ particular requirements. Our highly tailored, yet understandable energy contracts help customers offset pricing risk and other variables. Our “Virtual Power Plant” projects provide customers with an energy resource that is reliable and flexible. They give customers all of the advantages of owning and operating their own plants without many of the risks, by gaining access to a portfolio of highly efficient generation assets and by implementing our IT solutions to allow power to be dispatched as needed. Marketing and Sales is pursuing 21,000 MW of active opportunities with 135 customers across the United States. This customer base includes municipalities, cooperatives, investor owned utilities, industrial customers and commercial customers across the United States.
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      Our financing strategy includes an objective to achieve and maintain an investment grade credit and bond rating from the major rating agencies within the next several years. We intend to employ various approaches for extending or refinancing existing credit facilities and for financing new plants, with a goal of retaining maximum system operating flexibility. The availability of capital at attractive terms will be a key requirement to enable us to develop and construct new plants. We have adjusted to recent market conditions by taking near-term actions focused on liquidity. We have been very successful throughout 2003 and early 2004 at selling certain less strategically important assets, monetizing several contracts, establishing a Canadian natural gas trust to raise funds based on selling to the trust certain of our oil and gas assets, buying back our debt, issuing convertible and non-convertible senior notes, and raising capital with non-recourse project financing.
COMPETITION
      We are engaged in several different types of business activities each of which has its own competitive environment. To better understand the competitive landscape we face, it is helpful to look at five different groupings of business activities.
      Development and Construction. In this activity, we face competition from independent power producers (“IPPs”), non-regulated subsidiaries of utilities, and increasingly from regulated utilities and large end-users of electricity. Furthermore, the regulatory and community pressures against locating a power plant at a specific site can often be substantial, causing months or years of delays. Similarly, the construction process is highly competitive as there are only a few primary suppliers of key gas turbine, steam turbine and heat recovery steam generator equipment used in a state of the art gas turbine power plant. Additionally, we have seen periods of strong competition with respect to securing the best construction personnel and contractors.
      Power Plant Operations. The competitive landscape faced by our power plant operations organization consists of a patchwork of highly competitive and highly regulated market environments. This patchwork has been caused by an uneven transition to deregulated markets across the various states and provinces of North America. For example, in markets where there is open competition, our merchant capacity (that which has not been sold under a long-term contract) competes directly on a real time basis with all other sources of electricity such as nuclear, coal, oil, gas-fired, and renewable units owned by others. However, there are other markets where the local incumbent utility still predominantly uses its own supply to meet its own demand before dispatching competitively provided power. Each of these markets offers a unique and challenging competitive environment.
      Asset Acquisition and Divestiture. The recent downturn in the electricity industry has prompted many companies to sell assets to improve their financial positions. In addition, the postponement of plans for construction of new power plants is also creating a competitive market for the sale of excess equipment. Although there is a strong buyers market at the moment, relatively few assets are changing hands due to the gap between sellers’ and buyers’ price expectations.
      Gas Production and Operations. Gas production is a significant component of our operations and an area that we would like to expand when market conditions are attractive. However, this market is also highly competitive and is populated by numerous participants including majors, large independents and smaller “wild cat” type exploration companies. Recently, the competition in this sector has increased due to a fundamental shift in the supply and demand balance for gas in North America. This shift has driven gas prices higher and has led to increased production activities and development of alternative supply options such as LNG or coal gasification. In the near-term, however, we expect that the market to find and produce natural gas will remain highly competitive.
      Power Marketing and Sales. Power marketing and sales generally includes all those activities associated with identifying customers, negotiating, and selling energy and service contracts to load-serving entities and large scale industrial and retail end-users. Specifically, there has been a trend for trading companies that served a “middle man” role to exit the industry for financial and business model reasons. Instead, power generators are increasingly selling long-term power directly to load serving entities (utilities, municipalities,
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cooperatives) and large scale end-users, thereby reducing the high levels of price volatility witnessed in the industry since 2001.
RECENT DEVELOPMENTS
      Financing. On January 9, 2004, one of the initial purchasers of the 4 3/4% Contingent Convertible Senior Notes Due 2023 exercised in full its option to purchase an additional $250.0 million of these notes. The notes are convertible into cash and into shares of Calpine common stock upon the occurrence of certain contingencies at an initial conversion price of $6.50 per share, which represents a 38% premium over the New York Stock Exchange closing price of $4.71 per share on November 6, 2003, the date the notes were originally priced. Upon conversion of the notes, we will deliver par value in cash and any additional value in Calpine shares.
      On January 15, 2004, we completed the sale of our 50-percent undivided interest in the 545-megawatt Lost Pines 1 Power Project to GenTex Power Corporation, an affiliate of the Lower Colorado River Authority (“LCRA”). Under the terms of the agreement, we received a cash payment of $146.8 million and recorded a gain before taxes of $35.5 million in January 2004. In addition, CES entered into a tolling agreement with LCRA to purchase 250 megawatts of electricity through December 31, 2004. At December 31, 2003, we classified our undivided interest in the Lost Pines facility as “held for sale” and reclassified all earnings to discontinued operations (see Note 10 of the Notes to Consolidated Financial Statements).
      In January 2004 CES concluded a settlement with the Commodity Futures Trading Commission (“CFTC”) related to the CFTC’s finding of inaccurate reporting of certain natural gas trading information by one former CES employee during 2001 and 2002. Neither Calpine nor CES benefited from the trader’s conduct. Under the terms of the agreement, CES paid a civil monetary penalty in the amount of $1.5 million without admitting or denying the findings in the CFTC’s order.
      Subsequent to December 31, 2003, we repurchased approximately $177.0 million in principal amount of our outstanding 4% Convertible Senior Notes Due 2006 (“2006 Convertible Senior Notes”) that can be put to us in exchange for approximately $176.0 million in cash. Additionally, on February 9, 2004, we made a cash tender offer, which expired on March 9, 2004, for all of the outstanding 2006 Convertible Senior Notes at a price of par plus accrued interest. On March 10, 2004, we paid an aggregate amount of $412.8 million for the tendered 2006 Convertible Senior Notes which included accrued interest of $3.4 million. Currently, 2006 Convertible Senior Notes in the aggregate principal amount of $73.7 million remain outstanding.
      On February 2, 2004, a class action complaint was filed in the United States District Court for the Southern District of New York against CES and others. The complaint alleges unlawful manipulation of natural gas futures and options contracts traded on NYMEX during the period January 21, 2000 through December 31, 2002. The causes of action alleged are fraudulent concealment and violations of the Commodity Exchange Act, and CES anticipates filing a motion to dismiss the complaint. This complaint was filed as a related action to another consolidated class action complaint involving numerous other defendants. The court has not granted class action certification for any of the matters at this time.
      On February 18, 2004, one of our wholly owned subsidiaries closed on the sale of natural gas properties to Calpine Natural Gas Trust (“CNG Trust”). We received consideration of Cdn$40.5 million (US$30.9 million). We hold 25% of the outstanding trust units of CNG Trust and account for the investment using the equity method.
      On February 18, 2004, we entered into an agreement to purchase the Brazos Valley Power Plant in Fort Bend County, Texas, for approximately $175.0 million in cash, subject to certain adjustments. We expect to acquire the 570-megawatt, natural gas-fired facility with the net proceeds from the sale of Lost Pines 1 and cash on hand. The special purpose companies that own Brazos Valley are indirectly owned by the consortium of banks that had provided construction financing for the power plant and had taken possession of the plant from the original developer in 2003. Upon completion of the transaction, Brazos Valley will become part of the collateral package for the Calpine Construction Finance Company, L.P. (“CCFC I”) First Priority Secured Institutional Term Loans Due 2009 and Second Priority Senior Secured Floating Rate Notes  Due 2011.
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      On February 20, 2004, we completed a $250.0 million, non-recourse project financing for the 600-megawatt Rocky Mountain Energy Center. A consortium of banks financed the construction of the plant at a rate of LIBOR plus 250 basis points. Upon commercial operation of the Rocky Mountain Energy Center in the summer of 2004, the banks will provide a three-year term-loan facility.
      On March 23, 2004, our wholly owned subsidiary CalGen, formerly Calpine Construction Finance Company II, LLC (“CCFC II”), completed its offering of secured term loans and secured notes. As expected, we realized net total proceeds from the offerings (after payment of transaction fees and expenses, including the fee payable to Morgan Stanley in connection with an index hedge) in the approximate amount of $2.3 billion. The offerings included: 

Amount		Description		Interest Rate	
					
$235.0 million	 	First Priority Secured Floating Rate Notes Due 2009	 	LIBOR plus 375 basis points	
$640.0 million	 	Second Priority Secured Floating Rate Notes Due 2010	 	LIBOR plus 575 basis points	
$680.0 million	 	Third Priority Secured Floating Rate Notes Due 2011	 	LIBOR plus 900 basis points	
$150.0 million	 	Third Priority Secured Notes Due 2011	 	11.50%	
$600.0 million	 	First Priority Secured Term Loans due 2009	 	LIBOR plus 375 basis points(1)	
$100.0 million	 	Second Priority Secured Term Loans due 2010	 	LIBOR plus 575 basis points(2)	

		
(1) 	We may also elect a Base Rate plus 275 basis points.	
 		
(2) 	We may also elect a Base Rate plus 475 basis points.	
      The secured term loans and secured notes described above in each case are secured, through a combination of pledges of the equity interests in CalGen and its first tier subsidiary, CalGen Expansion Company, liens on the assets of CalGen’s power generating facilities (other than its Goldendale facility) and related assets located throughout the United States. The lenders’ recourse is limited to such security, and none of the indebtedness is guaranteed by Calpine. Net proceeds from the offerings were used to refinance amounts outstanding under the $2.5 billion CCFC II revolving construction credit facility, which was scheduled to mature in November 2004, and to pay fees and transaction costs associated with the refinancing. Concurrently with this refinancing, we amended and restated the CCFC II credit facility (as amended and restated, the “CalGen revolving credit facility”) to reduce the commitments under the facility to $200.0 million and extend its maturity to March 2007. Interest under the CalGen revolving facility equals LIBOR plus 350 basis points (or, at our election, the Base Rate plus 250 basis points). Outstanding indebtedness and letters of credit at December 31, 2003, and at the refinancing date, under the CCFC II credit facility totaled approximately $2.3 billion and 2.4 billion, respectively.
      See “— Summary of Key Activities” for 2003 developments.
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DESCRIPTION OF POWER GENERATION FACILITIES

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      At March 24, 2004, we had ownership or lease interests in 87 operating power generation facilities representing 22,206 megawatts of net capacity. Of these projects, 68 are gas-fired power plants with a net capacity of 21,356 megawatts, and 19 are geothermal power generation facilities with a net capacity of 850 megawatts. We also have 12 gas-fired projects and 1 project expansion currently under construction with a net capacity of 7,685 megawatts. We expect to complete construction of advanced development projects. The timing of the completion of these projects will be based on market fundamentals and when our return on investment criteria are expected to be met, and financing is available on attractive terms. Each of the power generation facilities currently in operation produces electricity for sale to a utility, other third-party end user, or to an intermediary such as a trading company. Thermal energy produced by the gas-fired cogeneration facilities is sold to industrial and governmental users.
      The gas-fired and geothermal power generation projects in which we have an interest produce electricity and thermal energy that are sold pursuant to short-term and long-term power sales agreements or into the spot market. Revenue from a power sales agreement often consists of either or both of the following components: energy payments and capacity payments. Energy payments are based on a power plant’s net electrical output, and payment rates are typically either at fixed rates or indexed to fuel costs. Capacity payments are based on a power plant’s net electrical output and/or its available capacity. Energy payments are earned for each kilowatt-hour of energy delivered, while capacity payments, under certain circumstances, are earned whether or not any electricity is scheduled by the customer and delivered.
      Upon completion of our projects under construction, we will provide operating and maintenance services for 97 of the 99 power plants in which we have an interest. Such services include the operation of power plants, geothermal steam fields, wells and well pumps, gas fields, gathering systems and gas pipelines. We also supervise maintenance, materials purchasing and inventory control, manage cash flow, train staff and prepare operating and maintenance manuals for each power generation facility that we operate. As a facility develops an operating history, we analyze its operation and may modify or upgrade equipment or adjust operating procedures or maintenance measures to enhance the facility’s reliability or profitability. These services are sometimes performed for third parties under the terms of an operating and maintenance agreement pursuant to which we are generally reimbursed for certain costs, paid an annual operating fee and may also be paid an incentive fee based on the performance of the facility. The fees payable to us may be subordinated to any lease payments or debt service obligations of financing for the project.
      In order to provide fuel for the gas-fired power generation facilities in which we have an interest, natural gas reserves are acquired or natural gas is purchased from third parties under supply agreements. We manage a gas-fired power facility’s fuel supply so that we protect the plant’s spark spread.
      We currently hold interests in geothermal leaseholds in Lake and Sonoma Counties in northern California (“The Geysers”) that produce steam that is supplied to geothermal power generation facilities owned by us for use in producing electricity. In late 2003 we began to inject waste water from the City of Santa Rosa Recharge Project into our geothermal reservoirs. We expect this recharge project to extend the useful life and enhance the performance of The Geysers geothermal resources and power plants.
      Certain power generation facilities in which we have an interest have been financed primarily with project financing that is structured to be serviced out of the cash flows derived from the sale of electricity and thermal energy produced by such facilities and provides that the obligations to pay interest and principal on the loans are secured almost solely by the capital stock or partnership interests, physical assets, contracts and/or cash flow attributable to the entities that own the facilities. The lenders under non-recourse project financing generally have no recourse for repayment against us or any of our assets or the assets of any other entity other than foreclosure on pledges of stock or partnership interests and the assets attributable to the entities that own the facilities. Our plan historically has been to refinance project-specific construction financing with long-term capital market financing after construction projects enter commercial operation.
      Substantially all of the power generation facilities in which we have an interest are located on sites which we own or are leased on a long-term basis. See Item 2. “Properties.”
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      Set forth below is certain information regarding our operating power plants and plants under construction as of March 24, 2004. 

					
				Megawatts	
					
						Calpine Net	
						With		Calpine Net		Interest	
		Number		Baseload		Peaking		Interest		with	
		of Plants		Capacity		Capacity		Baseload		Peaking	
											
In operation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Geothermal power plants	 	 	19	 	 	 	850	 	 	 	850	 	 	 	850	 	 	 	850	 	
 	Gas-fired power plants	 	 	68	 	 	 	18,941	 	 	 	23,347	 	 	 	17,104	 	 	 	21,356	 	
Under construction	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	New facilities	 	 	12	 	 	 	6,057	 	 	 	7,028	 	 	 	6,057	 	 	 	7,028	 	
 	Expansion project	 	 	—	 	 	 	438	 	 	 	657	 	 	 	438	 	 	 	657	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Total	 	 	99	 	 	 	26,286	 	 	 	31,882	 	 	 	24,449	 	 	 	29,891	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Operating Power Plants

												Calpine Net			
		Country,				With				Calpine Net		Interest			
		US State		Baseload		Peaking		Calpine		Interest		With		Total 2003	
		or Can.		Capacity		Capacity		Interest		Baseload		Peaking		Generation	
Power Plant		Province		(MW)		(MW)		Percentage		(MW)		(MW)		MWh(1)	
															
Geothermal Power Plants	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sonoma County (12 plants)	 	 	CA	 	 	 	512.0	 	 	 	512.0	 	 	 	100.0	%	 	 	512.0	 	 	 	512.0	 	 	 	4,022,608	 	
Lake County (2 plants)	 	 	CA	 	 	 	145.0	 	 	 	145.0	 	 	 	100.0	%	 	 	145.0	 	 	 	145.0	 	 	 	1,202,592	 	
Calistoga	 	 	CA	 	 	 	73.0	 	 	 	73.0	 	 	 	100.0	%	 	 	73.0	 	 	 	73.0	 	 	 	615,960	 	
Sonoma	 	 	CA	 	 	 	53.0	 	 	 	53.0	 	 	 	100.0	%	 	 	53.0	 	 	 	53.0	 	 	 	350,317	 	
West Ford Flat	 	 	CA	 	 	 	27.0	 	 	 	27.0	 	 	 	100.0	%	 	 	27.0	 	 	 	27.0	 	 	 	237,225	 	
Bear Canyon	 	 	CA	 	 	 	20.0	 	 	 	20.0	 	 	 	100.0	%	 	 	20.0	 	 	 	20.0	 	 	 	157,028	 	
Aidlin	 	 	CA	 	 	 	20.0	 	 	 	20.0	 	 	 	100.0	%	 	 	20.0	 	 	 	20.0	 	 	 	146,448	 	
 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 		 	
 	Total Geothermal Power Plants (19)	 	 	 	 	 	 	850.0	 	 	 	850.0	 	 	 	 	 	 	 	850.0	 	 	 	850.0	 	 	 	6,732,178	 	
 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 		 	
Gas-Fired Power Plants	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Saltend Energy Centre	 	 	UK	 	 	 	1,200.0	 	 	 	1,200.0	 	 	 	100.0	%	 	 	1,200.0	 	 	 	1,200.0	 	 	 	9,095,929	 	
Acadia Energy Center	 	 	LA	 	 	 	1,080.0	 	 	 	1,160.0	 	 	 	50.0	%	 	 	540.0	 	 	 	580.0	 	 	 	2,259,944	 	
Oneta Energy Center	 	 	OK	 	 	 	994.0	 	 	 	994.0	 	 	 	100.0	%	 	 	994.0	 	 	 	994.0	 	 	 	611,992	 	
Freestone Energy Center	 	 	TX	 	 	 	1,022.0	 	 	 	1,022.0	 	 	 	100.0	%	 	 	1,022.0	 	 	 	1,022.0	 	 	 	4,930,706	 	
Broad River Energy Center	 	 	SC	 	 	 	—	 	 	 	840.0	 	 	 	100.0	%	 	 	—	 	 	 	840.0	 	 	 	206,078	 	
Delta Energy Center	 	 	CA	 	 	 	799.0	 	 	 	882.0	 	 	 	100.0	%	 	 	799.0	 	 	 	882.0	 	 	 	5,440,349	 	
Baytown Energy Center	 	 	TX	 	 	 	742.0	 	 	 	830.0	 	 	 	100.0	%	 	 	742.0	 	 	 	830.0	 	 	 	5,045,069	 	
Morgan Energy Center	 	 	AL	 	 	 	722.0	 	 	 	852.0	 	 	 	100.0	%	 	 	722.0	 	 	 	852.0	 	 	 	95,457	 	
Pasadena Power Plant	 	 	TX	 	 	 	751.0	 	 	 	787.0	 	 	 	100.0	%	 	 	751.0	 	 	 	787.0	 	 	 	4,080,123	 	
Magic Valley Generating Station	 	 	TX	 	 	 	700.0	 	 	 	751.0	 	 	 	100.0	%	 	 	700.0	 	 	 	751.0	 	 	 	2,683,274	 	
Decatur Energy Center	 	 	AL	 	 	 	692.0	 	 	 	838.0	 	 	 	100.0	%	 	 	692.0	 	 	 	838.0	 	 	 	429,220	 	
Hermiston Power Project	 	 	OR	 	 	 	546.0	 	 	 	642.0	 	 	 	100.0	%	 	 	546.0	 	 	 	642.0	 	 	 	2,615,001	 	
Channel Energy Center	 	 	TX	 	 	 	527.0	 	 	 	574.0	 	 	 	100.0	%	 	 	527.0	 	 	 	574.0	 	 	 	3,144,479	 	
Aries Power Project	 	 	MO	 	 	 	516.0	 	 	 	591.0	 	 	 	50.0	%	 	 	258.0	 	 	 	295.5	 	 	 	791,065	 	
South Point Energy Center	 	 	AZ	 	 	 	520.0	 	 	 	530.0	 	 	 	100.0	%	 	 	520.0	 	 	 	530.0	 	 	 	2,944,368	 	
Los Medanos Energy Center	 	 	CA	 	 	 	497.0	 	 	 	566.0	 	 	 	100.0	%	 	 	497.0	 	 	 	566.0	 	 	 	3,344,159	 	
Sutter Energy Center	 	 	CA	 	 	 	535.0	 	 	 	543.0	 	 	 	100.0	%	 	 	535.0	 	 	 	543.0	 	 	 	3,234,514	 	
Lost Pines 1 Power Project(2)	 	 	TX	 	 	 	—	 	 	 	—	 	 	 	0.0	%	 	 	—	 	 	 	—	 	 	 	3,101,574	 	
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												Calpine Net			
		Country,				With				Calpine Net		Interest			
		US State		Baseload		Peaking		Calpine		Interest		With		Total 2003	
		or Can.		Capacity		Capacity		Interest		Baseload		Peaking		Generation	
Power Plant		Province		(MW)		(MW)		Percentage		(MW)		(MW)		MWh(1)	
															
Ontelaunee Energy Center	 	 	PA	 	 	 	561.0	 	 	 	584.0	 	 	 	100.0	%	 	 	561.0	 	 	 	584.0	 	 	 	863,253	 	
Westbrook Energy Center	 	 	ME	 	 	 	528.0	 	 	 	528.0	 	 	 	100.0	%	 	 	528.0	 	 	 	528.0	 	 	 	3,307,527	 	
Corpus Christi Energy Center	 	 	TX	 	 	 	414.0	 	 	 	537.0	 	 	 	100.0	%	 	 	414.0	 	 	 	537.0	 	 	 	1,854,208	 	
Hidalgo Energy Center	 	 	TX	 	 	 	502.0	 	 	 	502.0	 	 	 	78.5	%	 	 	394.1	 	 	 	394.1	 	 	 	1,743,360	 	
Carville Energy Center	 	 	LA	 	 	 	455.0	 	 	 	531.0	 	 	 	100.0	%	 	 	455.0	 	 	 	531.0	 	 	 	1,697,994	 	
Texas City Power Plant	 	 	TX	 	 	 	465.0	 	 	 	471.0	 	 	 	100.0	%	 	 	465.0	 	 	 	471.0	 	 	 	2,446,410	 	
RockGen Energy Center	 	 	WI	 	 	 	—	 	 	 	460.0	 	 	 	100.0	%	 	 	—	 	 	 	460.0	 	 	 	223,977	 	
Deer Park Energy Center, Phases 1 and 1a	 	 	TX	 	 	 	354.0	 	 	 	362.0	 	 	 	100.0	%	 	 	354.0	 	 	 	362.0	 	 	 	1,823,311	 	
Clear Lake Power Plant	 	 	TX	 	 	 	335.0	 	 	 	412.0	 	 	 	100.0	%	 	 	335.0	 	 	 	412.0	 	 	 	1,918,603	 	
Zion Energy Center	 	 	IL	 	 	 	—	 	 	 	513.0	 	 	 	100.0	%	 	 	—	 	 	 	513.0	 	 	 	74,781	 	
Santa Rosa Energy Center	 	 	FL	 	 	 	250.0	 	 	 	250.0	 	 	 	100.0	%	 	 	250.0	 	 	 	250.0	 	 	 	22,706	 	
Blue Spruce Energy Center	 	 	CO	 	 	 	—	 	 	 	300.0	 	 	 	100.0	%	 	 	—	 	 	 	300.0	 	 	 	290,410	 	
Calgary Energy Centre	 	 	AB	 	 	 	250.0	 	 	 	300.0	 	 	 	30.0	%	 	 	75.0	 	 	 	90.0	 	 	 	731,449	 	
Rumford Power Plant	 	 	ME	 	 	 	237.0	 	 	 	251.0	 	 	 	100.0	%	 	 	237.0	 	 	 	251.0	 	 	 	1,547,533	 	
Hog Bayou Energy Center	 	 	AL	 	 	 	246.6	 	 	 	246.6	 	 	 	100.0	%	 	 	246.6	 	 	 	246.6	 	 	 	122,762	 	
Tiverton Power Plant	 	 	RI	 	 	 	240.0	 	 	 	240.0	 	 	 	100.0	%	 	 	240.0	 	 	 	240.0	 	 	 	1,689,698	 	
Gordonsville Power Plant(3)	 	 	VA	 	 	 	—	 	 	 	—	 	 	 	0.0	%	 	 	—	 	 	 	—	 	 	 	155,402	 	
Island Cogeneration	 	 	BC	 	 	 	230.0	 	 	 	230.0	 	 	 	30.0	%	 	 	69.0	 	 	 	69.0	 	 	 	1,487,028	 	
Pine Bluff Energy Center	 	 	AR	 	 	 	213.3	 	 	 	213.3	 	 	 	100.0	%	 	 	213.3	 	 	 	213.3	 	 	 	1,503,735	 	
Los Esteros Critical Energy Center	 	 	CA	 	 	 	—	 	 	 	180.0	 	 	 	100.0	%	 	 	—	 	 	 	180.0	 	 	 	164,251	 	
Morris Power Plant	 	 	IL	 	 	 	155.0	 	 	 	177.5	 	 	 	86.0	%	 	 	134.0	 	 	 	146.4	 	 	 	484,971	 	
Dighton Power Plant	 	 	MA	 	 	 	162.0	 	 	 	168.0	 	 	 	100.0	%	 	 	162.0	 	 	 	168.0	 	 	 	449,781	 	
Androscoggin Energy Center	 	 	ME	 	 	 	160.0	 	 	 	160.0	 	 	 	32.3	%	 	 	51.7	 	 	 	51.7	 	 	 	796,172	 	
Auburndale Power Plant	 	 	FL	 	 	 	143.0	 	 	 	153.0	 	 	 	30.0	%	 	 	42.9	 	 	 	45.9	 	 	 	1,094,795	 	
Grays Ferry Power Plant	 	 	PA	 	 	 	143.0	 	 	 	148.0	 	 	 	40.0	%	 	 	57.2	 	 	 	59.2	 	 	 	765,609	 	
Gilroy Peaking Energy Center	 	 	CA	 	 	 	—	 	 	 	135.0	 	 	 	100.0	%	 	 	—	 	 	 	135.0	 	 	 	69,338	 	
Gilroy Power Plant	 	 	CA	 	 	 	112.0	 	 	 	131.0	 	 	 	100.0	%	 	 	112.0	 	 	 	131.0	 	 	 	184,603	 	
Pryor Power Plant	 	 	OK	 	 	 	109.0	 	 	 	124.0	 	 	 	80.0	%	 	 	87.2	 	 	 	99.2	 	 	 	331,035	 	
Sumas Power Plant	 	 	WA	 	 	 	120.0	 	 	 	122.0	 	 	 	0.1	%	 	 	0.1	 	 	 	0.1	 	 	 	943,343	 	
Parlin Power Plant	 	 	NJ	 	 	 	89.0	 	 	 	118.0	 	 	 	80.0	%	 	 	71.2	 	 	 	94.4	 	 	 	84,825	 	
Auburndale Peaking Energy Center	 	 	FL	 	 	 	—	 	 	 	115.0	 	 	 	100.0	%	 	 	—	 	 	 	115.0	 	 	 	36,067	 	
King City Power Plant	 	 	CA	 	 	 	103.0	 	 	 	115.0	 	 	 	40.0	%	 	 	41.2	 	 	 	46.0	 	 	 	928,484	 	
Kennedy International Airport Power Plant (“KIAC”)	 	 	NY	 	 	 	95.0	 	 	 	105.0	 	 	 	100.0	%	 	 	95.0	 	 	 	105.0	 	 	 	581,122	 	
Bethpage Power Plant	 	 	NY	 	 	 	52.0	 	 	 	53.7	 	 	 	100.0	%	 	 	52.0	 	 	 	53.7	 	 	 	423,104	 	
Bethpage Peaking Energy Center	 	 	NY	 	 	 	—	 	 	 	48.0	 	 	 	100.0	%	 	 	—	 	 	 	48.0	 	 	 	97,005	 	
Pittsburg Power Plant	 	 	CA	 	 	 	64.0	 	 	 	71.0	 	 	 	100.0	%	 	 	64.0	 	 	 	71.0	 	 	 	239,991	 	
Newark Power Plant	 	 	NJ	 	 	 	47.0	 	 	 	58.0	 	 	 	80.0	%	 	 	37.6	 	 	 	46.4	 	 	 	376,911	 	
Greenleaf 1 Power Plant	 	 	CA	 	 	 	50.0	 	 	 	50.0	 	 	 	100.0	%	 	 	50.0	 	 	 	50.0	 	 	 	388,939	 	
Greenleaf 2 Power Plant	 	 	CA	 	 	 	50.0	 	 	 	50.0	 	 	 	100.0	%	 	 	50.0	 	 	 	50.0	 	 	 	363,320	 	
Whitby Cogeneration	 	 	ON	 	 	 	50.0	 	 	 	50.0	 	 	 	15.0	%	 	 	7.5	 	 	 	7.5	 	 	 	344,648	 	
King City Peaking Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	17,436	 	
Yuba City Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	19,078	 	
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												Calpine Net			
		Country,				With				Calpine Net		Interest			
		US State		Baseload		Peaking		Calpine		Interest		With		Total 2003	
		or Can.		Capacity		Capacity		Interest		Baseload		Peaking		Generation	
Power Plant		Province		(MW)		(MW)		Percentage		(MW)		(MW)		MWh(1)	
															
Feather River Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	15,745	 	
Creed Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	14,266	 	
Lambie Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	14,140	 	
Wolfskill Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	16,820	 	
Goose Haven Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	13,524	 	
Riverview Energy Center	 	 	CA	 	 	 	—	 	 	 	45.0	 	 	 	100.0	%	 	 	—	 	 	 	45.0	 	 	 	15,693	 	
Stony Brook Power Plant	 	 	NY	 	 	 	36.0	 	 	 	40.0	 	 	 	100.0	%	 	 	36.0	 	 	 	40.0	 	 	 	346,971	 	
Watsonville Power Plant	 	 	CA	 	 	 	29.0	 	 	 	30.0	 	 	 	100.0	%	 	 	29.0	 	 	 	30.0	 	 	 	211,755	 	
Agnews Power Plant	 	 	CA	 	 	 	26.5	 	 	 	28.6	 	 	 	100.0	%	 	 	26.5	 	 	 	28.6	 	 	 	219,153	 	
Philadelphia Water Project	 	 	PA	 	 	 	22.0	 	 	 	23.0	 	 	 	66.4	%	 	 	14.6	 	 	 	15.3	 	 	 	—	 	
 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 		 	
 	Total Gas-Fired Power Plants (68)	 	 	 	 	 	 	18,941.4	 	 	 	23,346.7	 	 	 	 	 	 	 	17,103.7	 	 	 	21,355.9	 	 	 	87,610,343	 	
 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 		 	
 	Total Operating Power Plants (87)	 	 	 	 	 	 	19,791.4	 	 	 	24,196.7	 	 	 	 	 	 	 	17,953.7	 	 	 	22,205.9	 	 	 	94,342,521	 	
 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 		 	
Consolidated Projects including plants with operating leases	 	 	 	 	 	 	17,722.4	 	 	 	21,965.7	 	 	 	 	 	 	 	17,039.2	 	 	 	21,211.9	 	 	 	 	 	
Equity (Unconsolidated) Projects	 	 	 	 	 	 	2,069.0	 	 	 	2,231.0	 	 	 	 	 	 	 	914.5	 	 	 	994.0	 	 	 	 	 	

		
(1) 	Generation MWh is shown here as 100% of each plant’s gross generation in megawatt hours (“MWh”).	
 		
(2) 	This facility is presented here only to state the facility’s generation in MWh for 2003. This facility was sold in January 2004. See Note 10 of the Notes to Consolidated Financial Statements for more information regarding the sale of this facility.	
 		
(3) 	This facility is presented here only to state the facility’s generation in MWh through November 26, 2003, the date it was sold. See Note 7 of the Notes to Consolidated Financial Statements for more information regarding the sale of this facility.	
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Projects Under Construction (All gas-fired)

												Calpine Net	
		Country,				With				Calpine Net		Interest	
		US State		Baseload		Peaking		Calpine		Interest		With	
		or Can.		Capacity		Capacity		Interest		Baseload		Peaking	
Power Plant		Province		(MW)		(MW)		Percentage		(MW)		(MW)	
													
Projects Under Construction	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deer Park Energy Center*	 	 	TX	 	 	 	438.0	 	 	 	657.0	 	 	 	100.0	%	 	 	438.0	 	 	 	657.0	 	
Hillabee Energy Center	 	 	AL	 	 	 	710.0	 	 	 	770.0	 	 	 	100.0	%	 	 	710.0	 	 	 	770.0	 	
Pastoria Energy Center	 	 	CA	 	 	 	759.0	 	 	 	769.0	 	 	 	100.0	%	 	 	759.0	 	 	 	769.0	 	
Fremont Energy Center	 	 	OH	 	 	 	550.0	 	 	 	700.0	 	 	 	100.0	%	 	 	550.0	 	 	 	700.0	 	
Columbia Energy Center	 	 	SC	 	 	 	464.0	 	 	 	641.0	 	 	 	100.0	%	 	 	464.0	 	 	 	641.0	 	
Riverside Energy Center	 	 	WI	 	 	 	518.0	 	 	 	602.0	 	 	 	100.0	%	 	 	518.0	 	 	 	602.0	 	
Metcalf Energy Center	 	 	CA	 	 	 	556.0	 	 	 	602.0	 	 	 	100.0	%	 	 	556.0	 	 	 	602.0	 	
Osprey Energy Center	 	 	FL	 	 	 	530.0	 	 	 	609.0	 	 	 	100.0	%	 	 	530.0	 	 	 	609.0	 	
Washington Parish Energy Center	 	 	LA	 	 	 	509.0	 	 	 	565.0	 	 	 	100.0	%	 	 	509.0	 	 	 	565.0	 	
Otay Mesa Energy Center	 	 	CA	 	 	 	510.0	 	 	 	593.0	 	 	 	100.0	%	 	 	510.0	 	 	 	593.0	 	
Rocky Mountain Energy Center	 	 	CO	 	 	 	479.0	 	 	 	601.0	 	 	 	100.0	%	 	 	479.0	 	 	 	601.0	 	
Goldendale Energy Center	 	 	WA	 	 	 	237.0	 	 	 	271.0	 	 	 	100.0	%	 	 	237.0	 	 	 	271.0	 	
Fox Energy Center	 	 	WI	 	 	 	235.0	 	 	 	305.0	 	 	 	100.0	%	 	 	235.0	 	 	 	305.0	 	
 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	
 	Total Projects Under Construction	 	 	 	 	 	 	6,495.0	 	 	 	7,685	 	 	 	 	 	 	 	6,495.0	 	 	 	7,685.0	 	

		
* 	Expansion project.	
ACQUISITIONS OF POWER PROJECTS AND PROJECTS UNDER CONSTRUCTION
      We have extensive experience in the development and acquisition of power generation projects. We have historically focused principally on the development and acquisition of interests in gas-fired and geothermal power projects, although we may also consider projects that utilize other power generation technologies. We have significant expertise in a variety of power generation technologies and have substantial capabilities in each aspect of the development and acquisition process, including design, engineering, procurement, construction management, fuel and resource acquisition and management, power marketing, financing and operations.
      As indicated in the Strategy Section, our development and acquisition activities have been greatly scaled back, for the indefinite future, to focus on liquidity and operational priorities.
Acquisitions
      We may consider the acquisition of an interest in operating projects as well as projects under development where we would assume responsibility for completing the development of the project. In the acquisition of power generation facilities, we generally seek to acquire 100% ownership of facilities that offer us attractive opportunities for earnings growth, and that permit us to assume sole responsibility for the operation and maintenance of the facility. In evaluating and selecting a project for acquisition, we consider a variety of factors, including the type of power generation technology utilized, the location of the project, the terms of any existing power or thermal energy sales agreements, gas supply and transportation agreements and wheeling agreements, the quantity and quality of any geothermal or other natural resource involved, and the actual condition of the physical plant. In addition, we assess the past performance of an operating project and prepare financial projections to determine the profitability of the project. Acquisition activity is dependent on the availability of financing on attractive terms and the expectation of returns that meet our long-term requirements.
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      Although our preference is to own 100% of the power plants we acquire or develop, there are situations when we take less than 100% ownership. Reasons why we may take less than a 100% interest in a power plant may include, but are not limited to: (a) our acquisitions of other independent power producers such as Cogeneration Corporation of America in 1999 and SkyGen Energy LLC in 2000 in which minority interest projects were included in the portfolio of assets owned by the acquired entities (Grays Ferry Power Plant (40% now owned by Calpine) and Androscoggin Energy Center (32.3% now owned by Calpine), respectively); (b) opportunities to co-invest with non-regulated subsidiaries of regulated electric utilities, which under PURPA are restricted to 50% ownership of cogeneration qualifying facilities; and (c) opportunities to invest in merchant power projects with partners who bring marketing, funding, permitting or other resources that add value to a project, for example, Acadia Energy Center in Louisiana (50% owned by Calpine and 50% owned by Cleco Midstream Resources, an affiliate of Cleco Corporation). None of our equity investment projects have nominal carrying values as a result of material recurring losses. Further, there is no history of impairment in any of these investments.
Projects Under Construction
      The development and construction of power generation projects involves numerous elements, including evaluating and selecting development opportunities, designing and engineering the project, obtaining power sales agreements in some cases, acquiring necessary land rights, permits and fuel resources, obtaining financing, procuring equipment and managing construction. We intend to focus on completing projects already in construction and starting new projects only when financing is available and attractive returns are expected.
      Deer Park Energy Center. In March 2001 we announced plans to build, own and operate a 1,019-megawatt, natural gas-fired energy center in Deer Park, Texas. The Deer Park Energy Center supplies steam to Shell Chemical Company, and electric power generated at the facility is sold on the wholesale market. Construction began in mid-2001. The first and second phases of the project entered commercial operation in June 2003 and the final phase is expected to begin commercial operation in June 2004.
      Hillabee Energy Center. On February 24, 2000, we announced plans to build, own and operate the Hillabee Energy Center, a 770-megawatt, natural gas-fired cogeneration facility in Tallapoosa County, Alabama. Construction began in mid-2001, and we expect commercial operation of the facility will commence in spring 2006.
      Pastoria Energy Center. In April 2001 we acquired the rights to develop the 769-megawatt Pastoria Energy Center, a combined-cycle project planned for Kern County, California. Construction began in mid-2001, and commercial operation is scheduled to begin in the fall of 2004 for phase one and in mid-2005 for phase two.
      Fremont Energy Center. On May 23, 2000, we announced plans to build, own and operate the Fremont Energy Center, a 700-megawatt natural gas-fired electricity generating facility to be located near Fremont, Ohio. Commercial operation is expected to commence in the summer of 2006.
      Columbia Energy Center. On September 25, 2001, we announced plans to construct the new 641-megawatt Columbia Energy Center, a natural gas-fired cogeneration facility located on property leased from Voridian (formerly Eastman Chemical Company) in Calhoun County, S.C. The facility will sell electricity to the wholesale power market and will supply thermal energy to Voridian. Commercial operation is expected to commence in the spring of 2004.
      Riverside Energy Center. On December 18, 2002, we announced that construction of the Riverside Energy Center, a 602-megawatt natural gas-fired electricity generating facility had begun in Beloit, Wisconsin. We anticipate commercial operation of the facility to begin in the summer of 2004.
      Metcalf Energy Center. On April 30, 1999, we submitted an Application for Certification with the California Energy Commission (“CEC”) to build, own and operate the Metcalf Energy Center, a 602-megawatt natural gas-fired electricity generating facility located in San Jose, California. The CEC permit was approved on September 21, 2001. Construction of the facility began in June 2002, and commercial operation is anticipated to commence in the summer of 2005.
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      Osprey Energy Center. On January 11, 2000, we announced plans to build, own and operate the Osprey Energy Center, a 609-megawatt, natural gas-fired cogeneration energy center near the city of Auburndale, Florida. Construction commenced in the fall 2001 and commercial operation of the facility is scheduled to begin in the spring of 2004. Upon commercial operation, the Osprey Energy Center will supply electric power to Tampa, Florida-based Seminole Electric Cooperative, Inc. for a period of 16 years.
      Washington Parish Energy Center. On January 26, 2001, we announced the acquisition of the development rights from Cogentrix, an independent power company based in North Carolina, for the 565-megawatt Washington Parish Energy Center, located near Bogalusa, Louisiana. We are managing construction of the facility, which began in January 2001, and will operate the facility when it enters commercial operation, which is anticipated to be in the summer of 2006.
      Otay Mesa Energy Center. On July 10, 2001, we acquired Otay Mesa Generating Company, LLC and the associated development rights including a license from the California Energy Commission. The 593-megawatt facility is located in southern San Diego County, California. Construction began in 2001. In October 2003 we signed a term sheet setting forth the principal terms and conditions for a ten-year, 570-megawatt power sales agreement with San Diego Gas & Electric (“SDG&E”). Under the final agreement, we will supply electricity to SDG&E from the Otay Mesa Energy Center. Power deliveries are scheduled to begin in 2007.
      Rocky Mountain Energy Center. In August 2002 we commenced construction of the 601-megawatt, natural gas-fired Rocky Mountain Energy Center in Weld County, Colorado. We will sell the output of the facility to Public Service Co. of Colorado under the terms of a ten-year tolling agreement. Commercial operation of the facility is expected to commence in the summer of 2004.
      Goldendale Energy Center. In April 2001 we acquired the rights to develop a 271-megawatt combined-cycle energy center located in Goldendale, Washington. Construction of the Goldendale Energy Center began in the summer of 2001 and commercial operation is expected to commence in the summer of 2004. Energy generated by the facility will be sold directly into the Northwest Power Pool.
      Fox Energy Center. In 2003 we acquired the fully permitted 305-megawatt Fox Energy Center in Kaukauna, Wisconsin, which will be used to fulfill an existing contract with Wisconsin Public Service. Commercial operation is expected to begin in the summer of 2005.
OIL AND GAS PROPERTIES
      In 1997 we began an equity gas strategy to diversify the gas sources for our natural gas-fired power plants by purchasing Montis Niger, Inc., a gas production and pipeline company operating primarily in the Sacramento Basin in northern California. We currently supply the majority of the fuel requirements for the Greenleaf 1 and 2 Power Plants from these reserves. In October 1999, we purchased Sheridan Energy, Inc. (“Sheridan”), a natural gas exploration and production company operating in northern California and the Gulf Coast region. The Sheridan acquisition provided the initial management team and operational infrastructure to evaluate and acquire oil and gas reserves to keep pace with our growth in gas-fired power plants. In December 1999, we added Vintage Petroleum, Inc.’s interest in the Rio Vista Gas Unit and related areas, representing primarily natural gas reserves located in the Sacramento Basin in northern California. Sheridan was merged into Calpine in April 2000 and Calpine Natural Gas L.P. (“CNGLP”) was established to manage our oil and gas properties in the U.S. Additionally, we own a 25% interest in CNG Trust, which has proved reserves of approximately 72 Bcfe (18 Bcfe, net to Calpine’s equity interest). We are currently capable of producing, net to Calpine’s interest, 215 MMcfe of natural gas per day, and CNG Trust total production, net of royalties, is currently 25 MMcfe (6.2 MMcfe net to Calpine’s interest) of natural gas per day. Calpine has the first right to purchase all of CNG Trust’s production at market prices.
      The focus of the equity gas program has been on acquisitions in strategic markets where we are developing low-cost natural gas supplies and proprietary pipeline systems in support of our natural gas-fired power plants. In conjunction with these efforts we acquired various gas assets and gas companies in 2001 and
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2000. See Note 6 of the Notes to Consolidated Financial Statements for more information regarding the 2001 acquisitions.
      In 2002 and 2003 certain non-strategic divestments were completed to further focus operations on gas production and to enhance liquidity. These divestments are discussed in detail under Note 10 of the Notes to Consolidated Financial Statements.
      As a result of our oil and gas acquisition, divestment and drilling program activity, equity equivalent net production from continuing operations was approximately 260 MMcfe/day at December 31, 2003, enough to fuel approximately 2,300 megawatts of our power plant fleet, assuming an average capacity factor of 70%.
MARKETING, HEDGING, OPTIMIZATION, AND TRADING ACTIVITIES
      Most of the electric power generated by our plants is transferred to our marketing and risk management unit, CES, which sells it to load-serving entities (e.g., utilities) industrial and large retail end users, and to other third parties (e.g., power trading and marketing companies). Because a sufficiently liquid market does not exist for electricity financial instruments (typically, exchange and over-the-counter traded contracts that net settle rather than entail physical delivery) at most of the locations where we sell power, CES also enters into incremental physical purchase and sale transactions as part of its hedging, balancing, and optimization activities.
      The hedging, balancing, and optimization activities that we engage in are directly related to exposures that arise from our ownership and operation of power plants and gas reserves and are designed to protect or enhance our “spark spread” (the difference between our fuel cost and the revenue we receive for our electric generation). In many of these transactions CES purchases and resells power and gas in contracts with third parties.
      We utilize derivatives, which are defined in Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” to include many physical commodity contracts and commodity financial instruments such as exchange-traded swaps and forward contracts, to optimize the returns that we are able to achieve from our power and gas assets. From time to time we have entered into contracts considered energy trading contracts under Emerging Issues Task Force (“EITF”) Issue No. 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities.” However, our risk managers have low capital at risk and value at risk limits for energy trading, and our risk management policy limits, at any given time, our net sales of power to our generation capacity and limits our net purchases of gas to our fuel consumption requirements on a total portfolio basis. This model is markedly different from that of companies that engage in significant commodity trading operations that are unrelated to underlying physical assets. Derivative commodity instruments are accounted for under the requirements of SFAS No. 133. The EITF reached a consensus under EITF Issue No. 02-3 that gains and losses on derivative instruments within the scope of SFAS No. 133 should be shown net in the income statement if the derivative instruments are held for trading purposes. In addition we present on a net basis certain types of hedging, balancing and optimization revenues and costs of revenue under EITF Issue No. 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not “Held for Trading Purposes’ As Defined in EITF Issue No. 02-3: “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (“EITF Issue No. 03-11”), which we adopted prospectively on October 1, 2003. See Item 7. “Management’s Discussion and Analysis — Impact of Recent Accounting Pronouncements” and Note 2 to the Consolidated Financial Statements for a discussion of the effects of adopting this standard.
      Following is a discussion of the types of electricity and gas hedging, balancing, optimization, and trading activities in which we engage.
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Electricity Transactions

			
 	• 	Electricity hedging  transactions are entered into to reduce potential volatility in future results. An example of an electricity hedging transaction would be one in which we sell power at a fixed rate to allow us to predict the future revenues from our portfolio of generating plants. Hedging is a dynamic process; from time to time we adjust the extent to which our portfolio is hedged. An example of an electricity hedge adjusting transaction would be the purchase of power in the market to reduce the extent to which we had previously hedged our generation portfolio through fixed price power sales. To illustrate, suppose we had elected to hedge 65% of our portfolio of generation capacity for the following six months but then believed that prices for electricity were going to steadily move up during that same period. We might buy electricity on the open market to reduce our hedged position to, say, 50%. If electricity prices, do in fact increase, we might then sell electricity again to increase our hedged position back to the 65% level and generate additional margin.	
 		
 	• 	Electricity balancing  activities are typically short-term in nature and are done to make sure that sales commitments to deliver power are fulfilled. An example of an electricity balancing transaction would be where one of our generating plants has an unscheduled outage so we buy replacement power to deliver to a customer to meet our sales commitment.	
 		
 	• 	Electricity optimization  activity, also generally short-term in nature, is done to maximize our profit potential by executing the most profitable alternatives in the power markets. An example of an electricity optimization transaction would be fulfilling a power sales contract with power purchases from third parties instead of generating power when the market price for power is below the cost of generation. In all cases, optimization activity is associated with the operating flexibility in our systems of power plants, natural gas assets, and gas and power contracts. That flexibility provides us with alternatives to most profitably manage our portfolio.	
 		
 	• 	Electricity trading  activities are done with the purpose of profiting from movement in commodity prices or to transact business with customers in market areas where we do not have generating assets. An example of an electricity trading contract would be where we buy and sell electricity, typically with trading company counterparties, solely to profit from electricity price movements. We have engaged in limited activity of this type to date in terms of earnings impact. All such activity is done by CES, mostly through short-term contracts. Another example of an electricity trading contract would be one in which we transact with customers in market areas where we do not have generating assets, generally to develop market experience and customer relations in areas where we expect to have generation assets in the future. We have done a small number of such transactions to date.	
Natural Gas Transactions

			
 	• 	Gas hedging  transactions are also entered into to reduce potential volatility in future results. An example of a gas hedging transaction would be where we purchase gas at a fixed rate to allow us to predict the future costs of fuel for our generating plants or conversely where we enter into a financial forward contract to essentially swap floating rate (indexed) gas for fixed price gas. Similar to electricity hedging, gas hedging is a dynamic process, and from time to time we adjust the extent to which our portfolio is hedged. To illustrate, suppose we had elected to hedge 65% of our gas requirements for our generation capacity for the next six months through fixed price gas purchases but then believed that prices for gas were going to steadily decline during that same period. We might sell fixed price gas on the open market to reduce our hedged gas position to 50%. If gas prices do in fact decrease, we might then buy fixed price gas again to increase our hedged position back to the 65% level and increase our margins.	
 		
 	• 	Gas balancing  activities are typically short-term in nature and are done to ensure that purchase commitments for gas are adjusted for changes in production schedules. An example of a gas balancing transaction would be where one of our generating plants has an unscheduled outage so we sell the gas that we had purchased for that plant to a third party.	
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 	• 	Gas optimization  activities are also generally short-term in nature and are done to maximize our profit potential by executing the most profitable alternatives in the gas markets. An example of gas optimization is selling our gas supply, not generating power, and fulfilling power sales contracts with power purchases from third parties, instead of generating power when market gas prices spike relative to our gas supply cost.	
 		
 	• 	Gas trading  activities are done with the purpose of profiting from movement in commodity prices. An example of gas trading contracts would be where we buy and sell gas, typically with a trading company counterparty, solely to profit from gas price movements or where we transact with customers in market areas where we do not have fuel consumption requirements. We have engaged in a limited level of this type of activity to date. All such activity is done by CES, mostly through short-term contracts.	
      In some instances economic hedges may not be designated as hedges for accounting purposes. The accounting treatment of our various risk management and trading activities is governed by SFAS No. 133, EITF Issue No. 02-3, as discussed above, and EITF Issue No. 03-11 which we adopted on October 1, 2003, and is discussed further in Note 2 of the Notes to Consolidated Financial Statements. An example of an economic hedge that is not a hedge for accounting purposes would be a long-term fixed price electric sales contract that economically hedges us against the risk of falling electric prices, but which for accounting purposes is exempted from derivative accounting under SFAS No. 133 as a normal sale. For a further discussion of our derivative accounting methodology, see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Application of Critical Accounting Policies.”
GOVERNMENT REGULATION
      We are subject to complex and stringent energy, environmental and other governmental laws and regulations at the federal, state and local levels in connection with the development, ownership and operation of our energy generation facilities. Federal laws and regulations govern transactions by electric and gas utility companies, the types of fuel which may be utilized by an electricity generating plant, the type of energy which may be produced by such a plant, the ownership of a plant, and access to and service on the transmission grid. In most instances, public utilities that serve retail customers are subject to rate regulation by the state’s related utility regulatory commission. A state utility regulatory commission is often primarily responsible for determining whether a public utility may recover the costs of wholesale electricity purchases or other supply-related activity through retail rates that the public utility may charge its customers. The state utility regulatory commission may, from time to time, impose restrictions or limitations on the manner in which a public utility may transact with wholesale power sellers, such as independent power producers. Under certain circumstances where specific exemptions are otherwise unavailable, state utility regulatory commissions may have broad jurisdiction over non-utility electric power plants. Energy producing projects also are subject to federal, state and local laws and administrative regulations which govern the emissions and other substances produced, discharged or disposed of by a plant and the geographical location, zoning, land use and operation of a plant. Applicable federal environmental laws typically have both state and local enforcement and implementation provisions. These environmental laws and regulations generally require that a wide variety of permits and other approvals be obtained before the commencement of construction or operation of an energy producing facility and that the facility then operate in compliance with such permits and approvals.
Federal Energy Regulation

	PURPA	
      The enactment of the Public Utility Regulatory Policies Act of 1978, as amended (“PURPA”), and the adoption of regulations thereunder by the Federal Energy Regulatory Commission (“FERC”) provided incentives for the development of cogeneration facilities and small power production facilities (those utilizing renewable fuels and having a capacity of less than 80 megawatts).
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      A domestic electricity generating project must be a Qualifying Facility (“QF”) under FERC regulations in order to take advantage of certain rate and regulatory incentives provided by PURPA. PURPA exempts owners of QFs from the Public Utility Holding Company Act of 1935, as amended (“PUHCA”), and exempts QFs from most provisions of the Federal Power Act (“FPA”) and, except under certain limited circumstances, state laws concerning rate or financial regulation. These exemptions are important to us and our competitors. We believe that each of the electricity-generating projects in which we own an interest and which operates as a QF power producer meets or will meet the requirements under PURPA necessary for QF status. In some cases our projects have temporarily been rendered incapable of meeting such requirements (due, for example, to the loss of a thermal host) and we have sought waivers of the applicable QF requirements from FERC. In the past FERC has been willing to issue such waivers (which typically are for a one-or two-year period) where it can be shown that the project is expected to be able to meet the applicable QF requirements at the end of the waiver period; however, we cannot provide assurance that such waivers will in every case be granted.
      PURPA provides two primary benefits to QFs. First, QFs generally are relieved of compliance with extensive federal and state regulations that control the financial structure of an electricity generating plant and the prices and terms on which electricity may be sold by the plant. Second, FERC’s regulations promulgated under PURPA require that electric utilities purchase electricity generated by QFs at a price based on the purchasing utility’s avoided cost, and that the utility sell back-up power to the QF on a non-discriminatory basis. The term “avoided cost” is defined as the incremental cost to an electric utility of electric energy or capacity, or both, which, but for the purchase from QFs, such utility would generate for itself or purchase from another source. FERC regulations also permit QFs and utilities to negotiate agreements for utility purchases of power at rates lower than the utilities’ avoided costs. While public utilities are not explicitly required by PURPA to enter into long-term power sales agreements, PURPA helped to create a regulatory environment in which it has been common for long-term agreements to be negotiated.
      In order to be a QF, a cogeneration facility must produce not only electricity, but also useful thermal energy for use in an industrial or commercial process for heating or cooling applications in certain proportions to the facility’s total energy output, and must meet certain energy efficiency standards. A geothermal facility may qualify as a QF if it produces less than 80 megawatts of electricity. Finally, a QF (including a geothermal QF or other qualifying small power producer) must not be controlled or more than 50% owned by one or more electric utilities or by most electric utility holding companies, or one or more subsidiaries of such a utility or holding company or any combination thereof.
      We endeavor to develop our projects, monitor compliance by the projects with applicable regulations and choose our customers in a manner which minimizes the risks of any project losing its QF status. Certain factors necessary to maintain QF status are, however, subject to the risk of events outside our control. For example, loss of a thermal energy customer or failure of a thermal energy customer to take required amounts of thermal energy from a cogeneration facility that is a QF could cause the facility to fail requirements regarding the level of useful thermal energy output. Upon the occurrence of such an event, we would seek to replace the thermal energy customer or find another use for the thermal energy which meets PURPA’s requirements, but no assurance can be given that this would be possible.
      If one of the facilities in which we have an interest should lose its status as a QF, the project would no longer be entitled to the exemptions from PUHCA and the FPA. This could also trigger certain rights of termination under the facility’s power sales agreement, could subject the facility to rate regulation as a public utility under the FPA and state law and could result in us inadvertently becoming an electric utility holding company by owning more than 10% of the voting securities of, or controlling, a facility that would no longer be exempt from PUHCA. This could cause all of our remaining projects to lose their qualifying status, because QFs may not be controlled or more than 50% owned by such electric utility holding companies. Loss of QF status may also trigger defaults under covenants to maintain QF status in the projects power sales agreements, steam sales agreements and financing agreements and result in termination, penalties or acceleration of indebtedness under such agreements such that loss of status may be on a retroactive or a prospective basis.
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      Under the Energy Policy Act of 1992, if a facility can be qualified as an Exempt Wholesale Generator (“EWG”), meaning that all of its output is sold for resale rather than to end users, it will be exempt from PUHCA even if it does not qualify as a QF. Therefore, another response to the loss or potential loss of QF status would be to apply to have the project qualified as an EWG. However, assuming this changed status would be permissible under the terms of the applicable power sales agreement, rate approval from FERC would be required. In addition, the facility would be required to cease selling electricity to any retail customers (such as the thermal energy customer) to retain its EWG status and could become subject to state regulation of sales of thermal energy. See Public Utility Holding Company Regulation.
      Currently, Congress is considering proposed legislation that would repeal PUHCA and amend PURPA by limiting its mandatory purchase obligation to existing contracts, in those regions of the country that are found to have competitive energy markets. In light of the circumstances in California, the Pacific Gas and Electric Company (“PG&E”) bankruptcy and the Enron bankruptcy, among other events in recent years, there are a number of federal legislative and regulatory initiatives that could result in changes in how the energy markets are regulated. We do not know whether these legislative and regulatory initiatives will be adopted or, if adopted, what form they may take. We cannot provide assurance that any legislation or regulation ultimately adopted would not adversely affect our existing domestic projects.
Public Utility Holding Company Regulation
      Under PUHCA, any corporation, partnership or other legal entity which owns or controls 10% or more of the outstanding voting securities of a public utility company, or a company which is a holding company for a public utility company, is subject to registration with the Securities and Exchange Commission (“SEC”) and regulation under PUHCA, unless eligible for an exemption. A holding company of a public utility company that is subject to registration is required by PUHCA to limit its utility operations to a single integrated utility system and to divest any other operations not functionally related to the operation of that utility system. Approval by the SEC is required for nearly all important financial and business dealings of a registered holding company. Under PURPA, most QFs are not public utility companies under PUHCA.
      The Energy Policy Act of 1992, among other things, amends PUHCA to allow EWGs, under certain circumstances, to own and operate non-QF electric generating facilities without subjecting those producers to registration or regulation under PUHCA. The effect of such amendments has been to enhance the development of non-QFs which do not have to meet the fuel, production and ownership requirements of PURPA. We believe that these amendments benefit us by expanding our ability to own and operate facilities that do not qualify for QF status. However, they have also resulted in increased competition by allowing utilities and their affiliates to develop such facilities which are not subject to the constraints of PUHCA.
Federal Natural Gas Transportation Regulation
      We have an ownership interest in 80 gas-fired power plants in operation or under construction. The cost of natural gas is ordinarily the largest expense of a gas-fired project and is critical to the project’s economics. The risks associated with using natural gas can include the need to arrange gathering, processing, extraction, blending, and storage, as well as transportation of the gas from great distances, including obtaining removal, export and import authority if the gas is transported from Canada; the possibility of interruption of the gas supply or transportation (depending on the quality of the gas reserves purchased or dedicated to the project, the financial and operating strength of the gas supplier, whether firm or non-firm transportation is purchased and the operations of the gas pipeline); and obligations to take a minimum quantity of gas and pay for it (i.e., take-and-pay obligations).
      Pursuant to the Natural Gas Act, FERC has jurisdiction over the transportation and storage of natural gas in interstate commerce. With respect to most transactions that do not involve the construction of pipeline facilities, regulatory authorization can be obtained on a self-implementing basis. However, interstate pipeline rates and terms and conditions for such services are subject to continuing FERC oversight.
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Federal Power Act Regulation
      Under the FPA, FERC is authorized to regulate the transmission of electric energy and the sale of electric energy at wholesale in interstate commerce. Unless otherwise exempt, any person that owns or operates facilities used for such purposes is considered a public utility subject to FERC jurisdiction. FERC regulation under the FPA includes approval of the disposition of utility property, authorization of the issuance of securities by public utilities, regulation of the rates, terms and conditions for the transmission or sale of electric energy at wholesale in interstate commerce, the regulation of interlocking directorates, a uniform system of accounts and reporting requirements for public utilities.
      FERC regulations implementing PURPA provide that a QF is exempt from regulation under the foregoing provisions of the FPA. An EWG is not exempt from the FPA and therefore an EWG that makes sales of electric energy at wholesale in interstate commerce is subject to FERC regulation as a public utility. However, many of the regulations which customarily apply to traditional public utilities have been waived or relaxed for power marketers, EWGs and other non-traditional public utilities that lack market power. EWGs are regularly granted authorization to charge market-based rates, blanket authority to issue securities, and waivers of certain FERC requirements pertaining to accounts, reports and interlocking directorates. Such action is intended to implement FERC’s policy to foster a more competitive wholesale power market.
      Many of the generating projects in which we own an interest are operated as QFs and are therefore exempt from FERC regulation under the FPA. However, several of our generating projects are or will be EWGs subject to FERC jurisdiction under the FPA. Several of our affiliates have been granted authority to engage in sales at market-based rates and to issue securities, and have also been granted the customary waivers of FERC regulations available to non-traditional public utilities; however, we cannot assure that such authorities or waivers will be granted in the future to other affiliates.
Federal Open Access Electric Transmission Regulation
      In the summer of 1996 FERC issued Orders Nos. 888 and 889 ordering the “functional unbundling” of transmission and generation assets by the transmission owning utilities subject to its jurisdiction. Under Order No. 888, the jurisdictional transmission owning utilities, and many non-jurisdictional transmission owners, were required to adopt the pro forma open access transmission tariff establishing terms of non-discriminatory transmission service, including generator interconnection service. Order No. 889 required transmission-owning utilities to publish information concerning the availability of transmission capacity and make such transmission capacity available on a non-discriminatory basis. In addition, these orders established the operational requirements of Independent System Operators (“ISO”), which are entities that have been given authority to operate the transmission assets of certain jurisdictional utilities. The interpretation and application of the requirements of Orders Nos. 888 and 889 continues to be refined through subsequent administrative proceedings at FERC. These orders have been subject to review, and have been affirmed, by the courts.
      In December 1999 FERC issued Order No. 2000, which requires jurisdictional transmission-owning utilities to enter into agreements with ISOs to operate their transmission systems or join a Regional Transmission Organization (“RTO”), which would likewise control the transmission facilities in a certain region. Order No. 2000 sets forth the basic governance terms for RTOs. To date, compliance by the transmission-owning utilities has been uneven and has met with political resistance on the part of the state governments and the state public utilities commissions in some regions of the country. The impact on our business of the implementation of Order No. 2000 and the development of RTOs cannot be predicted.
      In addition to its efforts in Order Nos. 888, 889, and 2000 and in creating RTOs, FERC has attempted to further refine and clarify the rights and obligations of owners and users of the interstate transmission grid in its Standard Market Design (“SMD”) and Interconnection rule-making proceedings. FERC’s intention under the SMD proceedings is to establish a set of standard rules, which could be adopted in the form of a revised tariff by transmission-owning utilities, addressing the manner in which transmission capacity would be allocated, how generation would be dispatched given transmission constraints, the coordination of transmission upgrades and the allocation of costs associated therewith, among other transmission-related issues. The SMD rule-making proceeding is pending currently. The timing of FERC’s issuance of a final order in this proceeding
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is uncertain and has been delayed due to political resistance on the part of the state governments and the state public utilities commissions in some regions in the country. The impact on our business due to the issuance of a final order in this proceeding is uncertain and cannot be predicted at this time.
      On July 24, 2003, FERC issued Order No. 2003 which is the final rule in the Interconnection rule-making proceeding. Order No. 2003 establishes uniform procedures for generator interconnection to the transmission grid, including the allocation of some of the costs associated with transmission system upgrades and special facilities required to interconnect the generator to the grid. Pursuant to Order No. 2003, transmission owners have been directed to make compliance filings with the FERC to implement the requirements of the order. The purpose of Order No. 2003 is to provide greater certainty and reduce costs associated with the interconnection of new generation facilities to the transmission grid.
Western Energy Markets
      There was significant price volatility in both wholesale electricity and gas markets in the Western United States for much of calendar year 2000 and extending through the second quarter of 2001. Due to a number factors, including drier than expected weather, which led to lower than normal hydro-electric capacity in California and the Northwestern United States, inadequate natural gas pipeline and electric generation capacity to meet higher than anticipated energy demand in the region, the inability of the California utilities to manage their exposure to such price volatility due to regulatory and financial constraints, and evolving market structures in California, prices for electricity and natural gas were much higher than anticipated. A number of federal and state investigations and proceedings were commenced to address the crisis.
      There are currently a number of proceedings pending at FERC which were initiated as a direct result of the price volatility in the energy markets in the Western United States during this period. Many of these proceedings were initiated by buyers of wholesale electricity seeking refunds for purchases made during this period or the reduction of price terms in contracts entered into at this time. We have been a party to some of these proceedings. See Item 1. “Business — Risk Factors — California Power Market” and Item 3. “Legal Proceedings.” As part of certain proceedings, and as a result of its own investigations, FERC has ordered the implementation of certain measures for wholesale electricity markets in California and the Western United States, including, the implementation of price caps on the day ahead or real-time prices for electricity through September 30, 2002, and a continuing obligation of electricity generators to offer uncommitted generation capacity to the California Independent System Operator. FERC is continuing to investigate the causes of the price volatility in the Western United States during this period. It is uncertain at this time when these proceedings and investigations at FERC will conclude or what will be the final resolution thereof. See “— Risk Factors — California Power Market” below.
      Other federal and state governmental entities have and continue to conduct various investigations into the causes of the price volatility in the energy markets in the Western United States during this time. It is uncertain at this time when these investigations will conclude or what the results may be. The impact on our business of the results of the investigations cannot be predicted at this time.
State Regulation
      State public utility commissions (“PUCs”) have historically had broad authority to regulate both the rates charged by, and the financial activities of, electric utilities operating in their states and to promulgate regulation for implementation of PURPA. Since a power sales agreement becomes a part of a utility’s cost structure (generally reflected in its retail rates), power sales agreements with independent electricity producers, such as EWGs, are potentially under the regulatory purview of PUCs and in particular the process by which the utility has entered into the power sales agreements. If a PUC has approved the process by which a utility secures its power supply, a PUC is generally inclined to pass through the expense associated with a power purchase agreement with an independent power producer to the utility’s retail customers. However, a regulatory commission under certain circumstances may disallow the full reimbursement to a utility for the cost to purchase power from a QF or an EWG. In addition, retail sales of electricity or thermal energy by an independent power producer may be subject to PUC regulation depending on state law. Independent power
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producers which are not QFs under PURPA, or EWGs pursuant to the Energy Policy Act of 1992, are considered to be public utilities in many states and are subject to broad regulation by a PUC, ranging from requirement of certificate of public convenience and necessity to regulation of organizational, accounting, financial and other corporate matters. States may assert jurisdiction over the siting and construction of electricity generating facilities including QFs and EWGs and, with the exception of QFs, over the issuance of securities and the sale or other transfer of assets by these facilities.
      State PUCs also have jurisdiction over the transportation of natural gas by local distribution companies (“LDCs”). Each state’s regulatory laws are somewhat different; however, all generally require the LDC to obtain approval from the PUC for the construction of facilities and transportation services if the LDCs generally applicable tariffs do not cover the proposed transaction. LDC rates are usually subject to continuing PUC oversight. We own and operate numerous midstream assets in a number of states where we have plants and/or oil and gas production.
Regulation of Canadian Gas
      The Canadian natural gas industry is subject to extensive regulation by federal and provincial authorities. At the federal level, a party exporting gas from Canada must obtain an export license from the National Energy Board (“NEB”). The NEB also regulates Canadian pipeline transportation rates and the construction of pipeline facilities. Gas producers also must obtain a removal permit or license from each provincial authority before natural gas may be removed from the province, and provincial authorities regulate intra-provincial pipeline and gathering systems. In addition, a party importing natural gas into the United States first must obtain an import authorization from the U.S. Department of Energy.
Environmental Regulations
      The exploration for and development of geothermal resources, oil, gas liquids and natural gas, and the construction and operation of wells, fields, pipelines, various other mid-stream facilities and equipment, and power projects, are subject to extensive federal, state and local laws and regulations adopted for the protection of the environment and to regulate land use. The laws and regulations applicable to us primarily involve the discharge of emissions into the water and air and the use of water, but can also include wetlands preservation, endangered species, hazardous materials handling and disposal, waste disposal and noise regulations. These laws and regulations in many cases require a lengthy and complex process of obtaining licenses, permits and approvals from federal, state and local agencies.
      Noncompliance with environmental laws and regulations can result in the imposition of civil or criminal fines or penalties. In some instances, environmental laws also may impose clean-up or other remedial obligations in the event of a release of pollutants or contaminants into the environment. The following federal laws are among the more significant environmental laws as they apply to us. In most cases, analogous state laws also exist that may impose similar, and in some cases more stringent, requirements on us as those discussed below.
Clean Air Act
      The Federal Clean Air Act of 1970 (“the Clean Air Act”) provides for the regulation, largely through state implementation of federal requirements, of emissions of air pollutants from certain facilities and operations. As originally enacted, the Clean Air Act sets guidelines for emissions standards for major pollutants (i.e., sulfur dioxide and nitrogen oxide) from newly built sources. In late 1990, Congress passed the Clean Air Act Amendments (“the 1990 Amendments”). The 1990 Amendments attempt to reduce emissions from existing sources, particularly previously exempted older power plants. We believe that all of our operating plants and relevant oil and gas related facilities are in compliance with federal performance standards mandated under the Clean Air Act and the 1990 Amendments.
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Clean Water Act
      The Federal Clean Water Act (the “Clean Water Act”) establishes rules regulating the discharge of pollutants into waters of the United States. We are required to obtain wastewater and storm water discharge permits for wastewater and runoff, respectively, from certain of our facilities. We believe that, with respect to our geothermal and oil and gas operations, we are exempt from newly promulgated federal storm water requirements. We are required to maintain a spill prevention control and countermeasure plan with respect to certain of our oil and gas facilities. We believe that we are in material compliance with applicable discharge requirements of the Clean Water Act.
Oil Pollution Act of 1990
      The Oil Pollution Act of 1990 (“OPA”) applies to our offshore facilities in the U.S. Gulf of Mexico regulating oil pollution prevention measures and financial responsibility requirements. We believe that we are in material compliance with applicable OPA requirements.
Safe Drinking Water Act
      Part C of the Safe Water Drinking Act (“SWDA”) mandates the underground injection control (“UIC”) program. The UIC regulates the disposal of wastes by means of deep well injection. Deep well injection is a common method of disposing of saltwater, produced water and other oil and gas wastes. We believe that we are in material compliance with applicable UIC requirements of the SWDA.
Resource Conservation and Recovery Act
      The Resource Conservation and Recovery Act (“RCRA”) regulates the generation, treatment, storage, handling, transportation and disposal of solid and hazardous waste. We believe that we are exempt from solid waste requirements under RCRA. However, particularly with respect to our solid waste disposal practices at the power generation facilities and steam fields located at The Geysers, we are subject to certain solid waste requirements under applicable California laws. Based on the exploration and production exception, many oil and gas wastes are exempt from hazardous wastes regulation under RCRA. For those wastes generated in association with the exploration and production of oil and gas which are classified as hazardous wastes, we undertake to comply with the RCRA requirements for identification and disposal. Various state environmental and safety laws also regulate the oil and gas industry. We believe that our operations are in material compliance with RCRA and all such laws.
Comprehensive Environmental Response, Compensation, and Liability Act
      The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA” or “Superfund”), requires cleanup of sites from which there has been a release or threatened release of hazardous substances and authorizes the United States Environmental Protection Agency to take any necessary response action at Superfund sites, including ordering potentially responsible parties (“PRPs”) liable for the release to take or pay for such actions. PRPs are broadly defined under CERCLA to include past and present owners and operators of, as well as generators of wastes sent to, a site. As of the present time, we are not subject to liability for any Superfund matters. However, we generate certain wastes, including hazardous wastes, and send certain of our wastes to third party waste disposal sites. As a result, there can be no assurance that we will not incur liability under CERCLA in the future.
Canadian Environmental, Health and Safety Regulations
      Our Canadian power projects and oil and gas operations are also subject to extensive federal, provincial and local laws and regulations adopted for the protection of the environment and to regulate land use. We believe that we are in material compliance with all applicable requirements under Canadian law related to same.
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Regulation of U.S. Gas
      The U.S. natural gas industry is subject to extensive regulation by federal, state and local authorities. Calpine holds onshore and offshore federal leases involving the U.S. Dept. of Interior (Bureau of Land Management, Bureau of Indian Affairs and the Minerals Management Service). At the federal level, various federal rules, regulations and procedures apply, including those issued by the U.S. Dept. of Interior as noted above, and the U.S. Dept. of Transportation (U.S. Coast Guard and Office of Pipeline Safety). At the state and local level, various agencies and commissions regulate drilling, production and midstream activities. Calpine has state and private oil and gas leases covering developed and undeveloped properties located in Arkansas, California, Colorado, Kansas, Louisiana, Mississippi, Missouri, Montana, New Mexico, Oklahoma, Texas and Wyoming. These federal, state and local authorities have various permitting, licensing and bonding requirements. Varied remedies are available for enforcement of these federal, state and local rules, regulations and procedures, including fines, penalties, revocation of permits and licenses, actions affecting the value of leases, wells or other assets, and suspension of production. As a result, there can be no assurance that we will not incur liability for fines and penalties or otherwise subject Calpine to the various remedies as are available to these federal, state and local authorities. However, we believe that we are currently in material compliance with these federal, state and local rules, regulations and procedures.
RISK FACTORS
Capital Resources
      We have substantial indebtedness that we may be unable to service and that restricts our activities. We have substantial debt that we incurred to finance the acquisition and development of power generation facilities. As of December 31, 2003, our total consolidated funded debt was $17.7 billion, our total consolidated assets were $27.3 billion and our stockholders’ equity was $4.6 billion. Whether we will be able to meet our debt service obligations and repay, extend, or refinance our outstanding indebtedness will be dependent primarily upon the operational performance of our power generation facilities and of our oil and gas properties, movements in electric and natural gas prices over time, and our marketing and risk management activities.
      This high level of indebtedness has important consequences, including:

			
 	• 	limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our growth strategy, or other purposes;	
 		
 	• 	limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service the debt;	
 		
 	• 	increasing our vulnerability to general adverse economic and industry conditions;	
 		
 	• 	limiting our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation;	
 		
 	• 	limiting our ability or increasing the costs to refinance indebtedness; and	
 		
 	• 	limiting our ability to enter into marketing, hedging, optimization and trading transactions by reducing the number of counterparties with whom we can transact as well as the volume of those transactions.	
      The operating and financial restrictions and covenants in certain of our existing debt agreements limit or prohibit our ability to:

			
 	• 	incur indebtedness;	
 		
 	• 	make prepayments on or purchase indebtedness in whole or in part;	
 		
 	• 	pay dividends;	
 		
 	• 	make investments;	
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 	• 	lease properties;	
 		
 	• 	engage in transactions with affiliates;	
 		
 	• 	create liens;	
 		
 	• 	consolidate or merge with another entity, or allow one of our subsidiaries to do so;	
 		
 	• 	sell assets; and	
 		
 	• 	acquire facilities or other businesses.	
      Also, if our ownership changes, the indentures governing certain of our senior notes may require us to make an offer to purchase those senior notes. We cannot assure that we will have the financial resources necessary to purchase those senior notes in this event. If we are unable to comply with the terms of our indentures and other debt agreements, or if we fail to generate sufficient cash flow from operations, or to refinance our debt as described below, we may be required to refinance all or a portion of our senior notes and other debt or to obtain additional financing. However, we may be unable to refinance or obtain additional financing because of our high levels of debt and the debt incurrence restrictions under our indentures and other debt agreements. If cash flow is insufficient and refinancing or additional financing is unavailable, we may be forced to default on our senior notes and other debt obligations. In the event of a default under the terms of any of our indebtedness, the debt holders may accelerate the maturity of our obligations, which could cause defaults under our other obligations.
      In addition, our unsecured senior notes and our other senior unsecured debt are effectively subordinated to all of our secured indebtedness to the extent of the value of the assets securing such indebtedness. Our secured indebtedness includes our $3.7 billion second-priority senior secured term loans and notes. The term loans and notes are secured by a second-priority lien on, among other things, substantially all of the assets owned directly by Calpine Corporation, including natural gas and power plant assets and the equity in all of the subsidiaries directly owned by Calpine Corporation. We also have a $500.0 million working capital facility that is secured by a first-priority lien on the same assets that secure our $3.7 billion second-priority senior secured term loans and notes. The noteholders’ recourse on our $800.0 million CCFC I institutional term loans and secured notes is limited to the assets and contracts associated with the seven natural gas-fired electric generating facilities owned by CCFC I and its subsidiaries (as adjusted for approved dispositions and acquisitions, such as the completed sale of Lost Pines Power Project and the pending acquisition of the Brazos Valley Power Plant). The lenders’ recourse on our $2.5 billion CalGen, formerly CCFC II secured revolving construction financing facility was limited to the assets and contracts associated with the 14 natural gas-fired electric generating facilities owned by subsidiaries of CalGen. The secured institutional term loans and secured notes issued by CalGen, that in March 2004 refinanced the $2.5 billion CalGen facility, are secured, through a combination of direct and indirect stock pledges and asset liens, by CalGen’s 14 power generating facilities and related assets located throughout the United States, and the lenders’ recourse is limited to such security. We have additional non-recourse project financings, secured in each case by the assets of the project being financed.
      We must refinance our debt maturing in 2004 and 2005. Since the latter half of 2001, there has been a significant contraction in the availability of capital for participants in the energy sector. This has been due to a range of factors, including uncertainty arising from the collapse of Enron Corp. and a perceived surplus of electric generating capacity. These factors have continued through 2003 and 2004, during which contracting credit markets and decreased spark spreads have adversely impacted our liquidity and earnings. While we have been able to access the capital and bank credit markets, it has been on significantly different terms than in the past. We recognize that terms of financing available to us in the future may not be attractive. To protect against this possibility and due to current market conditions, we scaled back our capital expenditure program to enable us to conserve our available capital resources. As discussed above, in March 2004 we refinanced our CCFC II construction facility that had been scheduled to mature in November 2004.
      We are subject to a holders’ put on December 26, 2004, which may require us to repurchase all or a portion of the aggregate principal amount of 4% Convertible Senior Notes Due 2006 (the “2006 Convertible
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Senior Notes”) then outstanding with our choice of cash, stock or a combination thereof. On February 9, 2004, we made a cash tender offer, which expired on March 9, 2004, for all of the outstanding 2006 Convertible Senior Notes at a price of par plus accrued interest. See “Business — Recent Developments” for more information regarding this tender offer. In addition, $276.0 million of our outstanding HIGH TIDES are scheduled to be remarketed no later than November 1, 2004, $360.0 million of our HIGH TIDES are scheduled to be remarketed no later than February 1, 2005, and $517.5 million of our HIGH TIDES are scheduled to be remarketed no later than August 1, 2005. In the event of a failed remarketing, the relevant HIGH TIDES will remain outstanding as convertible securities at a term rate equal to the treasury rate plus 6% per annum and with a term conversion price equal to 105% of the average closing price of our common stock for the five consecutive trading days after the applicable final failed remarketing termination date. We have $224.7 million in aggregate principal amount of 8 1/4% Senior Notes Due 2005 and $148.1 million aggregate principal amount of notes issued in connection with the monetization of a power contract with California Department of Water Resources (“DWR”) which will mature in 2005. In addition to the debt instruments discussed above, we have approximately $349.1 million and $133.9 million of miscellaneous debt and capital lease obligations that are maturing or for which scheduled principal payments will be made in 2004 and 2005, respectively.
      We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness when due, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, on or before maturity. While we believe we will be successful in refinancing all of our debt on or before maturity, we cannot assure you that we will be able to do so.
      We may be unable to secure additional financing in the future. Each power generation facility that we acquire or develop will require substantial capital investment. Our ability to arrange financing (including any extension or refinancing) and the cost of the financing are dependent upon numerous factors. Access to capital (including any extension or refinancing) for participants in the energy sector, including for us, has been significantly restricted since late 2001. Other factors include:

			
 	• 	general economic and capital market conditions;	
 		
 	• 	conditions in energy markets;	
 		
 	• 	regulatory developments;	
 		
 	• 	credit availability from banks or other lenders for us and our industry peers, as well as the economy in general;	
 		
 	• 	investor confidence in the industry and in us;	
 		
 	• 	the continued success of our current power generation facilities; and	
 		
 	• 	provisions of tax and securities laws that are conducive to raising capital.	
      We have financed our existing power generation facilities using a variety of leveraged financing structures, consisting of senior secured and unsecured indebtedness, construction financing, project financing, revolving credit facilities, term loans and lease obligations. As of December 31, 2003, we had approximately $17.7 billion of total consolidated funded debt, consisting of $4.3 billion of secured construction/ project financing, $0.2 billion of capital lease obligations, $9.4 billion in senior notes, $1.3 billion in convertible senior notes, $0.2 billion in preferred interests, $1.2 billion of trust preferred securities and $1.1 billion of secured and unsecured notes payable and borrowings under lines of credit. Each project financing and lease obligation is structured to be fully paid out of cash flow provided by the facility or facilities financed or leased. In the event of a default under a financing agreement which we do not cure, the lenders or lessors would generally have rights to the facility and any related assets. In the event of foreclosure after a default, we might not retain any interest in the facility. While we intend to utilize non-recourse or lease financing when appropriate, market conditions and other factors may prevent similar financing for future facilities. It is possible that we may be unable to obtain the financing required to develop our power generation facilities on terms satisfactory to us.
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      We have from time to time guaranteed certain obligations of our subsidiaries and other affiliates. Our lenders or lessors may also seek to have us guarantee the indebtedness for future facilities. Guarantees render our general corporate funds vulnerable in the event of a default by the facility or related subsidiary. Additionally, certain of our indentures may restrict our ability to guarantee future debt, which could adversely affect our ability to fund new facilities. Our indentures do not limit the ability of our subsidiaries to incur non-recourse or lease financing for investment in new facilities.
      Our credit ratings have been downgraded and could be downgraded further. On July 17, 2003, Standard & Poor’s placed our corporate rating (currently rated at B), our senior unsecured debt rating (currently at CCC+), our preferred stock rating (currently at CCC), our bank loan rating (currently at B), and our second priority senior secured debt rating (currently at B) under review for possible downgrade.
      On July 23, 2003, Fitch, Inc. downgraded our long-term senior unsecured debt rating from B+ to B- (with a stable outlook), our preferred stock rating from B- to CCC (with a stable outlook), and initiated coverage of our senior secured debt rating at BB- (with a stable outlook).
      On October 20, 2003, Moody’s downgraded the rating of our long-term senior unsecured debt from B1 to Caa1 (with a stable outlook) and our senior implied rating from Ba3 to B2 (with a stable outlook). The ratings on our senior unsecured debt, senior unsecured convertible debt and convertible preferred securities were also lowered (with a stable outlook) from B1 to Caa1, from B1 to Caa1 and from B2 to Caa3, respectively.
      Many other issuers in the power generation sector have also been downgraded by one or more of the ratings agencies during this period. Such downgrades can have a negative impact on our liquidity by reducing attractive financing opportunities and increasing the amount of collateral required by trading counterparties. We cannot assure you that Moody’s, Fitch and Standard & Poor’s will not further downgrade our credit ratings in the future. If our credit rating is downgraded, we could be required to, among other things, pay additional interest under our credit agreements, or provide additional guarantees, collateral, letters of credit or cash for credit support obligations, and it could increase our cost of capital, make our efforts to raise capital more difficult and have an adverse impact on our subsidiaries’ and our business, financial condition and results of operations.
      Our ability to repay our debt depends upon the performance of our subsidiaries. Almost all of our operations are conducted through our subsidiaries and other affiliates. As a result, we depend almost entirely upon their earnings and cash flow to service our indebtedness, including our ability to pay the interest and principal of our senior notes. The financing agreements of certain of our subsidiaries and other affiliates generally restrict their ability to pay dividends, make distributions, or otherwise transfer funds to us prior to the payment of their other obligations, including their outstanding debt, operating expenses, lease payments and reserves.
      Our subsidiaries and other affiliates are separate and distinct legal entities and, except in limited circumstances, have no obligation to pay any amounts due on our senior notes or our $500.0 million secured working capital credit facility and do not guarantee the payment of interest on or principal of such debt. The right of the holders of such debt to receive any assets of any of our subsidiaries or other affiliates upon our liquidation or reorganization will be subordinated to the claims of any subsidiaries’ or other affiliates’ creditors (including trade creditors and holders of debt issued by our subsidiaries or affiliates). As of December 31, 2003, our subsidiaries had $4.3 billion of secured construction/project financing. We may utilize project financing when appropriate in the future, and this financing will be effectively senior to our secured and unsecured debt.
      The senior note indentures and our senior secured credit facilities impose limitations on our ability and the ability of our subsidiaries to incur additional indebtedness. However, the senior note indentures do not limit the amount of construction/project financing that our subsidiaries may incur to finance the acquisition and development of new power generation facilities. The senior secured credit facilities do impose limitations on certain types of non-recourse financings.
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Operations
      Revenue may be reduced significantly upon expiration or termination of our power sales agreements. Some of the electricity we generate from our existing portfolio is sold under long-term power sales agreements that expire at various times. We also sell power under short to intermediate (1 to 5 year) contracts. When the terms of each of these various power sales agreements expire, it is possible that the price paid to us for the generation of electricity under subsequent arrangements may be reduced significantly.
      Use of derivatives can create volatility in earnings and may require significant cash collateral. During 2003 we recognized $26.4 million in mark-to-market losses on electric power and natural gas derivatives. Additionally, we recognized as a cumulative effect of a change in accounting principle, an after-tax gain of approximately $181.9 million from the adoption of Derivatives Implementation Group (“DIG”) Issue No. C20, “Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature” on October 1, 2003. Please see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Impact of Recent Accounting Pronouncements” for a detailed discussion of the accounting requirements relating to electric power and natural gas derivatives. In addition, Generally Accepted Accounting Principles (“GAAP”) treatment of derivatives in general, and particularly in our industry, continues to evolve. We may enter into other transactions in future periods that require us to mark various derivatives to market through earnings. The nature of the transactions that we enter into and the volatility of natural gas and electric power prices will determine the volatility of earnings that we may experience related to these transactions.
      As a result, in part, of the fallout from Enron’s declaration of bankruptcy on December 2, 2001, companies using derivatives have become more sensitive to the inherent risks of such transactions. Consequently, many companies, including us, are requiring cash collateral for certain derivative transactions in excess of what was previously required. As of December 31, 2003, we had $188.0 million in margin deposits with counterparties, net of deposits posted by counterparties with us, and had posted $14.5 million of letters of credit, compared to $25.2 million and $106.1 million, respectively, at December 31, 2002. Future cash collateral requirements may increase based on the extent of our involvement in derivative activities and movements in commodity prices and also based on our credit ratings and general perception of creditworthiness in this market.
      We may be unable to obtain an adequate supply of natural gas in the future. To date, our fuel acquisition strategy has included various combinations of our own gas reserves, gas prepayment contracts, short-, medium-and long-term supply contracts and gas hedging transactions. In our gas supply arrangements, we attempt to match the fuel cost with the fuel component included in the facility’s power sales agreements in order to minimize a project’s exposure to fuel price risk. In addition, the focus of CES is to manage the “spark spread” for our portfolio of generating plants — the spread between the cost of fuel and electricity revenues — and we actively enter into hedging transactions to lock in gas costs and spark spreads. We believe that there will be adequate supplies of natural gas available at reasonable prices for each of our facilities when current gas supply agreements expire. However, gas supplies may not be available for the full term of the facilities’ power sales agreements, and gas prices may increase significantly. Additionally, our credit ratings may inhibit our ability to procure gas supplies from third parties. If gas is not available, or if gas prices increase above the level that can be recovered in electricity prices, there could be a negative impact on our results of operations or financial condition.
      Our power project development and acquisition activities may not be successful. The development of power generation facilities is subject to substantial risks. In connection with the development of a power generation facility, we must generally obtain:

			
 	• 	necessary power generation equipment;	
 		
 	• 	governmental permits and approvals;	
 		
 	• 	fuel supply and transportation agreements;	
 		
 	• 	sufficient equity capital and debt financing;	
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 	• 	electrical transmission agreements;	
 		
 	• 	water supply and wastewater discharge agreements; and	
 		
 	• 	site agreements and construction contracts.	
      We may be unsuccessful in accomplishing any of these matters or in doing so on a timely basis. In addition, project development is subject to various environmental, engineering and construction risks relating to cost-overruns, delays and performance. Although we may attempt to minimize the financial risks in the development of a project by securing a favorable power sales agreement, obtaining all required governmental permits and approvals, and arranging adequate financing prior to the commencement of construction, the development of a power project may require us to expend significant sums for preliminary engineering, permitting, legal and other expenses before we can determine whether a project is feasible, economically attractive or financeable. If we are unable to complete the development of a facility, we might not be able to recover our investment in the project. The process for obtaining initial environmental, siting and other governmental permits and approvals is complicated and lengthy, often taking more than one year, and is subject to significant uncertainties. We cannot assure you that we will be successful in the development of power generation facilities in the future or that we will be able to successfully complete construction of our facilities currently in development, nor can we assure you that any of these facilities will be profitable or have value equal to the investment in them even if they do achieve commercial operation.
      We have grown substantially in recent years partly as a result of acquisitions of interests in power generation facilities, geothermal steam fields and natural gas reserves and facilities. The integration and consolidation of our acquisitions with our existing business requires substantial management, financial and other resources and, ultimately, our acquisitions may not be successfully integrated. In addition, as we transition from a development company to an operating company, we are not likely to continue to grow at historical rates due to reduced acquisition activities in the near future. Thus, we have also substantially curtailed our development efforts in response to our reduced liquidity. Although the domestic power industry is continuing to undergo consolidation and may offer acquisition opportunities at favorable prices, we believe that we are likely to confront significant competition for those opportunities and, due to the constriction in the availability of capital resources for acquisitions and other expansion, to the extent that any opportunities are identified, we may be unable to effect any acquisitions. Similarly, to the extent we seek to divest assets, we may not be able to do so at attractive prices.
      Our projects under construction may not commence operation as scheduled. The commencement of operation of a newly constructed power generation facility involves many risks, including:

			
 	• 	start-up problems;	
 		
 	• 	the breakdown or failure of equipment or processes; and	
 		
 	• 	performance below expected levels of output or efficiency.	
      New plants have no operating history and may employ recently developed and technologically complex equipment. Insurance (including a layer of insurance provided by a captive insurance subsidiary) is maintained to protect against certain risks, warranties are generally obtained for limited periods relating to the construction of each project and its equipment in varying degrees, and contractors and equipment suppliers are obligated to meet certain performance levels. The insurance, warranties or performance guarantees, however, may not be adequate to cover lost revenues or increased expenses. As a result, a project may be unable to fund principal and interest payments under its financing obligations and may operate at a loss. A default under such a financing obligation, unless cured, could result in our losing our interest in a power generation facility.
      In certain situations, power sales agreements entered into with a utility early in the development phase of a project may enable the utility to terminate the agreement, or to retain security posted as liquidated damages, if a project fails to achieve commercial operation or certain operating levels by specified dates or fails to make specified payments. In the event a termination right is exercised, the default provisions in a financing agreement may be triggered (rendering such debt immediately due and payable). As a result, the project may be rendered insolvent and we may lose our interest in the project. In recent years we have begun to rely more
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frequently on traditional project financing, so the risk of a financing agreement default linked to a default under a power sales agreement may come into play.
      Our power generation facilities may not operate as planned. Upon completion of our projects currently under construction, we will operate 97 of the 99 power plants in which we will have an interest. The continued operation of power generation facilities, including, upon completion of construction, the facilities owned directly by Calpine, involves many risks, including the breakdown or failure of power generation equipment, transmission lines, pipelines or other equipment or processes, and performance below expected levels of output or efficiency. Although from time to time our power generation facilities have experienced equipment breakdowns or failures, these breakdowns or failures have not had a significant effect on the operation of the facilities or on our results of operations. For calendar year 2003, our gas-fired and geothermal power generation facilities operated at an average availability of approximately 91% and 97%, respectively. Although our facilities contain various redundancies and back-up mechanisms, a breakdown or failure may prevent the affected facility from performing under applicable power sales agreements. In addition, although insurance is maintained to protect against operating risks, the proceeds of insurance may not be adequate to cover lost revenues or increased expenses. As a result, we could be unable to service principal and interest payments under our financing obligations which could result in losing our interest in one or more power generation facility.
      We cannot assure you that our estimates of oil and gas reserves are accurate. Estimates of proved oil and gas reserves and the future net cash flows attributable to those reserves are prepared by independent petroleum and geological engineers. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and cash flows attributable to such reserves, including factors beyond our control and that of our engineers. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to such reserves, is a function of the available data, assumptions regarding future oil and gas prices and expenditures for future development and exploitation activities, and of engineering and geological interpretation and judgment. Additionally, reserves and future cash flows may be subject to material downward or upward revisions, based upon production history, development and exploration activities and prices of oil and gas. Actual future production, revenue, taxes, development expenditures, operating expenses, underlying information, quantities of recoverable reserves and the value of cash flows from such reserves may vary significantly from the assumptions and underlying information set forth herein. In addition, different reserve engineers may make different estimates of reserves and cash flows based on the same available data.
      Our geothermal energy reserves may be inadequate for our operations. The development and operation of geothermal energy resources are subject to substantial risks and uncertainties similar to those experienced in the development of oil and gas resources. The successful exploitation of a geothermal energy resource ultimately depends upon:

			
 	• 	the heat content of the extractable steam or fluids;	
 		
 	• 	the geology of the reservoir;	
 		
 	• 	the total amount of recoverable reserves;	
 		
 	• 	operating expenses relating to the extraction of steam or fluids;	
 		
 	• 	price levels relating to the extraction of steam or fluids or power generated; and	
 		
 	• 	capital expenditure requirements relating primarily to the drilling of new wells.	
      In connection with each geothermal power plant, we estimate the productivity of the geothermal resource and the expected decline in productivity. The productivity of a geothermal resource may decline more than anticipated, resulting in insufficient reserves being available for sustained generation of the electrical power capacity desired. An incorrect estimate by us or an unexpected decline in productivity could, if material, adversely affect our results of operations or financial condition.
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      Geothermal reservoirs are highly complex. As a result, there exist numerous uncertainties in determining the extent of the reservoirs and the quantity and productivity of the steam reserves. Reservoir engineering is an inexact process of estimating underground accumulations of steam or fluids that cannot be measured in any precise way, and depends significantly on the quantity and accuracy of available data. As a result, the estimates of other reservoir specialists may differ materially from ours. Estimates of reserves are generally revised over time on the basis of the results of drilling, testing and production that occur after the original estimate was prepared. We cannot assure you that we will be able to successfully manage the development and operation of our geothermal reservoirs or that we will accurately estimate the quantity or productivity of our steam reserves.
Market
      We depend on our electricity and thermal energy customers. Our systems of power generation facilities rely on one or more power sales agreements with one or more utilities or other customers for a substantial portion of our revenue. In addition, sales of electricity to one customer during 2003, the DWR, comprised approximately 14% of our total revenue that year. The loss of significant power sales agreements with DWR or an adverse change in DWR’s ability to pay for power delivered under our contracts could have a negative effect on our results of operations. In addition, any material failure by any customer to fulfill its obligations under a power sales agreement could have a negative effect on the cash flow available to us and on our results of operations.
      Competition could adversely affect our performance. The power generation industry is characterized by intense competition, and we encounter competition from utilities, industrial companies and other independent power producers. In recent years, there has been increasing competition among generators in an effort to obtain power sales agreements, and this competition has contributed to a reduction in electricity prices in certain markets. In addition, many states are implementing or considering regulatory initiatives designed to increase competition in the domestic power industry. In California, the California Public Utilities Commission (“CPUC”) issued decisions that provide for direct access for all customers as of April 1, 1998; however, the CPUC suspended direct access in California effective September 20, 2001, due to the problems that arose in California’s newly deregulated markets. As a result, uncertainty exists as to the future course for direct access in California in the aftermath of the energy crisis in that state. In Texas, legislation phased in a deregulated power market, which commenced on January 1, 2001. This competition has put pressure on electric utilities to lower their costs, including the cost of purchased electricity, and increasing competition in the supply of electricity in the future will increase this pressure.
      Our international investments may face uncertainties. We have investments in oil and natural gas resources and power projects in Canada in development and in operation, an investment in an energy service business in the Netherlands, an investment in a power generation facility in development in Mexico, and an investment in a power generation facility in the U.K. that is in operation, and we may pursue additional international investments in the future subject to the limitations on our expansion plans due to current capital market constraints. International investments are subject to unique risks and uncertainties relating to the political, social and economic structures of the countries in which we invest. Risks specifically related to investments in non-United States projects may include:

			
 	• 	fluctuations in currency valuation;	
 		
 	• 	currency inconvertibility;	
 		
 	• 	expropriation and confiscatory taxation;	
 		
 	• 	increased regulation; and	
 		
 	• 	approval requirements and governmental policies limiting returns to foreign investors.	
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California Power Market
      The unresolved issues arising from the California power market, where 42 of our 99 power plants are located, could adversely affect our performance. The volatility in the California power market from mid-2000 through mid-2001 has produced significant unanticipated results.
      California Refund Proceeding. On August 2, 2000, the California Refund Proceeding was initiated by a complaint made at FERC by San Diego Gas & Electric Company under Section 206 of the Federal Power Act alleging, among other things, that the markets operated by the California Independent System Operator (“CAISO”) and the California Power Exchange (“CalPX”) were dysfunctional. In addition to commencing an inquiry regarding the market structure, FERC established a refund effective period of October 2, 2000, to June 19, 2001, for sales made into those markets.
      On December 12, 2002, the Administrative Law Judge issued a Certification of Proposed Finding on California Refund Liability (“December 12 Certification”) making an initial determination of refund liability. On March 26, 2003, FERC also issued an order adopting many of the ALJ’s findings set forth in the December 12 Certification (the “March 26 Order”). In addition, as a result of certain findings by the FERC staff concerning the unreliability or misreporting of certain reported indices for gas prices in California during the refund period, FERC ordered that the basis for calculating a party’s potential refund liability be modified by substituting a gas proxy price based upon gas prices in the producing areas plus the tariff transportation rate for the California gas price indices previously adopted in the refund proceeding. We believe, based on information that we have analyzed to date, that any refund liability that may be attributable to us will increase modestly, from approximately $6.2 million to at least $8.4 million, after taking the appropriate set-offs for outstanding receivables owed by the CalPX and CAISO to Calpine. We have fully reserved the amount of refund liability that by our current analysis would potentially be owed under the refund calculation clarification in the March 26 order. We note that, in March 2004, CAISO transmitted new tentative price data as part of the process of further refining the refund calculation. We have not completed our analysis of this new tentative price data (which has not been approved by FERC and is subject to change), but it is possible that the revised price data will result in an increase in the refund liability that may be attributable to us. The final determination of the refund liability is subject to further Commission proceedings to ascertain the allocation of payment obligations among the numerous buyers and sellers in the California markets. At this time, we are unable to predict the timing of the completion of these proceedings or the final refund liability. Thus, the impact on our business is uncertain at this time.
      FERC Investigation into Western Markets. On February 13, 2002, FERC initiated an investigation of potential manipulation of electric and natural gas prices in the western United States. This investigation was initiated as a result of allegations that Enron and others used their market position to distort electric and natural gas markets in the West. The scope of the investigation is to consider whether, as a result of any manipulation in the short-term markets for electric energy or natural gas or other undue influence on the wholesale markets by any party since January 1, 2000, the rates of the long-term contracts subsequently entered into in the West are potentially unjust and unreasonable. FERC has stated that it may use the information gathered in connection with the investigation to determine how to proceed on any existing or future complaint brought under Section 206 of the Federal Power Act involving long-term power contracts entered into in the West since January 1, 2000, or to initiate a Federal Power Act Section 206 or Natural Gas Act Section 5 proceeding on its own initiative. On August 13, 2002, the FERC staff issued the Initial Report on Company-Specific Separate Proceedings and Generic Reevaluations; Published Natural Gas Price Data; and Enron Trading Strategies (the “Initial Report”) summarizing its initial findings in this investigation. There were no findings or allegations of wrongdoing by Calpine set forth or described in the Initial Report. On March 26, 2003, the FERC staff issued a final report in this investigation (the “Final Report”). The FERC staff recommended that FERC issue a show cause order to a number of companies, including Calpine, regarding certain power scheduling practices that may have been be in violation of the CAISO’s or CalPX’s tariff. The Final Report also recommended that FERC modify the basis for determining potential liability in the California Refund Proceeding discussed above. Calpine believes that it did not violate these tariffs and that, to the extent that such a finding could be made, any potential liability would not be material.
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      Also, on June 25, 2003, FERC issued a number of orders associated with these investigations, including the issuance of two show cause orders to certain industry participants. FERC did not subject Calpine to either of the show cause orders. FERC also issued an order directing the FERC Office of Markets and Investigations to investigate further whether market participants who bid a price in excess of $250 per megawatt hour into markets operated by either the CAISO or the CalPX during the period of May 1, 2000, to October 2, 2000, may have violated CAISO and CalPX tariff prohibitions. No individual market participant was identified. We believe that we did not violate the CAISO and CalPX tariff prohibitions referred to by FERC in this order; however, we are unable to predict at this time the final outcome of this proceeding or its impact on Calpine.
      CPUC Proceeding Regarding QF Contract Pricing for Past Periods. 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 by determining the short run avoided cost (“SRAC”) energy price formula. In mid-2000 our QF facilities elected the option set forth in Section 390 of the California Public Utility Code, which provides QFs the right to elect to receive energy payments based on the CalPX market clearing price instead of the price determined by SRAC. Having elected such option, we were paid based upon the CalPX zonal day-ahead clearing price (“CalPX Price”) from summer 2000 until January 19, 2001, when the CalPX ceased operating a day-ahead market. The CPUC has conducted proceedings (R.99-11-022) to determine whether the CalPX Price was the appropriate price for the energy component upon which to base payments to QFs which had elected the CalPX-based pricing option. The CPUC at one point issued a proposed decision to the effect that the CalPX Price was the appropriate price for energy payments under the California Public Utility Code but tabled it, and 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 CalPX Price was the appropriate price for energy payments but there can be no assurance that this will be the outcome of the CPUC proceedings.
      Geysers Reliability Must Run Section 206 Proceeding. California Independent System Operator, California Electricity Oversight Board, Public Utilities Commission of the State of California, Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison (collectively referred to as the “Buyers Coalition”) filed a complaint on November 2, 2001 at the FERC requesting the commencement of a Federal Power Act Section 206 proceeding to challenge one component of a number of separate settlements previously reached on the terms and conditions of “reliability must run” contracts (“RMR Contracts”) with certain generation owners, including Geysers Power Company, LLC, which settlements were also previously approved by the FERC. RMR Contracts require the owner of the specific generation unit to provide energy and ancillary services when called upon to do so by the ISO to meet local transmission reliability needs or to manage transmission constraints. The Buyers Coalition has asked FERC to find that the availability payments under these RMR Contracts are not just and reasonable. Geysers Power Company, LLC filed an answer to the complaint in November 2001. To date, FERC has not established a Section 206 proceeding. The outcome of this litigation and the impact on our business cannot be determined at the present time.
Government Regulation
      We are subject to complex government regulation which could adversely affect our operations. Our activities are subject to complex and stringent energy, environmental and other governmental laws and regulations. The construction and operation of power generation facilities and oil and gas exploration and production require numerous permits, approvals and certificates from appropriate foreign, federal, state and local governmental agencies, as well as compliance with environmental protection legislation and other regulations. While we believe that we have obtained the requisite approvals and permits for our existing operations and that our business is operated in accordance with applicable laws, we remain subject to a varied and complex body of laws and regulations that both public officials and private individuals may seek to enforce. Existing laws and regulations may be revised or reinterpreted, or new laws and regulations may become applicable to us that may have a negative effect on our business and results of operations. We may be unable to obtain all necessary licenses, permits, approvals and certificates for proposed projects, and completed facilities may not comply with all applicable permit conditions, statutes or regulations. In addition, regulatory
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compliance for the construction of new facilities is a costly and time-consuming process. Intricate and changing environmental and other regulatory requirements may necessitate substantial expenditures to obtain permits. If a project is unable to function as planned due to changing requirements or local opposition, it may create expensive delays or significant loss of value in a project.
      Environmental regulations have had and will continue to have an impact on our cost of doing business and our investment decisions. For example, the existing market-based cap-and-trade emissions allowance system in Texas requires operators to either reduce nitrogen oxide (“NOx”) emissions or purchase additional NOx allowances in the marketplace. Rather than purchase additional allowances, we have chosen to install additional NOx emission controls as part of a $31 million steam capacity upgrade at our Texas City facility and to retrofit our Clear Lake, Texas facility with similar technology at a cost of approximately $17 million. These new emission control systems will allow us to meet our thermal customers’ needs while reducing the need to purchase allowances for our facilities in Texas.
      Our operations are potentially subject to the provisions of various energy laws and regulations, including PURPA, PUHCA, the FPA, and state and local regulations. PUHCA provides for the extensive regulation of public utility holding companies and their subsidiaries. PURPA provides QFs (as defined under PURPA) and owners of QFs exemptions from certain federal and state regulations, including rate and financial regulations. The FPA regulates wholesale sales of power, as well as electric transmission in interstate commerce.
      Under current federal law, we are not subject to regulation as a holding company under PUHCA, and will not be subject to such regulation as long as the plants in which we have an interest (1) qualify as QFs, (2) are subject to another exemption or waiver or (3) qualify as an EWG under the Energy Policy Act of 1992. In order to be a QF, a facility must be not more than 50% owned by one or more electric utility companies or electric utility holding companies. Generally, any geothermal power facility which produces up to 80 megawatts of electricity and meets PURPA ownership requirements is considered a QF. In addition, a QF that is a cogeneration facility, such as the plants in which we currently have interests, must produce electricity as well as thermal energy for use in an industrial or commercial process in specified minimum proportions. The QF also must meet certain minimum energy efficiency standards.
      If any of the plants in which we have an interest lose their QF status or if amendments to PURPA are enacted that substantially reduce the benefits currently afforded QFs, we could become a public utility holding company, which could subject us to significant federal, state and local regulation, including rate regulation. If we become a holding company, which could be deemed to occur prospectively or retroactively to the date that any of our plants loses its QF status, all of our other power plants could lose QF status because, under FERC regulations, a QF cannot be owned by an electric utility or electric utility holding company. In addition, a loss of QF status could, depending on the particular power purchase agreement, allow the power purchaser to cease taking and paying for electricity or to seek refunds of past amounts paid and thus could cause the loss of some or all contract revenues or otherwise impair the value of a project. If a power purchaser were to cease taking and paying for electricity or seek to obtain refunds of past amounts paid, there can be no assurance that the costs incurred in connection with the project could be recovered through sales to other purchasers. Such events could adversely affect our ability to service our indebtedness. See “Item 1 — Business — Government Regulation — Federal Energy Regulation — Federal Power Act Regulation.” A cogeneration QF could lose its QF status if it does not continue to meet FERC’s operating and efficiency requirements. Such possible loss of QF status could occur, for example, if the QF’s steam host, typically an industrial facility, fails for operating, permit or economic reasons to use sufficient quantities of the QF’s steam output. We cannot assure you that any of our steam hosts will continue to take and use sufficient quantities of their respective QF’s steam output.
      Currently, Congress is considering proposed legislation that would repeal PUHCA, and would amend PURPA by limiting its mandatory purchase obligation to existing contracts in those regions of the country that are found to have competitive energy markets. In light of the circumstances in California, the PG&E bankruptcy and the Enron Corp. (“Enron”) bankruptcy, among other events in recent years, there are a number of federal legislative and regulatory initiatives that could result in changes in how the energy markets are regulated. We do not know whether this legislation or regulatory initiatives will be adopted or, if adopted,
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what form they may take. We cannot provide assurance that any legislation or regulation ultimately adopted would not adversely affect our existing domestic projects.
      In addition, many states are implementing or considering regulatory initiatives designed to increase competition in the domestic power generation industry and increase access to electric utilities’ transmission and distribution systems for independent power producers and electricity consumers. However, in light of the circumstances in the California power markets and the bankruptcies of both PG&E and Enron, the pace and direction of further deregulation at the state level in many jurisdictions is uncertain. See “California Power Market” risk factors.
Other Risk Factors
      We depend on our management and employees. Our success is largely dependent on the skills, experience and efforts of our people. While we believe that we have excellent depth throughout all levels of management and in all key skill levels of our employees, the loss of the services of one or more members of our senior management or of numerous employees with critical skills could have a negative effect on our business, financial conditions and results of operations and future growth.
      Seismic disturbances could damage our projects. Areas where we operate and are developing many of our geothermal and gas-fired projects are subject to frequent low-level seismic disturbances. More significant seismic disturbances are possible. Our existing power generation facilities are built to withstand relatively significant levels of seismic disturbances, and we believe we maintain adequate insurance protection. However, earthquake, property damage or business interruption insurance may be inadequate to cover all potential losses sustained in the event of serious seismic disturbances. Additionally, insurance for these risks may not continue to be available to us on commercially reasonable terms.
      Our results are subject to quarterly and seasonal fluctuations. Our quarterly operating results have fluctuated in the past and may continue to do so in the future as a result of a number of factors, including without limitation:

			
 	• 	seasonal variations in energy prices;	
 		
 	• 	variations in levels of production;	
 		
 	• 	the timing and size of acquisitions; and	
 		
 	• 	the completion of development projects.	
      Additionally, because we receive the majority of capacity payments under some of our power sales agreements during the months of May through October, our revenues and results of operations are, to some extent, seasonal.
      The ultimate outcome of the legal proceedings relating to our activities cannot be predicted. Any adverse determination could have a material adverse effect on our financial condition and results of operations.
      We are party to various litigation matters arising out of the normal course of business, the more significant of which are summarized in “Item 3. Legal Proceedings.” These matters include securities class action lawsuits, such as Hawaii Structural Ironworkers Pension Fund v. Calpine et al, which relates to our April 2002 equity offering and also named the underwriters of that offering as defendants. The ultimate outcome of each of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome be reasonably estimated presently for every case. The liability we may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result, these matters may potentially be material to our financial condition and results of operations.
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      The price of our common stock is volatile. The market price for our common stock has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future. These factors include without limitation:

			
 	• 	general conditions in our industry, the power markets in which we participate, or the worldwide economy;	
 		
 	• 	announcements of developments related to our business or sector;	
 		
 	• 	fluctuations in our results of operations;	
 		
 	• 	our debt to equity ratios and other leverage ratios;	
 		
 	• 	effects of significant events relating to the energy sector in general;	
 		
 	• 	sales of substantial amounts of our securities into the marketplace;	
 		
 	• 	an outbreak of war or hostilities;	
 		
 	• 	a shortfall in revenues or earnings compared to securities analysts’ expectations;	
 		
 	• 	changes in analysts’ recommendations or projections; and	
 		
 	• 	announcements of new acquisitions or development projects by us.	
      The market price of our common stock may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
EMPLOYEES
      As of December 31, 2003, we employed 3,418 people, of whom 62 (domestic and international) were represented by collective bargaining agreements. We have never experienced a work stoppage or strike, and we consider relations with our employees to be good. Although we are an asset-based company, we are successful because of the talents, intelligence, resourcefulness and energy level of our employees. As discussed in our strategy section, our employee knowledge base enables us to optimize the value and profitability of our electricity production and prudently manage the risks inherent in our business. 
SUMMARY OF KEY ACTIVITIES
Finance
      New Issuances by Calpine Corporation and certain of its wholly owned subsidiaries:

Date		Amount		Description	
					
2/13/03	 	Cdn $153.3 million (US $100.9 million)	 	Closed a secondary offering for the Calpine Power Income Fund	
6/13/03	 	$802.2 million	 	Power Contract Financing, L.L.C, completed an offering of $339.9 million aggregate principal amount of 5.2% Senior Secured Notes Due 2006 and $462.3 million aggregate principal amount of 6.256% Senior Secured Notes Due 2010	
7/16/03	 	$3.3 billion	 	Completed an offering of a $750.0 million floating rate term loan, $500.0 of million Second Priority Senior Secured Floating Rate Notes Due 2007, $1.15 billion aggregate principal amount of 8.5% Second Priority Senior Secured Notes Due 2010, and $900.0 million aggregate principal amount of 8.75% Second Priority Senior Secured Notes Due 2013	
7/16/03	 	$500.0 million	 	Completed a $300.0 million two-year working capital revolver and a $200.0 million four-year term loan	
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Date		Amount		Description	
					
7/16/03	 	$200.0 million	 	Entered into a cash collateralized letter of credit facility for up to $200.0 million	
8/14/03	 	$750.0 million	 	CCFC I and CCFC Finance Corp. completed an offering of $385.0 million aggregate principal amount of First Priority Floating Rate Secured Institutional Term Loans Due 2009, as well as $365.0 million aggregate principal amount of Second Priority Secured Floating Rate Notes Due 2011	
8/25/03	 	$230.0 million	 	Completed non-recourse project financing for Riverside Energy Center	
9/25/03	 	$50.0 million	 	CCFC I and CCFC Finance Corp. completed an offering of an additional $50.0 million aggregate principal amount of Second Priority Senior Secured Floating Rate Notes Due 2011	
9/30/03	 	$301.7 million	 	Gilroy Energy Center, LLC, completed an offering of 4% Senior Secured Notes Due 2011.	
10/6/03	 	$120.0 million	 	Calpine Power Income Fund obtained an extendible revolving term credit facility	
10/15/03	 	Cdn $184.5 million (US $139.4 million)	 	Completed initial public offering of Calpine Natural Gas Trust	
11/7/03	 	$140.0 million	 	Completed a non-recourse term loan for Blue Spruce Energy Center	
11/17/03	 	$650.0 million	 	Completed offering of 4 3/4% Contingent Convertible Senior Notes Due 2023	
11/18/03	 	$400.0 million	 	Completed offering of 9 7/8% Second Priority Senior Secured Notes Offering Due 2011	
      Repurchases/ Repayments:

Date		Amount		Description	
					
7/03	 	$949.6 million	 	Repaid outstanding balance under our $1.0 billion secured term credit facility	
7/03	 	$555.5 million	 	Repaid outstanding balance on certain of our revolving credit facilities	
7/03	 	$50.0 million	 	Repaid the outstanding balance on our California peaker financing	
8/03	 	$880.1 million	 	Repaid the outstanding balance on our CCFC I project financing	
6/03-12/03	 	$1.9 billion	 	Repurchased various debt securities	
9/03-10/03	 	$182.5 million	 	Exchanged debt securities and HIGH TIDES for common stock in privately negotiated transactions	
      Other:

Date		Description	
			
1/7/03	 	Entered into renegotiated power purchase and sales agreements with PG&E and DWR	
1/21/03	 	Entered into a 16-year power purchase and sale agreement with Long Island Power Authority	
1/27/03	 	Entered into a 3-year power purchase agreement with Nevada Power Company, a subsidiary of Sierra Pacific Resources	
2/26/03	 	Federal Energy Regulatory Commission approved a Reliability Must-Run Settlement Agreement	
3/17/03	 	Entered into a long-term power sales agreement with Southern California Edison	
4/29/03	 	Completed sale of a preferred interest in a subsidiary that leases and operates King City Power Plant for $82.0 million	
5/9/03	 	Entered into a two-year agreement to provide up to 300 megawatts of power to Brazos Electric Power Cooperative, Inc.	
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Date		Description	
			
5/12/03	 	Completed the contract monetization and restructuring of our interest in Acadia Energy Center	
5/15/03	 	Completed $82.8 million monetization of an existing power sales agreement with the Bonneville Power Administration	
6/2/03	 	Standard & Poor’s downgraded the corporate credit rating to B from BB	
7/17/03	 	Standard & Poor’s placed our corporate rating (currently rated at B), senior unsecured debt rating (currently at CCC+), preferred stock rating (currently at CCC), bank loan rating (currently at B) and second priority senior secured debt rating (currently at B) under review for possible downgrade	
7/23/03	 	Fitch, Inc. downgraded the rating on long-term senior unsecured debt from B+ to B- (with a stable outlook) and preferred stock rating from B- to CCC (with a stable outlook), and initiated coverage of our senior secured debt rating at BB- (with a stable outlook)	
8/7/03	 	Bankruptcy court approved final settlement with Enron resulting in our recording other revenue of $67.3 million	
9/3/03	 	Completed sale of a 70-percent interest in Auburndale Power Plant to Pomifer Power Funding, LLC, a subsidiary of ArcLight Energy Partners Fund 1, L.P., for $88.0 million	
9/30/03	 	Received funding on a third party preferred equity investment in GEC Holdings, LLC	
10/20/03	 	Moody’s downgraded the rating on long-term senior unsecured debt from B1 to Caa1 (with a stable outlook) and senior implied rating from Ba3 to B2 (with a stable outlook). The ratings on senior unsecured debt, senior unsecured convertible debt and convertible preferred securities were also lowered (with a stable outlook) from B1 to Caa1, from B1 to Caa1 and from B2 to Caa3, respectively	
10/23/03	 	Entered into a 2-year agreement to supply electricity to Reliant Energy Electric Solutions, LLC	
11/26/03	 	Completed sale of unconsolidated investment in Gordonsville Power Plant for $36.2 million cash payment	
12/2/03	 	Entered into a one-year agreement to provide up to 155 megawatts of power to Utility Choice Electric	
12/4/03	 	Completed monetization of PG&E note receivable for $133.4 million	
Power Plant Development and Construction

Date		Project		Description	
					
 	1/03	 	 	Goose Haven Energy Center	 	Commercial Operation	
 	1/03	 	 	Lambie Energy Center	 	Commercial Operation	
 	1/03	 	 	Creed Energy Center	 	Commercial Operation	
 	3/03	 	 	Los Esteros Energy Center	 	Commercial Operation	
 	3/03	 	 	Wolfskill Energy Center	 	Commercial Operation	
 	4/03	 	 	Blue Spruce Energy Center	 	Commercial Operation	
 	4/03	 	 	Calgary Energy Center	 	Commercial Operation	
 	5/03	 	 	Riverview Energy Center	 	Commercial Operation	
 	6/03	 	 	Carville Energy Center	 	Commercial Operation	
 	6/03	 	 	Santa Rosa Energy Center	 	Commercial Operation	
 	6/03	 	 	Oneta Energy Center, Phase II	 	Commercial Operation	
 	6/03	 	 	Deer Park Energy Center, Phases I and IA	 	Commercial Operation	
 	6/03	 	 	Decatur Energy Center, Phase I	 	Commercial Operation	
 	6/03	 	 	Morgan Energy Center, Units 2 and 3	 	Commercial Operation	
 	6/03	 	 	Zion Energy Center Expansion, Unit 3	 	Commercial Operation	
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Turbine Restructuring Program

Date of		Reduction in Capital			
Announcement		Spending		Earnings Effect	
					
 	2/11/03	 	 	$3.4 billion	 	Pre-tax charge of approximately $207.4 million in the quarter ended December 31, 2002	

	Annual Meeting of Stockholders on May 28, 2003	

	Stockholders’ Voting Results	

			
 	• 	Election of Jeffrey E. Garten, George J. Stathakis and John O. Wilson as Class I Directors for a three-year term expiring 2006	
 		
 	• 	Proposal that the Board of Directors be requested to redeem the stockholders right plan unless such plan is approved by a majority vote of the stockholders to be held as soon as may be practicable — approved	
 		
 	• 	Proposal that the Board of Directors take the necessary steps to declassify the Board of Directors for the purpose of establishing elections for directors — approved	
 		
 	• 	Ratification of the appointment of PricewaterhouseCoopers LLP as independent accountants for the fiscal year ending December 31, 2003	
      The three-year terms of Class II and Class III Directors continued after the Annual Meeting and will expire in 2004 and 2005, respectively. The Class II Directors are Ann B. Curtis, Kenneth T. Derr and Gerald Greenwald. The Class III Directors are Susan C. Schwab, Susan Wang and Peter Cartwright.
      See Item 1. “Business — Recent Developments” for 2004 developments.

Item 2.	Properties	
      Our principal executive office located in San Jose, California is held under leases that expire through 2008, and we also lease offices, with leases expiring through 2013, in Dublin and Folsom, California; Houston and Pasadena, Texas; Boston, Massachusetts; Washington, D.C.; Calgary, Alberta; and Jupiter, Florida. We hold additional leases for other satellite offices.
      We either lease or own the land upon which our power-generating facilities are built. We believe that our properties are adequate for our current operations. A description of our power-generating facilities is included under Item 1. “Business.”
      We have leasehold interests in 107 leases comprising 21,888 acres of federal, state and private geothermal resource lands in The Geysers area in northern California. In the Glass Mountain and Medicine Lake areas in northern California, we hold leasehold interests in 41 leases comprising approximately 46,519 acres of federal geothermal resource lands.
      In general, under these leases, we have the exclusive right to drill for, produce and sell geothermal resources from these properties and the right to use the surface for all related purposes. Each lease requires the payment of annual rent until commercial quantities of geothermal resources are established. After such time, the leases require the payment of minimum advance royalties or other payments until production commences, at which time production royalties are payable. Such royalties and other payments are payable to landowners, state and federal agencies and others, and vary widely as to the particular lease. The leases are generally for initial terms varying from 10 to 20 years or for so long as geothermal resources are produced and sold. Certain of the leases contain drilling or other exploratory work requirements. In certain cases, if a requirement is not fulfilled, the lease may be terminated and in other cases additional payments may be required. We believe that our leases are valid and that we have complied with all the requirements and conditions material to the continued effectiveness of the leases. A number of our leases for undeveloped properties may expire in any given year. Before leases expire, we perform geological evaluations in an effort to determine the resource potential of the underlying properties. We can make no assurance that we will decide to renew any expiring leases.
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      Based on independent petroleum engineering reports of Netherland, Sewell & Associates Inc., and Gilbert Laustsen Jung Associates Ltd., as of December 31, 2003, utilizing year end product prices and costs held constant, our proved oil, natural gas, and natural gas liquids (“NGLs”) reserve volumes, in millions of barrels (“MMBbls”) and billions of cubic feet (“Bcf”) are as follows: 

			
		As of December 31, 2003	
			
		Oil and NGLs			
		(MMBbls)		Gas (Bcf)	
					
United States	 	 	 	 	 	 	 	 	
Proved developed	 	 	1.9	 	 	 	369	 	
Proved undeveloped	 	 	1.5	 	 	 	186	 	
 	 	 		 	 	 		 	
 	Total	 	 	3.4	 	 	 	555	 	
 	 	 		 	 	 		 	
Canada	 	 	 	 	 	 	 	 	
Proved developed	 	 	6.8	 	 	 	176	 	
Proved undeveloped	 	 	0.7	 	 	 	25	 	
 	 	 		 	 	 		 	
 	Total	 	 	7.5	 	 	 	201	 	
 	 	 		 	 	 		 	
Consolidated	 	 	 	 	 	 	 	 	
Proved developed	 	 	8.7	 	 	 	545	 	
Proved undeveloped	 	 	2.2	 	 	 	211	 	
 	 	 		 	 	 		 	
 	Total	 	 	10.9	(1)	 	 	756	 	

		
(1) 	10.9 MMBbls of oil is equivalent to 65.4 Bcf of gas using a conversion factor of six thousand cubic feet of gas to one barrel of crude oil and natural gas liquids. On an equivalent basis, proved reserves at year-end totaled 821 Bcfe.	
      Proved oil and natural gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Estimated future development costs associated with proved producing and non-producing plus proved undeveloped reserves as of December 31, 2003, totaled approximately $222 million.
      The following table sets forth our interest in undeveloped acreage, developed acreage and productive wells in which we own a working interest as of December 31, 2003. Gross represents the total number of acres or wells in which we own a working interest. Net represents our proportionate working interest resulting from our ownership in the gross acres or wells. Productive wells are wells in which we have a working interest and are capable of producing oil or natural gas. 

							
		Undeveloped Acres		Developed Acres		Productive Wells	
							
		Gross		Net		Gross		Net		Gross		Net	
													
United States	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Arkansas	 	 	160	 	 	 	80	 	 	 	3,521	 	 	 	1,399	 	 	 	32	 	 	 	15	 	
California	 	 	17,999	 	 	 	17,482	 	 	 	48,334	 	 	 	37,617	 	 	 	278	 	 	 	231	 	
Colorado	 	 	9,704	 	 	 	9,302	 	 	 	10,854	 	 	 	5,944	 	 	 	83	 	 	 	82	 	
Kansas	 	 	118,488	 	 	 	107,933	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Louisiana	 	 	1,421	 	 	 	507	 	 	 	10,356	 	 	 	1,955	 	 	 	27	 	 	 	5	 	
Mississippi	 	 	4,257	 	 	 	857	 	 	 	12,653	 	 	 	3,102	 	 	 	13	 	 	 	3	 	
Missouri	 	 	35,008	 	 	 	31,651	 	 	 	43	 	 	 	43	 	 	 	—	 	 	 	—	 	
Montana	 	 	43,290	 	 	 	30,259	 	 	 	960	 	 	 	240	 	 	 	2	 	 	 	1	 	
New Mexico	 	 	—	 	 	 	—	 	 	 	13,017	 	 	 	9,924	 	 	 	90	 	 	 	64	 	
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		Undeveloped Acres		Developed Acres		Productive Wells	
							
		Gross		Net		Gross		Net		Gross		Net	
													
Offshore	 	 	2,625	 	 	 	2,625	 	 	 	21,260	 	 	 	16,141	 	 	 	34	 	 	 	24	 	
Oklahoma	 	 	492	 	 	 	92	 	 	 	13,007	 	 	 	4,475	 	 	 	43	 	 	 	12	 	
Texas	 	 	54,081	 	 	 	26,378	 	 	 	96,678	 	 	 	48,524	 	 	 	601	 	 	 	299	 	
Wyoming	 	 	50,750	 	 	 	39,649	 	 	 	600	 	 	 	2	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total United States	 	 	338,275	 	 	 	266,815	 	 	 	231,283	 	 	 	129,366	 	 	 	1,203	 	 	 	736	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Canada	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Alberta	 	 	834,332	 	 	 	567,958	 	 	 	847,269	 	 	 	375,195	 	 	 	1,851	 	 	 	459	 	
British Columbia	 	 	298,955	 	 	 	69,520	 	 	 	16,826	 	 	 	4,322	 	 	 	—	 	 	 	—	 	
Saskatchewan	 	 	158	 	 	 	13	 	 	 	394	 	 	 	70	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total Canada	 	 	1,133,445	 	 	 	637,491	 	 	 	864,489	 	 	 	379,587	 	 	 	1,851	 	 	 	459	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Consolidated Total	 	 	1,471,720	 	 	 	904,306	 	 	 	1,095,772	 	 	 	508,953	 	 	 	3,054	 	 	 	1,195	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      The following table sets forth the number of gross exploratory and gross development wells drilled in which we participated during the last three fiscal years. The number of wells drilled refers to the number of wells commenced at any time during the respective fiscal year. Productive wells are either producing wells or wells capable of commercial production. At December 31, 2003, we were in the process of drilling 2 wells (net 2) in the US and 3 wells (net 1) in Canada. 

					
		Exploratory		Development	
					
		Productive		Dry		Total		Productive		Dry		Total	
													
2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
United States	 	 	17	 	 	 	8	 	 	 	25	 	 	 	20	 	 	 	5	 	 	 	25	 	
Canada	 	 	1	 	 	 	2	 	 	 	3	 	 	 	158	 	 	 	3	 	 	 	161	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	18	 	 	 	10	 	 	 	28	 	 	 	178	 	 	 	8	 	 	 	186	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
2002	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
United States	 	 	—	 	 	 	6	 	 	 	6	 	 	 	41	 	 	 	4	 	 	 	45	 	
Canada	 	 	1	 	 	 	1	 	 	 	2	 	 	 	87	 	 	 	8	 	 	 	95	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	1	 	 	 	7	 	 	 	8	 	 	 	128	 	 	 	12	 	 	 	140	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
2001	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
United States	 	 	5	 	 	 	2	 	 	 	7	 	 	 	66	 	 	 	12	 	 	 	78	 	
Canada	 	 	2	 	 	 	—	 	 	 	2	 	 	 	186	 	 	 	26	 	 	 	212	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	7	 	 	 	2	 	 	 	9	 	 	 	252	 	 	 	38	 	 	 	290	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
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      The following table sets forth, for each of the last three fiscal years, the number of net exploratory and net development wells, drilled by us based on our proportionate working interest in such wells: 

					
		Exploratory		Development	
					
		Productive		Dry		Total		Productive		Dry		Total	
													
2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
United States	 	 	14.0	 	 	 	4.5	 	 	 	18.5	 	 	 	18.5	 	 	 	3.4	 	 	 	21.9	 	
Canada	 	 	0.3	 	 	 	0.7	 	 	 	1.0	 	 	 	42.5	 	 	 	1.0	 	 	 	43.5	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	14.3	 	 	 	5.2	 	 	 	19.5	 	 	 	61.0	 	 	 	4.4	 	 	 	65.4	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
2002	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
United States	 	 	—	 	 	 	3.9	 	 	 	3.9	 	 	 	36.4	 	 	 	2.8	 	 	 	39.2	 	
Canada	 	 	0.5	 	 	 	0.5	 	 	 	1.0	 	 	 	38.9	 	 	 	4.2	 	 	 	43.1	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	0.5	 	 	 	4.4	 	 	 	4.9	 	 	 	75.3	 	 	 	7.0	 	 	 	82.3	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
2001	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
United States	 	 	2.2	 	 	 	1.0	 	 	 	3.2	 	 	 	58.9	 	 	 	7.4	 	 	 	66.3	 	
Canada	 	 	1.6	 	 	 	—	 	 	 	1.6	 	 	 	97.2	 	 	 	19.7	 	 	 	116.9	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	3.8	 	 	 	1.0	 	 	 	4.8	 	 	 	156.1	 	 	 	27.1	 	 	 	183.2	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      The following table shows our annual average wellhead sales prices and average production costs (excluding production taxes). The average sales prices with hedges include realized gains and losses for derivative contracts we enter into with non-affiliates to manage price risk related to our sales volumes. 

					
		With Hedges		Without Hedges	
					
		2003		2002		2001		2003		2002		2001	
													
UNITED STATES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Sales price	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Natural gas (per Mcf)(1)	 	$	5.30	 	 	$	3.14	 	 	$	4.90	 	 	$	5.30	 	 	$	3.06	 	 	$	4.81	 	
 	 	Oil and condensate (per barrel)	 	$	29.64	 	 	$	21.58	 	 	$	23.30	 	 	$	29.64	 	 	$	21.58	 	 	$	23.30	 	
 	 	Natural gas liquids (per barrel)	 	$	18.42	 	 	$	13.35	 	 	$	15.67	 	 	$	18.42	 	 	$	13.35	 	 	$	15.67	 	
 	Production cost (per Mcfe)(2)	 	$	0.61	 	 	$	0.50	 	 	$	0.53	 	 	$	0.61	 	 	$	0.50	 	 	$	0.53	 	
 	
CANADA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Sales price	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Natural gas (per Mcf)	 	$	4.81	 	 	$	2.44	 	 	$	3.17	 	 	$	4.81	 	 	$	2.44	 	 	$	3.25	 	
 	 	Oil and condensate (per barrel)	 	$	26.01	 	 	$	21.95	 	 	$	20.49	 	 	$	28.72	 	 	$	22.29	 	 	$	20.16	 	
 	 	Natural gas liquids (per barrel)	 	$	26.31	 	 	$	18.48	 	 	$	20.96	 	 	$	26.31	 	 	$	18.48	 	 	$	20.96	 	
 	Production cost (per Mcfe)	 	$	0.96	 	 	$	0.60	 	 	$	0.53	 	 	$	0.96	 	 	$	0.60	 	 	$	0.53	 	
 	
TOTAL	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Sales price	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Natural gas (per Mcf)	 	$	5.13	 	 	$	2.76	 	 	$	3.76	 	 	$	5.13	 	 	$	2.72	 	 	$	3.78	 	
 	 	Oil and condensate (per barrel)	 	$	27.46	 	 	$	21.90	 	 	$	20.69	 	 	$	29.08	 	 	$	22.20	 	 	$	20.38	 	
 	 	Natural gas liquids (per barrel)	 	$	26.10	 	 	$	18.35	 	 	$	20.90	 	 	$	26.10	 	 	$	18.35	 	 	$	20.90	 	
 	Production cost (per Mcfe)	 	$	0.75	 	 	$	0.56	 	 	$	0.53	 	 	$	0.75	 	 	$	0.56	 	 	$	0.53	 	

		
(1) 	Thousand cubic feet.	
 		
(2) 	Thousand cubic feet equivalent.	
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Item 3.	Legal Proceedings	
      We are party to various litigation matters arising out of the normal course of business, the more significant of which are summarized below. The ultimate outcome of each of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome be reasonably estimated presently for every case. The liability we may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result of these matters, may potentially be material to our consolidated financial statements.
      Securities Class Action Lawsuits. Since March 11, 2002, fourteen shareholder lawsuits have been filed against Calpine and certain of its officers in the United States District Court, Northern District of California. The actions captioned Weisz v. Calpine Corp., et al ., filed March 11, 2002, and Labyrinth Technologies, Inc. v. Calpine Corp., et al ., filed March 28, 2002, are purported class actions on behalf of purchasers of Calpine stock between March 15, 2001 and December 13, 2001. Gustaferro v. Calpine Corp ., filed April 18, 2002, is a purported class action on behalf of purchasers of Calpine stock between February 6, 2001 and December 13, 2001. The eleven other actions, captioned Local 144 Nursing Home Pension Fund v. Calpine Corp. , Lukowski v. Calpine Corp. , Hart v. Calpine Corp. , Atchison v. Calpine Corp. , Laborers Local 1298 v. Calpine Corp. , Bell v. Calpine Corp. , Nowicki v. Calpine Corp. Pallotta v. Calpine Corp. , Knepell v. Calpine Corp. , Staub v. Calpine Corp. , and Rose v. Calpine Corp.  were filed between March 18, 2002 and April 23, 2002. The complaints in these eleven actions are virtually identical — they are filed by three law firms, in conjunction with other law firms as co-counsel. All eleven lawsuits are purported class actions on behalf of purchasers of Calpine’s securities between January 5, 2001 and December 13, 2001.
      The complaints in these fourteen actions allege that, during the purported class periods, certain Calpine executives issued false and misleading statements about Calpine’s financial condition in violation of Sections 10(b) and 20(1) of the Securities Exchange Act of 1934, as well as Rule 10b-5. These actions seek an unspecified amount of damages, in addition to other forms of relief.
      In addition, a fifteenth securities class action, Ser v. Calpine, et al. , was filed on May 13, 2002. The underlying allegations in the Ser action are substantially the same as those in the above-referenced actions. However, the Ser action is brought on behalf of a purported class of purchasers of Calpine’s 8.5% Senior Notes Due February 15, 2011 (“2011 Notes”) and the alleged class period is October 15, 2001 through December 13, 2001. The Ser complaint alleges that, in violation of Sections 11 and 15 of the Securities Act of 1933, the Supplemental Prospectus for the 2011 Notes contained false and misleading statements regarding Calpine’s financial condition. This action names Calpine, certain of its officers and directors, and the underwriters of the 2011 Notes offering as defendants, and seeks an unspecified amount of damages, in addition to other forms of relief.
      All fifteen of these securities class action lawsuits were consolidated in the U.S. District Court for the Northern District Court of California. The plaintiffs filed a first amended complaint in October 2002. The amended complaint did not include the 1933 Act complaints raised in the bondholders’ complaint, and the number of defendants named was reduced. On January 16, 2003, before our response was due to this amended complaint, the plaintiffs filed a further second complaint. This second amended complaint added three additional Calpine executives and Arthur Andersen LLP as defendants. The second amended complaint set forth additional alleged violations of Section 10 of the Securities Exchange Act of 1934 relating to allegedly false and misleading statements made regarding Calpine’s role in the California energy crisis, the long term power contracts with the California Department of Water Resources, and Calpine’s dealings with Enron, and additional claims under Section 11 and Section 15 of the Securities Act of 1933 relating to statements regarding the causes of the California energy crisis. We filed a motion to dismiss this consolidated action in early April 2003.
      On August 29, 2003, the judge issued an order dismissing, with leave to amend, all of the allegations set forth in the second amended complaint except for a claim under Section 11 of the Securities Act relating to statements relating to the causes of the California energy crisis and the related increase in wholesale prices contained in the Supplemental Prospectuses for the 2011 Notes.
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      The judge instructed plaintiffs to file a third amended complaint, which they did on October 17, 2003. The third amended complaint names Calpine and three executives as defendants and alleges the Section 11 claim that survived the judge’s August 29, 2003 order.
      On November 21, 2003, Calpine and the individual defendants moved to dismiss the third amended complaint on the grounds that plaintiff’s Section 11 claim was barred by the applicable one-year statute of limitations. On February 5, 2004, the judge denied our motion to dismiss but has asked the parties to be prepared to file summary judgment motions to address the statute of limitations issue. Our answer to the third amended complaint has been filed. We consider the lawsuit to be without merit and we intend to continue to defend vigorously against these allegations.
      Hawaii Structural Ironworkers Pension Fund v. Calpine, et al. A securities class action, Hawaii Structural Ironworkers Pension Fund v. Calpine, et al. , was filed on March 11, 2003, against Calpine, its directors and certain investment banks in the California Superior Court, San Diego County. The underlying allegations in the Hawaii Structural Ironworkers Pension Fund action (“Hawaii action”) are substantially the same as the federal securities class actions described above. However, the Hawaii action is brought on behalf of a purported class of purchasers of Calpine’s equity securities sold to public investors in its April 2002 equity offering. The Hawaii action alleges that the Registration Statement and Prospectus filed by Calpine which became effective on April 24, 2002, contained false and misleading statements regarding Calpine’s financial condition in violation of Sections 11, 12 and 15 of the Securities Act of 1933. The Hawaii action relies in part on Calpine’s restatement of certain past financial results, announced on March 3, 2003, to support its allegations. The Hawaii action seeks an unspecified amount of damages, in addition to other forms of relief.
      We removed the Hawaii action to federal court in April 2003 and filed a motion to transfer the case for consolidation with the other securities class action lawsuits in the U.S. District Court Northern District Court of California in May 2003. The plaintiff sought to have the action remanded to state court, and on August 27, 2003, the U.S. District Court for the Southern District of California granted plaintiff’s motion to remand the action to state court. In early October 2003 plaintiff agreed to dismiss the claims it has against three of the outside directors.
      On November 5, 2003, Calpine, the individual defendants and the underwriter defendants filed motions to dismiss this complaint on numerous grounds. On February 6, 2004, the court issued a tentative ruling sustaining our motion to dismiss on the issue of the plaintiff’s standing. The court found that the plaintiff had not shown that it had purchased Calpine’ stock “traceable” to the April 2002 equity offering. The court overruled our motion to dismiss on all other grounds. We have requested oral argument on these other issues which oral argument is currently scheduled for March 2004. We consider this lawsuit to be without merit and intend to continue defend vigorously against it.
      Phelps v. Calpine Corporation, et al. On April 17, 2003, a participant in the Calpine Corporation Retirement Savings Plan (the “401(k) Plan”) filed a class action lawsuit in the Northern District Court of California. The underlying allegations in this action (“Phelps action”) are substantially the same as those in the securities class actions described above. However, the Phelps action is brought on behalf of a purported class of participants in the 401(k) Plan. The Phelps action alleges that various filings and statements made by Calpine during the class period were materially false and misleading, and that the defendants failed to fulfill their fiduciary obligations as fiduciaries of the 401(k) Plan by allowing the 401(k) Plan to invest in Calpine common stock. The Phelps action seeks an unspecified amount of damages, in addition to other forms of relief. In May 2003 Lennette Poor-Herena, another participant in the 401(k) Plan, filed a substantially similar class action lawsuit as the Phelps action also in the Northern District of California. Plaintiffs’ counsel is the same in both of these actions, and they have agreed to consolidate these two cases and to coordinate them with the consolidated federal securities class actions described above. On January 20, 2004, plaintiff James Phelps filed a consolidated ERISA complaint naming Calpine and numerous individual current and former Calpine Board members and employees as defendants. Calpine’s response to the amended complaint is due March 22, 2004. We consider this lawsuit to be without merit and intend to vigorously defend against it.
      Johnson v. Peter Cartwright, et al. On December 17, 2001, a shareholder filed a derivative lawsuit on behalf of Calpine against its directors and one of its senior officers. This lawsuit is captioned Johnson v.
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Cartwright, et al. and is pending in the California Superior Court, Santa Clara County. Calpine is a nominal defendant in this lawsuit, which alleges claims relating to purportedly misleading statements about Calpine and stock sales by certain of the director defendants and the officer defendant. In December 2002 the court dismissed the complaint with respect to certain of the director defendants for lack of personal jurisdiction, though the plaintiff may appeal this ruling. In early February 2003 the plaintiff filed an amended complaint. In March 2003 Calpine and the individual defendants filed motions to dismiss and motions to stay this proceeding in favor of the federal securities class actions described above. In July 2003 the Court granted the motions to stay this proceeding in favor of the consolidated federal securities class actions described above. We consider this lawsuit to be without merit and intend to vigorously defend against it.
      Gordon v. Peter Cartwright, et al. On August 8, 2002, a shareholder filed a derivative suit in the United States District Court for the Northern District California on behalf of Calpine against its directors, captioned Gordon v. Cartwright, et al.  similar to Johnson v. Cartwright . Motions have been filed to dismiss the action against certain of the director defendants on the grounds of lack of personal jurisdiction, as well as to dismiss the complaint in total on other grounds. In February 2003 plaintiff agreed to stay these proceedings in favor of the consolidated federal securities class action described above and to dismiss without prejudice certain director defendants. On March 4, 2003, the plaintiff filed papers with the court voluntarily agreeing to dismiss without prejudice the claims he had against three of the outside directors. We consider this lawsuit to be without merit and intend to continue to defend vigorously against it.
      Calpine Corporation v. Automated Credit Exchange. On March 5, 2002, Calpine sued Automated Credit Exchange (“ACE”) in the Superior Court of the State of California for the County of Alameda for negligence and breach of contract to recover reclaim trading credits, a form of emission reduction credits that should have been held in Calpine’s account with U.S. Trust Company (“US Trust”). Calpine wrote off $17.7 million in December 2001 related to losses that it alleged were caused by ACE. Calpine and ACE entered into a Settlement Agreement on March 29, 2002, pursuant to which ACE made a payment to Calpine of $7 million and transferred to Calpine the rights to the emission reduction credits to be held by ACE. We recognized the $7 million as income in the second quarter of 2002. In June 2002 a complaint was filed by InterGen North America, L.P. (“InterGen”) against Anne M. Sholtz, the owner of ACE, and EonXchange, another Sholtz-controlled entity, which filed for bankruptcy protection on May 6, 2002. InterGen alleges it suffered a loss of emission reduction credits from EonXchange in a manner similar to Calpine’s loss from ACE. InterGen’s complaint alleges that Anne Sholtz co-mingled assets among ACE, EonXchange and other Sholtz entities and that ACE and other Sholtz entities should be deemed to be one economic enterprise and all retroactively included in the EonXchange bankruptcy filing as of May 6, 2002. By a judgment entered on October 30, 2002, the Bankruptcy Court consolidated ACE and the other Sholtz controlled entities with the bankruptcy estate of EonXchange. Subsequently, the Trustee of EonXchange filed a separate motion to substantively consolidate Anne Sholtz into the bankruptcy estate of EonXchange. Although Anne Sholtz initially opposed such motion, she entered into a settlement agreement with the Trustee consenting to her being substantively consolidated into the bankruptcy proceeding. The Bankruptcy Court entered an order approving Anne Sholtz’s settlement agreement with the Trustee on April 3, 2002. On July 10, 2003, Howard Grobstein, the Trustee in the EonXchange bankruptcy, filed a complaint for avoidance against Calpine, seeking recovery of the $7 million (plus interest and costs) paid to Calpine in the March 29, 2002 Settlement Agreement. The complaint claims that the $7 million received by Calpine in the Settlement Agreement was transferred within 90 days of the filing of bankruptcy and therefore should be avoided and preserved for the benefit of the bankruptcy estate. On August 28, 2003, Calpine filed its answer denying that the $7 million is an avoidable preference. Discovery is currently ongoing. Calpine believes that it has valid defenses to this claim and will vigorously defend against this complaint. On January 26, 2004, Calpine filed a Motion for Partial Summary Judgment asserting that the Bankruptcy Court did not properly consolidate Anne Sholtz into the bankruptcy estate of EonXchange. If the motion is granted, at least $2.9 million of the $7 million that the Trustee is seeking to recover from Calpine could not be avoided as a preferential transfer. We believe we have adequately reserved for the possible loss, if any, it may ultimately incur as a result of this matter.
      International Paper Company v. Androscoggin Energy LLC. In October 2000 International Paper Company (“IP”) filed a complaint in the Federal District Court for the Northern District of Illinois against
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Androscoggin Energy LLC (“AELLC”) alleging that AELLC breached certain contractual representations and warranties by failing to disclose facts surrounding the termination, effective May 8, 1998, of one of AELLC’s fixed-cost gas supply agreements. We had acquired a 32.3% interest in AELLC as part of the SkyGen transaction which closed in October 2000. AELLC filed a counterclaim against IP that has been referred to arbitration. AELLC may commence the arbitration counterclaim after discovery has progressed further. On November 7, 2002, the court issued an opinion on the parties’ cross motions for summary judgment finding in AELLC’s favor on certain matters though granting summary judgment to IP on the liability aspect of a particular claim against AELLC. The Court also denied a motion submitted by IP for preliminary injunction to permit IP to make payment of funds into escrow (not directly to AELLC) and require AELLC to post a significant bond.
      In mid-April of 2003 IP unilaterally availed itself to self-help in withholding amounts in excess of $2.0 million as a set-off for litigation expenses and fees incurred to date as well as an estimated portion of a rate fund to AELLC. Upon AELLC’s amended complaint and request for immediate injunctive relief against such actions, the Court ordered that IP must pay the approximately $1.2 million withheld as attorneys’ fees related to the litigation as any such perceived entitlement was premature, but deferred to provide injunctive relief on the incomplete record concerning the offset of $799,000 as an estimated pass-through of the rate fund. IP complied with the order on April 29, 2003, and tendered payment to AELLC of the approximately $1.2 million. On June 26, 2003, the court entered an order dismissing AELLC’s Amended Counterclaim without prejudice to AELLC refiling the claims as breach of contract claims in a separate lawsuit. On June 30, 2003, AELLC filed a motion to reconsider the order dismissing AELLC’s Amended Counterclaim. On December 11, 2003, the Court denied in part IP’s summary judgment motion pertaining to damages. In short, the Court: (i) determined that, as a matter of law, IP is entitled to pursue an action for damages as a result of AELLC’s breach, and (ii) ruled that sufficient questions of fact remain to deny IP summary judgment on the measure of damages as IP did not sufficiently establish causation resulting from AELLC’s breach of contract (the liability aspect of which IP obtained a summary judgment in December 2002). On February 2, 2004, the parties filed a pretrial order with the Court. The case appears likely scheduled for trial in the second quarter of 2004, subject to the Court’s discretion and calendar. We believe we have adequately reserved for the possible loss, if any, we may ultimately incur as a result of this matter.
      Pacific Gas and Electric Company v. Calpine Corporation, et al. On July 22, 2003, Pacific Gas and Electric Company (“PG&E”) filed with the California Public Utilities Commission (“CPUC”) a Complaint of PG&E and Request for Immediate Issuance of an Order to Show Cause (“Complaint”) against Calpine Corporation, CPN Pipeline Company, Calpine Energy Services, L.P., Calpine Natural Gas Company, and Lodi Gas Storage, LLC (“LGS”) . The Complaint requests the CPUC to issue an order requiring the defendants to show cause why they should not be ordered to cease and desist from using any direct interconnections between the facilities of CPN Pipeline and those of LGS unless LGS and Calpine first seek and obtain regulatory approval from the CPUC. The Complaint also seeks an order directing defendants to pay to PG&E any underpayments of PG&E’s tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS’ direct interconnections to any entity other than PG&E. The Complaint further alleges that various natural gas consumers, including Calpine-affiliated generation projects within California, are engaged with defendants in the acts complained of, and that the defendants unlawfully bypass PG&E’s system and operate as an unregulated local distribution company within PG&E’s service territory. On August 27, 2003, Calpine filed its answer and a motion to dismiss. LGS has also made similar filings. On October 16, 2003, the presiding administrative law judge denied the motion to dismiss and on October 24, 2003, issued a Scoping Memo and Ruling establishing a procedural schedule and set the matter for an evidentiary hearing. Although Calpine has denied the allegations in the Complaint and believes this Complaint to be without merit, on January 15, 2004, Calpine, LGS and PG&E executed a Settlement Agreement to resolve all outstanding allegations and claims raised in the Complaint. Certain aspects of the Settlement Agreement are effective immediately and the effectiveness of other provisions is subject to the approval of the Settlement Agreement by the CPUC; in the event the CPUC fails to approve the Settlement Agreement, its operative terms and conditions become null and void. The Settlement Agreement provides, in part, for: 1) PG&E to be paid $2.7 million; 2) the disconnection of the LGS interconnections with Calpine; 3) Calpine to obtain PG&E consent or regulatory or other governmental approval before resuming any sales or
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exchanges at the Ryer Island Meter Station; 4) PG&E’s withdrawal of its public utility claims against Calpine; and 5) no party admitting any wrongdoing. Accordingly, the presiding administrative law judge vacated the hearing schedule and established a new procedural schedule for the filing of the Settlement Agreement. On February 6, 2004, the Settlement Agreement was filed with the CPUC. Parties have the opportunity to submit comments and reply comments on the Settlement Agreement and then the matter shall be before the CPUC for its consideration.
      Panda Energy International, Inc., et al. v. Calpine Corporation, et al. On November 5, 2003, Panda Energy International, Inc. and certain related parties, including PLC II, LLC, (collectively “Panda”) filed suit against Calpine and certain of its affiliates in the U.S. District Court for the Northern District of Texas, alleging, among other things, that we breached duties of care and loyalty allegedly owed to Panda by failing to correctly construct and operate the Oneta Energy Center (“Oneta”), which we acquired from Panda, in accordance with Panda’s original plans. Panda alleges that it is entitled to a portion of the profits from Oneta plant and that Calpine’s actions have reduced the profits from Oneta plant thereby undermining Panda’s ability to repay monies owed to Calpine on December 1, 2003, under a promissory note on which approximately $38.6 million (including interest) is currently outstanding. The note is collateralized by Panda’s carried interest in the income generated from Oneta, which achieved full commercial operations in June 2003. We have filed a counterclaim against Panda Energy International, Inc. (and PLC II, LLC) based on a guaranty, and have also filed a motion to dismiss as to the causes of action alleging federal and state securities laws violations. We consider Panda’s lawsuit to be without merit and intend to defend vigorously against it. We stopped accruing interest income on the promissory note due December 1, 2003, as of the due date because of Panda’s default in repayment of the note.
      California Business & Professions Code Section 17200 Cases, of which the lead case is T&E Pastorino Nursery v. Duke Energy Trading and Marketing, L.L.C., et al. This purported class action complaint filed in May 2002 against twenty energy traders and energy companies, including CES, alleges that defendants exercised market power and manipulated prices in violation of California Business & Professions Code Section 17200 et seq., and seeks injunctive relief, restitution, and attorneys’ fees. We also have been named in seven other similar complaints for violations of Section 17200. All seven cases were removed from the various state courts in which they were originally filed to federal court for pretrial proceedings with other cases in which we are not named as a defendant. We consider the allegations to be without merit, and filed a motion to dismiss on August 28, 2003. The court granted the motion, and plaintiffs have appealed.
      Prior to the motion to dismiss being granted, one of the actions, captioned Millar v. Allegheny Energy Supply Co., LLP, et al ., was remanded to the Superior Court of the State of California for the County of Alameda. On January 12, 2004, CES was added as a defendant in Millar . This action includes similar allegations to the other 17200 cases, but also seeks rescission of the long term power contracts with the California Department of Water Resources. We anticipate filing a timely motion for dismissal of this action as well.
      McClintock et al. v. Vikram Budhraja, et al. California Department of Water Resources Case. On May 1, 2002, California State Senator Tom McClintock and others filed a complaint against Vikram Budhraja, a consultant to the California Department of Water Resources (“DWR”), DWR itself, and more than twenty-nine energy providers and other interested parties, including Calpine. The complaint alleged that the long term power contracts that DWR entered into with these energy providers, including Calpine, were rendered void because Budhraja, who negotiated the contracts on behalf of DWR, allegedly had an undisclosed financial interest in the contracts due to his connection with one of the energy providers, Edison International. Among other things, the complaint sought an injunction prohibiting further performance of the long term contracts and restitution of any funds paid to energy providers by the State of California under the contracts. The action had been stayed by order of the Court since August 26, 2002, pending resolution of an earlier filed state court action involving the same parties and subject matter captioned Carboneau v. State of California in which we are not a defendant. We considered the allegations in this lawsuit to be without merit and filed a motion for dismissal with prejudice on November 26, 2003, which was granted. No appeal was filed and therefore the case has been concluded in its entirety.
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      Nevada Power Company and Sierra Pacific Power Company v. Calpine Energy Services, L.P. before the FERC, filed on December 4, 2001. Nevada Section 206 Complaint. On December 4, 2001, Nevada Power Company (“NPC”) and Sierra Pacific Power Company (“SPPC”) filed a complaint with FERC under Section 206 of the Federal Power Act against a number of parties to their power sales agreements, including Calpine. NPC and SPPC allege in their complaint, which seeks a refund, that the prices they agreed to pay in certain of the power sales agreements, including those signed with Calpine, were negotiated during a time when the power market was dysfunctional and that they are unjust and unreasonable. The Administrative Law Judge issued an Initial Decision on December 19, 2002, that found for Calpine and the other respondents in the case and denied NPC the relief that it was seeking. In June 2003, FERC rejected the complaint. Some plaintiffs appealed to the FERC and their request for rehearing was denied. The FERC decision is therefore final, and the matter is pending on appeal before the United States Court of Appeals for the Ninth Circuit.
      Calpine Canada Natural Gas Partnership v. Enron Canada Corp. On February 6, 2002, Calpine Canada Natural Gas Partnership (“Calpine Canada”) filed a complaint in the Alberta Court of Queens Branch alleging that Enron Canada Corp. (“Enron Canada”) owed it approximately $1.5 million from the sale of gas in connection with two Master Firm gas Purchase and Sale Agreements. To date, Enron Canada has not sought bankruptcy relief and has counterclaimed in the amount of $18 million. Discovery is currently in progress, and we believe that Enron Canada’s counterclaim is without merit and intend to vigorously defend against it.
      Jones v. Calpine Corporation. On June 11, 2003, the Estate of Darrell Jones and the Estate of Cynthia Jones filed a complaint against Calpine in the U.S. District Court, Western District of Washington. Calpine purchased Goldendale Energy, Inc., a Washington corporation, from Darrell Jones. The agreement provided, among other things, that upon substantial completion of the Goldendale facility, Calpine would pay Mr. Jones (i) $6.0 million and (ii) $18.0 million less $0.2 million per day for each day that elapsed between July 1, 2002, and the date of substantial completion. Substantial completion of the Goldendale facility has not occurred and the daily reduction in the payment amount has reduced the $18.0 million payment to zero. The complaint alleges that by not achieving substantial completion by July 1, 2002, Calpine breached its contract with Mr. Jones, violated a duty of good faith and fair dealing, and caused an inequitable forfeiture. The complaint seeks damages in an unspecified amount in excess of $75,000. On July 28, 2003, Calpine filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The court granted Calpine’s motion to dismiss the complaint on March 10, 2004. The plaintiffs have filed a motion for reconsideration of the decision, and the plaintiffs may also ultimately appeal. Calpine still, however, expects to make the $6.0 million payment to the estates when the project is completed.
      In addition, we are involved in various other legal actions proceedings, and state and regulatory investigations relating to our business. These actions and proceedings are described in detail elsewhere in this report. See Item 1. “Business — Risk Factors — California Power Market.” We are involved in various other claims and legal actions arising out of the normal course of our business. We do not expect that the outcome of these proceedings will have a material adverse effect on our financial position or results of operations.

Item 4.	Submission of Matters to a Vote of Security Holders	
      None.
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PART II

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	
      Our common stock is traded on the New York Stock Exchange under the symbol “CPN.” Public trading of the common stock commenced on September 20, 1996. Prior to that, there was no public market for the common stock. The following table sets forth, for the periods indicated, the high and low sale price per share of the common stock on The New York Stock Exchange. 

		High		Low	
					
2003	 	 	 	 	 	 	 	 	
First Quarter	 	$	4.42	 	 	$	2.51	 	
Second Quarter	 	 	7.25	 	 	 	3.33	 	
Third Quarter	 	 	8.03	 	 	 	4.76	 	
Fourth Quarter	 	 	5.25	 	 	 	3.28	 	
2002	 	 	 	 	 	 	 	 	
First Quarter	 	$	17.28	 	 	$	6.15	 	
Second Quarter	 	 	13.55	 	 	 	5.30	 	
Third Quarter	 	 	7.29	 	 	 	2.36	 	
Fourth Quarter	 	 	4.69	 	 	 	1.55	 	
      As of March 19, 2004, there were approximately 2,169 holders of record of our common stock. On March 19, 2004, the last sale price reported on the New York Stock Exchange for our common stock was $5.14 per share.
      We have not declared any cash dividends on the common stock during the past two fiscal years. We do not anticipate paying any cash dividends on the common stock in the foreseeable future because we intend to retain our earnings to finance the expansion of our business, to repay debt, 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.
Convertible Senior Notes
      4% Convertible Senior Notes Due 2006. On December 26, 2001, we completed a private placement of $1.0 billion aggregate principal amount of our 4% Convertible Senior Notes Due 2006 (“2006 Convertible Senior Notes”). The initial purchaser of the 2006 Convertible Senior Notes was Deutsche Bank Alex. Brown Inc. Deutsche Bank exercised its option to acquire an additional $200.0 million aggregate principal amount of the 2006 Convertible Senior Notes by purchasing an additional $100.0 million aggregate principal amount of the 2006 Convertible Senior Notes on each of December 31, 2001, and January 3, 2002. The offering price of the 2006 Convertible Senior Notes was 100% of the principal amount, less an aggregate underwriting discount of $30.0 million. Each sale of the 2006 Convertible Senior Notes to Deutsche Bank was exempt from registration in reliance on Section 4(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering. The 2006 Convertible Senior Notes were re-offered by Deutsche Bank to qualified institutional buyers in reliance on Rule 144A under the Securities Act.
      We subsequently filed with the SEC a registration statement with respect to resales of the 2006 Convertible Senior Notes, which was declared effective by the SEC on June 21, 2002.
      The 2006 Convertible Senior Notes are convertible into shares of our common stock at a conversion price of $18.07 per share which represents a 13.0% premium over the New York Stock Exchange closing price of $15.99 per share on December 26, 2001. The conversion price is subject to adjustment in certain circumstances. We have reserved 66,408,411 shares of our authorized common stock for issuance upon
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conversion of the 2006 Convertible Senior Notes, which are convertible at any time on or before the close of business on the day that is two business days prior to the maturity date, December 26, 2006, unless we have previously repurchased the 2006 Convertible Senior Notes. Holders of the 2006 Convertible Senior Notes have the right to require us to repurchase their notes on at par plus accrued interest December 26, 2004. We may choose to pay the repurchase price in cash or shares of common stock, or a combination thereof. As of December 31, 2003, we had repurchased $539.9 million of principal amount of the 2006 Convertible Senior Notes in open market and privately negotiated transactions, leaving an outstanding balance of $660.1 million.
      Subsequent to December 31, 2003, we repurchased approximately $177.0 million in principal amount of our outstanding 2006 Convertible Senior Notes that can be put to us in exchange for approximately $176.0 million in cash. Additionally, on February 9, 2004, we made a cash tender offer, which expired on March 9, 2004, for all of the outstanding 2006 Convertible Senior Notes at a price of par plus accrued interest. On March 10, 2004, we paid an aggregate amount of $412.8 million for the tendered 2006 Convertible Senior Notes which included accrued interest of $3.4 million. Currently, 2006 Convertible Senior Notes in the aggregate principal amount of $73.7 million remain outstanding.
      4 3/4% Contingent Convertible Senior Notes Due 2023. On November 17, 2003, we completed the issuance of $650 million aggregate principal amount of our 4 3/4% Contingent Convertible Senior Notes Due 2023 (“2023 Convertible Notes”). The initial purchasers of the 2023 Convertible Notes were Deutsche Bank Securities Inc., Credit Lyonnais Securities (USA) Inc., Harris Nesbitt Corp. and Williams Capital Group LP (the “initial purchasers”). One of the initial purchasers, Deutsche Bank Securities Inc., exercised its option to acquire an additional $250.0 million aggregate principal amount of the 2023 Convertible Notes on January 9, 2004. The offering price of the 2023 Convertible Notes was 100% of the principal amount of the 2023 Convertible Senior Notes, less an aggregate underwriting discount of $24.75 million. Each sale of the 2023 Convertible Notes to an initial purchaser was exempt from registration in reliance on Section 4(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering. The 2023 Convertible Notes were offered by each initial purchaser to qualified institutional buyers in reliance on Rule 144A under the Securities Act.
      Upon the occurrence of certain contingencies, the 2023 Convertible Notes are convertible, at the option of holder, into cash and shares of our common stock at an initial conversion price of $6.50 per share, which represents a 38% premium over The New York Stock Exchange closing price of $4.71 per share on November 6, 2003. The number of shares of our common stock a holder ultimately receives upon conversion is determined by a formula based on the closing price of our common stock on The New York Stock Exchange over a period of five consecutive trading days during a specified period. We have initially reserved 69,230,000 shares of our authorized common stock for issuance upon conversion of the 2023 Convertible Notes, and have undertaken to reserve additional shares as may be necessary to satisfy our obligation to deliver shares upon conversion if our stock price increases such that the numbers of shares reserved is inadequate. Upon conversion of the 2023 Convertible Notes, we will deliver par value in cash and any additional value in shares of our common stock. The 2023 Contingent Notes will mature on November 15, 2023. We may redeem some or all of the notes at any time on or after November 22, 2009, at a redemption price, payable in cash, of 100% of the principal amount of the notes, plus accrued and unpaid interest and additional interest, if any, up to but not including the date of redemption. Holders have the right to require us to repurchase all or a portion of the 2023 Convertible Notes on November 22, 2009, 2013 and 2018, at 100% of their principal amount plus any accrued and unpaid interest. We have the right to repurchase the 2023 Convertible Senior Notes with cash, shares of our common stock, or a combination of cash and our common stock.
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Item 6.	Selected Financial Data	

Selected Consolidated Financial Data		

		Years Ended December 31,	
			
		2003		2002		2001		2000		1999	

		(In thousands, except earnings per share)	
Statement of Operations data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	$	8,919,539	 	 	$	7,391,861	 	 	$	6,714,929	 	 	$	2,374,695	 	 	$	888,328	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before discontinued operations and cumulative effect of a change in accounting principle	 	$	109,753	 	 	$	53,690	 	 	$	582,966	 	 	$	332,754	 	 	$	89,000	 	
Discontinued operations, net of tax	 	 	(8,674	)	 	 	64,928	 	 	 	39,490	 	 	 	36,330	 	 	 	17,650	 	
Cumulative effect of a change in accounting principle	 	 	180,943	 	 	 	—	 	 	 	1,036	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	$	282,022	 	 	$	118,618	 	 	$	623,492	 	 	$	369,084	 	 	$	106,650	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Basic earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before discontinued operations and cumulative effect of a change in accounting principle	 	$	0.28	 	 	$	0.15	 	 	$	1.92	 	 	$	1.18	 	 	$	0.39	 	
 	Discontinued operations, net of tax	 	 	(0.02	)	 	 	0.18	 	 	 	0.13	 	 	 	0.13	 	 	 	0.08	 	
 	Cumulative effect of a change in accounting principle, net of tax	 	 	0.46	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Net income	 	$	0.72	 	 	$	0.33	 	 	$	2.05	 	 	$	1.31	 	 	$	0.47	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Diluted earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before discontinued operations and cumulative effect of a change in accounting principle	 	$	0.28	 	 	$	0.15	 	 	$	1.69	 	 	$	1.07	 	 	$	0.38	 	
 	Discontinued operations, net of tax provision	 	 	(0.02	)	 	 	0.18	 	 	 	0.11	 	 	 	0.11	 	 	 	0.07	 	
 	Cumulative effect of a change in accounting principle, net of tax	 	 	0.45	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Net income	 	$	0.71	 	 	$	0.33	 	 	$	1.80	 	 	$	1.18	 	 	$	0.45	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance Sheet data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	27,303,932	 	 	$	23,226,992	 	 	$	21,937,227	 	 	$	10,610,232	 	 	$	4,400,902	 	
Short-term debt and capital lease obligations	 	 	349,128	 	 	 	1,651,448	 	 	 	903,307	 	 	 	64,525	 	 	 	47,470	 	
Long-term debt and capital lease obligations	 	 	17,328,181	 	 	 	12,462,290	 	 	 	12,490,175	 	 	 	5,018,044	 	 	 	2,214,921	 	
Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trusts(1)	 	$	 —	 	 	$	1,123,969	 	 	$	1,122,924	 	 	$	1,122,390	 	 	$	270,713	 	

		
(1) 	Included in long-term debt as of December 31, 2003. See Note 11 of the Notes to Consolidated Financial Statements for more information.	
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Reconciliation of GAAP cash provided from		Years Ended December 31,	
operating activities to EBITDA, as			
adjusted(1):		2003		2002		2001		2000		1999	

		(In thousands)	
Cash provided by operating activities	 	$	290,559	 	 	$	1,068,466	 	 	$	423,569	 	 	$	875,751	 	 	$	314,361	 	
Less: Changes in operating assets and liabilities, excluding the effects of acquisitions(2)	 	 	(609,840	)	 	 	480,193	 	 	 	(359,640	)	 	 	277,696	 	 	 	8,213	 	
Less: Additional adjustments to reconcile net income to net cash provided by operating activities, net(2)	 	 	618,377	 	 	 	469,655	 	 	 	159,717	 	 	 	228,971	 	 	 	199,498	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
GAAP net income	 	 	282,022	 	 	 	118,618	 	 	 	623,492	 	 	 	369,084	 	 	 	106,650	 	
Income from unconsolidated investments in power projects and oil and gas properties	 	 	(76,703	)	 	 	(16,552	)	 	 	(16,946	)	 	 	(28,796	)	 	 	(36,593	)	
Distributions from unconsolidated investments in power projects and oil and gas properties	 	 	141,627	 	 	 	14,117	 	 	 	5,983	 	 	 	29,979	 	 	 	43,318	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Adjusted net income	 	 	346,946	 	 	 	116,183	 	 	 	612,529	 	 	 	370,267	 	 	 	113,375	 	
Interest expense	 	 	726,103	 	 	 	413,690	 	 	 	196,622	 	 	 	81,890	 	 	 	96,932	 	
 1/3 of operating lease expense	 	 	37,357	 	 	 	37,007	 	 	 	33,173	 	 	 	21,154	 	 	 	11,198	 	
Distributions on trust preferred securities	 	 	46,610	 	 	 	62,632	 	 	 	62,412	 	 	 	45,076	 	 	 	2,565	 	
Provision (benefit) for income taxes	 	 	(134	)	 	 	(14,945	)	 	 	297,614	 	 	 	231,419	 	 	 	61,523	 	
Depreciation, depletion and amortization expense	 	 	608,182	 	 	 	474,225	 	 	 	319,884	 	 	 	199,763	 	 	 	112,665	 	
Interest expense, provision for income taxes and depreciation from discontinued operations	 	 	3,390	 	 	 	92,544	 	 	 	90,601	 	 	 	74,163	 	 	 	35,093	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA, as adjusted(1)	 	$	1,768,454	 	 	$	1,181,336	 	 	$	1,612,835	 	 	$	1,023,732	 	 	$	433,351	 	

		
(1) 	This non-GAAP measure is presented not as a measure of operating results, but rather as a measure of our ability to service debt and to raise additional funds. It should not be construed as an alternative to either (i) income from operations or (ii) cash flows from operating activities. It is defined as net income less income from unconsolidated investments, plus cash received from unconsolidated investments, plus provision for tax, plus interest expense(including distributions on trust preferred securities and one-third of operating lease expense, which is management’s estimate of the component of operating lease expense that constitutes interest expense,) plus depreciation, depletion and amortization. The interest, tax and depreciation and amortization components of discontinued operations are added back in calculating EBITDA, as adjusted.	
For the year ended December 31, 2003 EBITDA, as adjusted, includes a $180.9 million (net of tax) gain from the cumulative effect of a change in accounting principle and a $278.6 million gain from the repurchase of debt, offset by approximately $273.0 million of certain charges, consisting primarily of foreign currency translation losses, equipment cancellation and impairment costs, certain mark-to-market activity, and minority interest expense, some of which required, or will require cash settlement. EBITDA, as adjusted for the year ended December 31, 2002 includes a non-cash equipment cancellation charge of $404.7 million, a $118.0 million gain on the repurchase of debt, and approximately $55.0 million of certain charges, some of which required, or will require cash settlement.

		
(2) 	See the Consolidated Statements of Cash Flows for further detail of these items.	
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Selected Operating Information

			
		Years Ended December 31,	
			
		2003		2002		2001		2000		1999	

		(Dollars in thousands, except production and pricing data)	
Power Plants(1):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electricity and steam (“E&S”) revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Energy	 	$	3,361,095	 	 	$	2,273,524	 	 	$	1,701,533	 	 	$	1,220,684	 	 	$	452,909	 	
 	Capacity	 	 	844,195	 	 	 	781,127	 	 	 	525,174	 	 	 	376,085	 	 	 	252,565	 	
 	Thermal and other	 	 	490,454	 	 	 	167,551	 	 	 	158,617	 	 	 	99,297	 	 	 	54,851	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Subtotal	 	$	4,695,744	 	 	$	3,222,202	 	 	$	2,385,324	 	 	$	1,696,066	 	 	$	760,325	 	
Spread on sales of purchased power(2)	 	 	24,118	 	 	 	527,546	 	 	 	345,834	 	 	 	11,262	 	 	 	2,476	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted E&S revenues	 	$	4,719,862	 	 	$	3,749,748	 	 	$	2,731,158	 	 	$	1,707,328	 	 	$	762,801	 	
Megawatt hours produced	 	 	82,423,422	 	 	 	72,767,280	 	 	 	42,393,726	 	 	 	22,749,588	 	 	 	14,802,709	 	
All-in electricity price per megawatt hour generated	 	$	57.26	 	 	$	51.53	 	 	$	64.42	 	 	$	75.05	 	 	$	51.53	 	

		
(1) 	From continuing operations only. Discontinued operations are excluded.	
 		
(2) 	From hedging, balancing and optimization activities related to our generating assets.	
      Set forth above is certain selected operating information for our power plants and, through May 1999 for our geothermal steam fields at The Geysers, for which results are consolidated in our statements of operations. Electricity revenue is composed of fixed capacity payments, which are not related to production, and variable energy payments, which are related to production. Capacity revenues include, besides traditional capacity payments, other revenues such as Reliability Must Run and Ancillary Service revenues. The information set forth under thermal and other revenue consists of host steam sales and other thermal revenue, including our geothermal steam field revenues prior to our acquisition of the PG&E geothermal power plants at The Geysers on May 7, 1999.
      Set forth below is a table summarizing the dollar amounts and percentages of our total revenue for the years ended December 31, 2003, 2002, and 2001, that represent purchased power and purchased gas sales for hedging and optimization and the costs we incurred to purchase the power and gas that we resold during these periods (in thousands, except percentage data): 

			
		Year Ended December 31,	
			
		2003		2002		2001	
							
Total revenue	 	$	8,919,539	 	 	$	7,391,861	 	 	$	6,714,929	 	
Sales of purchased power for hedging and optimization(1)	 	 	2,714,187	 	 	 	3,145,991	 	 	 	3,332,412	 	
As a percentage of total revenue	 	 	30.4	%	 	 	42.6	%	 	 	49.6	%	
Sale of purchased gas for hedging and optimization	 	 	1,320,902	 	 	 	870,466	 	 	 	526,517	 	
As a percentage of total revenue	 	 	14.8	%	 	 	11.8	%	 	 	7.8	%	
Total cost of revenue (“COR”)	 	 	8,082,838	 	 	 	6,385,208	 	 	 	5,491,800	 	
Purchased power expense for hedging and optimization(1)	 	 	2,690,069	 	 	 	2,618,445	 	 	 	2,986,578	 	
As a percentage of total COR	 	 	33.3	%	 	 	41.0	%	 	 	54.4	%	
Purchased gas expense for hedging and optimization	 	 	1,279,568	 	 	 	821,065	 	 	 	492,587	 	
As a percentage of total COR	 	 	15.8	%	 	 	12.9	%	 	 	9.0	%	

		
(1) 	On October 1, 2003, we adopted on a prospective basis EITF Issue No. 03-11 and netted purchases of power against sales of purchased power. See Note 2 of the Notes to Consolidated Financial Statements for a discussion of our application of EITF Issue No. 03-11.	
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      The primary reasons for the significant levels of these sales and costs of revenue items include: (a) significant levels of hedging, balancing and optimization activities by our CES risk management organization; (b) particularly volatile markets for electricity and natural gas, which prompted us to frequently adjust our hedge positions by buying power and gas and reselling it; (c) the accounting requirements under Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” and Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” under which we show most of our hedging contracts on a gross basis (as opposed to netting sales and cost of revenue); and (d) rules in effect throughout 2001 and 2002 associated with the NEPOOL market in New England, which require that all power generated in NEPOOL be sold directly to the Independent System Operator (“ISO”) in that market; we then buy from the ISO to serve our customer contracts. Generally accepted accounting principles required us to account for this activity, which applies to three of our merchant generating facilities, as the aggregate of two distinct sales and one purchase until our prospective adoption of EITF Issue No. 03-11 on October 1, 2003. This gross basis presentation increased revenues but not gross profit. The table below details the financial extent of our transactions with NEPOOL for all financial periods prior to the adoption of EITF Issue No. 03-11. Our entrance into the NEPOOL market began with our acquisition of the Dighton, Tiverton, and Rumford facilities on December 15, 2000. 

					
		Nine Months Ended		Year Ended December 31,	
		September 30,			
		2003		2002		2001	

		(In thousands)	
Sales to NEPOOL from power we generated	 	$	258,945	 	 	$	294,634	 	 	$	285,706	 	
Sales to NEPOOL from hedging and other activity	 	 	117,345	 	 	 	106,861	 	 	 	165,416	 	
 	 	 		 	 	 		 	 	 		 	
 	Total sales to NEPOOL	 	$	376,290	 	 	$	401,495	 	 	$	451,122	 	
Total purchases from NEPOOL	 	$	310,025	 	 	$	360,113	 	 	$	413,875	 	

      (The statement of operations data information and the balance sheet data information contained in the Selected Financial Data is derived from the audited Consolidated Financial Statements of Calpine Corporation and Subsidiaries. See the Notes to the Consolidated Financial Statements and Item 7. “Management’s Discussion and Analysis of Financial Condition — Results of Operation” for additional information.)

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	
Overview
      Our core business and primary source of revenue is the generation and delivery of electric power. We provide power to our U.S., Canadian and U.K. customers through the development and construction or acquisition, and operation of efficient and environmentally friendly electric power plants fueled primarily by natural gas and, to a much lesser degree, by geothermal resources. We own and produce natural gas and to a lesser extent oil, which we use primarily to lower our costs of power production and provide a natural hedge of fuel costs for our electric power plants, but also to generate some revenue through sales to third parties. We protect and enhance the value of our electric and gas assets with a sophisticated risk management organization. We also protect our power generation assets and control certain of our costs by producing certain of the combustion turbine replacement parts that we use at our power plants, and we generate revenue by providing combustion turbine parts to third parties. Finally, we offer services to third parties to capture value in the skills we have honed in building, commissioning and operating power plants.
      Our key opportunities and challenges include:

			
 	• 	preserving and enhancing our liquidity while spark spreads (the differential between power revenues and fuel costs) are depressed,	
 		
 	• 	selectively adding new load-serving entities and power users to our satisfied customer list as we increase our power contract portfolio, and	
 		
 	• 	continuing to add value through prudent risk management and optimization activities.	
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      Since the latter half of 2001, there has been a significant contraction in the availability of capital for participants in the energy sector. This has been due to a range of factors, including uncertainty arising from the collapse of Enron Corp. and a perceived near-term surplus supply of electric generating capacity. These factors have continued through 2003 and into 2004, during which decreased spark spreads have adversely impacted our liquidity and earnings. While we have been able to continue to access the capital and bank credit markets on attractive terms, we recognize that the terms of financing available to us in the future may not be attractive. To protect against this possibility and due to current market conditions, we scaled back our capital expenditure program to enable us to conserve our available capital resources. We have recently completed the refinancing of Calpine Generating Company (“CalGen,” formerly CCFC II) revolving construction facility indebtedness of approximately $2.3 billion as further discussed in Note 27 of the Notes to Consolidated Financial Statements. Remaining debt maturities are relatively modest in 2004 and 2005 as shown in Note 17 of the Notes to Consolidated Financial Statements.
      Set forth below are the Results of Operations for the years ending December 31, 2003, 2002, and 2001. 
Results of Operations

	Year Ended December 31, 2003, Compared to Year Ended December 31, 2002 (in millions, except for unit pricing information, percentages and MW volumes).	

	Revenue	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		$ Change		% Change	
									
Total revenue	 	$	8,919.5	 	 	$	7,391.9	 	 	$	1,527.6	 	 	 	20.7	%	
      The increase in total revenue is explained by category below. 

		2003		2002		$ Change		% Change	
									
Electricity and steam revenue	 	$	4,695.7	 	 	$	3,222.2	 	 	$	1,473.5	 	 	 	45.7	%	
Sales of purchased power for hedging and optimization	 	 	2,714.2	 	 	 	3,146.0	 	 	 	(431.8	)	 	 	(13.7	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Total electric generation and marketing revenue	 	$	7,409.9	 	 	$	6,368.2	 	 	$	1,041.7	 	 	 	16.4	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Electricity and steam revenue increased as we completed construction and brought into operation 5 new baseload power plants, 7 new peaker facilities and 3 project expansions in 2003. Average megawatts in operation of our consolidated plants increased by 40% to 20,092 MW while generation increased by 13%. The increase in generation lagged behind the increase in average MW in operation as our baseload capacity factor dropped to 53% in 2003 from 65% in 2002 primarily due to the increased occurrence of unattractive off-peak market spark spreads in certain areas, and to a lesser extent due to unscheduled outages caused by equipment problems at certain of our plants in the first half of 2003. Average realized electricity prices, before the effects of hedging, balancing and optimization, increased to $56.97/MWh in 2003 from $44.28/MWh in 2002.
      Sales of purchased power for hedging and optimization decreased during 2003, due primarily to adoption of EITF Issue No. 03-11 and lower realized prices on term power hedges. 

		2003		2002		$ Change		% Change	
									
Oil and gas sales	 	$	107.7	 	 	$	120.9	 	 	$	(13.2	)	 	 	(10.9	)%	
Sales of purchased gas for hedging and optimization	 	 	1,320.9	 	 	 	870.5	 	 	 	450.4	 	 	 	51.7	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Total oil and gas production and marketing revenue	 	$	1,428.6	 	 	$	991.4	 	 	$	437.2	 	 	 	44.1	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Oil and gas sales are net of internal consumption, which is eliminated in consolidation. Internal consumption increased by $228.7 to $409.1 in 2003. Before intercompany eliminations, oil and gas sales increased by $215.4 to $516.7 in 2003 from $301.3 in 2002 due primarily to 76% higher average realized natural gas pricing in 2003.
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      Sales of purchased gas for hedging and optimization increased during 2003 due to higher prices for natural gas. 

		2003		2002		$ Change		% Change	
									
Realized gain on power and gas transactions, net	 	$	24.3	 	 	$	26.1	 	 	$	(1.8	)	 	 	(6.9	)%	
Unrealized loss on power and gas transactions, net	 	 	(50.7	)	 	 	(4.6	)	 	 	(46.1	)	 	 	(1,002.2	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Mark-to-market activities, net	 	$	(26.4	)	 	$	21.5	 	 	$	(47.9	)	 	 	(222.8	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Realized revenue on power and gas mark-to-market activity represents the portion of mark-to-market contracts actually settled.
      Mark-to-market activities, which are shown on a net basis, results from general market price movements against our open commodity derivative positions, including positions accounted for as trading under EITF Issue No. 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities” (“EITF Issue No. 02-3”) and other mark-to-market activities. These commodity positions represent a small portion of our overall commodity contract position. Realized revenue represents the portion of contracts actually settled, while unrealized revenue represents changes in the fair value of open contracts, and the ineffective portion of cash flow hedges. The decrease in mark-to-market activities revenue in 2003 is due primarily to a $27.3 reduction in value of option contracts associated with a spark spread protection arrangement for the CCFC I financing and a decline in the value of a long-term spark spread option contract accounted for on a mark-to-market basis under SFAS No. 133. 

		2003		2002		$ Change		% Change	
									
Other revenue	 	$	107.5	 	 	$	10.8	 	 	$	96.7	 	 	 	895.4	%	
      Other revenue increased during 2003 primarily due to a $67.3 reduction in liability in connection with our settlement with Enron, primarily related to the termination of commodity contracts following the Enron bankruptcy. We also realized $23.6 of revenue from Thomassen Turbine Systems (“TTS”), which we acquired in February 2003. Power Systems Mfg., LLC (“PSM”) revenues increased $6.2 in 2003 as compared to 2002.

	Cost of Revenue	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		$ Change		% Change	
									
Total cost of revenue	 	$	8,082.8	 	 	$	6,385.2	 	 	$	1,697.6	 	 	 	26.6	%	
      The increase in total cost of revenue is explained by category below. 

		2003		2002		$ Change		% Change	
									
Plant operating expense	 	$	679.0	 	 	$	506.0	 	 	$	173.0	 	 	 	34.2	%	
Royalty expense	 	 	24.9	 	 	 	17.6	 	 	 	7.3	 	 	 	41.5	%	
Purchased power expense for hedging and optimization	 	 	2,690.1	 	 	 	2,618.4	 	 	 	71.7	 	 	 	2.7	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Total electrical generation and marketing expense	 	$	3,394.0	 	 	$	3,142.0	 	 	$	252.0	 	 	 	8.0	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Plant operating expense increased due to 5 new baseload power plants, 7 new peaker facilities and 3 expansion projects completed during 2003. Additionally, we experienced higher transmission expenses and higher maintenance expense as several newer plants underwent their first scheduled hot gas path overhauls which generally first occur after a plant has been in operation for three years.
      Royalty expense increased primarily due to an increase in electric revenues at The Geysers geothermal plants.
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      The increase in purchased power expense for hedging and optimization was due primarily to increased spot market costs to purchase power for hedging and optimization activities partially offset by the adoption of EITF Issue No. 03-11. 

		2003		2002		$ Change		% Change	
									
Oil and gas production expense	 	$	86.9	 	 	$	84.4	 	 	$	2.5	 	 	 	3.0	%	
Oil and gas exploration expense	 	 	19.3	 	 	 	13.1	 	 	 	6.2	 	 	 	47.3	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Oil and gas operating expense	 	 	106.2	 	 	 	97.5	 	 	 	8.7	 	 	 	8.9	%	
Purchased gas expense for hedging and optimization	 	 	1,279.6	 	 	 	821.1	 	 	 	458.5	 	 	 	55.8	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	 	Total oil and gas operating and marketing expense	 	$	1,385.8	 	 	$	918.6	 	 	$	467.2	 	 	 	50.9	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Oil and gas production expense increased primarily due to higher production taxes and higher gas treating and transportation costs, which were primarily the result of higher oil and gas prices plus an increase in operating cost and an increase in the average Canadian dollar foreign exchange rate in 2003.
      Oil and gas exploration expense increased primarily as a result of $9.5 in dry hole drilling expenses in 2003 compared to $5.0 in 2002.
      Purchased gas expense for hedging and optimization increased during 2003 due to higher prices for gas in 2003. 

		2003		2002		$ Change		% Change	
									
Fuel expense	 	$	2,564.7	 	 	$	1,752.9	 	 	$	811.8	 	 	 	46.3	%	
      Fuel expense increased in 2003, due to a 15% increase in gas-fired megawatt hours generated and 33% higher prices excluding the effects of hedging, balancing and optimization. This was partially offset by an increased value of internally produced gas, which is eliminated in consolidation. 

		2003		2002		$ Change		% Change	
									
Depreciation, depletion and amortization expense	 	$	583.9	 	 	$	453.4	 	 	$	130.5	 	 	 	28.8	%	
      Depreciation, depletion and amortization expense increased in 2003 primarily due to additional power facilities in consolidated operations subsequent to 2002. Additionally, in 2003 we incurred $18.2 in accelerated depletion expense for oil and gas impairment charges compared to $6.0 in 2002. 

		2003		2002		$ Change		% Change	
									
Operating lease expense	 	$	112.1	 	 	$	111.0	 	 	$	1.1	 	 	 	1.0	%	
      Operating lease expense was flat as the number of operating leases did not change in 2003 as compared to 2002. 

		2003		2002		$ Change		% Change	
									
Other cost of revenue	 	$	42.3	 	 	$	7.3	 	 	$	35.0	 	 	 	479.5	%	
      Approximately half of this increase is due to $17.3 of TTS expense. TTS was acquired in February 2003 so there is no comparable expense in the prior period. Additionally, PSM expense increased $9.0 in 2003 as compared to 2002 due primarily to an increase in sales.

	(Income)/Expenses	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		$ Change		% Change	
									
(Income) from unconsolidated investments in power projects and oil and gas properties	 	$	(76.7	)	 	$	(16.6	)	 	$	60.1	 	 	 	362.0	%	
      The increase in income is primarily due to a $52.8 gain recognized on the termination of the tolling agreement with Aquila Merchant Services, Inc. (“AMS”) on the Acadia Energy Center (see Note 7 of the
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Notes to Consolidated Financial Statements). Additionally, we realized a pre-tax gain of $7.1 from the sale of our interest in the Gordonsville Energy Center to Dominion Virginia Power.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		$ Change		% Change	
									
Equipment cancellation and impairment cost	 	$	64.4	 	 	$	404.7	 	 	$	(340.3	)	 	 	(84.1	)%	
      In 2003 the pre-tax equipment cancellation and impairment charge was primarily a result of cancellation costs related to three turbines and three heat recovery steam generators and impairment charges related to four turbines. The pre-tax charge of $404.7 in 2002 was the result of turbine and other equipment order cancellation charges and related write-offs as a result of our scale-back in construction and development activities. For further information, see Note 4 of the Notes to Consolidated Financial Statements. 

		2003		2002		$ Change		% Change	
									
Long-term service agreement cancellation charges	 	$	16.4	 	 	$	—	 	 	$	16.4	 	 	 	100.0	%	
      Of the $16.4 in charges incurred in 2003, $14.1 occurred as a result of the cancellation of long-term service agreements with General Electric related to our Rumford, Tiverton and Westbrook facilities. The other $2.3 occurred as a result of the cancellation of long-term service agreements with Siemens-Westinghouse Power Corporation related to our Sutter, South Point, Hermiston and Ontelaunee facilities. 

		2003		2002		$ Change		% Change	
									
Project development expense	 	$	21.8	 	 	$	67.0	 	 	$	(45.2	)	 	 	(67.5	)%	
      Project development expense decreased as we placed certain existing development projects on hold and scaled back new development activity. Additionally, write-offs of terminated and suspended development projects decreased to $3.7 in 2003 from $34.8 in 2002. 

		2003		2002		$ Change		% Change	
									
Sales, general and administrative expense	 	$	265.7	 	 	$	229.0	 	 	$	36.7	 	 	 	16.0	%	
      Sales, general and administrative expense increased due to $16.1 of stock-based compensation expense associated with our adoption of SFAS No. 123, “Accounting for Stock-Based Compensation,” effective January 1, 2003, on a prospective basis. $7.1 of the increase is attributable to the acquisition of TTS in February 2003. Other causes of the increase include an increase of $7.3 in insurance costs and an increase in write-off of excess office space of $6.2. Sales, general and administrative expense expressed per MWh of generation increased to $3.22/ MWh in 2003 from $3.15/ MWh in 2002, due to a lower average capacity factor in 2003. 

		2003		2002		$ Change		% Change	
									
Interest expense	 	$	726.1	 	 	$	413.7	 	 	$	312.4	 	 	 	75.5	%	
      Interest expense increased primarily due to the new plants entering commercial operations (at which point capitalization of interest expense ceases). Interest capitalized decreased from $575.5 for the year ended December 31, 2002, to $444.5 for the year ended December 31, 2003. We expect that interest expense will continue to increase and the amount of interest capitalized will decrease in future periods as our plants in construction are completed, and, to a lesser extent, as a result of suspension of certain of our development projects and suspension of capitalization of interest thereon. The remaining increase relates to an increase in average indebtedness, an increase in the amortization of terminated interest rate swaps and the recording of interest expense on debt to the three Calpine Capital Trusts due to the adoption of FIN 46-R prospectively on October 1, 2003. See Note 2 of the Notes to Consolidated Financial Statements for a discussion of our adoption of FIN 46-R. 

		2003		2002		$ Change		% Change	
									
Distributions on trust preferred securities	 	$	46.6	 	 	$	62.6	 	 	$	(16.0	)	 	 	25.6	%	
      As a result of the deconsolidation of the three Calpine Capital Trusts upon adoption of FIN 46-R as of October 1, 2003, the distributions paid on the Trust Preferred Securities during the fourth quarter of 2003
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were no longer recorded on our books and were replaced by interest expense on our debt to the Calpine Capital Trusts, thus explaining the decrease in distributions on trust preferred securities in 2003.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		$ Change		% Change	
									
Interest (income)	 	$	(39.7	)	 	$	(43.1	)	 	$	3.4	 	 	 	(7.9	)%	
      The decrease is primarily due to lower cash balances and lower interest rates in 2003. 

		2003		2002		$ Change		% Change	
									
Minority interest expense	 	$	27.3	 	 	$	2.7	 	 	$	24.6	 	 	 	911.1	%	
      The increase is primarily due to an increase of $24.4 of minority interest expense associated with the Calpine Power Income Fund (“CPIF”), which had an initial public offering in August 2002. During 2003, as a result of a secondary offering of Calpine’s interests in CPIF, Calpine decreased its ownership interests in February 2003 to 30%, thus increasing minority interest expense. Additionally, prior to fourth quarter of 2003, we presented minority interest expense on CPIF net of taxes, but we reclassed $13.4 of tax benefit from minority interest expense to tax expense in the fourth quarter of 2003, thus increasing minority interest expense by that amount. 

		2003		2002		$ Change		% Change	
									
(Income) from repurchase of various issuances of debt	 	$	(278.6	)	 	$	(118.0	)	 	$	(160.6	)	 	 	136.1	%	
      The 2003 pre-tax gain of $278.6 was recorded in connection with the repurchase of various issuances of debt at a discount. In 2002 the primary contribution was a gain of $114.8 from the receipt of Senior Notes, which were trading at a discount to face value, as partial consideration for British Columbia asset sales. 

		2003		2002		$ Change		% Change	
									
Other (income)	 	$	(46.1	)	 	$	(34.2	)	 	$	(11.9	)	 	 	34.8	%	
      Other income during 2003 is comprised primarily of gains of $62.2 on the sale of oil and gas assets to Calpine Natural Gas Trust and $57.0 from the termination of a power contract at our RockGen Energy Center. This income was offset primarily by $33.3 of foreign exchange translation losses and $12.5 of letter of credit fees. The foreign exchange translation losses recognized into income were mainly due to a strong Canadian dollar during 2003. In 2002 the primary contribution to other income was a $41.5 gain on the termination of a power sales agreement. 

		2003		2002		$ Change		% Change	
									
(Benefit) for income taxes	 	$	(0.1	)	 	$	(14.9	)	 	$	14.8	 	 	 	(99.3	)%	
      During 2003 the effective tax rate increased to (0.1)% from (38.6)% from 2002. This effective rate variance is due to the inclusion of significant permanent items in the calculation of the effective rate, which are fixed in amount and have a significant effect on the effective tax rates as such items become more material to net income. 

		2003		2002		$ Change		% Change	
									
Discontinued operations, net of tax	 	$	(8.7	)	 	$	64.9	 	 	$	(73.6	)	 	 	(113.4	)%	
      The 2003 discontinued operations activity included the effects of an agreement to sell our 50% interest in the Lost Pines 1 Energy Center, the sale of our Alvin South Field oil and gas assets and the sale of our specialty data center engineering business, reflecting the soft market for data centers for the foreseeable future. The sale of the Lost Pines 1 Energy Center closed in January 2004. The 2002 discontinued operations activity included the Lost Pines 1 Energy Center, Alvin South Field oil and gas assets, our specialty data center engineering business, and the DePere Energy Center, as well as the Drakes Bay Field, British Columbia and Medicine River oil and gas assets. With the exception of the Lost Pines 1 Energy Center, Alvin South Field oil and gas assets and our specialty data center engineering business, the sales of these assets were completed by
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December 31, 2002; therefore, their results are not included in the 2003 activity. For more information about discontinued operations, see Note 10 of the Notes to Consolidated Financial Statements.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		$ Change		% Change	
									
Cumulative effect of a change in accounting principle, net of tax	 	$	180.9	 	 	$	—	 	 	$	180.9	 	 	 	100.0	%	
      The gain from the cumulative effect of a change in accounting principle includes three items: (1) a gain of $181.9, net of tax effect, from the adoption of Derivatives Implementation Group (“DIG”) Issue No. C20, “Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature;” (2) a loss of $1.5 associated with the adoption of FIN 46-R and the deconsolidation of the three Calpine Capital Trusts which issued the HIGH TIDES. The loss of $1.5 represents the reversal of a gain, net of tax effect, recognized prior to the adoption of FIN 46-R on our repurchase of $37.5 of the value of HIGH TIDES by issuing Calpine Corporation common stock valued at $35.0; and (3) a gain of $0.5, net of tax effect, from the adoption of SFAS No. 143 “Accounting for Asset Retirement Obligations.”

	Net Income	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		$ Change		% Change	
									
Net income	 	$	282.0	 	 	$	118.6	 	 	$	163.4	 	 	 	137.8	%	
      Our growing portfolio of operating power generation facilities contributed to a 13% increase in electric generation production for the year ended December 31, 2003, compared to the same period in 2002. Electric generation and marketing revenue increased 16.4% for the year ended December 31, 2003, as electricity and steam revenue increased by $1,473.5 or 45.7%, as a result of the higher production and higher electricity prices. This was partially offset by a decline in sales of purchased power for hedging and optimization. Operating results for the year ended December 31, 2003, reflect a decrease in average spark spreads per megawatt-hour compared with the same period in 2002. While we experienced an increase in realized electricity prices in 2003, this was more than offset by higher fuel expense. At the same time, higher realized oil and gas pricing resulted in an increase in oil and gas production margins compared to the prior period. In 2003 we recorded other revenue of $67.3 in connection with our settlement with Enron, primarily related to the termination of commodity contracts following the Enron bankruptcy.
      Plant operating expense, interest expense and depreciation were higher due to the additional plants in operation. Gross profit for the year ended December 31, 2003, decreased approximately 16.9%, compared to the same period in 2002. During 2003 overall financial results significantly benefited from $278.6 of net pre-tax gains recorded in connection with the repurchase of various issuances of debt and preferred securities at a discount, and a gain of $52.8 from the termination of the AMS power contract at the Acadia Energy Center, a gain of $57.0 from the termination of a power contract at the RockGen Energy Center, a gain of $62.2 from the sale of oil and gas assets to the Calpine Natural Gas Trust and an after-tax gain of $180.9 due to the cumulative effect of changes in accounting principle.
               Year Ended December 31, 2002, Compared to Year Ended December 31, 2001 (in millions, except for unit pricing information, percentages and MW volumes).

	Revenue	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2002		2001		$ Change		% Change	
									
Total revenue	 	$	7,391.9	 	 	$	6,714.9	 	 	$	677.0	 	 	 	10.1	%	
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      The increase in total revenue is explained by category below. 

		2002		2001		$ Change		% Change	
									
Electricity and steam revenue	 	$	3,222.2	 	 	$	2,385.3	 	 	$	836.9	 	 	 	35.1	%	
Sales of purchased power for hedging and optimization	 	 	3,146.0	 	 	 	3,332.4	 	 	 	(186.4	)	 	 	(5.6	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Total electric generation and marketing revenue	 	$	6,368.2	 	 	$	5,717.7	 	 	$	650.5	 	 	 	11.4	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Electricity and steam revenue increased as we completed construction and brought into operation 11 new baseload power plants, 7 new peaker facilities and 3 project expansions in 2002. Average megawatts in operation of our consolidated plants increased by 84% to 14,346 MW while generation increased by 72%. The increase in generation lagged behind the increase in average MW in operation as our baseload capacity factor dropped to 65% in 2002 from 70% in 2001 primarily because we operated fewer hours, especially in off-peak periods, than in 2001, due to the increased occurrence of unattractive market spark spreads in certain areas. The overall increase in generation was partially offset by lower average pricing, which dropped 21% as average realized electricity prices, before the effects of hedging, balancing and optimization, declined to $44.28/ MWh in 2002 from $56.27/ MWh in 2001.
      Sales of purchased power for hedging and optimization decreased during 2002, due to lower power prices and increased industry-wide credit restrictions on risk management activities in 2002. 

		2002		2001		$ Change		% Change	
									
Oil and gas sales	 	$	120.9	 	 	$	286.2	 	 	$	(165.3	)	 	 	(57.8	)%	
Sales of purchased gas for hedging and optimization	 	 	870.5	 	 	 	526.5	 	 	 	344.0	 	 	 	65.3	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Total oil and gas production and marketing revenue	 	$	991.4	 	 	$	812.7	 	 	$	178.7	 	 	 	22.0	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Oil and gas sales are net of internal consumption, which increased by $60.3 to $180.4 in 2002. Internal consumption is eliminated in consolidation. Additionally oil and gas sales were reduced by reclassification of $76.5 in 2002 and $136.4 in 2001 to discontinued operations for assets sold. Before inter-company eliminations and reclassifications to discontinued operations, oil and gas sales decreased by $164.9 due primarily to 31% lower average realized natural gas pricing in 2002.
      Sales of purchased gas for hedging and optimization increased during 2002 as we brought into operation new generation and the related level of physical gas optimization and balancing activity increased to support the new generation. 

		2002		2001		$ Change		% Change	
									
Realized gain on power and gas transactions, net	 	$	26.1	 	 	$	29.1	 	 	$	(3.0	)	 	 	(10.3	)%	
Unrealized gain (loss) on power and gas transactions, net	 	 	(4.6	)	 	 	122.6	 	 	 	(127.2	)	 	 	(103.8	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Total mark-to-market activities, net	 	$	21.5	 	 	$	151.7	 	 	$	(130.2	)	 	 	(85.8	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Realized revenue on power and gas trading and other mark-to-market activity represents the portion of contracts actually settled.
      In the year ended December 31, 2001, we recognized a net unrealized mark-to-market gain of $68.5 from power contracts in a market area where we did not have generation assets and approximately $66 of gains from various other power and gas transactions. The shift from unrealized mark-to-market gain in 2001 to unrealized loss in 2002 reflects increased industry-wide credit and liquidity restrictions on risk management and trading activities, which caused us to greatly curtail trading activities so that our available capacity could be concentrated on hedging activities associated with our existing physical power and gas assets. Also, in 2002 we
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established liquidity reserves of approximately $6.7 against unrealized mark-to-market revenue to take into account reduced liquidity and the resulting increase in bid/ask spreads in the energy industry.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2002		2001		$ Change		% Change	
									
Other revenue	 	$	10.8	 	 	$	32.7	 	 	$	(21.9	)	 	 	(67.0	)%	
      The decrease in 2002 is due primarily to one-time license fee revenue of $10.6 recognized in 2001 by our wholly owned subsidiary PSM and due to $5.9 in commissioning services in 2001 related to an unconsolidated construction project.

	Cost of Revenue	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2002		2001		$ Change		% Change	
									
Total cost of revenue	 	$	6,385.2	 	 	$	5,491.8	 	 	$	893.4	 	 	 	16.3	%	
      The increase in total cost of revenue is explained by category below. 

		2002		2001		$ Change		% Change	
									
Plant operating expense	 	$	506.0	 	 	$	324.0	 	 	$	182.0	 	 	 	56.2	%	
Royalty expense	 	 	17.6	 	 	 	27.5	 	 	 	(9.9	)	 	 	(36.0	)%	
Purchased power expense for hedging and optimization	 	 	2,618.4	 	 	 	2,986.6	 	 	 	(368.2	)	 	 	(12.3	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Total electrical generation and marketing expense	 	$	3,142.0	 	 	$	3,338.1	 	 	$	(196.1	)	 	 	(5.9	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Plant operating expense increased due to 11 new baseload power plants, 7 new peaker facilities and 3 expansion projects completed during 2002, but, expressed per MWh of generation, it decreased from $7.64/MWh to $6.95/MWh as economies of scale were realized due to the increase in the average size of our plants.
      Royalty expense decreased due to a decrease in revenue at The Geysers geothermal plants due to lower electricity prices.
      The decrease in purchased power expense for hedging and optimization was caused by lower power prices and by increased industry-wide credit restrictions on risk management activities in 2002. 

		2002		2001		$ Change		% Change	
									
Oil and gas production expense	 	$	84.4	 	 	$	76.9	 	 	$	7.5	 	 	 	9.8	%	
Oil and gas exploration expense	 	 	13.1	 	 	 	13.6	 	 	 	(0.5	)	 	 	(3.7	)%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Oil and gas operating expense	 	 	97.5	 	 	 	90.5	 	 	 	7.0	 	 	 	7.7	%	
Purchased gas expense for hedging and optimization	 	 	821.1	 	 	 	492.6	 	 	 	328.5	 	 	 	66.7	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	 	Total oil and gas operating and marketing expense	 	$	918.6	 	 	$	583.1	 	 	$	335.5	 	 	 	57.5	%	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
      Oil and gas production expense increased primarily due to increases in gas treating and transportation costs coupled with higher lifting costs due to a 1% increase in equivalent volumes and due to inflation.
      Oil and gas exploration expense increased as we incurred $5.0 in dry hole drilling expenses in 2002 compared to $3.6 in 2001.
      Purchased gas expense for hedging and optimization increased during 2002 as we brought into operation new generation and the related level of physical gas optimization and balancing activity increased to support the new generation. 

		2002		2001		$ Change		% Change	
									
Fuel expense	 	$	1,752.9	 	 	$	1,150.8	 	 	$	602.1	 	 	 	52.3	%	
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      Fuel expense increased in 2002 due to an 85% increase in gas-fired megawatt hours generated which was partially offset by significantly lower gas prices, increased usage of internally produced gas and an improved average heat rate of our generation portfolio in 2002. 

		2002		2001		$ Change		% Change	
									
Depreciation, depletion and amortization expense	 	$	453.4	 	 	$	309.4	 	 	$	144.0	 	 	 	46.5	%	
      Depreciation, depletion and amortization expense increased primarily due to additional power facilities in consolidated operations during 2002 as compared to 2001. 

		2002		2001		$ Change		% Change	
									
Operating lease expense	 	$	111.0	 	 	$	99.5	 	 	$	11.5	 	 	 	11.6	%	
      Operating lease expense increased due to the RockGen, Aidlin and South Point sale/leaseback transactions entered into during 2001. 

		2002		2001		$ Change		% Change	
									
Other cost of revenue	 	$	7.3	 	 	$	10.9	 	 	$	(3.6	)	 	 	(33.0	)%	
      The decrease is primarily due to $4.1 less expense at PSM, as combustion parts sales to third parties decreased in 2002.

	(Income)/ Expense	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2002		2001		$ Change		% Change	
									
(Income) from unconsolidated investments in power projects and oil and gas properties	 	$	(16.6	)	 	$	(16.9	)	 	$	0.3	 	 	 	(1.8	)%	
      The modest decrease is primarily due to approximately $14.6 earned from our investment in the Acadia facility, which commenced operations in August 2002, being offset by $4.0 less revenue from our investment in Lockport, which we sold in the first quarter of 2002, losses at Androscoggin and Grays Ferry in 2002 due to lower spark spreads, and a $6.7 decrease in interest income from loans to power projects resulting from the extinguishment of a note from the Delta Energy Center, LLC after we acquired the remaining 50% interest in November 2001. 

		2002		2001		$ Change		% Change	
									
Equipment cancellation impairment cost	 	$	404.7	 	 	$	—	 	 	$	404.7	 	 	 	—	 	
      The pre-tax charge of $404.7 in the year ended December 31, 2002, was a result of turbine and other equipment order cancellation charges and related write-offs as a result of our revised construction and development program. For further information, see Note 4 of the Notes to Consolidated Financial Statements. 

		2002		2001		$ Change		% Change	
									
Project development expense	 	$	67.0	 	 	$	35.9	 	 	$	31.1	 	 	 	86.6	%	
      Project development expense increased primarily because we expensed $34.8 of previously capitalized costs due to the cancellation or indefinite suspension of certain development projects. Additionally, we stopped capitalizing costs on certain development projects placed on hold. 

		2002		2001		$ Change		% Change	
									
Sales, general and administrative expense	 	$	229.0	 	 	$	150.5	 	 	$	78.5	 	 	 	52.2	%	
      The increase was attributable to continued growth in personnel and associated overhead costs necessary to support the overall growth in our operations. In addition we incurred $13.7 of severance costs and the write off of excess office space due to the reduction of our work force during 2002. Sales, general and administrative expense expressed per MWh of generation decreased to $3.15/MWh in 2002 from $3.55/MWh in 2001. 

		2002		2001		$ Change		% Change	
									
Merger expense	 	$	—	 	 	$	41.6	 	 	$	(41.6	)	 	 	—	 	
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      The merger expense of $41.6 in the year ended December 31, 2001, was a result of the pooling-of-interests transaction with Encal Energy Ltd. that closed on April 19, 2001. 

		2002		2001		$ Change		% Change	
									
Interest expense	 	$	413.7	 	 	$	196.6	 	 	$	217.1	 	 	 	110.4	%	
      Interest expense increased primarily due to the issuance of the 4% Convertible Senior Notes Due 2006 and additional senior notes issued in the second half of 2001 and due to the new plants entering commercial operations (at which point capitalization of interest expense ceases). Interest capitalized increased from $498.7 for the year ended December 31, 2001, to $575.5 for the year ended December 31, 2002, due to a larger construction portfolio during most of 2002. We expect that interest expense will continue to increase and the amount of interest capitalized will decrease in future periods as our plants in construction are completed, and, to a lesser extent, as a result of suspension of certain of our development projects and suspension of capitalization of interest thereon. 

		2002		2001		$ Change		% Change	
									
Interest (income)	 	$	(43.1	)	 	$	(72.4	)	 	$	29.3	 	 	 	(40.5	)%	
      The decrease in interest income is due primarily to lower cash balances and lower interest rates in 2002. 

		2002		2001		$ Change		% Change	
									
(Income) from the repurchase of various issuances of debt	 	$	(118.0	)	 	$	(11.9	)	 	$	(106.1	)	 	 	891.6	%	
      In 2002 the primary contribution was the recognition of $114.8 of net pre-tax gain from the receipt of Senior Notes, which were trading at a discount to face value, as partial consideration for British Columbia asset sales. In 2001 the $11.9 represents the net pre-tax gain on extinguishment of debt from repurchasing $122.0 aggregate principal amount of our Zero Coupon Convertible Debentures Due 2021 at a discount. 

		2002		2001		$ Change		% Change	
									
Other (income)	 	$	(34.2	)	 	$	(41.8	)	 	$	(7.6	)	 	 	18.2	%	
      In 2002 the primary contribution to other income was a $41.5 gain on the termination of a power sales agreement. In 2001 other income resulted from contract settlements and gains from the sales of certain assets. 

		2002		2001		$ Change		% Change	
									
Provision (benefit) for income taxes	 	$	(14.9	)	 	$	297.6	 	 	$	(312.5	)	 	 	(105	)%	
      The decrease is primarily due to the significant decrease in income from continuing operations from 2001 to 2002. In 2002 the income tax benefit was caused by a full year of permanent tax items arising out of our cross border financings in 2001. See Note 18 of the Notes to Consolidated Financial Statements for further discussions. 

		2002		2001		$ Change		% Change	
									
Discontinued operations, net of tax	 	$	64.9	 	 	$	39.5	 	 	$	25.4	 	 	 	64.3	%	
      The increase in 2002 results reflects approximately $56.5 of gains relating to the sale of oil and gas assets and the DePere Energy Center, partially offset by lower earnings from these discontinued operations as they did not contribute to earnings for the full year in 2002 and due to higher gas prices in 2001. See Note 10 of the Notes to Consolidated Financial Statements for further discussion. 

		2002		2001		$ Change		% Change	
									
Cumulative effect of a change in accounting principle, net of tax	 	$	—	 	 	$	1.0	 	 	$	(1.0	)	 	 	—	 	
      In 2001 the $1.0 of additional income (net of tax of $0.7), is due to the adoption of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
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	Net Income	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2002		2001		$ Change		% Change	
									
Net income	 	$	118.6	 	 	$	623.5	 	 	$	(504.9	)	 	 	(81.0	)%	
      The decrease in net income reflects a $216.5 decrease in gross profit resulting primarily from lower spark spreads per MWh, which more than offset the positive effects of the increase in generation volume. It also reflects $130.2 lower mark-to-market revenue in 2002. Additionally, we recorded $404.7 in turbine cancellation and impairment charges in 2002, and interest expense increased by $217.1 as more plants entered commercial operations and interest ceased being capitalized on them at that time. Finally, we experienced $78.5 higher general and administrative expense in 2002 due to the dramatic growth in our operations. These factors were mitigated by a $312.5 reduction in income tax expense and a $114.8 net pre-tax gain from receipt of senior notes in consideration for an asset sale discussed above. 
Liquidity and Capital Resources
      Our business is capital intensive. Our ability to capitalize on growth opportunities is dependent on the availability of capital on attractive terms. The availability of such capital in today’s environment is uncertain. To date, we have obtained cash from our operations; borrowings under our term loan and revolving credit facilities; issuance of debt, equity, trust preferred securities and convertible debentures; proceeds from sale/leaseback transactions; sale or partial sale of certain assets; contract monetizations and project financing. We have utilized this cash to fund our operations, service or prepay debt obligations, fund acquisitions, develop and construct power generation facilities, finance capital expenditures, support our hedging, balancing, optimization and trading activities at CES, and meet our other cash and liquidity needs. Our strategy is also to reinvest our cash from operations into our business development and construction program or to use it to reduce debt, rather than to pay cash dividends. As discussed below, we have a liquidity-enhancing program underway to fund the completion of our current construction portfolio, for refinancing and for general corporate purposes.
      In May and June 2003 our $950 million in secured working capital revolving credit facilities matured and were extended, ultimately to July 16, 2003. On July 16, 2003, we closed a $3.3 billion term loan and second-priority senior secured notes offering (the “July 2003 offerings”), entered into agreements for a new $500 million working capital facility which is composed of a first-priority senior secured two-year, $300 million working capital revolver and a first-priority senior secured four-year, $200 million term loan and repaid the outstanding balance on the revolving credit facilities. We also repaid the $949.6 million in funded borrowings outstanding under our $1.0 billion secured term credit facility which was to mature in May 2004 with proceeds of the July 2003 offerings. We have also repurchased nearly $1.5 billion aggregate principal amount of our outstanding senior notes and HIGH TIDES in 2003 and 2004 primarily with proceeds of the July 2003 offerings and also through equity swaps.
      In November 2003 our $1.0 billion secured revolving construction financing facility through CCFC I was scheduled to mature. On August 14, 2003, CCFC I and another of our wholly owned subsidiaries, CCFC Finance Corp., closed on a $750.0 million institutional term loan and secured notes offering. On September 25, 2003, CCFC I and CCFC Finance Corp. closed on a $50.0 million secured notes offering, which represented an add-on to the secured notes offering completed on August 14, 2003. Net proceeds from these offerings were used to refinance the majority of the $880.1 million outstanding at the date the facility was repaid. The remainder of that facility was repaid from cash proceeds from the July 2003 offerings.
      In November 2004 our $2.5 billion secured revolving construction financing facility through our wholly owned subsidiary CCFC II (renamed “CalGen”) was scheduled to mature, requiring us to refinance this indebtedness. As of December 31, 2003, there was $2.3 billion outstanding under this facility including $53.2 million of letters of credit. On March 23, 2004, CalGen completed its offering of secured institutional term loans and secured notes, which refinanced the CalGen facility. We realized total proceeds from the offering in the amount of $2.4 billion, before transaction costs and fees. See Item 1. “Business — Recent Developments” for more information regarding this offering.
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      The holders of our 2006 Convertible Senior Notes have a right to require us to repurchase them at 100% of their principal amount plus any accrued and unpaid interest on December 26, 2004. We can effect such a repurchase with cash, shares of Calpine stock or a combination of the two. In 2003 and 2004 we repurchased in open market and privately negotiated transactions approximately $1,126.3 million of the outstanding principal amount of 2006 Convertible Senior Notes, primarily with proceeds of the July 2003 offerings and through equity swaps and with the proceeds of our 2023 Convertible Notes offering, and the February 9, 2004, tender offer, in which we initiated a cash tender offer for all of the outstanding 2006 Convertible Senior Notes for a price of par plus accrued interest. Approximately $409.4 million aggregate principal amount of the 2006 Convertible Senior Notes were tendered pursuant to the tender offer, which expired on March 9, 2004, for which we paid a total of $412.8 million, which included accrued interest of $3.4 million. Currently, 2006 Convertible Senior Notes in the aggregate principal amount of $73.7 million remain outstanding.
      On November 6, 2003, we priced our separate offerings of 2023 Convertible Notes and Second Priority Senior Secured Notes. The latter offering was for $400.0 million of 9.875% Second Priority Senior Secured Notes Due 2011, offered at 98.01% of par. This offering closed on November 18, 2003. We used the net proceeds from this offering to purchase outstanding senior notes. The other offering consisted of $650.0 million of 4.75% Contingent Convertible Senior Notes Due 2023, which included the exercise of $50.0 million of an option to purchase additional 2023 Convertible Notes granted to one of the initial purchasers. The 2023 Convertible Notes are convertible into cash and shares of Calpine common stock at an initial conversion price of $6.50 per share, which represents a 38% premium on the November 6, 2003 New York Stock Exchange closing price of $4.71 per Calpine common share. This offering closed on November 14, 2003. Net proceeds from this offering are being used to repurchase our outstanding 2006 Convertible Senior Notes. In addition, on January 9, 2004, we received funding on an additional $250.0 million aggregate principal amount of the 2023 Convertible Notes pursuant to the exercise in full by one of the initial purchasers of its remaining option to purchase additional 2023 Convertible Notes, the net proceeds of which will be used to repurchase our outstanding 2006 Convertible Senior Notes pursuant to the tender offer described above.
      In addition, $276.0 million of our outstanding HIGH TIDES are scheduled to be remarketed no later than November 1, 2004, $360.0 million of our HIGH TIDES are scheduled to be remarketed no later than February 1, 2005 and $517.5 million of our HIGH TIDES are scheduled to be remarketed no later than August 1, 2005. In the event of a failed remarketing, the relevant HIGH TIDES will remain outstanding as convertible securities at a term rate equal to the treasury rate plus 6% per annum and with a term conversion price equal to 105% of the average closing price of our common stock for the five consecutive trading days after the applicable final failed remarketing termination date. While a failed remarketing of our HIGH TIDES would not have a material effect on our liquidity position, it would impact our calculation of diluted earnings per share and increase our interest expense.
      We expect to have sufficient liquidity from cash flow from operations, borrowings available under lines of credit, access to sale/leaseback and project financing markets, sale or monetization of certain assets and cash balances to satisfy all obligations under our outstanding indebtedness, and to fund anticipated capital expenditures and working capital requirements for the next twelve months.
      Factors that could affect our liquidity and capital resources are also discussed in Item 1. “Business — Risk Factors.”
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      Cash Flow Activities  — The following table summarizes our cash flow activities for the periods indicated: 

			
		Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands)	
Beginning cash and cash equivalents	 	$	579,486	 	 	$	1,594,144	 	 	$	664,722	 	
Net cash provided by:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Operating activities	 	 	290,559	 	 	 	1,068,466	 	 	 	423,569	 	
 	Investing activities	 	 	(2,515,365	)	 	 	(3,837,827	)	 	 	(7,240,655	)	
 	Financing activities	 	 	2,623,986	 	 	 	1,757,396	 	 	 	7,750,177	 	
 	Effect of exchange rates changes on cash and cash equivalents	 	 	13,140	 	 	 	(2,693	)	 	 	(3,669	)	
 	 	 		 	 	 		 	 	 		 	
 	Net increase (decrease) in cash and cash equivalents	 	 	412,320	 	 	 	(1,014,658	)	 	 	929,422	 	
 	 	 		 	 	 		 	 	 		 	
Ending cash and cash equivalents	 	$	991,806	 	 	$	579,486	 	 	$	1,594,144	 	
 	 	 		 	 	 		 	 	 		 	
      Operating activities for the year ended December 31, 2003, provided net cash of $290.6 million, compared to $1,068.5 million for the same period in 2002. The decrease in operating cash flow between periods is primarily due to the working capital funding requirements. During the year ended December 31, 2003, operating assets and liabilities used approximately $609.8 million, as compared to having provided $480.2 million in the same period last year. The growth in short term assets such as margin deposits and accounts receivable accounted for the majority of this difference. At December 31, 2003, we had posted $188.0 million in net margin deposits as compared to $25.2 million at the end of 2002. The increase in such deposits, which serve as collateral for certain of our commodity transactions that are “out-of-the-money” on a mark-to-market basis, is reflective of movements in commodity prices and a higher mix of margin deposits posted relative to letters of credit (during 2003 the dollar value of letters of credit that we posted as collateral for commodity transactions decreased $91.6 million). In 2003 the increase in the posting of margin deposits constituted a use of funds of $162.8 million, which compares to a $320.3 million source of operating cash flow in 2002 as a result of the decrease in margin deposits during that year. The decrease in margin deposits in 2002 was primarily the result of increased gas prices, which allowed us to post less collateral on certain of our gas contracts.
      Accounts receivable grew by $221.2 million in 2003 from year-end 2002, representing a use of funds. Although average spark spreads were lower in 2003 than in 2002, higher electricity prices and increased electrical generation resulted in higher revenues, and consequently, higher receivables balances. However, in 2002 accounts receivable decreased by $229.2 million from year-end 2001, representing a source of funds as we collected from escrow approximately $222.3 million in 2002 for the PG&E past due pre-petition receivables that were sold to a third party in December 2001.
      Also, in 2003 we received $105.5 million from the Acadia joint venture, following the termination of the power purchase agreement with Aquila Merchant Services, Inc. and the restructuring of our interest in the joint venture, which is included in distributions from unconsolidated investments. See Note 7 of the Notes to Consolidated Financial Statements for further discussion.
      Investing activities for the year ended December 31, 2003, consumed net cash of $2,515.4 million, as compared to $3,837.8 million in the same period of 2002. In both periods capital expenditures represent the majority of investing cash outflows. The decrease between periods is due to the completion of construction on several facilities during 2002 and 2003, and due to our revised capital expenditure program, which reduced capital investments in 2003. Additionally, investing activities for 2003 include a use of $766.8 million for restricted cash, of which approximately $553.3 million is expected to be used to repay outstanding indebtedness within the next year.
      Financing activities for the year ended December 31, 2003, provided net cash $2,624.0 million, compared to $1,757.4 million in the prior year. Current year cash inflows are primarily the result of several financing
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transactions, including $3.9 billion from the issuance of senior notes, $802.2 million from the Power Contract Financing, L.L.C. (“PCF”) financing transaction, $785.5 million from the refinancing of our CCFC I credit facility, $301.7 million from the issuance of secured notes by our wholly owned subsidiary Gilroy Energy Center (“GEC”) LLC, $159.7 million from secondary trust unit offerings from our Canadian Income Trust, $82.8 million from the monetization of one of our power sales agreements, $82.0 million, $88.0 million, and $74.0 million, respectively, from the sales of preferred interests in the cash flows of our King City, Auburndale, and GEC Holdings, LLC facilities and additional borrowings under our revolvers. This was partially offset by financing costs and $5.0 billion in debt repayments and repurchases. We expect that the significant financing transactions will allow us to continue to retire short term debt and will also enable us to make further repurchases of other long term securities. In the same period of 2002 financing inflows were comprised of $751.8 million from the issuance of common stock, and $2.3 billion in debt financing, partially offset by the use of $869.7 million used to repay our Zero Coupon Convertible Debentures Due 2021, in addition to the repayment of $412.7 million of other indebtedness.
      Letter of Credit Facilities  — At December 31, 2003 and 2002, we had approximately $410.8 million and $685.6 million, respectively, in letters of credit outstanding under various credit facilities to support CES risk management and other operational and construction activities. Of the total letters of credit outstanding, $272.1 million and $573.9 million, respectively, were in aggregate issued under the cash collateralized letter of credit facility and the corporate revolving credit facility at December 31, 2003 and 2002, respectively.
      CES Margin Deposits and Other Credit Support  — As of December 31, 2003 and 2002, CES had deposited net amounts of $188.0 million and $25.2 million, respectively, in cash as margin deposits with third parties and had letters of credit outstanding of $14.5 million and $106.1 million, respectively. CES uses these margin deposits and letters of credit as credit support for the gas procurement and risk management activities it conducts on Calpine’s behalf. Future cash collateral requirements may increase based on the extent of our involvement in derivative activities and movements in commodity prices and also based on our credit ratings and general perception of creditworthiness in this market. While we believe that we have adequate liquidity to support CES’s operations at this time, it is difficult to predict future developments and the amount of credit support that we may need to provide as part of our business operations.
      Working Capital  — At December 31, 2002, we had a negative working capital balance of approximately $1.3 billion due primarily to the classification as a current liability of the outstanding CCFC I construction revolving credit facility balance of $970.1 million, which was successfully refinanced in August 2003.
      Revised Capital Expenditure Program  — Following a comprehensive review of our power plant development program, we announced in January 2002 the adoption of a revised capital expenditure program which contemplated the completion of 27 power projects (representing 15,200 MW) then under construction. 22 of these facilities have subsequently achieved full or partial commercial operation as of December 31, 2003. Construction of advanced stage development projects is expected to proceed only when there is an established market need for additional generating resources at prices that will allow us to meet our investment criteria, and when capital may again become available to us on attractive terms. Further, our entire development and construction program is flexible and subject to continuing review and revision based upon such criteria.
      On March 12, 2002, we announced a new turbine program that reduced previously forecasted capital spending by approximately $1.2 billion in 2002 and $1.8 billion in 2003. The revision includes adjusted timing of turbine delivery and related payment schedules and also cancellation of some orders. As a result of these turbine cancellations and other equipment cancellations, we recorded a pre-tax charge of $168.5 million in the first quarter of 2002.
      On February 11, 2003, we announced a significant restructuring of its turbine agreements (see Note 4 of the Notes to Consolidated Financial Statements), which enables us to cancel up to 131 steam and gas turbines. We recorded a pre-tax charge of $207.4 million in the quarter ending December 31, 2002, in connection with fees paid to vendors to restructure these contracts. To date, 60 of these turbines have been canceled, leaving the disposition of 71 turbines still to be determined.
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      In July 2003 we completed a restructuring of our existing agreements for 20 gas and 2 steam turbines. The new agreement provides for later payment dates, which are in line with our construction program. The table in Note 24 of the Notes to Consolidated Financial Statements sets forth future turbine payments for construction and development projects, as well as for unassigned turbines. It includes previously delivered turbines, payments and delivery year for the remaining 5 turbines to be delivered as well as payment required for the potential cancellation costs of the remaining 71 gas and steam turbines. The table in Note 24 of the Notes to Consolidated Financial Statements does not include payments that would result if we were to release for manufacturing any of these remaining 71 turbines. See Note 24 of the Notes to Consolidated Financial Statements for more information regarding turbine restructuring agreements.
      In 2003 the pre-tax equipment cancellation and impairment charge was primarily a result of the cancellation costs related to three turbines and three heat recovery steam generators totaling $31.8 million, impairment charges related to four turbines totaling $27.4 million and storage and suspension costs for unassigned equipment.
      Uses and Sources of Funding  — Our estimated uses of funds for 2004 are as follows: cash interest of $1.2 billion, committed capital expenditures of $0.3 billion, discretionary capital expenditures of $0.3 billion, turbine costs of $0.2 billion, maintenance capital of $0.4 billion, principal payments on operating leases and debt of $0.8 billion and working capital and other miscellaneous uses of $0.2 billion. These outflows will be funded primarily through cash on hand (cash and cash equivalents, the current portion of restricted cash and funds escrowed for the repurchase of outstanding debt and borrowing capacity under our various credit facilities) of $2.3 billion, estimated EBITDA, as adjusted of $1.7 billion and $0.4 billion of proceeds from financing transactions. Actual costs for the projected use of funds identified above, and net proceeds from the projected sources of funds identified above could vary from those estimates, potentially in material respects. In addition, the timing is difficult to predict and we may not be able to complete the financings or we may be able to complete them only on less favorable terms than currently anticipated. The above reflects the refinancing of the CCFC II revolving construction financing facility, expiring in 2004, which occurred on March 23, 2004. Factors that could affect the accuracy of these estimates include the factors identified at the beginning of this section and under “Risk Factors” in Item 1. “Business.”
      Capital Availability  — Access to capital for many in the energy sector, including us, has been restricted since late 2001. While we have been able to access the capital and bank credit markets, in this new environment it has been on significantly different terms than in the past. In particular, our senior working capital facility and term loan financings and the majority of our debt securities offered and sold in this period, have been secured by certain of our assets and equity interests. While we believe we will be successful in refinancing all debt before maturity, the terms of financing available to us now and in the future may not be attractive to us and the timing of the availability of capital is uncertain and is dependent, in part, on market conditions that are difficult to predict and are outside of our control.
      At the beginning of 2003, Calpine launched a liquidity-enhancing and refinancing program, which resulted in us closing approximately $8.6 billion of transactions such as contract monetizations, sales of non-strategic assets, refinancings, and new corporate and project financings.
      To date, we have completed in excess of $2.7 billion of liquidity-enhancing transactions, exceeding our original $2.3 billion goal.
      Over the past several months (in 2003, unless otherwise noted), we:

			
 	• 	Completed the $250 million, non-recourse project financing facility to fund the construction of our 600-megawatt Rocky Mountain Energy Center (February 2004).	
 		
 	• 	Closed the $133 million monetization of a PG&E note receivable; and	
 		
 	• 	Received $36 million for the sale of our 50% interest in the 240-megawatt Gordonsville power plant.	
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      Over the past twelve months, we completed over $8 billion of capital market transactions and successfully refinanced $6.6 billion of current maturities. We:

			
 	• 	Completed $3.8 billion of term loan and secured notes offerings — the largest high-yield financing in the capital markets in seven years;	
 		
 	• 	CalGen completed its offering of secured institutional term loans and secured notes, totaling $2.4 billion before transaction costs and fees (March 2004);	
 		
 	• 	Raised an additional $400.0 million through an add-on offering of our secured notes;	
 		
 	• 	Completed the $800.0 million CCFC I loan refinancing with a secured note and term loan issuance; and	
 		
 	• 	Issued $900.0 million of 4 3/4% Contingent Convertible Senior Notes Due 2023 to refinance the 2006 Convertible Senior Notes that can be put to Calpine in December 2004 ($250 million of the $900 million issued in 2004).	
      Calpine used proceeds from these offerings to refinance the following:

			
 	• 	The $1 billion working capital revolver that matured in May 2003;	
 		
 	• 	The $1 billion CCFC I facility that was scheduled to mature in November 2003;	
 		
 	• 	The $1 billion in term loans under our senior working capital facility that were scheduled to mature in May 2004;	
 		
 	• 	The majority of the $1.2 billion 2006 Convertible Senior Notes, that can be put to Calpine in December 2004. At December 31, 2003, we had repurchased $539.9 million of these Notes. Subsequent to December 31, 2003, we repurchased approximately $177.0 million in principal amount of the 2006 Convertible Senior Notes in exchange for approximately $176.0 million in cash. Additionally, on February 9, 2004, we made a cash tender offer, which expired on March 9, 2004, for all of the outstanding 2006 Convertible Senior Notes at a price of par plus accrued interest. On March 10, 2004, we paid an aggregate amount of $412.8 million for the tendered 2006 Convertible Senior Notes which included accrued interest of $3.4 million. Currently, 2006 Convertible Senior Notes in the aggregate principal amount of $73.7 million remain outstanding, and	
 		
 	• 	The $2.5 billion CCFC II facility that was scheduled to mature in November 2004.	
      In 2003 with the remaining proceeds from the offerings, we repurchased $2,035.9 million of the principal amount of our outstanding debt and preferred securities in exchange for $1,575.4 million in cash and 30 million shares of Calpine common stock valued at approximately $158.1 million. As a result, in 2003 we realized a net pre-tax gain on the repurchase of securities of $278.6 million, while reducing indebtedness by approximately $460.5 million.
      Asset Sales  — As a result of the significant contraction in the availability of capital for participants in the energy sector, we have adopted a strategy of conserving our core strategic assets and disposing of certain less strategically important assets, which serves primarily to strengthen our balance sheet through repayment of debt. Set forth below are the completed asset disposals:
      On October 1, 2003, we sold select oil and gas properties located in Oklahoma to Loto Energy, LLC for approximately $1.2 million. As a result of the sale, we recognized a pre-tax gain of $0.3 million.
      On October 15, 2003, we sold select oil and natural gas properties located throughout the province of Alberta, Canada to Calpine Natural Gas Trust, owned 25% indirectly by Calpine, for net proceeds of $153.6 million. The assets represent approximately 83 billion cubic feet of natural gas equivalent net proved reserves, of which approximately 27 percent were crude oil and natural gas liquids. The properties included 74,916 net developed acres and 41,462 net undeveloped acres, with approximately 175 net producing wells.
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      On November 20, 2003, we completed the sale of our Alvin South Field oil and gas assets located near Alvin, Texas for approximately $0.06 million to Cornerstone Energy, Inc. As a result of the sale, we recognized a pre-tax loss of $0.2 million.
      On November 26, 2003, we completed the sale of our 50 percent interest in the Gordonsville Power Plant. Under the terms of the transaction, we received $36.2 million in cash. We recorded a pre-tax gain of $7.1 million on the sale.
      We believe that our completion of the financing and liquidity transactions described above in difficult conditions affecting the market, and our sector in general, demonstrate our probable ability to have access to the capital markets on acceptable terms in the future, although availability of capital has tightened significantly throughout the power generation industry and, therefore, there can be no assurance that we will have access to capital in the future as and when we may desire.
      Credit Considerations  — On July 17, 2003, Standard & Poor’s placed our corporate rating (currently rated at B), our senior unsecured debt rating (currently at CCC+), our preferred stock rating (currently at CCC), our bank loan rating (currently at B), and our second priority senior secured debt rating (currently at B) under review for possible downgrade.
      On July 23, 2003, Fitch, Inc. downgraded our long-term senior unsecured debt rating from B+ to B- (with a stable outlook), our preferred stock rating from B- to CCC (with a stable outlook), and initiated coverage of our senior secured debt rating at BB- (with a stable outlook).
      On October 20, 2003, Moody’s downgraded the rating of our long-term senior unsecured debt from B1 to Caa1 (with a stable outlook) and our senior implied rating from Ba3 to B2 (with a stable outlook). The ratings on our senior unsecured debt, senior unsecured convertible debt and convertible preferred securities were also lowered (with a stable outlook) from B1 to Caa1, from B1 to Caa1 and from B2 to Caa3, respectively. The Moody’s downgrade did not impact our credit agreements, and we continue to conduct our business with our usual creditworthy counterparties.
      Many other issuers in the power generation sector have also been downgraded by one or more of the ratings agencies during this period. Such downgrades can have a negative impact on our liquidity by reducing attractive financing opportunities and increasing the amount of collateral required by trading counterparties.
      Performance Indicators  — We believe the following factors are important in assessing our ability to continue to fund our growth in the capital markets: (a) our debt-to-capital ratio; (b) various interest coverage ratios; (c) our credit and debt ratings by the rating agencies; (d) the trading prices of our senior notes in the capital markets; (e) the price of our common stock on The New York Stock Exchange; (f) our anticipated capital requirements over the coming quarters and years; (g) the profitability of our operations; (h) the non-GAAP financial measures and other performance metrics discussed in “Performance Metrics” below; (i) our cash balances and remaining capacity under existing revolving credit construction and general purpose credit facilities; (j) compliance with covenants in existing debt facilities; (k) progress in raising new or replacement capital; and (l) the stability of future contractual cash flows.
      Off-Balance Sheet Commitments  — In accordance with SFAS No. 13 and SFAS No. 98, “Accounting for Leases” our operating leases are not reflected on our balance sheet. All counterparties in these transactions are third parties that are unrelated to us. The sale/ leaseback transactions utilize special-purpose entities formed by the equity investors with the sole purpose of owning a power generation facility. Some of our operating leases contain customary restrictions on dividends, additional debt and further encumbrances similar to those typically found in project finance debt instruments. We guarantee $1.7 billion of the total future minimum lease payments of our consolidated subsidiaries related to our operating leases. We have no ownership or other interest in any of these special-purpose entities. See Note 24 of the Notes to Consolidated Financial Statements for the future minimum lease payments under our power plant operating leases.
      In accordance with Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting For Investments in Common Stock” and FASB Interpretation No. 35, “Criteria for Applying the Equity Method of Accounting for Investments in Common Stock (An Interpretation of APB Opinion
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No. 18),” the debt on the books of our unconsolidated investments in power projects is not reflected on our balance sheet (see Note 7 of the Notes to Consolidated Financial Statements). At December 31, 2003, investee debt was approximately $455.9 million. Based on our pro rata ownership share of each of the investments, our share would be approximately $145.0 million. However, all such debt is non-recourse to us. For the Aries Power Plant construction debt, Aquila Inc. and Calpine provided support arrangements until construction was completed to cover any cost overruns. See Note 7 of the Notes to Consolidated Financial Statements for additional information on our equity method investments in power projects and oil and gas properties.
      Commercial Commitments  — Our primary commercial obligations as of December 31, 2003, are as follows (in thousands): 

			
		Amounts of Commitment Expiration Per Period	
			
				Total	
				Amounts	
Commercial Commitments		2004		2005		2006		2007		2008		Thereafter		Committed	
															
Guarantee of subsidiary debt	 	$	27,194	 	 	$	17,531	 	 	$	15,128	 	 	$	171,621	 	 	$	2,099,553	 	 	$	658,876	 	 	$	2,989,903	 	
Standby letters of credit	 	 	320,580	 	 	 	75,756	 	 	 	10,666	 	 	 	3,401	 	 	 	400	 	 	 	—	 	 	 	410,803	 	
Surety bonds	 	 	34,273	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	36,207	 	 	 	70,480	 	
Guarantee of subsidiary operating lease payments	 	 	96,688	 	 	 	83,169	 	 	 	81,772	 	 	 	82,487	 	 	 	115,604	 	 	 	1,277,760	 	 	 	1,737,480	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Total	 	$	478,735	 	 	$	176,456	 	 	$	107,566	 	 	$	257,509	 	 	$	2,215,557	 	 	$	1,972,843	 	 	$	5,208,666	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      Our commercial commitments primarily include guarantee of subsidiary debt, standby letters of credit and surety bonds to third parties and guarantee of subsidiary operating lease payments. The debt guarantees consist of parent guarantees for the finance subsidiaries and project financing for the Broad River Energy Center and the Pasadena Power Plant. The debt guarantees and operating lease payments are also included in the contractual obligations table above. We also issue guarantees for normal course of business activities. The King City operating lease commitment is supported by collateral debt securities that mature serially in amounts equal to a portion of the semi-annual lease payment. See “Financial Market Risks — Collateral Debt Securities” for more information.
      We have guaranteed the principal payment of $2.4 billion and $2.7 billion, respectively, of senior notes as of December 31, 2003 and 2002, for two wholly owned finance subsidiaries of Calpine, Calpine Canada Energy Finance ULC and Calpine Canada Energy Finance II ULC. As of December 31, 2003, we have guaranteed $291.6 million and $214.1 million, respectively, of project financing for the Broad River Energy Center and Pasadena Power Plant and $301.0 million and $214.1 million, respectively, as of December 31, 2002, for these power plants. As of December 31, 2003 and 2002, we have also guaranteed $35.6 million and $38.0 million, respectively, of other miscellaneous debt. All of the guaranteed debt is recorded on our Consolidated Balance Sheet.
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      Contractual Obligations  — Our contractual obligations as of December 31, 2003, are as follows (in thousands): 

		2004		2005		2006		2007		2008		Thereafter		Total	
															
Other long-term liabilities reflected on the Consolidated Balance Sheet	 	$	130,593	 	 	$	11,619	 	 	$	11,565	 	 	$	3,918	 	 	$	3,519	 	 	$	60,248	 	 	$	221,462	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Total operating lease obligations(8)	 	$	291,764	 	 	$	274,672	 	 	$	260,564	 	 	$	260,045	 	 	$	257,570	 	 	$	2,650,772	 	 	$	3,995,387	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Debt:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unsecured Senior Notes(3)	 	$	 —	 	 	$	224,679	 	 	$	381,188	 	 	$	380,240	 	 	$	2,384,529	 	 	$	2,124,583	 	 	$	5,495,219	 	
Second Priority Senior Secured Notes(3)	 	 	12,500	 	 	 	12,500	 	 	 	12,500	 	 	 	1,209,375	 	 	 	—	 	 	 	2,442,159	 	 	 	3,689,034	 	
First Priority Senior Secured Notes(3)	 	 	2,000	 	 	 	2,000	 	 	 	2,000	 	 	 	193,500	 	 	 	—	 	 	 	—	 	 	 	199,500	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total Senior Notes	 	 	14,500	 	 	 	239,179	 	 	 	395,688	 	 	 	1,783,115	 	 	 	2,384,529	 	 	 	4,566,742	 	 	 	9,383,753	 	
Convertible Senior Notes Due 2006 and 2023(3)(5)	 	 	—	 	 	 	—	 	 	 	660,059	 	 	 	—	 	 	 	—	 	 	 	650,000	 	 	 	1,310,059	 	
Notes payable and borrowings under lines of credit(2)(4)	 	 	247,425	 	 	 	175,297	 	 	 	179,791	 	 	 	134,963	 	 	 	97,806	 	 	 	160,197	 	 	 	995,479	 	
Notes payable to Calpine Capital Trusts(3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,153,500	 	 	 	1,153,500	 	
Preferred interests(2)	 	 	11,220	 	 	 	18,712	 	 	 	17,679	 	 	 	16,231	 	 	 	18,073	 	 	 	161,717	 	 	 	243,632	 	
Capital lease obligation(2)	 	 	4,008	 	 	 	4,407	 	 	 	5,499	 	 	 	5,980	 	 	 	8,369	 	 	 	169,486	 	 	 	197,749	 	
Construction/ project financing(2)(6)	 	 	65,108	 	 	 	61,285	 	 	 	65,460	 	 	 	237,351	 	 	 	80,024	 	 	 	3,751,524	 	 	 	4,260,752	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Total debt(4)	 	$	342,261	 	 	$	498,880	 	 	$	1,324,176	 	 	$	2,177,640	 	 	$	2,588,801	 	 	$	10,613,166	 	 	$	17,544,924	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Purchase obligations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Turbine commitments	 	$	100,186	 	 	$	18,641	 	 	$	2,516	 	 	$	—	 	 	$	 —	 	 	$	—	 	 	$	121,343	 	
Commodity purchase obligations(1)	 	 	1,145,714	 	 	 	624,664	 	 	 	561,546	 	 	 	502,903	 	 	 	508,546	 	 	 	2,629,699	 	 	 	5,973,072	 	
Land leases	 	 	4,489	 	 	 	5,886	 	 	 	6,039	 	 	 	6,179	 	 	 	6,320	 	 	 	384,720	 	 	 	413,633	 	
Long-term service agreements	 	 	111,173	 	 	 	59,491	 	 	 	85,807	 	 	 	133,531	 	 	 	104,830	 	 	 	934,653	 	 	 	1,429,485	 	
Costs to complete construction projects	 	 	856,953	 	 	 	430,886	 	 	 	231,014	 	 	 	25,141	 	 	 	—	 	 	 	—	 	 	 	1,543,994	 	
Other purchase obligations	 	 	19,790	 	 	 	20,134	 	 	 	19,596	 	 	 	19,430	 	 	 	18,934	 	 	 	372,106	 	 	 	469,990	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Total purchase obligations(7)	 	$	2,238,305	 	 	$	1,159,702	 	 	$	906,518	 	 	$	687,184	 	 	$	638,630	 	 	$	4,321,178	 	 	$	9,951,517	 	

		
(1) 	The amounts presented here include contracts for the purchase, transportation, or storage of commodities accounted for as executory contracts and therefore not recognized as liabilities on our Consolidated Balance Sheet. See Financial Market Risks for a discussion of our commodity derivative contracts recorded at fair value on our Consolidated Balance Sheet.	
 		
(2) 	Structured as an obligation(s) of certain subsidiaries of Calpine Corporation without recourse to Calpine Corporation. However, default on these instruments could potentially trigger cross-default provisions in Calpine’s recourse financings.	
 		
(3) 	An obligation of or with recourse to Calpine Corporation.	
 		
(4) 	The note payable totaling $132.4 million associated with the sale of the PG&E note receivable to a third party, is excluded from notes payable and borrowings under lines of credit for this purpose as it is a non-cash liability. If the $132.4 million is summed with the $995.5 (total notes payable and borrowings under lines of credit) million from the table above, the total notes payable and borrowings under lines of credit would be $1,127.9 million, which agrees to the Consolidated Balance Sheet sum of the current and long-	
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	term notes payable and borrowings under lines of credit balances on the Consolidated Balance Sheet. See Note 8 of the Notes to Consolidated Financial Statements for more information concerning this note. Total debt of $17,544.9 million from the table above summed with the $132.4 million totals $17,677.3 million, which agrees to the total debt amount in Note 17 of the Notes to Consolidated Financial Statements.	
 		
(5) 	See Note 27 of the Notes to Consolidated Financial Statements for information regarding our repurchases of our 2006 Convertible Senior Notes that occurred subsequent to December 31, 2003.	
 		
(6) 	Included in the total are guaranteed amounts of $291.6 million and $289.1 million, respectively, of project financing for the Broad River Energy Center and Pasadena Power Plant. See Note 27 of the Notes to Consolidated Financial Statements for information regarding CalGen’s completed offering of secured institutional term loans and secured notes, which refinanced the CalGen facility. As a result of this refinancing, the $2.2 billion balance outstanding at December 31, 2003 on the refinanced Calgen revolving construction financing facility is shown in the table in the thereafter column.	
 		
(7) 	The amounts included above for purchase obligations include the minimum requirements under contract. Agreements that we can cancel without significant cancellation fees are excluded.	
 		
(8) 	Included in the total are future minimum payments for power plant operating leases, office and equipment leases and two tolling agreements with Acadia Energy Center accounted for as leases (See Note 24 of the Notes to Consolidated Financial Statements for more information).	
      We also enter into derivative financial instruments to manage our exposure to commodity price fluctuations and to optimize the returns that we are able to achieve from our power and gas assets. See “Financial Market Risks” in this report and refer to Note 22 of the Notes to Consolidated Financial Statements for additional information regarding derivative financial instruments.
      Debt securities repurchased by Calpine during 2003 totaled $1,853.4 million in aggregate outstanding principal amount at a repurchase price of $1,575.3 million plus accrued interest. We recorded a pre-tax gain on these transactions in the amount of $278.1 million, which was $256.9 million, net of write-offs of $18.9 million of unamortized deferred financing costs and $2.3 million of unamortized premiums or discounts. The following table summarizes the total debt securities repurchased during the year ended December 31, 2003 (in millions): 

		Principal		Amount	
Debt Security		Amount		Repurchased	
					
2006 Convertible Senior Notes	 	$	474.9	 	 	$	458.8	 	
8 1/4% Senior Notes Due 2005	 	 	25.0	 	 	 	24.5	 	
10 1/2% Senior Notes Due 2006	 	 	5.2	 	 	 	5.1	 	
7 5/8% Senior Notes Due 2006	 	 	35.3	 	 	 	32.5	 	
8 3/4% Senior Notes Due 2007	 	 	48.9	 	 	 	45.0	 	
7 7/8% Senior Notes Due 2008	 	 	74.8	 	 	 	58.3	 	
8 1/2% Senior Notes Due 2008	 	 	48.3	 	 	 	42.3	 	
8 3/8% Senior Notes Due 2008	 	 	59.2	 	 	 	46.6	 	
7 3/4% Senior Notes Due 2009	 	 	97.2	 	 	 	75.9	 	
8 5/8% Senior Notes Due 2010	 	 	210.4	 	 	 	170.7	 	
8 1/2% Senior Notes Due 2011	 	 	648.4	 	 	 	521.3	 	
8 7/8% Senior Notes Due 2011	 	 	125.8	 	 	 	94.3	 	
 	 	 		 	 	 		 	
 	 	$	1,853.4	 	 	$	1,575.3	 	
 	 	 		 	 	 		 	
      Debt securities, exchanged for 23.5 million shares of Calpine common stock in privately negotiated transactions during 2003, totaled $145.0 million in aggregate outstanding principal amount plus accrued interest. We recorded a pre-tax gain on these transactions in the amount of $20.2 million, net of write-offs of unamortized deferred financing costs and the unamortized premiums or discounts. Additionally, during 2003,
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we exchanged 6.5 million shares of Calpine common stock in privately negotiated transactions for approximately $37.5 million par value of HIGH TIDES I. These repurchased HIGH TIDES I are reflected on the balance sheet as an asset, versus being netted against the balance outstanding, due to the deconsolidation of the Calpine Capital Trusts, which issued the HIGH TIDES, upon the adoption of FIN 46-R. The following table summarizes the total debt securities and HIGH TIDES I exchanged for common stock during the year ended December 31, 2003 (in millions):
 	 	 	 	 	 	 	 	 	
				Common	
		Principal		Stock	
Debt Securities and HIGH TIDES		Amount		Issued	
					
2006 Convertible Senior Notes	 	$	65.0	 	 	 	12.0	 	
8 1/2% Senior Notes Due 2008	 	 	55.0	 	 	 	8.1	 	
8 1/2% Senior Notes Due 2011	 	 	25.0	 	 	 	3.4	 	
HIGH TIDES I	 	 	37.5	 	 	 	6.5	 	
 	 	 		 	 	 		 	
 	 	$	182.5	 	 	 	30.0	 	
 	 	 		 	 	 		 	
      Our senior notes indentures and our credit facilities contain financial and other restrictive covenants. Any failure to comply could give holders of debt under the relevant instrument the right to accelerate the maturity of all debt outstanding thereunder if the default was not cured or waived. In addition, holders of debt under other instruments typically would have cross-acceleration provisions, which would permit them also to elect to accelerate the maturity of their debt if another debt instrument was accelerated upon the occurrence of such an uncured event of default.
      See Note 24 of the Notes to Consolidated Financial Statements for information regarding the restructuring of certain turbine agreements.
      We own a 32.3% interest in the unconsolidated equity method investee Androscoggin Energy LLC (“AELLC”). AELLC owns the 160-MW Androscoggin Energy Center located in Maine and has construction debt of $60.8 million outstanding as of December 31, 2003. The debt is non-recourse to Calpine Corporation (the “AELLC Non-Recourse Financing”). On December 31, 2003, our investment balance was $11.8 million and our notes receivable balance due from AELLC was $13.3 million. On and after August 8, 2003, AELLC received letters from the lenders claiming that certain events of default have occurred under the credit agreement for the AELLC Non-Recourse Financing, including, among other things, that the project has been and remains in default under its debt agreement because the lending syndication had declined to extend the dates for the conversion of the construction loan to a term loan by a certain date. AELLC disputes the purported defaults. Also, the steam host for the AELLC project, International Paper Company (“IP”), filed a complaint against AELLC in October 2000, which is discussed in Note 24 of the Notes to Consolidated Condensed Financial Statements. IP’s complaint has been a complicating factor in converting the construction debt to long term financing. As a result of these events, we have reviewed our investment and notes receivable balances and believe that the assets are not impaired. We further believe that AELLC will be able to convert the construction loan to a term loan.
      We also own a 50% interest in the unconsolidated equity method investee Merchant Energy Partners Pleasant Hill, LLC (“Aries”). Currently, we are finalizing the purchase of the 50% interest in Aries that is held by Aquila, Inc. Following the purchase, we will have a 100% interest in Aries. Aries owns the 591-MW Aries Power Project located in Pleasant Hill, Missouri, and is in default on its construction debt of $190.0 million as of December 31, 2003, that was due on June 26, 2003. Due to this payment default, the partners were required to contribute their proportionate share of $75 million in additional equity. During the second quarter of 2003, we drew down $37.5 million under our working capital revolver to fund our equity contribution. In conjunction with the Aquila, Inc. buyout negotiations, we are in negotiation with the lenders on a term loan for the project. The project is technically in default of its debt agreement until the new term loan is completed. We believe that the project will be able to obtain long-term project financing at commercially reasonable terms. As a result of this event, we have reviewed our $58.2 million investment in the Aries project and believe that the investment is not impaired.
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      We are a party to a Letter of Credit and Reimbursement Agreement dated as of December 19, 2000, with Credit Suisse First Boston (“CSFB”), pursuant to which CSFB issued a letter of credit with a maximum face amount of $78.3 million for our account. CSFB previously advised us that CSFB believed that we may have failed to comply with certain covenants under the Letter of Credit and Reimbursement Agreement related to our ability to incur indebtedness and grant liens. We disputed the purported non-compliance. This dispute with CSFB has now been resolved and we are in the process of completing an amendment to the Letter of Credit and Reimbursement Agreement.
      On May 15, 2003, our wholly owned indirect subsidiary, Calpine Northbrook Energy Marketing, LLC (“CNEM”), completed an offering of $82.8 million secured by an existing power sales agreement with the Bonneville Power Administration (“BPA”). CNEM borrowed $82.8 million secured by the BPA contract, a spot market power purchase agreement, a fixed price swap agreement and the equity interest in CNEM. CNEM was established as an entity with its existence separate from Calpine and our other subsidiaries, and the $82.8 million loan is recourse only to CNEM’s assets and the equity interest in CNEM and is not guaranteed by us. CNEM was determined to be a VIE in which we were the primary beneficiary. Accordingly, the entity’s assets and liabilities were consolidated into our accounts as of June 30, 2003.
      Pursuant to the applicable transaction agreements, each of CNEM and its parent, CNEM Holdings, LLC, has been established as an entity with its existence separate from Calpine and our other subsidiaries. In accordance with FIN 46 we consolidate these entities. See Note 2 of the Notes to Consolidated Financial Statements for more information on FIN 46. The above mentioned power sales agreement with BPA has been acquired by CNEM from CES and the spot market power purchase agreement with a third party and the swap agreement have been entered into by CNEM and, together with the $82.8 million loan, are assets and liabilities of CNEM, separate from the assets and liabilities of Calpine and our other subsidiaries. The only significant asset of CNEM Holdings, LLC is its equity interest in CNEM. The proceeds of the $82.8 million loan were primarily used by CNEM to purchase the power sales agreement with BPA.
      The following table sets forth selected financial information of CNEM at December 31, 2003 (in thousands): 

		CNEM	
			
Assets	 	$	106,904	 	
 	 	 		 	
Liabilities	 	 	82,397	 	
 	 	 		 	
Total revenue(1)	 	 	1,827	 	
 	 	 		 	
Total cost of revenue	 	 	184	 	
 	 	 		 	
Interest expense	 	 	5,921	 	
 	 	 		 	
Net loss	 	 	(2,870	)	

		
(1) 	CNEM’s contracts are derivatives and are recorded on a net mark-to-market basis on our financial statements under SFAS No. 133, notwithstanding that economically they are fully hedged.	
      See Note 11 of the Notes to Consolidated Financial Statements for further information.
      On June 13, 2003, Power Contract Financing, L.L.C. (“PCF”), a wholly owned stand-alone subsidiary of CES, completed an offering of two tranches of Senior Secured Notes due 2006 and 2010 (collectively called the “PCF Notes”), totaling $802.2 million. To facilitate the transaction, we formed PCF as an entity with its existence separate from Calpine and our other subsidiaries, with assets and liabilities consisting of cash, the transferred power purchase and sales contracts and the PCF Notes. PCF was determined to be a VIE in which we were the primary beneficiary. Accordingly, the entity’s assets and liabilities were consolidated into our accounts as of June 30, 2003.
      Pursuant to the applicable transaction agreements, PCF has been established as an entity with its existence separate from Calpine and our other subsidiaries. In accordance with FIN 46 we consolidate this
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entity. See Note 2 of the Notes to Consolidated Financial Statements for more information on FIN 46. The above mentioned power sales and power purchase agreements, which have been acquired by PCF from CES, and the PCF Notes are assets and liabilities of PCF, separate from the assets and liabilities of Calpine and our other subsidiaries. The proceeds of the Senior Secured Notes were primarily used by PCF to purchase the power sales and power purchase agreements. The following table sets forth selected financial information of PCF at December 31, 2003 (in thousands):
 	 	 	 	 	
		PCF	
			
Assets	 	$	1,046,213	 	
Liabilities	 	 	1,150,625	 	
Total revenue	 	 	180,896	 	
Total cost of revenue	 	 	165,043	 	
Interest expense	 	 	39,396	 	
Net loss	 	 	(15,022	)	
      See Note 11 of the Notes to Consolidated Financial Statements for further information.
      On September 30, 2003, Gilroy Energy Center, LLC (“GEC”), a wholly owned subsidiary of our indirect subsidiary GEC Holdings, LLC, completed an offering of $301.7 million of 4% Senior Secured Notes Due 2011 (see Note 16 of the Notes to Consolidated Financial Statements for more information on this secured financing). In connection with this secured notes borrowing, we received funding on a third party preferred equity investment in GEC Holdings, LLC totaling $74.0 million. This preferred interest meets the criteria of a mandatorily redeemable financial instrument and has been classified as debt under the guidance of SFAS No. 150, due to certain preferential distributions to the third party. The preferential distributions are due bi-annually beginning in March 2004 through September 2011 and total approximately $113.3 million over the eight-year period. As of December 31, 2003, there was $74.0 million outstanding under the preferred interest. The effective interest rate, after amortization of deferred financing charges, was 11.3% per annum at December 31, 2003.
      Pursuant to the applicable transaction agreements, GEC has been established as an entity with its existence separate from Calpine and our other subsidiaries. We consolidate these entities. The long-term power sales agreement with the State of California Department of Water Resources has been acquired by GEC by means of a series of capital contributions by CES and certain of its affiliates and is an asset of GEC, and the Senior Secured Notes and preferred interest are liabilities of GEC, separate from the assets and liabilities of Calpine and our other subsidiaries. Aside from seven peaker power plants owned directly and the power sales agreement, GEC’s assets include cash and a 100% equity interest in each of Creed Energy Center, LLC (“Creed”) and Goose Haven Energy Center, LLC (“Goose Haven”) each of which is a wholly owned subsidiary of GEC. Each of Creed and Goose Haven has been established as an entity with its existence separate from Calpine and our other subsidiaries of the Company. GEC consolidates these entities. Creed and Goose Haven each have assets consisting of various power plants and other assets. The following table sets forth selected financial information of GEC at December 31, 2003 (in thousands): 

		GEC	
			
Assets	 	$	662,811	 	
Liabilities	 	 	333,404	 	
Total revenue	 	 	109,831	 	
Total cost of revenue	 	 	59,569	 	
Interest expense	 	 	37,277	 	
Net income	 	 	8,172	 	
      See Note 8 of the Notes to Consolidated Financial Statements for further information.
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      On April 29, 2003, we sold a preferred interest in a subsidiary that leases and operates the 115-MW King City Power Plant to GE Structured Finance for $82.0 million. The preferred interest holder will receive approximately 60% of future cash flow distributions based on current projections. We will continue to provide O&M services. As of December 31, 2003, there was $82.0 million outstanding under the preferred interest. The effective interest rate, after amortization of deferred financing charges, was 12.8% per annum at December 31, 2003.
      Pursuant to the applicable transaction agreements, each of Calpine King City Cogen LLC, Calpine Securities Company, L.P., a parent company of Calpine King City Cogen LLC, and Calpine King City, LLC, an indirect parent company of Calpine Securities Company, L.P., has been established as an entity with its existence separate from Calpine and our other subsidiaries. We consolidate these entities. The following table sets forth certain financial information relating to these three entities as of December 31, 2003 (in thousands):

Assets	 	$	157,598	 	
Liabilities	 	$	60,785	 	
      On December 4, 2003, we announced that we had sold to a group of institutional investors our right to receive payments from PG&E under the Agreement between PG&E and Calpine Gilroy Cogen, L.P. (“Gilroy”), a California Limited Partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement, executed by PG&E on July 1, 1999 (the “Gilroy Receivable”) under the Gilroy notes receivable from PG&E for $133.4 million in cash. Because the transaction did not satisfy the criteria for sales treatment under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125,” it is reflected in the Consolidated Financial Statements as a secured financing, with a note payable of $133.4 million. The receivable balance and note payable balance are both reduced as PG&E makes payments to the buyer of the Gilroy Receivable. The $24.1 million difference between the $157.5 million book value of the Gilroy Receivable at the transaction date and the cash received will be recognized as additional interest expense over the repayment term. We will continue to book interest income over the repayment term and interest expense will be accreted on the amortizing note payable balance.
      Pursuant to the applicable transaction agreements, each of Gilroy and Calpine Gilroy 1, Inc., the general partner of Gilroy, has been established as an entity with its existence separate from Calpine and our other subsidiaries. We consolidate these entities. The following table sets forth the assets and liabilities of Gilroy as of December 31, 2003 (in thousands):

Assets	 	$	468,624	 	
Liabilities	 	$	134,170	 	
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Capital Spending — Development and Construction
      Construction and development costs in process consisted of the following at December 31, 2003 (dollars in thousands):

						Equipment		Project			
		# of				Included in		Development		Unassigned	
		Projects		CIP(2)		CIP		Costs		Equipment	
											
Projects in active construction	 	 	14	(1)	 	$	4,538,093	 	 	$	1,572,708	 	 	$	—	 	 	$	—	 	
Projects in advanced development	 	 	12	 	 	 	711,779	 	 	 	599,512	 	 	 	122,248	 	 	 	—	 	
Projects in suspended development	 	 	5	 	 	 	466,350	 	 	 	204,873	 	 	 	8,753	 	 	 	—	 	
Projects in early development	 	 	3	 	 	 	—	 	 	 	—	 	 	 	8,952	 	 	 	—	 	
Other capital projects	 	 	NA	 	 	 	45,910	 	 	 	—	 	 	 	—	 	 	 	—	 	
Unassigned equipment	 	 	NA	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	71,361	 	
 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total construction and development costs	 	 	 	 	 	$	5,762,132	 	 	$	2,377,093	 	 	$	139,953	 	 	$	71,361	 	

		
(1) 	12 gas-fired projects and 2 project expansions. Includes expansion of the Morgan Energy Center, which entered commercial operation in January 2004.	
 		
(2) 	Construction in Progress (“CIP”).	
      Projects in Active Construction  — The 14 projects in active construction are estimated to come on line from January 2004 to June 2007. These projects will bring on line approximately 6,742 MW of base load (8,004 MW base load with peaking capacity). Interest and other costs related to the construction activities necessary to bring these projects to their intended use are being capitalized. At December 31, 2003, the estimated funding requirements to complete these projects, net of expected project financing proceeds, is approximately $1.2 billion. We plan to spend $0.6 billion, $0.4 billion, and $0.2 billion in 2004, 2005, and 2006, respectively, net of project financing.
      Projects in Advanced Development  — There are 12 projects in advanced development. These projects will bring on line approximately 5,709 MW of base load (6,835 MW base load with peaking capacity). Interest and other costs related to the development activities necessary to bring these projects to their intended use are being capitalized. However, the capitalization of interest has been suspended on two projects for which development activities are substantially complete but construction will not commence until a power purchase agreement and financing are obtained. The estimated cost to complete the 12 projects in advanced development is approximately $3.7 billion. Our current plan is to project finance these costs as power purchase agreements are arranged.
      Suspended Development Projects  — Due to current electric market conditions, we have ceased capitalization of additional development costs and interest expense on certain development projects on which work has been suspended. Capitalization of costs may recommence as work on these projects resumes, if certain milestones and criteria are met indicating that it is again highly probable that the costs will be recovered through future operations. As is true for all projects, the suspended projects are reviewed for impairment whenever there is an indication of potential reduction in a project’s fair value. Further, if it is determined that it is no longer probable that the projects will be completed and all capitalized costs recovered through future operations, the carrying values of the projects would be written down to the recoverable value. These projects would bring on line approximately 2,569 MW of base load (3,029 MW base load with peaking capacity). The estimated cost to complete these projects is approximately $1.5 billion.
      Projects in Early Development  — Costs for projects that are in early stages of development are capitalized only when it is highly probable that such costs are ultimately recoverable and significant project milestones are achieved. Until then, all costs, including interest costs, are expensed. The projects in early development with capitalized costs relate to 3 projects and include geothermal drilling costs and equipment purchases.
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      Other Capital Projects  — Other capital projects primarily consist of enhancements to operating power plants, oil and gas and geothermal resource and facilities development as well as software developed for internal use.
      Unassigned Equipment  — As of December 31, 2003, we had made progress payments on 4 turbines, 1 heat recovery steam generator, and other equipment with an aggregate carrying value of $71.4 million. This unassigned equipment is classified on the balance sheet as other assets, because it is not assigned to specific development and construction projects. We are holding this equipment for potential use on future projects. It is possible that some of this unassigned equipment may eventually be sold, potentially in combination with our engineering and construction services. For equipment that is not assigned to development or construction projects, interest is not capitalized.
      Impairment Evaluation  — All construction and development projects and unassigned turbines are reviewed for impairment whenever there is an indication of potential reduction in fair value. Equipment assigned to such projects is not evaluated for impairment separately, as it is integral to the assumed future operations of the project to which it is assigned. If it is determined that it is no longer probable that the projects will be completed and all capitalized costs recovered through future operations, the carrying values of the projects would be written down to the recoverable value in accordance with the provisions of SFAS No. 144 “Accounting for Impairment or Disposal of Long-Lived Assets.” We review our unassigned equipment for potential impairment based on probability-weighted alternatives of utilizing it for future projects versus selling it. Utilizing this methodology, we do not believe that the equipment not committed to sale is impaired. However, during year ended December 31, 2003, we recorded approximately $27.4 million in losses in connection with the sale of four turbines, and we may incur further losses should we decide to sell more unassigned equipment in the future.
Performance Metrics
      In understanding our business, we believe that certain non-GAAP operating performance metrics are particularly important. These are described below:

			
 	• 	Total deliveries of power. We both generate power that we sell to third parties and purchase power for sale to third parties in hedging, balancing and optimization (“HBO”) transactions. The former sales are recorded as electricity and steam revenue and the latter sales are recorded as sales of purchased power for hedging and optimization. The volumes in MWh for each are key indicators of our respective levels of generation and HBO activity and the sum of the two, our total deliveries of power, is relevant because there are occasions where we can either generate or purchase power to fulfill contractual sales commitments. Prospectively beginning October 1, 2003, in accordance with EITF 03-11, certain sales of purchased power for hedging and optimization are shown net of purchased power expense for hedging and optimization in our consolidated statement of operations. Accordingly, we have also netted HBO volumes on the same basis as of October 1, 2003, in the table below.	
 		
 	• 	Average availability and average baseload capacity factor or operating rate. Availability represents the percent of total hours during the period that our plants were available to run after taking into account the downtime associated with both scheduled and unscheduled outages. The baseload capacity factor, sometimes called operating rate, is calculated by dividing (a) total megawatt hours generated by our power plants (excluding peakers) by the product of multiplying (b) the weighted average megawatts in operation during the period by (c) the total hours in the period. The capacity factor is thus a measure of total actual generation as a percent of total potential generation. If we elect not to generate during periods when electricity pricing is too low or gas prices too high to operate profitably, the baseload capacity factor will reflect that decision as well as both scheduled and unscheduled outages due to maintenance and repair requirements.	
 		
 	• 	Average heat rate for gas-fired fleet of power plants expressed in Btu’s of fuel consumed per KWh generated. We calculate the average heat rate for our gas-fired power plants (excluding peakers) by dividing (a) fuel consumed in Btu’s by (b) KWh generated. The resultant heat rate is a measure of fuel efficiency, so the lower the heat rate, the better. We also calculate a “steam-adjusted” heat rate, in	
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 		which we adjust the fuel consumption in Btu’s down by the equivalent heat content in steam or other thermal energy exported to a third party, such as to steam hosts for our cogeneration facilities. Our goal is to have the lowest average heat rate in the industry.	
 		
 	• 	Average all-in realized electric price expressed in dollars per MWh generated. Our risk management and optimization activities are integral to our power generation business and directly impact our total realized revenues from generation. Accordingly, we calculate the all-in realized electric price per MWh generated by dividing (a) adjusted electricity and steam revenue, which includes capacity revenues, energy revenues, thermal revenues and the spread on sales of purchased electricity for hedging, balancing, and optimization activity, by (b) total generated MWh’s in the period.	
 		
 	• 	Average cost of natural gas expressed in dollars per millions of Btu’s of fuel consumed. Our risk management and optimization activities related to fuel procurement directly impact our total fuel expense. The fuel costs for our gas-fired power plants are a function of the price we pay for fuel purchased and the results of the fuel hedging, balancing, and optimization activities by CES. Accordingly, we calculate the cost of natural gas per millions of Btu’s of fuel consumed in our power plants by dividing (a) adjusted fuel expense which includes the cost of fuel consumed by our plants (adding back cost of intercompany “equity” gas from Calpine Natural Gas, which is eliminated in consolidation), and the spread on sales of purchased gas for hedging, balancing, and optimization activity by (b) the heat content in millions of Btu’s of the fuel we consumed in our power plants for the period.	
 		
 	• 	Average spark spread expressed in dollars per MWh generated. Our risk management activities focus on managing the spark spread for our portfolio of power plants, the spread between the sales price for electricity generated and the cost of fuel. We calculate the spark spread per MWh generated by subtracting (a) adjusted fuel expense from (b) adjusted E&S revenue and dividing the difference by (c) total generated MWh in the period.	
 		
 	• 	Average plant operating expense per normalized MWh. To assess trends in electric power plant operating expense (“POX”) per MWh, we normalize the results from period to period by assuming a constant 70% total company-wide capacity factor (including both baseload and peaker capacity) in deriving normalized MWh’s. By normalizing the cost per MWh with a constant capacity factor, we can better analyze trends and the results of our program to realize economies of scale, cost reductions and efficiencies at our electric generating plants.	
      The table below shows the operating performance metrics discussed above. 

			
		Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands)	
Operating Performance Metrics;	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total deliveries of power:	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	MWh generated	 	 	82,423	 	 	 	72,767	 	 	 	42,394	 	
 	 	HBO and trading MWh sold	 	 	74,837	 	 	 	75,740	 	 	 	54,810	 	
 	 	 		 	 	 		 	 	 		 	
 	 	MWh delivered	 	 	157,260	 	 	 	148,507	 	 	 	97,204	 	
 	 	 		 	 	 		 	 	 		 	
 	Average availability	 	 	91	%	 	 	92	%	 	 	93	%	
 	Average baseload capacity factor:	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Average total MW in operation	 	 	20,092	 	 	 	14,346	 	 	 	7,805	 	
 	 	Less: Average MW of pure peakers	 	 	2,672	 	 	 	1,708	 	 	 	976	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Average baseload MW in operation	 	 	17,420	 	 	 	12,638	 	 	 	6,829	 	
 	 	Hours in the period	 	 	8,760	 	 	 	8,760	 	 	 	8,760	 	
 	 	Potential baseload generation	 	 	152,599	 	 	 	110,709	 	 	 	59,822	 	
 	 	Actual total generation	 	 	82,423	 	 	 	72,767	 	 	 	42,394	 	
 	 	Less: Actual pure peakers’ generation	 	 	1,077	 	 	 	979	 	 	 	542	 	
 	 	 		 	 	 		 	 	 		 	
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		Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands)	
 	Actual baseload generation	 	 	81,346	 	 	 	71,788	 	 	 	41,852	 	
 	Average baseload capacity factor	 	 	53	%	 	 	65	%	 	 	70	%	
Average heat rate for gas-fired power plants (excluding peakers) (Btu’s/ KWh):	 	 	 	 	 	 	 	 	 	 	 	 	
 	Not steam adjusted	 	 	8,007	 	 	 	7,928	 	 	 	8,203	 	
 	Steam adjusted	 	 	7,253	 	 	 	7,239	 	 	 	7,398	 	
Average all-in realized electric price:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Electricity and steam revenue	 	$	4,695,744	 	 	$	3,222,202	 	 	$	2,385,324	 	
 	Spread on sales of purchased power for hedging and optimization	 	 	24,118	 	 	 	527,546	 	 	 	345,834	 	
 	 	 		 	 	 		 	 	 		 	
 	Adjusted electricity and steam revenue (in thousands)	 	$	4,719,862	 	 	$	3,749,748	 	 	$	2,731,158	 	
 	MWh generated (in thousands)	 	 	82,423	 	 	 	72,767	 	 	 	42,394	 	
 	Average all-in realized electric price per MWh	 	$	57.26	 	 	$	51.53	 	 	$	64.42	 	
Average cost of natural gas:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Cost of oil and natural gas burned by power plants (in thousands)	 	$	2,523,408	 	 	$	1,703,499	 	 	$	1,116,857	 	
 	Fuel cost elimination	 	 	374,298	 	 	 	180,375	 	 	 	99,854	 	
 	 	 		 	 	 		 	 	 		 	
 	Adjusted fuel expense	 	$	2,897,706	 	 	$	1,883,874	 	 	$	1,216,711	 	
 	Million Btu’s (“MMBtu”) of fuel consumed by generating plants (in thousands)	 	 	560,508	 	 	 	511,354	 	 	 	288,549	 	
 	Average cost of natural gas per MMBtu	 	$	5.17	 	 	$	3.68	 	 	$	4.22	 	
 	MWh generated (in thousands)	 	 	82,423	 	 	 	72,767	 	 	 	42,394	 	
 	Average cost of adjusted fuel expense per MWh	 	$	35.16	 	 	$	25.89	 	 	$	28.70	 	
Average spark spread:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Adjusted electricity and steam revenue (in thousands)	 	$	4,719,862	 	 	$	3,749,748	 	 	$	2,731,158	 	
 	Less: Adjusted fuel expense (in thousands)	 	 	2,897,706	 	 	 	1,883,874	 	 	 	1,216,711	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Spark spread (in thousands)	 	$	1,822,156	 	 	$	1,865,874	 	 	$	1,514,447	 	
 	MWh generated (in thousands)	 	 	82,423	 	 	 	72,767	 	 	 	42,394	 	
 	Average spark spread per MWh	 	$	22.11	 	 	$	25.64	 	 	$	35.72	 	
 	Add: Equity gas contribution(1)	 	$	202,454	 	 	$	57,114	 	 	$	199,196	 	
 	Spark spread with equity gas benefits (in thousands)	 	$	2,024,610	 	 	$	1,922,988	 	 	$	1,713,643	 	
 	Average spark spread with equity gas benefits per MWh	 	$	24.56	 	 	$	26.43	 	 	$	40.42	 	
Average plant operating expense (“POX”) per normalized MWh:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Average total consolidated MW in operations	 	 	20,092	 	 	 	14,346	 	 	 	7,805	 	
 	Hours per year	 	 	8,760	 	 	 	8,760	 	 	 	8,760	 	
 	Total potential MWh	 	 	176,006	 	 	 	125,671	 	 	 	68,372	 	
 	Normalized MWh (at 70% capacity factor)	 	 	123,204	 	 	 	87,970	 	 	 	47,860	 	
 	Plant operating expense (POX)	 	$	679,031	 	 	$	505,971	 	 	$	324,029	 	
 	POX per normalized MWh	 	$	5.51	 	 	$	5.75	 	 	$	6.77	 	
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(1) 	Equity gas contribution margin:	

		Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands)	
Oil and gas sales	 	$	107,662	 	 	$	120,930	 	 	$	286,241	 	
Add: Fuel cost eliminated in consolidation	 	 	374,298	 	 	 	180,375	 	 	 	99,854	 	
 	 	 		 	 	 		 	 	 		 	
 	Subtotal	 	$	481,960	 	 	$	301,305	 	 	$	386,095	 	
Less: Oil and gas operating expense	 	 	106,244	 	 	 	97,501	 	 	 	90,492	 	
Less: Depletion, depreciation and amortization	 	 	173,262	 	 	 	146,690	 	 	 	96,407	 	
 	 	 		 	 	 		 	 	 		 	
Equity gas contribution margin	 	$	202,454	 	 	$	57,114	 	 	$	199,196	 	
MWh generated (in thousands)	 	 	82,423	 	 	 	72,767	 	 	 	42,394	 	
Equity gas contribution margin per MWh	 	$	2.46	 	 	$	0.78	 	 	$	4.70	 	
      The table below provides additional detail of total mark-to-market activity. For the years ended December 31, 2003, 2002 and 2001, mark-to-market activity, net consisted of (dollars in thousands): 

			
		Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands)	
Mark-to-market activity, net	 	 	 	 	 	 	 	 	 	 	 	 	
Realized:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Power activity	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	“Trading Activity” as defined in EITF No. 02-03	 	$	52,559	 	 	$	12,175	 	 	$	9,926	 	
 	 	Ineffectiveness related to cash flow hedges	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	Other mark-to-market activity(1)	 	 	(26,059	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total realized power activity	 	$	26,500	 	 	$	12,175	 	 	$	9,926	 	
 	 	 		 	 	 		 	 	 		 	
 	Gas activity	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	“Trading Activity” as defined in EITF No. 02-03	 	$	(2,166	)	 	$	13,915	 	 	$	19,219	 	
 	 	Ineffectiveness related to cash flow hedges	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	Other mark-to-market activity(1)	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total realized gas activity	 	$	(2,166	)	 	$	13,915	 	 	$	19,219	 	
 	 	 		 	 	 		 	 	 		 	
Total realized activity:	 	 	 	 	 	 	 	 	 	 	 	 	
 	“Trading Activity” as defined in EITF No. 02-03	 	$	50,393	 	 	$	26,090	 	 	$	29,145	 	
 	Ineffectiveness related to cash flow hedges	 	 	—	 	 	 	—	 	 	 	—	 	
 	Other mark-to-market activity(1)	 	 	(26,059	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total realized activity	 	$	24,334	 	 	$	26,090	 	 	$	29,145	 	
 	 	 		 	 	 		 	 	 		 	
Unrealized:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Power activity	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	“Trading Activity” as defined in EITF No. 02-03	 	$	(55,450	)	 	$	12,974	 	 	$	96,402	 	
 	 	Ineffectiveness related to cash flow hedges	 	 	(5,001	)	 	 	(4,934	)	 	 	1,866	 	
 	 	Other mark-to-market activity(1)	 	 	(1,243	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total unrealized power activity	 	$	(61,694	)	 	$	8,040	 	 	$	98,268	 	
 	 	 		 	 	 		 	 	 		 	
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		Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands)	
 	Gas activity	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	“Trading Activity” as defined in EITF No. 02-03	 	$	7,768	 	 	$	(14,792	)	 	$	30,113	 	
 	 	Ineffectiveness related to cash flow hedges	 	 	3,153	 	 	 	2,147	 	 	 	(5,788	)	
 	 	Other mark-to-market activity(1)	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total unrealized gas activity	 	$	10,921	 	 	$	(12,645	)	 	$	24,325	 	
 	 	 		 	 	 		 	 	 		 	
Total Unrealized activity:	 	 	 	 	 	 	 	 	 	 	 	 	
 	“Trading Activity” as defined in EITF No. 02-03	 	$	(47,682	)	 	$	(1,818	)	 	$	126,515	 	
 	Ineffectiveness related to cash flow hedges	 	 	(1,848	)	 	 	(2,787	)	 	 	(3,922	)	
 	Other mark-to-market activity(1)	 	 	(1,243	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total unrealized activity	 	$	(50,773	)	 	$	(4,605	)	 	$	122,593	 	
 	 	 		 	 	 		 	 	 		 	
Total mark-to-market activity:	 	 	 	 	 	 	 	 	 	 	 	 	
 	“Trading Activity” as defined in EITF No. 02-03	 	$	2,711	 	 	$	24,272	 	 	$	155,660	 	
 	Ineffectiveness related to cash flow hedges	 	 	(1,848	)	 	 	(2,787	)	 	 	(3,922	)	
 	Other mark-to-market activity(1)	 	 	(27,302	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total mark-to-market activity	 	$	(26,439	)	 	$	21,485	 	 	$	151,738	 	

		
(1) 	Activity related to our assets but does not qualify for hedge accounting.	
Strategy
      For a discussion of our strategy and management’s outlook, see “Item 1 — Business — Strategy.” 
Financial Market Risks
      As we are primarily focused on generation of electricity using gas-fired turbines, our natural physical commodity position is “short” fuel (i.e., natural gas consumer) and “long” power (i.e., electricity seller). To manage forward exposure to price fluctuation in these and (to a lesser extent) other commodities, we enter into derivative commodity instruments as discussed in Item 6. “Business — Marketing, Hedging, Optimization and Trading Activities.”
      The change in fair value of outstanding commodity derivative instruments from January 1, 2003, through December 31, 2003, is summarized in the table below (in thousands): 

Fair value of contracts outstanding at January 1, 2003	 	$	150,627	 	
Gains recognized or otherwise settled during the period(1)	 	 	(153,673	)	
Changes in fair value attributable to changes in valuation techniques and assumptions(2)	 	 	(12,673	)	
Changes in fair value attributable to new contracts	 	 	60,752	 	
Changes in fair value attributable to price movements	 	 	87,666	 	
Terminated derivatives(3)	 	 	(56,158	)	
 	 	 		 	
Fair value of contracts outstanding at December 31, 2003(4)	 	$	76,541	 	

		
(1) 	Recognized gains from commodity cash flow hedges of $129.4 million, (represents realized value of cash flow hedge activity of $(38.5) million as disclosed in Note 22 of the Notes to Consolidated Financial Statements, net of terminated derivatives of $(167.9)) and $24.3 million realized gain on mark-to-	
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	market activity, which is reported in the Consolidated Statements of Operations under mark-to-market activities, net.	
 		
(2) 	Relates to changes in the valuation technique used by Calpine to extrapolate price curves beyond periods where external price quotes are observable. See discussion of the change in valuation technique under the “Fair Value of Energy Marketing and Risk Management Contracts and Derivatives” subsection to the critical accounting policies.	
 		
(3) 	Includes the value of derivatives terminated or settled before their scheduled maturity.	
 		
(4) 	Net commodity derivative assets reported in Note 22 of the Notes to Consolidated Financial Statements included in this filing.	
      The fair value of outstanding derivative commodity instruments at December 31, 2003, based on price source and the period during which the instruments will mature, are summarized in the table below (in thousands): 

Fair Value Source		2004		2005-2006		2007-2008		After 2008		Total	
											
Prices actively quoted	 	$	52,180	 	 	$	16,724	 	 	$	—	 	 	$	 —	 	 	$	68,904	 	
Prices provided by other external sources	 	 	(13,062	)	 	 	40,485	 	 	 	6,382	 	 	 	(21,792	)	 	 	12,013	 	
Prices based on models and other valuation methods	 	 	—	 	 	 	1,017	 	 	 	1,110	 	 	 	(6,503	)	 	 	(4,376	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Total fair value	 	$	39,118	 	 	$	58,226	 	 	$	7,492	 	 	$	(28,295	)	 	$	76,541	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      Our risk managers maintain fair value price information derived from various sources in our risk management systems. The propriety of that information is validated by our Risk Control group. Prices actively quoted include validation with prices sourced from commodities exchanges (e.g., New York Mercantile Exchange). Prices provided by other external sources include quotes from commodity brokers and electronic trading platforms. Prices based on models and other valuation methods are validated using quantitative methods. See Critical Accounting Policies for a discussion of valuation estimates used where external prices are unavailable.
      The counterparty credit quality associated with the fair value of outstanding derivative commodity instruments at December 31, 2003, and the period during which the instruments will mature are summarized in the table below (in thousands): 

Credit Quality (based on Standard & Poor’s Ratings as											
of January 7, 2004)		2004		2005-2006		2007-2008		After 2008		Total	
											
Investment grade	 	$	5,767	 	 	$	46,770	 	 	$	8,412	 	 	$	(27,788	)	 	$	33,161	 	
Non-investment grade	 	 	39,044	 	 	 	12,019	 	 	 	(633	)	 	 	(507	)	 	 	49,923	 	
No external ratings	 	 	(5,693	)	 	 	(563	)	 	 	(287	)	 	 	—	 	 	 	(6,543	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Total fair value	 	$	39,118	 	 	$	58,226	 	 	$	7,492	 	 	$	(28,295	)	 	$	76,541	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
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      The fair value of outstanding derivative commodity instruments and the fair value that would be expected after a ten percent adverse price change are shown in the table below (in thousands): 

				Fair	
				Value After	
				10% Adverse	
		Fair Value		Price Change	
					
At December 31, 2003:	 	 	 	 	 	 	 	 	
 	Electricity	 	$	(6,085	)	 	$	(157,116	)	
 	Natural gas	 	 	82,626	 	 	 	9,505	 	
 	 	 		 	 	 		 	
 	 	Total	 	$	76,541	 	 	$	(147,611	)	
 	 	 		 	 	 		 	
      Derivative commodity instruments included in the table are those included in Note 22 of the Notes to Consolidated Financial Statements. The fair value of derivative commodity instruments included in the table is based on present value adjusted quoted market prices of comparable contracts. The fair value of electricity derivative commodity instruments after a 10% adverse price change includes the effect of increased power prices versus our derivative forward commitments. Conversely, the fair value of the natural gas derivatives after a 10% adverse price change reflects a general decline in gas prices versus our derivative forward commitments. Derivative commodity instruments offset the price risk exposure of our physical assets. None of the offsetting physical positions are included in the table above.
      Price changes were calculated by assuming an across-the-board ten percent adverse price change regardless of term or historical relationship between the contract price of an instrument and the underlying commodity price. In the event of an actual ten percent change in prices, the fair value of our derivative portfolio would typically change by more than ten percent for earlier forward months and less than ten percent for later forward months because of the higher volatilities in the near term and the effects of discounting expected future cash flows.
      The primary factors affecting the fair value of our derivatives at any point in time are (1) the volume of open derivative positions (MMBtu and MWh), and (2) changing commodity market prices, principally for electricity and natural gas. The total volume of open gas derivative positions decreased 70% from December 31, 2002, to December 31, 2003, while the total volume of open power derivative positions decreased 12% for the same period. In that prices for electricity and natural gas are among the most volatile of all commodity prices, there may be material changes in the fair value of our derivatives over time, driven both by price volatility and the changes in volume of open derivative transactions. Under SFAS No. 133, the change since the last balance sheet date in the total value of the derivatives (both assets and liabilities) is reflected either in Other Comprehensive Income (“OCI”), net of tax, or in the statement of operations as an item (gain or loss) of current earnings. As of December 31, 2003, the majority of the balance in accumulated OCI represented the unrealized net loss associated with commodity cash flow hedging transactions. As noted above, there is a substantial amount of volatility inherent in accounting for the fair value of these derivatives, and our results during the year ended December 31, 2003, have reflected this. See Note 22 of the Notes to Consolidated Financial Statements for additional information on derivative activity.
      Collateral Debt Securities  — The King City operating lease commitment is supported by collateral debt securities that mature serially in amounts equal to a portion of the semi-annual lease payment. We have the ability and intent to hold these securities to maturity, and as a result, we do not expect a sudden change in market interest rates to have a material affect on the value of the securities at the maturity date. The securities are recorded at an amortized cost of $82.6 million at December 31, 2003. See Note 3 of the Notes to
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Consolidated Financial Statements. The following tables present our different classes of collateral debt securities by expected maturity date and fair market value as of December 31, 2003, (dollars in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		Weighted															
		Average															
		Interest Rate		2004		2005		2006		2007		2008		Thereafter		Total	
																	
Corporate Debt Securities	 	 	7.3	%	 	$	6,050	 	 	$	7,825	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	13,875	 	
U.S. Treasury Notes	 	 	6.5	%	 	 	—	 	 	 	1,975	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,975	 	
U.S. Treasury Securities (non- interest bearing)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,700	 	 	 	9,100	 	 	 	9,050	 	 	 	87,100	 	 	 	114,950	 	
 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	 	 	 	$	6,050	 	 	$	9,800	 	 	$	9,700	 	 	$	9,100	 	 	$	9,050	 	 	$	87,100	 	 	$	130,800	 	

		Fair Market	
		Value	
			
Corporate Debt Securities	 	$	14,475	 	
U.S. Treasury Notes	 	 	2,130	 	
U.S. Treasury Securities (non-interest bearing)	 	 	81,775	 	
 	 	 		 	
 	Total	 	$	98,380	 	
 	 	 		 	
      Interest Rate Swaps and Cross Currency Swaps  — From time to time, we use interest rate swap and cross currency swap agreements to mitigate our exposure to interest rate and currency fluctuations associated with certain of our debt instruments. We do not use interest rate swap and currency swap agreements for speculative or trading purposes. The following tables summarize the fair market values of our existing interest rate swap and currency swap agreements as of December 31, 2003 (dollars in thousands):

	Variable to Fixed Swaps	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
				Weighted Average		Weighted Average			
		Notional		Interest Rate		Interest Rate		Fair Market	
Maturity Date		Principal Amount		(Pay)		(Receive)		Value	
									
2007	 	$	38,000	 	 	 	3.8	%	 	3-month US$	LIBOR	 	 	$	(564	)	
2007	 	 	38,333	 	 	 	3.8	%	 	3-month US$	LIBOR	 	 	 	(569	)	
2007	 	 	38,667	 	 	 	3.8	%	 	3-month US$	LIBOR	 	 	 	(574	)	
2011	 	 	43,013	 	 	 	6.9	%	 	3-month US$	LIBOR	 	 	 	(5,838	)	
2012	 	 	111,384	 	 	 	6.5	%	 	3-month US$	LIBOR	 	 	 	(15,192	)	
2014	 	 	59,331	 	 	 	6.7	%	 	3-month US$	LIBOR	 	 	 	(7,893	)	
 	 	 		 	 	 	 	 	 	 	 	 	 	 		 	
 	Total	 	$	328,728	 	 	 	5.6	%	 	 	 	 	 	$	(30,630	)	

		
	Fixed to Variable Swaps	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
						Weighted Average			
		Notional		Weighted Average Interest		Interest Rate		Fair Market	
Maturity Date		Principal Amount		Rate (Pay)		(Receive)		Value	
									
2011	 	$	100,000	 	 	6-month US$	LIBOR	 	 	 	8.5	%	 	$	(7,193	)	
2011	 	 	100,000	 	 	6-month US$	LIBOR	 	 	 	8.5	%	 	 	(5,369	)	
2011	 	 	200,000	 	 	6-month US$	LIBOR	 	 	 	8.5	%	 	 	(11,179	)	
 	 	 		 	 	 	 	 	 	 	 	 	 	 		 	
 	Total	 	$	400,000	 	 	 	 	 	 	 	8.5	%	 	$	(23,741	)	
 	 	 		 	 	 	 	 	 	 	 	 	 	 		 	
      Debt Financing  — Because of the significant capital requirements within our industry, debt financing is often needed to fund our growth. Certain debt instruments may affect us adversely because of changes in market conditions. We have used two primary forms of debt which are subject to market risk: (1) Variable rate construction/project financing and (2) Other variable-rate instruments. Significant LIBOR increases could have a negative impact on our future interest expense. Our variable-rate construction/project financing
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is primarily through CCFC II (renamed CalGen). Borrowings under this credit agreement are used exclusively to fund the construction of our power plants. Other variable-rate instruments consist primarily of our revolving credit and term loan facilities, which are used for general corporate purposes. Both our variable-rate construction/project financing and other variable-rate instruments are indexed to base rates, generally LIBOR, as shown below.
      The following table summarizes our variable-rate debt exposed to interest rate risk as of December 31, 2003. All outstanding balances and fair market values are shown net of applicable premium or discount, if any (dollars in thousands): 

		Outstanding				Fair Market	
		Balance		Interest Rate Basis(4)		Value	
							
Variable-rate construction/project financing and other variable-rate instruments:	 	 	 	 	 	 	 	 	 	 	 	 	
Short-term	 	 	 	 	 	 	 	 	 	 	 	 	
 	First Priority Senior Secured Term Loan B Notes Due 2007	 	$	2,000	 	 	3-month US$	LIBOR	 	 	$	2,000	 	
 	First Priority Secured Institutional Term Loan Due 2009 (CCFC I)	 	 	3,208	 	 	 	(1	)	 	 	3,208	 	
 	Second Priority Senior Secured Term Loan B Notes Due 2007	 	 	7,500	 	 	 	(2	)	 	 	7,500	 	
 	Second Priority Senior Secured Floating Rate Notes Due 2007	 	 	5,000	 	 	 	(3	)	 	 	5,000	 	
 	 	 		 	 	 	 	 	 	 		 	
 	 	Total short-term	 	$	17,708	 	 	 	 	 	 	$	17,708	 	
 	 	 		 	 	 	 	 	 	 		 	
Long-term	 	 	 	 	 	 	 	 	 	 	 	 	
 	Blue Spruce Energy Center Project Financing	 	$	140,000	 	 	 	(3	)	 	$	140,000	 	
 	Riverside Energy Center Project Financing	 	 	165,347	 	 	1-month US$	LIBOR	 	 	 	165,347	 	
 	First Priority Secured Institutional Term Loan Due 2009 (CCFC I)	 	 	378,182	 	 	 	(1	)	 	 	378,182	 	
 	Second Priority Senior Secured Floating Rate Notes Due 2011 (CCFC I)	 	 	407,598	 	 	 	(1	)	 	 	407,598	 	
 	Corporate revolving line of credit	 	 	—	 	 	1-month US$	LIBOR	 	 	 	—	 	
 	Thomassen revolving line of credit	 	 	609	 	 	1-month US$	LIBOR	 	 	 	609	 	
 	First Priority Senior Secured Term Loan B Notes Due 2007	 	 	197,500	 	 	3-month US$	LIBOR	 	 	 	197,500	 	
 	Second Priority Senior Secured Floating Rate Notes Due 2007	 	 	493,750	 	 	 	(3	)	 	 	493,750	 	
 	Second Priority Senior Secured Term Loan B Notes Due 2007	 	 	740,625	 	 	 	(2	)	 	 	740,625	 	
 	Calpine Construction Finance Company II, LLC (CCFC II)	 	 	2,200,358	 	 	1-month US$	LIBOR	 	 	 	2,200,358	 	
 	 	 		 	 	 	 	 	 	 		 	
 	 	Total long-term	 	$	4,723,969	 	 	 	 	 	 	$	4,723,969	 	
 	 	 		 	 	 	 	 	 	 		 	
 	 	 	Total variable-rate construction/project financing and other variable-rate instruments	 	$	4,741,677	 	 	 	 	 	 	$	4,741,677	 	

		
(1) 	British Bankers Association LIBOR Rate for deposit in US dollars for a period of six months.	
 		
(2) 	U.S. prime rate in combination with the Federal Funds Effective Rate.	
 		
(3) 	British Bankers Association LIBOR Rate for deposit in US dollars for a period of three months.	
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(4) 	Actual interest rates include a spread over the basis amount.	
      Construction/project financing facilities — In November 2004 the $2.5 billion secured construction financing revolving facility for our wholly owned subsidiary CCFC II (or CalGen) was scheduled to mature. On March 23, 2004, CalGen completed its offering of secured institutional term loans and secured notes, which refinanced the CalGen facility. We realized total proceeds from the offering in the amount of $2.4 billion, before transaction costs and fees. See Item 1. “Business — Recent Developments” for more information regarding this offering.
      On August 14, 2003, our wholly owned subsidiaries, CCFC I and CCFC Finance Corp., closed their $750 million institutional term loans and secured notes offerings, proceeds from which were utilized to repay the majority of CCFC I’s indebtedness which would have matured in the fourth quarter of 2003. The offering included $385 million of First Priority Secured Institutional Term Loans Due 2009 offered at 98% of par and priced at LIBOR plus 600 basis points, with a LIBOR floor of 150 basis points, and $365 million of Second Priority Senior Secured Floating Rate Notes Due 2011 offered at 98.01% of par and priced at LIBOR plus 850 basis points, with a LIBOR floor of 125 basis points. S&P has assigned a B corporate credit rating to CCFC I. S&P also assigned a B+ rating (with a negative outlook) to the First Priority Secured Institutional Term Loans Due 2009 and a B- rating (with a negative outlook) to the Second Priority Secured Floating Rate Notes Due 2011. The noteholders’ recourse is limited to seven of CCFC I’s natural gas-fired electric generating facilities (as adjusted for approved dispositions and acquisitions, such as the completed sale of Lost Pines Power Project and the pending acquisition of the Brazos Valley Power Plant) located in various power markets in the United States, and related assets and contracts. See Note 14 of the Notes to Consolidated Financial Statements for more information.
      On September 25, 2003, our wholly owned subsidiaries, CCFC I and CCFC Finance Corp., closed on a $50 million add-on financing to the $385 million secured notes offering completed on August 14, 2003. See Note 14 of the Notes to Consolidated Financial Statements for more information.
      Revolving credit and term loan facilities — On July 16, 2003, we closed our $3.3 billion term loan and second-priority senior secured notes offering (the “July 2003 offerings”). The term loan and senior notes are secured by substantially all of the assets owned directly by Calpine Corporation, including natural gas and power plant assets and the stock of Calpine Energy Services and other subsidiaries. The July 2003 offerings were comprised of two tranches of floating rate term loans and senior notes and two tranches of fixed rate securities. The floating rate term loans and senior notes included a $750 million, four-year term loan and $500 million of Second-Priority Senior Secured Floating Rate Notes Due 2007. The fixed rate securities included $1.15 billion of 8.5% Second Priority Senior Secured Notes Due 2010 and $900 million of 8.75% Second Priority Senior Secured Notes Due 2013. See Notes 11 and 16 of the Notes to Consolidated Financial Statements for more information.
      Concurrent with the July 2003 offerings, on July 16, 2003, we entered into agreements for a new $500 million working capital facility. The new first-priority senior secured facility consists of a two-year, $300 million working capital revolver and a four-year, $200 million term loan that together provide up to $500 million in combined cash borrowing and letter of credit capacity. The new facility replaced our prior working capital facilities and is secured by a first-priority lien on the same assets that collateralize the July 2003 offerings described above. See Notes 11 and 16 of the Notes to Consolidated Financial Statements for more information.
Application of Critical Accounting Policies
      Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 2 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies.” We believe that the following reflect the more critical accounting policies that currently affect our financial condition and results of operations.
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	Fair Value of Energy Marketing and Risk Management Contracts and Derivatives	
      GAAP requires us to account for certain derivative contracts at fair value. Accounting for derivatives at fair value requires us to make estimates about future prices during periods for which price quotes are not available from sources external to us. As a result, we are required to rely on internally developed price estimates when external price quotes are unavailable. Our estimates regarding future prices involve a level of uncertainty, and prices actually realized in the future could differ from our estimates.
      We derive our future price estimates, during periods where external price quotes are unavailable, based on an extrapolation of prices from periods where external price quotes are available. We perform this extrapolation using liquid and observable market prices and extending those prices to an internally generated long-term price forecast based on a generalized equilibrium model. We adopted this approach December 31, 2003, for purposes of valuing our commodity derivative instruments. This valuation technique differs from our historical approach. Historically we had extrapolated forward price curves by extrapolating liquid and observable market prices into future periods based on observed year-over-year spreads. While our historical approach was reasonable, we believe the new approach is superior because it incorporates expectations about long-range market fundamentals into the extrapolation. The change did not affect the valuation of the majority of our commodity derivative instruments because of the relative short tenor of those instruments and the fact that the liquid and observable curves under both valuation techniques are the same. The effect of the change on our longer dated derivative commodity instruments resulted in a $12.7 million reduction in the value of our derivative assets, $(13.1) million of which was recognized as a charge to mark-to-market income and $0.4 million of which was recognized as a gain in other comprehensive income.

	Credit Reserves	
      In estimating the fair value of our derivatives, we must take into account the credit risk that our counterparties will not have the financial wherewithal to honor their contract commitments.
      In establishing credit risk reserves we take into account historical default rate data published by the rating agencies based on the credit rating of each counterparty where we have realization exposure, as well as other published data and information.

	Liquidity Reserves	
      We value our forward positions at the mid-market price, or the price in the middle of the bid-ask spread. This creates a risk that the value reported by us as the fair value of our derivative positions will not represent the realizable value or probable loss exposure of our derivative positions if we are unable to liquidate those positions at the mid-market price. Adjusting for this liquidity risk states our derivative assets and liabilities at their most probable value. We use a two-step quantitative and qualitative analysis to determine our liquidity reserve.
      In the first step we quantitatively derive an initial liquidity reserve assessment applying the following assumptions in calculating the initial liquidity reserve assessment: (1) where we have the capability to cover physical positions with our own assets, we assume no liquidity reserve is necessary because we will not have to cross the bid-ask spread in covering the position; (2) we record no reserve against our hedge positions because a high likelihood exists that we will hold our hedge positions to maturity or cover them with our own assets; and (3) where reserves are necessary, we base the reserves on the spreads observed using broker quotes as a starting point.
      Using these assumptions, we calculate the net notional volume exposure at each location by commodity and multiply the result by one half of the bid-ask spread.
      The second step involves a qualitative analysis where the initial assessment may be adjusted for qualitative factors such as liquidity spreads observed through recent trading activity, strategies for liquidating open positions, and imprecision in or unavailability of broker quotes due to market illiquidity. Using this quantitative and qualitative information, we estimate the amount of probable liquidity risk exposure to us and we record this estimate as a liquidity reserve.
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	Presentation of Revenue Under EITF No. 03-11	
      During 2003 the Emerging Issues Task Force (“the Task Force”) discussed EITF Issue No. 03-11. In EITF Issue No. 02-3 the Task Force reached a consensus that companies should present all gains and losses on derivative instruments held for trading purposes net in the income statement, whether or not settled physically. EITF Issue No. 03-11 addresses income statement classification of derivative instruments held for other than trading purposes. At the July 31, 2003, EITF meeting, the Task Force reached a consensus that determining whether realized gains and losses on derivative contracts not ‘held for trading purposes’ should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances. The Task Force ratified this consensus at its August 13, 2003, meeting, and it is effective beginning October 1, 2003. The Task Force did not prescribe specific effective date or transition guidance for this Issue. We determined that under the provisions of EITF Issue No. 03-11, transactions which are not physically settled should be reported net for purposes of the Consolidated Statements of Operations. Accordingly, transactions with either of the following characteristics are presented net in our financial statements: (1) transactions executed in a back-to-back buy and sale pair, primarily because of market protocols; and (2) physical power purchase and sale transactions where our power schedulers net the physical flow of the power purchase against the physical flow of the power sale (“book out” the physical power flows) as a matter of scheduling convenience to eliminate the need to schedule actual power deliveries. These book out transactions may occur with the same counterparty or between different counterparties where we have equal but offsetting physical purchase and delivery commitments.
      Based on guidance in EITF Topic No. D-1 “Implications and Implementation of an EITF Consensus” and because EITF Issue No. 03-11 is silent with respect to transition provisions, we have adopted EITF No. 03-11 on a prospective basis effective October 1, 2003. While adoption of EITF No. 03-11 had no effect on our gross profit or net income, it reduced our 2003 sales of purchased power for hedging and optimization and purchased power expense for hedging and optimization by approximately $256.6 million.

	Accounting for Long-Lived Assets	

	Plant Useful Lives	
      Property, plant and equipment is stated at cost. The cost of renewals and betterments that extend the useful life of property, plant and equipment are also capitalized. Depreciation is recorded utilizing the straight-line method over the estimated original composite useful life, generally 35 years for baseload power plants and 40 years for peaking facilities, exclusive of the estimated salvage value, typically 10%.

	Impairment of Long-Lived Assets, Including Intangibles	
      We evaluate long-lived assets, such as property, plant and equipment, equity method investments, patents, and specifically identifiable intangibles, when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors which could trigger an impairment include significant underperformance relative to historical or projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends. Certain of our generating assets are located in regions with depressed demands and market spark spreads. Our forecasts assume that spark spreads will increase in future years in these regions as the supply and demand relationships improve.
      The determination of whether an impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets, as compared to the carrying value of the assets. The significant assumptions that we use in our undiscounted future cash flow estimates include the future supply and demand relationships for electricity and natural gas, and the expected pricing for those commodities and the resultant spark spreads in the various regions where we generate. If an impairment has occurred, the amount of the impairment loss recognized would be determined by estimating the fair value of the assets and recording a loss if the fair value was less than the book value. For equity method investments and assets identified as held for sale, the book value is compared to the estimated fair value to determine if an impairment loss is required. For equity method investments, we would record a loss when the decline in value is other than temporary.
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      Our assessment regarding the existence of impairment factors is based on market conditions, operational performance and legal factors of our businesses. Our review of factors present and the resulting appropriate carrying value of our intangibles, and other long-lived assets are subject to judgments and estimates that management is required to make. Future events could cause us to conclude that impairment indicators exist and that our intangibles, and other long-lived assets might be impaired.

	Turbine Impairment Charges	
      A significant portion of our overall cost of constructing a power plant is the cost of the gas turbine-generators (GTGs), steam turbine-generators (STGs) and related equipment (collectively the “turbines”). The turbines are ordered primarily from three large manufacturers under long-term, build to order contracts. Payments are generally made over a two to four year period for each turbine. The turbine prepayments are included as a component of construction-in-progress if the turbines are assigned to specific projects probable of being built, and interest is capitalized on such costs. Turbines assigned to specific projects are not evaluated for impairment separately from the project as a whole. Prepayments for turbines that are not assigned to specific projects that are probable of being built are carried in other assets, and interest is not capitalized on such costs. Additionally, our commitments relating to future turbine payments are discussed in Note 24 of the Notes to Consolidated Financial Statements.
      To the extent that there are more turbines on order than are allocated to specific construction projects, we determine the probability that new projects will be initiated to utilize the turbines or that the turbines will be resold to third parties. The completion of in progress projects and the initiation of new projects are dependent on our overall liquidity and the availability of funds for capital expenditures.
      In assessing the impairment of turbines, we must determine both the realizability of the progress payments to date that have been capitalized, as well as the probability that at future decision dates, we will cancel the turbines, forfeiting the prepayment and incurring the cancellation payment, or will proceed and pay the remaining progress payments in accordance with the original payment schedule.
      We apply SFAS No. 5, “Accounting for Contingencies” to evaluate potential future cancellation obligations. We apply SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” to evaluate turbine progress payments made to date and the carrying value of delivered turbines not assigned to projects. At the reporting date, if we believe that it is probable that we will elect the cancellation provisions relating to future decision dates, then the expected future termination payment is also expensed.

	Oil and Gas Property Valuations	
      Successful Efforts Method of Accounting. We follow the successful efforts method of accounting for oil and natural gas activities. Under the successful efforts method, lease acquisition costs and all development costs are capitalized. Exploratory drilling costs are capitalized until the results are determined. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploratory costs are expensed as incurred. Interest costs related to financing major oil and gas projects in progress are capitalized until the projects are evaluated, or until the projects are substantially complete and ready for their intended use if the projects are evaluated as successful.
      The successful efforts method of accounting relies on management’s judgment in the designation of wells as either exploratory or developmental, which determines the proper accounting treatment of costs incurred. During 2003 we drilled 186 (net 65.4) development wells and 28 (net 19.5) exploratory wells, of which 178 (net 61.0) development and 18 (net 14.3) exploration were successful. Our operational results may be significantly impacted if we decide to drill in a new exploratory area, which will result in increased seismic costs and potentially increased dry hole costs if the wells are determined to be not successful.
      Successful Efforts Method of Accounting v. Full Cost Method of Accounting. Under the successful efforts method, unsuccessful exploration well cost, geological and geophysical costs, delay rentals, and general and administrative expenses directly allocable to acquisition, exploration, and development activities are
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charged to exploration expense as incurred; whereas, under the full cost method these costs are capitalized and amortized over the life of the reserves.
      A significant sale would have to occur before a gain or loss would be recognized under the full cost method but, when an entire cost center (generally a field) is sold under successful efforts method, a gain or loss is recognized.
      For impairment evaluation purposes, successful efforts requires that individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows, which are generally on a field-by-field basis. Under full cost impairment review, all properties in the depreciation, depletion and amortization pools are assessed against a ceiling based on discounted cash flows, with certain adjustments.
      Though successful efforts and full cost methods are both acceptable under GAAP, historically successful efforts is used by most major companies due to such method being more reflective of current operating results due to expensing of certain exploration activities.
      Impairment of Oil and Gas Properties. We review our oil and gas properties periodically to determine if impairment of such properties is necessary. Property impairments may occur if a field discovers lower than anticipated reserves or if commodity prices fall below a level that significantly affects anticipated future cash flows on the property. Proved oil and gas property values are reviewed when circumstances suggest the need for such a review and, if required, the proved properties are written down to their estimated fair value. Unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value, with any such impairment charged to expense in the current period. During 2003 we recorded approximately $18 million primarily in proved property impairments.
      Oil and Gas Reserves. The process of estimating quantities of proved developed and proved undeveloped crude oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. Estimates of economically recoverable oil and gas reserves and future net cash flows depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of governmental regulations, operating and workover costs, severance taxes and development costs, all of which may vary considerably from actual results. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of our oil and gas properties and/or the rate of depletion of such properties.
      We based our estimates of proved developed and proved undeveloped reserves as of December 31, 2003, on estimates made by Netherland, Sewell & Associates, Inc. for reserves in the United States; and Gilbert Laustsen Jung Associates Ltd. for reserves in Canada, both independent petroleum consultants.

	Capitalized Interest	
      We capitalize interest using two methods: (1) capitalized interest on funds borrowed for specific construction projects and (2) capitalized interest on general corporate funds. For capitalization of interest on specific funds, we capitalize the interest cost incurred related to debt entered into for specific projects under construction or in the advanced stage of development. The methodology for capitalizing interest on general funds, consistent with paragraphs 13 and 14 of SFAS No. 34, “Capitalization of Interest Cost,” begins with a determination of the borrowings applicable to our qualifying assets. The basis of this approach is the assumption that the portion of the interest costs that are capitalized on expenditures during an asset’s acquisition period could have been avoided if the expenditures had not been made. This methodology takes the view that if funds are not required for construction then they would have been used to pay off other debt. We use our best judgment in determining which borrowings represent the cost of financing the acquisition of the assets. The primary debt instruments included in the rate calculation of interest incurred on general corporate funds are our Senior Notes, our term loan facilities and our secured working capital revolving credit facility. The interest rate is derived by dividing the total interest cost by the average borrowings. This weighted average interest rate is applied to our average qualifying assets. See Note 4 of the Notes to Consolidated Financial Statements for additional information about the capitalization of interest expense.
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	Accounting for Income Taxes	
      To arrive at our worldwide income tax provision significant judgment is required. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of the treatment of capital assets, financing transactions, multistate taxation of operations and segregation of foreign and domestic income and expense to avoid double taxation. Although we believe that our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions and accruals. Such differences could have a material impact on our income tax provision and net income in the period in which such determination is made.
      We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, there is no assurance that the valuation allowance would not need to be increased to cover additional deferred tax assets that may not be realizable. Any increase in the valuation allowance could have a material adverse impact on our income tax provision and net income in the period in which such determination is made.
      We provide for United States income taxes on the earnings of foreign subsidiaries unless they are considered permanently invested outside the United States. At December 31, 2003, we had no cumulative undistributed earnings of foreign subsidiaries.
      Our effective income tax rates were (0.1)%, (38.6)% and 33.8% in fiscal 2003, 2002 and 2001, respectively. The effective tax rate in all periods is the result of profits Calpine Corporation and its subsidiaries earned in various tax jurisdictions, both foreign and domestic, that apply a broad range of income tax rates. The provision for income taxes differs from the tax computed at the federal statutory income tax rate due primarily to state taxes and earnings considered as permanently reinvested in foreign operations and the effect of the treatment by foreign jurisdictions of cross border financings. Future effective tax rates could be adversely affected if earnings are lower than anticipated in countries where we have lower statutory rates, if unfavorable changes in tax laws and regulations occur, or if we experience future adverse determinations by taxing authorities after any related litigation. For calendar year 2003 the state tax rate increased over prior years due to a one-time adjustment increasing our deferred state taxes and receiving no benefit for foreign losses in our state tax filings. Our foreign taxes at rates other than statutory include the benefit of cross border financings as well as withholding taxes and foreign valuation allowance. Additionally, our 2003 effective rate was adversely impacted by the recognition of undistributed foreign income (Subpart F) in our U.S. tax return.
      Under SFAS No. 109, “Accounting for Income Taxes,” deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. SFAS No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based on the weight of available evidence, we have provided a valuation allowance against certain deferred tax assets. The valuation allowance was based on the historical earnings patterns within individual tax jurisdictions that make it uncertain that we will have sufficient income in the appropriate jurisdictions to realize the full value of the assets. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis.
      At December 31, 2003, we had credit carryforwards, resulting in a $8.1 million tax benefit, which originated from acceleration of deductions on capital assets. We expect to utilize all of the credit carryforwards. We also had federal and state net operating loss carryforwards of $364.8 million, which expire between 2004 and 2023. The federal and state net operating loss carryforwards available are subject to limitations on annual usage. In addition, we had loss carryforwards in certain foreign subsidiaries, resulting in a tax benefit of $113.3 million, the majority of which expire by 2008. It is expected that they will be fully utilized before expiring. The deferred tax asset for the federal and state losses, foreign losses, and other prepaid taxes has been offset by a valuation allowance of $19.3 million.
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	Variable Interest Entities and Primary Beneficiary	
      In determining whether an entity is a variable interest entity (“VIE”) and whether or not we are the Primary Beneficiary, we use significant judgment regarding the adequacy of an entity’s equity relative to maximum expected losses, amounts and timing of estimated cash flows, discount rates and the probability of achieving a specific expected future cash flow outcome for various cash flow scenarios. Due to the long-term nature of our investment in a VIE and its underlying assets, our estimates of the probability-weighted future expected cash flow outcomes are complex and subjective, and are based, in part, on our assessment of future commodity prices based on long-term supply and demand forecasts for electricity and natural gas, operational performance of the underlying assets, legal and regulatory factors affecting our industry, long-term interest rates and our current credit profile and cost of capital. As a result of applying the complex guidance outlined in FIN 46-R, we may be required to consolidate assets we do not legally own and liabilities that we are not legally obligated to satisfy. Also, future changes in a VIE’s legal or capital structure may cause us to reassess whether or not we are the Primary Beneficiary and may result in our consolidation or deconsolidation of that entity.
      Significant judgment was required in making our assessment of whether or not a VIE was a special purpose entity (“SPE”) for purposes of applying FIN 46-R as of October 1, 2003. Entities that meet the definition of a business outlined in FIN 46-R and that satisfy other formation and involvement criteria are not subject to the FIN 46-R consolidation guidelines. The definitional characteristics of a business include having: inputs such as long-lived assets; the ability to obtain access to necessary materials and employees; processes such as strategic management, operational process and resource management; and the ability to obtain access to the customers that purchase the outputs of the entity. Since the current accounting literature does not provide a definition of an SPE, our assessment was primarily based on the degree to which a VIE aligned with the definition of a business. Based on this assessment, we determined that three VIEs, Calpine Capital Trusts I, II and III, were SPEs and subject to FIN 46-R as of October 1, 2003. Consequently as discussed in Notes 2 and 11 of the Notes to Consolidated Financial Statements, we deconsolidated these entities.
Initial Adoption of New Accounting Standards in 2003

	SFAS No. 123 — “Accounting for Stock-Based Compensation” and SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure”	
      Prior to 2003 we accounted for qualified stock compensation under APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under APB 25, we were required to recognize stock compensation as expense only to the extent that there is a difference in value between the market price of the stock being offered to employees and the price those employees must pay to acquire the stock. The expense measurement methodology provided by APB 25 is commonly referred to as the “intrinsic value based method.” To date, our stock compensation program has been based primarily on stock options whose exercise prices are equal to the market price of Calpine stock on the date of the stock option grant; consequently, under APB25 we had historically incurred minimal stock compensation expense. On January 1, 2003, we prospectively adopted the fair value method of accounting for stock-based employee compensation pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS No. 148”). SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for companies that voluntarily change their accounting for stock-based compensation from the less preferred intrinsic value based method to the more preferred fair value based method. Prior to its amendment, SFAS No. 123 required that companies enacting a voluntary change in accounting principle from the intrinsic value methodology provided by APB 25 could only do so on a prospective basis; no adoption or transition provisions were established to allow for a restatement of prior period financial statements. SFAS No. 148 provides two additional transition options to report the change in accounting principle — the modified prospective method and the retroactive restatement method. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We elected to adopt the provisions of SFAS No. 123 on a prospective
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basis; consequently, we are required to provide a pro-forma disclosure of net income and earnings per share as if SFAS No. 123 accounting had been applied to all prior periods presented within our financial statements.
      Under SFAS No. 123, the fair value of a stock option or its equivalent is estimated on the date of grant by using an option-pricing model, such as the Black-Scholes model or a binomial model. The option-pricing model selected should take into account, as of the stock option’s grant date, the exercise price and expected life of the stock option, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the stock option.
      The fair value calculated by this model is then recognized as compensation expense over the period in which the related employee services are rendered. Unless specifically defined within the provisions of the stock option granted, the service period is presumed to begin on the grant date and end when the stock option is fully vested. Depending on the vesting structure of the stock option and other variables that are built into the option-pricing model, the fair value of the stock option is recognized over the service period using either a straight-line method (the single option approach) or a more conservative, accelerated method (the multiple option approach). For consistency, we have chosen the multiple option approach, which we have used historically for pro-forma disclosure purposes. The multiple option approach views one four-year option grant as four separate sub-grants, each representing 25% of the total number of stock options granted. The first sub-grant vests over one year, the second sub-grant vests over two years, the third sub-grant vests over three years, and the fourth sub-grant vests over four years. Under this scenario, over 50% of the total fair value of the stock option grant is recognized during the first year of the vesting period, and nearly 80% of the total fair value of the stock option grant is recognized by the end of the second year of the vesting period. By contrast, if we were to apply the single option approach, only 25% and 50% of the total fair value of the stock option grant would be recognized as compensation expense by the end of the first and second years of the vesting period, respectively.
      We have selected the Black-Scholes model, primarily because it is the most commonly recognized options-pricing model among U.S.-based corporations. Nonetheless, we believe this model tends to overstate the true fair value of our employee stock options in that our options cannot be freely traded, have vesting requirements, and are subject to blackout periods during which, even if vested, they cannot be traded. We will monitor valuation trends and techniques as more companies adopt SFAS No. 123 and as additional guidance is provided by FASB and review our choices as appropriate in the future. The key assumption in our Black-Scholes model is the expected life of the stock option, because it is this figure that drives our expected volatility calculation, as well as our risk-free interest rate. The expected life of the option relies on two factors — the option’s vesting period and the expected term that an employee holds the option once it has vested. There is no single method described by SFAS No. 123 for predicting future events such as how long an employee holds on to an option or what the expected volatility of a company’s stock price will be; the facts and circumstances are unique to different companies and depend on factors such as historical employee stock option exercise patterns, significant changes in the market place that could create a material impact on a company’s stock price in the future, and changes in a company’s stock-based compensation structure.
      We base our expected option terms on historical employee exercise patterns. We have segregated our employees into four different categories based on the fact that different groups of employees within our company have exhibited different stock exercise patterns in the past, usually based on employee rank and income levels. Therefore, we have concluded that we will perform separate Black-Scholes calculations for four employee groups — executive officers, senior vice presidents, vice presidents, and all other employees.
      We compute our expected stock price volatility based on our stock’s historical movements. For each employee group, we measure the volatility of our stock over a period that equals the expected term of the option. In the case of our executive officers, this means we measure our stock price volatility dating back to our public inception in 1996, because these employees are expected to hold their options for over 7 years after the options have fully vested. In the case of other employees, volatility is only measured dating back 4 years. In the short run, this causes other employees to generate a higher volatility figure than the other company employee groups because our stock price has fluctuated significantly in the past four years. As of December 31, 2003, the volatility for our employee groups ranged from 70%-113%.
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      See Note 2 of the Notes to Consolidated Financial Statements for additional information related to the January 1, 2003, adoption of SFAS Nos. 123 and 148 and the pro-forma impact that they would have had on our net income for the years ended December 31, 2003, 2002 and 2001.

	SFAS No. 143 — “Accounting for Asset Retirement Obligations”	
      In June 2001 FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations.” SFAS No. 143 applies to fiscal years beginning after June 15, 2002 and amends SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies.” This standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the assets and requires that a liability for an asset retirement obligation be recognized when incurred, recorded at fair value and classified as a liability in the balance sheet. When the liability is initially recorded, the entity will capitalize the cost and increase the carrying value of the related long-lived asset. Asset retirement obligations represent future liabilities, and, as a result, accretion expense will be accrued on this liability until the obligation is satisfied. At the same time, the capitalized cost will be depreciated over the estimated useful life of the related asset. At the settlement date, the entity will settle the obligation for its recorded amount or recognize a gain or loss upon settlement.
      We adopted the new rules on asset retirement obligations on January 1, 2003. As required by the new rules, we recorded liabilities equal to the present value of expected future asset retirement obligations at January 1, 2003. We identified obligations related to operating gas-fired power plants, geothermal power plants and oil and gas properties. The liabilities are partially offset by increases in net assets recorded as if the provisions of SFAS No. 143 had been in effect at the date the obligation was incurred, which for power plants is generally the start of construction and typically building up during construction until commercial operations for the facility is achieved. For oil and gas properties the date the obligation is incurred is generally the start of drilling of a well or the start of construction of a facility and typically building up until completion of drilling of a well or completion of construction of a facility.

	FIN 45 — “Guarantors Accounting and Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others”	
      In November 2002 FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 elaborates on the existing disclosure requirements for most guarantees. FIN 45 also clarifies that at the time a company issues a guarantee, it must recognize an initial liability for the fair value of the obligation it assumes under that guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that specified triggering events or conditions occur. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements for FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002, and have been incorporated into our December 31, 2003, disclosures of guarantees in the Notes to Consolidated Financial Statements. Adoption of this Interpretation did not have a material impact on our Consolidated Financial Statements. See “Commercial Commitments” in the Liquidity and Capital Resources section and Note 24 of the Notes to Consolidated Financial Statements for the disclosures.

	FIN 46 — “Consolidation of Variable Interest Entities, An Interpretation of ARB 51”	
      See “Variable Interest Entities (“VIE”) and Primary Beneficiary” above for a discussion of the judgment involved in FIN 46.

	Derivatives Implementation Group Issue No. C20	
      In June 2003 FASB issued Derivatives Implementation Group (“DIG”) Issue No. C20, “Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature.” DIG Issue No. C20 superseded DIG Issue No. C11
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“Interpretation of Clearly and Closely Related in Contracts That Qualify for the Normal Purchases and Normal Sales Exception,” and specified additional circumstances in which a price adjustment feature in a derivative contract would not be an impediment to qualifying for the normal purchases and normal sales scope exception under SFAS No. 133. DIG Issue No. C20 is effective as of the first day of the fiscal quarter beginning after July 10, 2003, (i.e. October 1, 2003, for us) with early application permitted. In conjunction with initially applying the implementation guidance, DIG Issue No. C20 requires the recognition of a special transition adjustment for certain contracts containing a price adjustment feature based on a broad market index for which the normal purchases and normal sales scope exception had been previously elected. In those circumstances, the derivative contract should be recognized at fair value as of the date of the initial application with a corresponding adjustment of net income as the cumulative effect of a change in accounting principle. It should then be applied prospectively for all existing contracts as of the effective date and for all future transactions.
      Two of our power sales contracts, which meet the definition of a derivative and for which we previously elected the normal purchases and normal sales scope exception, use a CPI or similar index to escalate the Operations and Maintenance (“O&M”) charges. Adoption of DIG Issue No. C20 required us to recognize a special transition accounting adjustment for the estimated future economic benefits of these contracts. We based the transition adjustment on the nature and extent of the key price adjustment features in the contracts and estimated future market conditions on the date of adoption, such as the forward price of power and natural gas and the expected rate of inflation. We will realize the actual future economic benefits of these contracts over the remaining lives of these contracts which extend through 2013 and 2023 as actual power deliveries occur, although DIG Issue No. C20 required us to account for the estimated future economic benefits currently. We will amortize the corresponding asset recorded upon adoption of DIG Issue No. C20 through a charge to earnings in future periods. Accordingly on October 1, 2003, the date we adopted DIG Issue No. C20, we recorded other current assets and other assets of approximately $33.5 million and 259.9 million, respectively, and a cumulative effect of a change in accounting principle of approximately $181.9 million, net of $111.5 million of tax. For all periods subsequent to October 1, 2003, we will account for the contracts as normal purchases and sales under the provisions of DIG Issue No. C20.
EITF Issue No. 01-08 — “Determining Whether an Arrangement Contains a Lease”
      In May 2003 the EITF reached consensus in EITF Issue No. 01-08, “Determining Whether an Arrangement Contains a Lease,” to clarify the requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The guidance in the consensus is designed to broaden the scope of arrangements, such as power purchase agreements, accounted for as leases. EITF Issue No. 01-08 requires both parties to an arrangement to determine whether a service contract or similar arrangement is, or includes, a lease within the scope of SFAS No. 13, “Accounting for Leases.” The consensus is being applied prospectively to arrangements agreed to, modified, or acquired in business combinations on or after July 1, 2003. Prior to adopting EITF Issue No. 01-08, we had accounted for certain contractual arrangements as leases under existing industry practices, and the adoption of EITF Issue No. 01-08 did not materially change accounting for previous arrangements that had been accounted for as leases prior to the adoption of EITF Issue No. 01-08. Currently the income to us under these arrangements is immaterial; however, we may, in the future, structure additional power purchase agreements as leases. For income statement presentation purposes, income from arrangements accounted for as leases is classified within electricity and steam revenue in our consolidated statements of operations.
Impact of Recent Accounting Pronouncements

	SFAS No. 133 — “Accounting for Derivative Instruments and Hedging Activities”	
      FASB in recent years has issued numerous new accounting standards that have already taken effect or will soon impact us. In Note 2 of our Notes to Consolidated Financial Statements we invite your attention to a discussion of several new standards, emerging issues and interpretations under the section entitled “New Accounting Pronouncements.”
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      Below is a detailed discussion of how we apply SFAS No. 133 since this accounting standard has a profound impact on how we account for our energy contracts and transactions.
      On January 1, 2001, we adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133 — an Amendment of FASB Statement No. 133,” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — an Amendment of FASB Statement No. 133.” We currently hold six classes of derivative instruments that are impacted by the new pronouncement — foreign currency swaps, interest rate swaps, forward interest rate agreements, commodity financial instruments, commodity contracts, and physical options.
      Consistent with the requirements of SFAS No. 133, we evaluate all of our contracts to determine whether or not they qualify as derivatives under the accounting pronouncement. For a given contract, there are typically three steps we use to determine its proper accounting treatment. First, based on the terms and conditions of the contract, as well as the applicable guidelines established by SFAS No. 133, we identify the contract as being either a derivative or non-derivative contract. Second, if the contract is not a derivative, we further identify its specific classification (e.g. whether or not it qualifies as a lease) and apply the appropriate non-derivative accounting treatment. Alternatively, if the contract does qualify as a derivative under the guidance of SFAS No. 133, we evaluate whether or not it qualifies for the “normal” purchases and sales exception (as described below). If the contract qualifies for the exception, we apply the traditional accrual accounting treatment. Finally, if the contract qualifies as a derivative and does not qualify for the “normal” purchases and sales exception, we apply the accounting treatment required by SFAS No. 133, which is outlined below in further detail. The diagram below illustrates the process we use for the purposes of identifying the classification and subsequent accounting treatment of our contracts:

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      As an independent power producer primarily focused on generation of electricity using gas-fired turbines, our natural physical commodity position is “short” fuel (i.e., natural gas consumer) and “long” power capacity (i.e., electricity seller). Additionally, we also have a natural “long” crude position due to our petroleum reserves. To manage forward exposure to price fluctuation, we execute commodity derivative contracts as defined by SFAS No. 133. As we apply SFAS No. 133, derivatives can receive one of four treatments depending on associated circumstances: 1. exemption from SFAS No. 133 accounting treatment if these contracts qualify as “normal” purchases and sales contracts; 2. fair value hedges; 3. cash flow hedges; or 4. undesignated derivatives.

	Normal Purchases and Sales	
      Normal purchases and sales, as defined by paragraph 10b. of SFAS No. 133 and amended by SFAS No. 138, are exempt from SFAS No. 133 accounting treatment. As a result, these contracts are not required to be recorded on the balance sheet at their fair values and any fluctuations in these values are not required to be reported within earnings. Probability of physical delivery from our generation plants, in the case of electricity sales, and to our generation plants, in the case of natural gas contracts, is required over the life of the contract within reasonable tolerances.
      On June 27, 2001, FASB cleared SFAS No. 133 Implementation Issue No. C15 dealing with a proposed electric industry normal purchases and sales exception for capacity sales transactions (“The Eligibility of Option Contracts in Electricity for the Normal Purchases and Normal Sales Exception”). On December 19, 2001, FASB revised the criteria for qualifying for the “normal” exception. As a result of Issue No. C15, as revised, certain power purchase and/or sale agreements that are structured as capacity sales contracts are now eligible to qualify for the normal purchases and sales exception. Because we are “long” power capacity, we often enter into capacity sales contracts as a means to recover the costs incurred from maintaining and operating our power plants as well as the costs directly associated with the generation and sale of electricity to our customers. Under Issue No. C15, a capacity sales contract qualifies for the normal purchases and sales exception subject to certain conditions. A majority of our capacity sales contracts qualify for the normal purchases and sales exception.

	Cash Flow Hedges and Fair Value Hedges	
      Within the energy industry, cash flow and fair value hedge transactions typically use the same types of standard transactions (i.e., offered for purchase/ sale in over-the-counter markets or commodity exchanges).

	Fair Value Hedges	
      As further defined in SFAS No. 133, fair value hedge transactions hedge the exposure to changes in the fair value of either all or a specific portion of a recognized asset or liability or of an unrecognized firm commitment. The accounting treatment for fair value hedges requires reporting both the changes in fair values of a hedged item (the underlying risk) and the hedging instrument (the derivative designated to offset the underlying risk) on both the balance sheet and the income statement. On that basis, when a firm commitment is associated with a hedge instrument that attains 100% effectiveness (under the effectiveness criteria outlined in SFAS No. 133), there is no net earnings impact because the earnings caused by the changes in fair value of the hedged item will move in an equal, but opposite, amount as the earnings caused by the changes in fair value of the hedging instrument. In other words, the earnings volatility caused by the underlying risk factor will be neutralized because of the hedge. For example, if we want to manage the price risk (i.e. the risk that market electric rates will rise, making a fixed price contract less valuable) associated with all or a portion of a fixed price power sale that has been identified as a “normal” transaction (as described above), we might create a fair value hedge by purchasing fixed price power. From that date and time forward until delivery, the change in fair value of the hedged item and hedge instrument will be reported in earnings with asset/liability offsets on the balance sheet. If there is 100% effectiveness, there is no net earnings impact. If there is less than 100% effectiveness, the fair value change of the hedged item (the underlying risk) and the hedging instrument (the derivative) will likely be different and the “ineffectiveness” will result in a net earnings impact.
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	Cash Flow Hedges	
      As further defined in SFAS No. 133, cash flow hedge transactions hedge the exposure to variability in expected future cash flows (i.e., in our case, the price variability of forecasted purchases of gas and sales of power, as well as interest rate and foreign exchange rate exposure). In the case of cash flow hedges, the hedged item (the underlying risk) is generally unrecognized (i.e., not recorded on the balance sheet prior to delivery), and any changes in this fair value, therefore, will not be recorded within earnings. Conceptually, if a cash flow hedge is effective, this means that a variable, such as movement in power prices, has been effectively fixed, so that any fluctuations will have no net result on either cash flows or earnings. Therefore, if the changes in fair value of the hedged item are not recorded in earnings, then the changes in fair value of the hedging instrument (the derivative) must also be excluded from the income statement, or else a one-sided net impact on earnings will be reported, despite the fact that the establishment of the effective hedge results in no net economic impact. To prevent such a scenario from occurring, SFAS No. 133 requires that the fair value of a derivative instrument designated as a cash flow hedge be recorded as an asset or liability on the balance sheet, but with the offset reported as part of other comprehensive income (“OCI”), to the extent that the hedge is effective. Similar to fair value hedges, any ineffectiveness portion will be reflected in earnings. The diagram below illustrates the process used to account for derivatives designated as cash flow hedges:

      Certain contracts could either qualify for exemption from SFAS No. 133 accounting as normal purchases or sales or be designated as effective hedges. Our marketing and sales and fuels groups generally transact with load serving entities and other end-users of electricity and with fuel suppliers, respectively, in physical contracts where delivery is expected. These transactions are structured as normal purchases and sales, when possible, and if the normal exception is not allowed, we seek to structure the transactions as cash flow hedges. Conversely, our CES risk management desks generally transact in over-the-counter or exchange traded contracts, in hedging transactions. These transactions are designated as hedges when possible, notwithstanding the fact that some might qualify as normal purchases or sales.
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	Undesignated Derivatives	
      The fair values and changes in fair values of undesignated derivatives are recorded in earnings, with the corresponding offsets recorded as derivative assets or liabilities on the balance sheet. We have the following types of undesignated transactions:

			
 	• 	transactions are executed at a location where we do not have an associated natural long (generation capacity) or short (fuel consumption requirements) position of sufficient quantity for the entire term of the transaction (e.g., power sales where we do not own generating assets or intend to acquire transmission rights for delivery from other assets for any portion of the contract term), and	
 		
 	• 	transactions executed with the intent to profit from short-term price movements, and	
 		
 	• 	discontinuance (de-designation) of hedge treatment prospectively consistent with paragraphs 25 and 32 of SFAS No. 133. In circumstances where we believe the hedge relationship is no longer necessary, we will remove the hedge designation and close out the hedge positions by entering into an equal and offsetting derivative position. Prospectively, the two derivative positions should generally have no net earnings impact because the changes in their fair values are offsetting.	

	Accumulated Other Comprehensive Income	
      Accumulated other comprehensive income (“AOCI”) includes the following components: (i) unrealized pre-tax gains/losses, net of reclassification-to-earnings adjustments, from effective cash flow hedges as designated pursuant to SFAS No. 133, (see Note 22 of the Notes to Consolidated Financial Statements); (ii) unrealized pre-tax gains/losses that result from the translation of foreign subsidiaries’ balance sheets from the foreign functional currency to our consolidated reporting currency (US $); (iii) other comprehensive income from equity method investees; and (iv) the taxes associated with the unrealized gains/losses from items (i) and (iii). See Note 20 of the Notes to Consolidated Financial Statements for further information.
      One result of our adoption on January 1, 2001, of SFAS No. 133 has been volatility in the AOCI component of Stockholders’ Equity on the balance sheet. As explained in Notes 20 and 22 of the Notes to Consolidated Financial Statements, our AOCI balances are primarily related to our cash flow hedging and currency translation activity. The quarterly balances for 2003 in AOCI related to cash flow hedging activity are summarized in the table below (in thousands). 

			
		Quarter Ended	
			
		December 31		September 30		June 30		March 31	
									
AOCI balances related to cash flow hedging	 	$	(130,419	)	 	$	(129,387	)	 	$	(162,762	)	 	$	(193,265	)	
      Note that the amounts above represent AOCI from cash flow hedging activity only. For further information on other components of our total AOCI balance at December 31, 2003, see Note 20 of the Notes to Consolidated Financial Statements.

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	
      The information required hereunder is set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Financial Market Risks.”

Item 8.	Financial Statements and Supplementary Data	
      The information required hereunder is set forth under “Reports of Independent Auditors,” “Consolidated Balance Sheets,” “Consolidated Statements of Operations,” “Consolidated Statements of Stockholders’ Equity,” “Consolidated Statements of Cash Flows,” and “Notes to Consolidated Financial Statements” included in the Consolidated Financial Statements that are a part of this report. Other financial information and schedules are included in the Consolidated Financial Statements that are a part of this report.
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Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	
      On April 10, 2003, we and our former auditors, Deloitte & Touche LLP (“Deloitte”), ceased our client auditor relationship. On that date, the following events occurred:

		
 	(1) Deloitte notified the Chairman of the Audit Committee of our Board of Directors that Deloitte resigned its audit relationship with us.	
 		
 	(2) Our Audit Committee and Board of Directors determined to no longer utilize the audit services of Deloitte and approved the appointment of PricewaterhouseCoopers LLP to serve as our independent public accountants for the fiscal year ended December 31, 2003.	
      Deloitte has not included, in any report on our financial statements, an adverse opinion or a disclaimer of opinion, or a qualification or modification as to uncertainty, audit scope, or accounting principles with respect to our financial statements.
      During our prior fiscal year ended December 31, 2002, and the subsequent interim period through April 10, 2003, (i) other than described in the paragraph immediately following this paragraph, there were no disagreements between us and Deloitte on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Deloitte’s satisfaction, would have caused Deloitte to make reference to the subject matter of the disagreement in connection with its reports of our financial statements, and (ii) there were no “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
      We had a disagreement with Deloitte, which was satisfactorily resolved, related to the interpretation of certain provisions of power sales agreements associated with two power plants for which we had utilized sale-leaseback transactions. We had previously accounted for these sale-leaseback transactions as qualifying for operating lease accounting treatment. Deloitte concluded that the provisions of the power sales agreements precluded operating lease accounting treatment. Our Audit Committee and Board of Directors discussed the subject matter of the disagreement with Deloitte. We recorded adjustments related to these matters in the 2000 and 2001 consolidated financial statements and adjusted the previously announced unaudited financial statements for 2002.
      We have authorized Deloitte to respond fully to the inquiries of PricewaterhouseCoopers LLP concerning the subject matter of the foregoing disagreement.
      During our two most recent fiscal years, and the subsequent interim period through April 10, 2003, neither we nor anyone on our behalf consulted PricewaterhouseCoopers LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, regarding the type of audit opinion that might be rendered on our financial statements or regarding “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, including the disagreements noted herein) or any “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).

Item 9A.	Controls and Procedures	
      The Company’s Chief Executive Officer and Chief Financial Officer, based on the evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of December 31, 2003, have concluded that the Company’s disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder with the exception of the deficiencies noted below.
      In connection with the audit of our financial statements for the fiscal year ended December 31, 2003, our independent auditors reviewed our information systems control framework and identified to us certain significant deficiencies in the design of such systems. These design deficiencies generally related to the number of persons having access to certain of our information systems databases, as well as the segregation of duties of persons with such access. The Company has concluded that, in the aggregate, these deficiencies constituted a
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material control weakness, and the Company has performed substantial analytical and post-closing procedures as a result of these design deficiencies. Based on the Company’s compensating controls and testing, we have concluded that these design deficiencies did not result in any material errors in our financial statements. Additionally, we have completed the process of correcting these design deficiencies and are in the process of testing the effectiveness of these changes. Other than correcting the material control weakness identified above, there were no other changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of the Rule 13a-15 or Rule 15d-15 that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
PART III

Item 10.	Directors and Executive Officers of the Registrant	
      Incorporated by reference to Proxy Statement relating to the 2004 Annual Meeting of Stockholders to be filed.

Item 11.	Executive Compensation	
      Incorporated by reference to Proxy Statement relating to the 2004 Annual Meeting of Stockholders to be filed.

Item 12.	Security Ownership of Certain Beneficial Owners and Management	
      Incorporated by reference to Proxy Statement relating to the 2004 Annual Meeting of Stockholders to be filed. 
Equity Compensation Plan Information
      The following table provides certain information, as of December 31, 2003, concerning certain compensation plans under which our equity securities are authorized for issuance.

		Number of Securities		Weighted Average		Number of Securities Remaining	
		to be Issued Upon		Exercise Price of		Available for Future Issuance	
		Exercise of		Outstanding		Under Equity Compensation	
		Outstanding Options,		Options, Warrants		Plans (Excluding Securities	
Plan Category		Warrants, and Rights		and Rights		Reflected in Column (a))	
							
Equity compensation plans approved by security holders	 	 	 	 	 	 	 	 	 	 	 	 	
 	Calpine Corporation 1992 Stock Incentive Plan(1)	 	 	4,996,798	 	 	$	0.784	 	 	 	—	 	
 	Encal Energy Ltd. Stock Option Plan(2)	 	 	126,219	 	 	 	34.693	 	 	 	—	 	
 	Calpine Corporation 1996 Stock Incentive Plan	 	 	28,715,414	 	 	 	9.427	 	 	 	5,816,080	 	
 	Calpine Corporation 2000 Employee Stock Purchase Plan	 	 	 	 	 	 	 	 	 	 	4,405,560	 	
 	Equity compensation plans not approved by security holders	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Total	 	 	33,838,431	 	 	$	8.245	 	 	 	10,221,640	 	

		
(1) 	The Calpine Corporation 1992 Stock Incentive Plan was approved in 1992 by the Company’s sole security holder at the time, Electrowatt Ltd.	
 		
(2) 	In connection with the merger with Encal Energy Ltd., which closed in 2001, we assumed the Encal Energy Fifth Amended and Restated Stock Option Plan. 126,219 shares of our common stock are subject	
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	to issuance upon exercise of options granted pursuant to this plan at a weighted average exercise price of $34.693. Other than the shares reserved for future issuance upon the exercise of these options, there are no securities available for future issuance under this Plan.	

Item 13.	Certain Relationships and Related Transactions	
      Incorporated by reference to Proxy Statement relating to the 2004 Annual Meeting of Stockholders to be filed.

Item 14.	Principal Accounting Fees and Services	
      Incorporated by reference to Proxy Statement relating to the 2004 Annual Meeting of Stockholders to be filed.
PART IV

Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	
      (a)-1.  Financial Statements and Other Information
      The following items appear in Appendix F of this report:

 	Reports of Independent Auditors	
 	Consolidated Balance Sheets, December 31, 2003 and 2002	
 	Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002, and 2001	
 	Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002,
     and 2001	
 	Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001	
 	Notes to Consolidated Financial Statements for the Years Ended December 31, 2003, 2002, and 2001	
      (a)-2.  Financial Statement Schedules 
      Schedule II — Valuation and Qualifying Accounts
      (b)  Reports on Form 8-K
      The registrant filed the following reports on Form 8-K during the quarter ended December 31, 2003:

Date of Report		Date Filed or Furnished		Item Reported	
					
10/1/03	 	 	10/1/03	 	 	 	5	 	
10/3/03	 	 	10/8/03	 	 	 	5	 	
10/6/03	 	 	10/8/03	 	 	 	5	 	
10/15/03	 	 	10/16/03	 	 	 	5	 	
10/21/03	 	 	10/22/03	 	 	 	5	 	
12/31/02	 	 	10/23/03	 	 	 	5,7	 	
11/5/03	 	 	11/6/03	 	 	 	12	 	
11/6/03	 	 	11/6/03	 	 	 	5	 	
11/6/03	 	 	11/7/03	 	 	 	5	 	
11/11/03	 	 	11/12/03	 	 	 	5	 	
11/17/03	 	 	11/17/03	 	 	 	5	 	
11/20/03	 	 	11/20/03	 	 	 	5	 	
11/26/03	 	 	11/26/03	 	 	 	5	 	
12/4/03	 	 	12/5/03	 	 	 	5	 	
12/15/03	 	 	12/15/03	 	 	 	5	 	
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 	(c) 	Exhibits	
      The following exhibits are filed herewith unless otherwise indicated: 

Exhibit			
Number		Description	
			
 	3.1.1	 	 	Amended and Restated Certificate of Incorporation of Calpine Corporation.(a)	
 	3.1.2	 	 	Certificate of Correction of Calpine Corporation.(b)	
 	3.1.3	 	 	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Calpine Corporation.(c)	
 	3.1.4	 	 	Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation.(b)	
 	3.1.5	 	 	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation.(b)	
 	3.1.6	 	 	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation.(c)	
 	3.1.7	 	 	Certificate of Designation of Special Voting Preferred Stock of Calpine Corporation.(d)	
 	3.1.8	 	 	Certificate of Ownership and Merger Merging Calpine Natural Gas GP, Inc. into Calpine Corporation.(e)	
 	3.1.9	 	 	Certificate of Ownership and Merger Merging Calpine Natural Gas Company into Calpine Corporation.(e)	
 	3.1.10	 	 	Amended and Restated By-laws of Calpine Corporation.(f)	
 	4.1.1	 	 	Indenture dated as of May 16, 1996, between the Company and U.S. Bank (as successor trustee to Fleet National Bank), as Trustee, including form of Notes.(g)	
 	4.1.2	 	 	First Supplemental Indenture dated as of August 1, 2000, between the Company and U.S. Bank (as successor trustee to Fleet National Bank), as Trustee.(b)	
 	4.2.1	 	 	Indenture dated as of July 8, 1997, between the Company and The Bank of New York, as Trustee, including form of Notes.(h)	
 	4.2.2	 	 	Supplemental Indenture dated as of September 10, 1997, between the Company and The Bank of New York, as Trustee.(i)	
 	4.2.3	 	 	Second Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.3.1	 	 	Indenture dated as of March 31, 1998, between the Company and The Bank of New York, as Trustee, including form of Notes.(j)	
 	4.3.2	 	 	Supplemental Indenture dated as of July 24, 1998, between the Company and The Bank of New York, as Trustee.(j)	
 	4.3.3	 	 	Second Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.4.1	 	 	Indenture dated as of March 29, 1999, between the Company and The Bank of New York, as Trustee, including form of Notes.(k)	
 	4.4.2	 	 	First Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.5.1	 	 	Indenture dated as of March 29, 1999, between the Company and The Bank of New York, as Trustee, including form of Notes.(k)	
 	4.5.2	 	 	First Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.6.1	 	 	Indenture dated as of August 10, 2000, between the Company and Wilmington Trust Company, as Trustee.(l)	
 	4.6.2	 	 	First Supplemental Indenture dated as of September 28, 2000, between the Company and Wilmington Trust Company, as Trustee.(b)	
 	4.7	 	 	Indenture, dated as of April 30, 2001, between the Company and Wilmington Trust Company, as Trustee.(m)	
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Exhibit			
Number		Description	
			
 	4.8.1	 	 	Amended and Restated Indenture dated as of October 16, 2001, between Calpine Canada Energy Finance ULC and Wilmington Trust Company, as Trustee.(n)	
 	4.8.2	 	 	Guarantee Agreement dated as of April 25, 2001, between the Company and Wilmington Trust Company, as Trustee.(o)	
 	4.8.3	 	 	First Amendment, dated as of October 16, 2001, to Guarantee Agreement dated as of April 25, 2001, between the Company and Wilmington Trust Company, as Trustee.(n)	
 	4.9.1	 	 	Indenture dated as of October 18, 2001, between Calpine Canada Energy Finance II ULC and Wilmington Trust Company, as Trustee.(n)	
 	4.9.2	 	 	First Supplemental Indenture, dated as of October 18, 2001, between Calpine Canada Energy Finance II ULC and Wilmington Trust Company, as Trustee.(n)	
 	4.9.3	 	 	Guarantee Agreement dated as of October 18, 2001, between the Company and Wilmington Trust Company, as Trustee.(n)	
 	4.9.4	 	 	First Amendment, dated as of October 18, 2001, to Guarantee Agreement dated as of October 18, 2001, between the Company and Wilmington Trust Company, as Trustee.(n)	
 	4.10	 	 	Indenture, dated as of June 13, 2003, between Power Contract Financing, L.L.C. and Wilmington Trust Company, as Trustee, Accounts Agent, Paying Agent and Registrar, including form of Notes.(p)	
 	4.11	 	 	Indenture, dated as of July 16, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(p)	
 	4.12	 	 	Indenture, dated as of July 16, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(p)	
 	4.13	 	 	Indenture, dated as of July 16, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(p)	
 	4.14.1	 	 	Indenture, dated as of August 14, 2003, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee, including form of Notes.(q)	
 	4.14.2	 	 	Supplemental Indenture, dated as of September 18, 2003, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee.(q)	
 	4.14.3	 	 	Second Supplemental Indenture, dated as of January 14, 2004, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee.(*)	
 	4.14.4	 	 	Third Supplemental Indenture, dated as of March 5, 2004, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee.(*)	
 	4.15	 	 	Indenture, dated as of September 30, 2003, among Gilroy Energy Center, LLC, each of Creed Energy Center, LLC and Goose Haven Energy Center, as Guarantors, and Wilmington Trust Company, as Trustee and Collateral Agent, including form of Notes.(q)	
 	4.16	 	 	Indenture, dated as of November 18, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(*)	
 	4.17.1	 	 	Amended and Restated Indenture, dated as of March 12, 2004, between the Company and Wilmington Trust Company, including form of Notes.(*)	
 	4.17.2	 	 	Registration Rights Agreement, dated as of November 14, 2003, between the Company and Deutsche Bank Securities, Inc., as Representative of the Initial Purchasers.(*)	
 	4.18	 	 	Amended and Restated Rights Agreement, dated as of September 19, 2001, between Calpine Corporation and Equiserve Trust Company, N.A., as Rights Agent.(r)	
 	4.19	 	 	First Priority Indenture, dated as of March 23, 2004, among Calpine Generating Company, LLC, CalGen Finance Corp. and Wilmington Trust FSB, as Trustee, including form of Notes.(*)	
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Exhibit			
Number		Description	
			
 	4.20	 	 	Second Priority Indenture, dated as of March 23, 2004, among Calpine Generating Company, LLC, CalGen Finance Corp. and Wilmington Trust FSB, as Trustee, including form of Notes.(*)	
 	4.21	 	 	Third Priority Indenture, dated as of March 23, 2004, among Calpine Generating Company, LLC, CalGen Finance Corp. and Wilmington Trust FSB, as Trustee, including form of Notes.(*)	
 	4.22	 	 	HIGH TIDES I.	
 	4.22.1	 	 	Certificate of Trust of Calpine Capital Trust, a Delaware statutory trust, dated September 29, 1999.(s)	
 	4.22.2	 	 	Corrected Certificate of Certificate of Trust of Calpine Capital Trust, a Delaware statutory trust, filed October 4, 1999.(s)	
 	4.22.3	 	 	Declaration of Trust of Calpine Capital Trust, dated as of October 4, 1999, among Calpine Corporation, as Depositor, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee, and the Administrative Trustees named therein.(s)	
 	4.22.4	 	 	Indenture, dated as of November 2, 1999, between Calpine Corporation and The Bank of New York, as Trustee, including form of Debenture.(s)	
 	4.22.5	 	 	Remarketing Agreement, dated November 2, 1999, among Calpine Corporation, Calpine Capital Trust, The Bank of New York, as Tender Agent, and Credit Suisse First Boston Corporation, as Remarketing Agent.(s)	
 	4.22.6	 	 	Amended and Restated Declaration of Trust of Calpine Capital Trust, dated as of November 2, 1999, among Calpine Corporation, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, and The Bank of New York, as Property Trustee, and the Administrative Trustees named therein, including form of Preferred Security and form of Common Security.(s)	
 	4.22.7	 	 	Preferred Securities Guarantee Agreement, dated as of November 2, 1999, between Calpine Corporation and The Bank of New York, as Guarantee Trustee.(s)	
 	4.23	 	 	HIGH TIDES II.	
 	4.23.1	 	 	Certificate of Trust of Calpine Capital Trust II, a Delaware statutory trust, filed January 25, 2000.(t)	
 	4.23.2	 	 	Declaration of Trust of Calpine Capital Trust II, dated as of January 24, 2000, among Calpine Corporation, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee, and the Administrative Trustees named therein.(t)	
 	4.23.3	 	 	Indenture, dated as of January 31, 2000, between Calpine Corporation and The Bank of New York, as Trustee, including form of Debenture.(t)	
 	4.23.4	 	 	Remarketing Agreement, dated as of January 31, 2000, among Calpine Corporation, Calpine Capital Trust II, The Bank of New York, as Tender Agent, and Credit Suisse First Boston Corporation, as Remarketing Agent.(t)	
 	4.23.5	 	 	Registration Rights Agreement, dated January 31, 2000, among Calpine Corporation, Calpine Capital Trust II, Credit Suisse First Boston Corporation and ING Barings LLC.(t)	
 	4.23.6	 	 	Amended and Restated Declaration of Trust of Calpine Capital Trust II, dated as of January 31, 2000, among Calpine Corporation, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee, and the Administrative Trustees named therein, including form of Preferred Security and form of Common Security.(t)	
 	4.23.7	 	 	Preferred Securities Guarantee Agreement, dated as of January 31, 2000, between Calpine Corporation and The Bank of New York, as Guarantee Trustee.(t)	
 	4.24	 	 	HIGH TIDES III.	
 	4.24.1	 	 	Amended and Restated Certificate of Trust of Calpine Capital Trust III, a Delaware statutory trust, filed July 19, 2000.(u)	
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Exhibit			
Number		Description	
			
 	4.24.2	 	 	Declaration of Trust of Calpine Capital Trust III dated June 28, 2000, among the Company, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee and the Administrative Trustees named therein.(u)	
 	4.24.3	 	 	Amendment No. 1 to the Declaration of Trust of Calpine Capital Trust III dated July 19, 2000, among the Company, as Depositor and Debenture Issuer, Wilmington Trust Company, as Delaware Trustee, Wilmington Trust Company, as Property Trustee, and the Administrative Trustees named therein.(u)	
 	4.24.4	 	 	Indenture dated as of August 9, 2000, between the Company and Wilmington Trust Company, as Trustee.(u)	
 	4.24.5	 	 	Remarketing Agreement dated as of August 9, 2000, among the Company, Calpine Capital Trust III, Wilmington Trust Company, as Tender Agent, and Credit Suisse First Boston Corporation, as Remarketing Agent.(u)	
 	4.24.6	 	 	Registration Rights Agreement dated as August 9, 2000, between the Company, Calpine Capital Trust III, Credit Suisse First Boston Corporation, ING Barings LLC and CIBC World Markets Corp.(u)	
 	4.24.7	 	 	Amended and Restated Declaration of Trust of Calpine Capital Trust III dated as of August 9, 2000, the Company, as Depositor and Debenture Issuer, Wilmington Trust Company, as Delaware Trustee, Wilmington Trust Company, as Property Trustee, and the Administrative Trustees named therein, including the form of Preferred Security and form of Common Security.(u)	
 	4.24.8	 	 	Preferred Securities Guarantee Agreement dated as of August 9, 2000, between the Company, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.(u)	
 	4.25	 	 	PASS THROUGH CERTIFICATES (TIVERTON AND RUMFORD).	
 	4.25.1	 	 	Pass Through Trust Agreement dated as of December 19, 2000, among Tiverton Power Associates Limited Partnership, Rumford Power Associates Limited Partnership and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including the form of Certificate.(b)	
 	4.25.2	 	 	Participation Agreement dated as of December 19, 2000, among the Company, Tiverton Power Associates Limited Partnership, Rumford Power Associates Limited Partnership, PMCC Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee.(b)	
 	4.25.3	 	 	Appendix A — Definitions and Rules of Interpretation.(b)	
 	4.25.4	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of December 19, 2000, between PMCC Calpine New England Investment LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, including the forms of Lessor Notes.(b)	
 	4.25.5	 	 	Calpine Guaranty and Payment Agreement (Tiverton) dated as of December 19, 2000, by Calpine, as Guarantor, to PMCC Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(b)	
 	4.25.6	 	 	Calpine Guaranty and Payment Agreement (Rumford) dated as of December 19, 2000, by Calpine, as Guarantor, to PMCC Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(b)	
 	4.26	 	 	PASS THROUGH CERTIFICATES (SOUTH POINT, BROAD RIVER AND ROCKGEN).	
 	4.26.1	 	 	Pass Through Trust Agreement A dated as of October 18, 2001, among South Point Energy Center, LLC, Broad River Energy LLC, RockGen Energy LLC and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including the form of 8.400% Pass Through Certificate, Series A.(f)	
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Exhibit			
Number		Description	
			
 	4.26.2	 	 	Pass Through Trust Agreement B dated as of October 18, 2001, among South Point Energy Center, LLC, Broad River Energy LLC, RockGen Energy LLC and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including the form of 9.825% Pass Through Certificate, Series B.(f)	
 	4.26.3	 	 	Participation Agreement (SP-1) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-1, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.4	 	 	Participation Agreement (SP-2) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-2, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.5	 	 	Participation Agreement (SP-3) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-3, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.6	 	 	Participation Agreement (SP-4) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-4, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.7	 	 	Participation Agreement (BR-1) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-1, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.8	 	 	Participation Agreement (BR-2) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-2, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.9	 	 	Participation Agreement (BR-3) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-3, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.10	 	 	Participation Agreement (BR-4) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-4, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
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Exhibit			
Number		Description	
			
 	4.26.11	 	 	Participation Agreement (RG-1) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-1, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.12	 	 	Participation Agreement (RG-2) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-2, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.13	 	 	Participation Agreement (RG-3) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-3, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.14	 	 	Participation Agreement (RG-4) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-4, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.15	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-1, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.16	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-2, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.17	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-3, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.18	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-4, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.19	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-1, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	
 	4.26.20	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-2, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	
 	4.26.21	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-3, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	
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Exhibit			
Number		Description	
			
 	4.26.22	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-4, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	
 	4.26.23	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-1, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.24	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-2, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.25	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-3, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.26	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-4, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.27	 	 	Calpine Guaranty and Payment Agreement (South Point SP-1) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.28	 	 	Calpine Guaranty and Payment Agreement (South Point SP-2) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.29	 	 	Calpine Guaranty and Payment Agreement (South Point SP-3) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.30	 	 	Calpine Guaranty and Payment Agreement (South Point SP-4) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.31	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-1) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.32	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-2) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.33	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-3) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.34	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-4) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
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Exhibit			
Number		Description	
			
 	4.26.35	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-1) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.36	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-2) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.37	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-3) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.38	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-4) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	10.1	 	 	Financing Agreements.	
 	10.1.1.1	 	 	Calpine Construction Finance Company Financing Agreement (“CCFC II”), dated as of October 16, 2000.(b)(v)	
 	10.1.1.2	 	 	Amended and Restated Credit Agreement, dated as of March 23, 2004, among Calpine Generating Company, LLC, the Guarantors named therein, the Lenders named therein, The Bank of Nova Scotia, as Administrative Agent, LC Bank, Lead Arranger and Sole Bookrunner, Bayerische Landesbank Cayman Islands Branch, as Arranger and Co-Syndication Agent, Credit Lyonnais New York Branch, as Arranger and Co-Syndication Agent, ING Capital LLC, as Arranger and Co-Syndication Agent, Toronto-Dominion (Texas) Inc., as Arranger and Co-Syndication Agent, and Union Bank of California, N.A., as Arranger and Co-Syndication Agent.(*)	
 	10.1.2.1	 	 	Amended and Restated Credit Agreement, dated as of July 16, 2003 (“Amended and Restated Credit Agreement”), among the Company, the Lenders named therein, The Bank of Nova Scotia, as Administrative Agent, Funding Agent, Lead Arranger and Bookrunner, Bayerische Landesbank, Cayman Islands Branch, as Lead Arranger, as Co-Bookrunner and Documentation Agent, and ING Capital LLC and Toronto Dominion (Texas) Inc., as Lead Arrangers, Co-Bookrunners and Syndication Agents.(p)	
 	10.1.2.2	 	 	First Amendment to Amended and Restated Credit Agreement, dated as of August 7, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(p)	
 	10.1.2.3	 	 	Amendment and Waiver to Amended and Restated Credit Agreement, dated as of August 28, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(q)	
 	10.1.2.4	 	 	Letter Agreement regarding Technical Correction to Amendment and Waiver to Amended and Restated Credit Agreement, dated as of September 5, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(q)	
 	10.1.2.5	 	 	Third Amendment to Amended and Restated Credit Agreement, dated as of November 6, 2003, among the Company, each of Quintana Minerals (USA) Inc., JOQ Canada, Inc., and Quintana Canada Holdings, LLC, as a Guarantor, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(q)	
 	10.1.2.6	 	 	Fourth Amendment and Waiver to Amended and Restated Credit Agreement, dated as of November 19, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	
 	10.1.2.7	 	 	Fifth Amendment and Waiver to Amended and Restated Credit Agreement, dated as of December 30, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	
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Exhibit			
Number		Description	
			
 	10.1.2.8	 	 	Technical Correction to Fifth Amendment and Waiver to Amended and Restated Credit Agreement, dated as of December 31, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	
 	10.1.2.9	 	 	Waiver to Amended and Restated Credit Agreement, dated as of March 5, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	
 	10.1.3	 	 	Letter of Credit Agreement, dated as of July 16, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent.(p)	
 	10.1.4	 	 	Guarantee and Collateral Agreement, dated as of July 16, 2003, made by Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.5	 	 	First Amendment Pledge Agreement, dated as of July 16, 2003, made by JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.6	 	 	First Amendment Assignment and Security Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.7.1	 	 	Second Amendment Pledge Agreement (Stock Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.7.2	 	 	Amendment No. 1 to the Second Amendment Pledge Agreement (Stock Interests), dated as of November 18, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(*)	
 	10.1.8.1	 	 	Second Amendment Pledge Agreement (Membership Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.8.2	 	 	Amendment No. 1 to the Second Amendment Pledge Agreement (Membership Interests), dated as of November 18, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(*)	
 	10.1.9	 	 	First Amendment Note Pledge Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.10.	1	 	Collateral Trust Agreement, dated as of July 16, 2003, among Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit Partners L.P., as Administrative Agent, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.10.	2	 	First Amendment to the Collateral Trust Agreement, dated as of November 18, 2003, among Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit Partners L.P., as Administrative Agent, and The Bank of New York, as Collateral Trustee.(*)	
 	10.1.11	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Denis O’Meara and James Trimble, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.12	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.13	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Colorado), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	
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Exhibit			
Number		Description	
			
 	10.1.14	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (New Mexico), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.15	 	 	Form of Amended and Restated Mortgage, Assignment, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.16	 	 	Form of Amended and Restated Deed of Trust with Power of Sale, Assignment of Production, Security Agreement, Financing Statement and Fixture Filings (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, as Trustee, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.17	 	 	Form of Deed to Secure Debt, Assignment of Rents and Security Agreement (Georgia), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.18	 	 	Form of Mortgage, Assignment of Rents and Security Agreement (Florida), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.19	 	 	Form of Deed of Trust, Assignment of Rents and Security Agreement and Fixture Filing (Texas), dated as of July 16, 2003, from Calpine Corporation to Malcolm S. Morris, as Trustee, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.20	 	 	Form of Deed of Trust, Assignment of Rents and Security Agreement (Washington), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.21	 	 	Form of Deed of Trust, Assignment of Rents, and Security Agreement (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.22	 	 	Form of Mortgage, Collateral Assignment of Leases and Rents, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.23	 	 	Amended and Restated Hazardous Materials Undertaking and Indemnity (Multistate), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.24	 	 	Amended and Restated Hazardous Materials Undertaking and Indemnity (California), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.25	 	 	Designated Asset Sale Proceeds Account Control Agreement, dated as of July 16, 2003, among Calpine Corporation, Union Bank of California, N.A., and The Bank of New York, as Collateral Agent.(*)	
 	10.2	 	 	Term Loan Agreements.	
 	10.2.1	 	 	Credit Agreement, dated as of July 16, 2003, among the Company, the Lenders named therein, Goldman Sachs Credit Partners L.P., as Sole Lead Arranger, Sole Bookrunner and Administrative Agent, The Bank of Nova Scotia, as Arranger and Syndication Agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen, as Co-Arrangers, and Credit Lyonnais New York Branch and Union Bank of California, N.A., as Managing Agents.(p)	
 	10.2.2.1	 	 	Credit and Guarantee Agreement, dated as of August 14, 2003, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(q)	
 	10.2.2.2	 	 	Amendment No. 1 to the Credit and Guarantee Agreement, dated as of September 12, 2003, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(q)	
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Exhibit			
Number		Description	
			
 	10.2.2.3	 	 	Amendment No. 2 to the Credit and Guarantee Agreement, dated as of January 13, 2004, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(*)	
 	10.2.2.4	 	 	Amendment No. 3 to the Credit and Guarantee Agreement, dated as of March 5, 2004, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(*)	
 	10.2.3	 	 	Credit and Guarantee Agreement, dated as of March 23, 2004, among Calpine Generating Company, LLC, the Guarantors named therein, the Lenders named therein, Morgan Stanley Senior Funding, Inc., as Administrative Agent, and Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Bookrunner.(*)	
 	10.2.4	 	 	Credit and Guarantee Agreement, dated as of March 23, 2004, among Calpine Generating Company, LLC, the Guarantors named therein, the Lenders named therein, Morgan Stanley Senior Funding, Inc., as Administrative Agent, and Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Bookrunner.(*)	
 	10.3	 	 	Management Contracts or Compensatory Plans or Arrangements.	
 	10.3.1	 	 	Calpine Corporation 1996 Stock Incentive Plan and forms of agreements there under.(*)(w)	
 	10.3.2	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Peter Cartwright.(t)(w)	
 	10.3.3	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Ms. Ann B. Curtis.(f)(w)	
 	10.3.4	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Ron A. Walter.(f)(w)	
 	10.3.5	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Robert D. Kelly.(f)(w)	
 	10.3.6	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Thomas R. Mason.(f)(w)	
 	10.3.7	 	 	Consulting Contract, dated as of January 1, 2004, between Calpine Corporation and Mr. George J. Stathakis. (*)(w)	
 	10.3.8	 	 	Calpine Corporation Annual Management Incentive Plan.(x)(w)	
 	10.3.9	 	 	$500,000 Promissory Note Secured by Deed of Trust made by Thomas R. Mason and Debra J. Mason in favor of Calpine Corporation.(x)(w)	
 	10.3.10	 	 	2000 Employee Stock Purchase Plan (y)(w)	
 	10.3.11	 	 	Form of Indemnification Agreement for directors and officers.(z)(w)	
 	10.3.12	 	 	Form of Indemnification Agreement for directors and officers.(f)(w)	
 	12.1	 	 	Statement on Computation of Ratio of Earnings to Fixed Charges.(*)	
 	21.1	 	 	Subsidiaries of the Company.(*)	
 	23.1	 	 	Consent of Deloitte & Touche LLP, Independent Public Accountants.(*)	
 	23.2	 	 	Consent of PricewaterhouseCoopers LLP, Independent Public Accountants.(*)	
 	23.3	 	 	Consent of Netherland, Sewell & Associates, Inc., independent engineer.(*)	
 	23.4	 	 	Consent of Gilbert Laustsen Jung Associates, Ltd., independent engineer.(*)	
 	24.1	 	 	Power of Attorney of Officers and Directors of Calpine Corporation (set forth on the signature pages of this report).(*)	
 	31.1	 	 	Certification of the Chairman, President and Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)	
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Exhibit			
Number		Description	
			
 	31.2	 	 	Certification of the Executive Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)	
 	32.1	 	 	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(*)	
 	99.1	 	 	Acadia Power Partners, LLC and Subsidiary, Consolidated Financial Statements, December 31, 2003, 2002 and 2001.(*)	
 	99.2	 	 	Consent of PricewaterhouseCoopers LLP, Independent Public Accountants.(*)	

 
			
(*)		Filed herewith.	
 		
(a)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-40652) filed with the SEC on June 30, 2000.	
 		
(b)		Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, filed with the SEC on March 15, 2001.	
 		
(c)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-66078) filed with the SEC on July 27, 2001.	
 		
(d)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2001, filed with the SEC on May 15, 2001.	
 		
(e)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2002, filed with the SEC on May 15, 2002.	
 		
(f)		Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K dated December 31, 2001, filed with the SEC on March 29, 2002.	
 		
(g)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-4 (Registration Statement No. 333-06259) filed with the SEC on June 19, 1996.	
 		
(h)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated June 30, 1997, filed with the SEC on August 14, 1997.	
 		
(i)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-4 (Registration Statement No. 333-41261) filed with the SEC on November 28, 1997.	
 		
(j)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-4 (Registration Statement No. 333-61047) filed with the SEC on August 10, 1998.	
 		
(k)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3/ A (Registration Statement No. 333-72583) filed with the SEC on March 8, 1999.	
 		
(l)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-76880) filed with the SEC on January 17, 2002.	
 		
(m)		Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated October 16, 2001, filed with the SEC on November 13, 2001.	
 		
(n)		Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated October 16, 2001, filed with the SEC on November 13, 2001.	
 		
(o)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3/ A (Registration No. 333-57338) filed with the SEC on April 19, 2001.	
 		
(p)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated June 30, 2003, filed with the SEC on August 14, 2003.	
 		
(q)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated September 30, 2003, filed with the SEC on November 13, 2003.	
 		
(r)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form 8-A/ A (Registration No. 001-12079) filed with the SEC on September 28, 2001.	
 		
(s)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3/ A (Registration Statement No. 333-87427) filed with the SEC on October 26, 1999.	
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(t)		Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999, filed with the SEC on February 29, 2000.	
 		
(u)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration Statement No. 333-47068) filed with the SEC on September 29, 2000.	
 		
(v)		Approximately 71 pages of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted language has been filed separately with the SEC.	
 		
(w)		Management contract or compensatory plan or arrangement.	
 		
(x)		Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated March 30, 2000, filed with the SEC on April 3, 2000.	
 		
(y)		Incorporated by reference to Calpine Corporation’s Definitive Proxy Statement on Schedule 14A dated April 13, 2000, filed with the SEC on April 13, 2000.	
 		
(z)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-1/ A (Registration Statement No. 333-07497) filed with the SEC on August 22, 1996.	
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SIGNATURES
      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		
 	CALPINE CORPORATION	

			
 	By: 	/s/ ROBERT D. KELLY	

 	Robert D. Kelly	
 	Executive Vice President and	
 	Chief Financial Officer	
Date: March 24, 2004
POWER OF ATTORNEY
      KNOW ALL PERSONS BY THESE PRESENT: That the undersigned officers and directors of Calpine Corporation do hereby constitute and appoint Peter Cartwright and Ann B. Curtis, and each of them, the lawful attorney and agent or attorneys and agents with power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or either of them, determine may be necessary or advisable or required to enable Calpine Corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules or regulations or requirements of the Securities and Exchange Commission in connection with this Form 10-K Annual Report. Without limiting the generality of the foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to this Form 10-K Annual Report or amendments or supplements thereto, and each of the undersigned hereby ratifies and confirms all that said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts.
      IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite the name.
      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

					
Signature		Title		Date	

/s/ PETER CARTWRIGHT

Peter Cartwright	 	Chairman, President,
Chief Executive and Director
(Principal Executive Officer)	 	March 24, 2004	
 	
/s/ ANN B. CURTIS

Ann B. Curtis	 	Executive Vice President,
Vice Chairman and Director	 	March 24, 2004	
 	
/s/ ROBERT D. KELLY

Robert D. Kelly	 	Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)	 	March 24, 2004	
 	
/s/ CHARLES B. CLARK, JR.

Charles B. Clark, Jr.	 	Senior Vice President and
Corporate Controller
(Principal Accounting Officer)	 	March 24, 2004	
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Signature		Title		Date	

/s/ KENNETH T. DERR

Kenneth T. Derr	 	Director	 	March 24, 2004	
 	
/s/ JEFFREY E. GARTEN

Jeffrey E. Garten	 	Director	 	March 24, 2004	

Gerald Greenwald	 	Director	 	 	
 	
/s/ SUSAN C. SCHWAB

Susan C. Schwab	 	Director	 	March 24, 2004	
 	
/s/ GEORGE J. STATHAKIS

George J. Stathakis	 	Director	 	March 24, 2004	
 	
/s/ SUSAN WANG

Susan Wang	 	Director	 	March 24, 2004	
 	
/s/ JOHN O. WILSON

John O. Wilson	 	Director	 	March 24, 2004	
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CALPINE CORPORATION AND SUBSIDIARIES
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
 	 	 	 	 	
Reports of Independent Auditors	 	 	F-2	 	
Consolidated Balance Sheets December 31, 2003 and 2002	 	 	F-4	 	
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002, and 2001	 	 	F-6	 	
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002, and 2001	 	 	F-8	 	
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001	 	 	F-9	 	
Notes to Consolidated Financial Statements for the Years Ended December 31, 2003, 2002, and 2001	 	 	F-11	 	
F-1 

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REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Stockholders of Calpine Corporation:
      In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Calpine Corporation and its subsidiaries (the “Company”) at December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of the Company as of December 31, 2002 and for the two years then ended were audited by other auditors whose report dated March 10, 2003, except as to paragraph two of note 10 as to which the date is October 21, 2003, and except as to paragraph six and eight of note 10 as to which the date is March 22, 2004, expressed an unqualified opinion on those statements and included emphasis paragraphs relating to the adoption of new accounting standards and the reclassification of certain discontinued operations.
      As discussed in Note 2 to the consolidated financial statements, the Company; changed the manner in which they account for asset retirement costs and stock based compensation as of January 1, 2003, changed the manner in which they account for certain financial instruments with characteristics of both liabilities and equity, effective July 1, 2003, changed the manner in which they report gains and losses on certain derivative instruments not held for trading purposes and account for certain derivative contracts with a price adjustment feature, effective October 1, 2003 and adopted certain provisions of Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities — an interpretation of ARB 51 (revised December 2003),” as of December 31, 2003.

		
 	/s/ PRICEWATERHOUSECOOPERS LLP	
Los Angeles, California
March 23, 2004
F-2 

Table of Contents
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors
and Stockholders of Calpine Corporation:
      We have audited the consolidated balance sheet of Calpine Corporation and subsidiaries (the “Company”) as of December 31, 2002 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2002 and 2001. Our audits also included the 2002 and 2001 consolidated financial statement schedules listed in the Index at Item 15(a)-2. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
      In our opinion, based on our audits, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Calpine Corporation and subsidiaries as of December 31, 2002, and the consolidated results of their operations and their cash flows for the years ended 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 2002 and 2001 consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
      As discussed in Note 2 of the Notes to the Consolidated Financial Statements, in 2002, the Company adopted new accounting standards to account for the impairment of long-lived assets, discontinued operations, gains and losses on debt extinguishments and certain derivative contracts. Additionally, in 2002, the Company changed its method of reporting gains and losses associated with energy trading contracts from the gross to the net method and retroactively reclassified the consolidated statement of operations for 2001. In 2001, as discussed in Note 2 of the Notes to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and certain interpretations issued by the Derivative Implementation Group of the Financial Accounting Standards Board.
      As discussed in Note 10 of the Notes to the Consolidated Financial Statements, in June 2003, the Company approved the divestiture of its specialty data center engineering business; in November 2003, the Company completed the divestiture of certain oil and gas assets; and in December 2003, the Company committed to the divestiture of its fifty percent ownership interest in a power project.

		
 	/s/ DELOITTE & TOUCHE LLP	
San Jose, California
March 10, 2003
(October 21, 2003 as to paragraph two of Note 10
and March 22, 2004 as to paragraphs six and eight of Note 10)
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CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
 	 	 	 	 	 	 	 	 	 	 	
		2003		2002	

		(In thousands, except share	
		and per share amounts)	
ASSETS	
Current assets:	 	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	991,806	 	 	$	579,486	 	
 	Accounts receivable, net of allowance of $7,614 and $5,955	 	 	988,947	 	 	 	745,312	 	
 	Margin deposits and other prepaid expense	 	 	385,348	 	 	 	152,413	 	
 	Inventories	 	 	139,654	 	 	 	105,872	 	
 	Restricted cash	 	 	383,788	 	 	 	176,716	 	
 	Current derivative assets	 	 	496,967	 	 	 	330,244	 	
 	Current assets held for sale	 	 	651	 	 	 	2,669	 	
 	Other current assets	 	 	89,593	 	 	 	143,318	 	
 	 	 		 	 	 		 	
 	 	Total current assets	 	 	3,476,754	 	 	 	2,236,030	 	
 	 	 		 	 	 		 	
Restricted cash, net of current portion	 	 	575,027	 	 	 	9,203	 	
Notes receivable, net of current portion	 	 	213,629	 	 	 	195,398	 	
Project development costs	 	 	139,953	 	 	 	116,795	 	
Investments in power projects and oil and gas properties	 	 	472,749	 	 	 	421,402	 	
Deferred financing costs	 	 	400,732	 	 	 	185,026	 	
Prepaid lease, net of current portion	 	 	414,058	 	 	 	301,603	 	
Property, plant and equipment, net	 	 	20,081,052	 	 	 	18,730,847	 	
Goodwill, net	 	 	45,160	 	 	 	29,165	 	
Other intangible assets, net	 	 	89,924	 	 	 	93,066	 	
Long-term derivative assets	 	 	673,979	 	 	 	496,028	 	
Long-term assets held for sale	 	 	112,148	 	 	 	127,363	 	
Other assets	 	 	608,767	 	 	 	285,066	 	
 	 	 		 	 	 		 	
 	 	Total assets	 	$	27,303,932	 	 	$	23,226,992	 	
 	 	 		 	 	 		 	
The accompanying notes are an integral part of these consolidated financial statements.
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CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002 —(Continued)
 	 	 	 	 	 	 	 	 	 	 	
		2003		2002	

		(In thousands, except share	
		and per share amounts)	
LIABILITIES & STOCKHOLDERS’ EQUITY	
Current liabilities:	 	 	 	 	 	 	 	 	
 	Accounts payable	 	$	938,644	 	 	$	1,237,261	 	
 	Accrued payroll and related expense	 	 	96,693	 	 	 	47,978	 	
 	Accrued interest payable	 	 	321,176	 	 	 	189,336	 	
 	Income taxes payable	 	 	18,026	 	 	 	3,640	 	
 	Notes payable and borrowings under lines of credit, current portion	 	 	254,292	 	 	 	340,703	 	
 	Preferred interests, current portion	 	 	11,220	 	 	 	—	 	
 	Capital lease obligation, current portion	 	 	4,008	 	 	 	3,454	 	
 	Construction/project financing, current portion	 	 	65,108	 	 	 	1,307,291	 	
 	Senior notes, current portion	 	 	14,500	 	 	 	—	 	
 	Current derivative liabilities	 	 	456,688	 	 	 	189,356	 	
 	Current liabilities held for sale	 	 	—	 	 	 	1,962	 	
 	Other current liabilities	 	 	319,339	 	 	 	246,150	 	
 	 	 		 	 	 		 	
 	 	Total current liabilities	 	 	2,499,694	 	 	 	3,567,131	 	
 	 	 		 	 	 		 	
Term loan	 	 	—	 	 	 	949,565	 	
Notes payable and borrowings under lines of credit, net of current portion	 	 	873,572	 	 	 	8,249	 	
Notes payable to Calpine Capital Trusts	 	 	1,153,500	 	 	 	—	 	
Preferred interests, net of current portion	 	 	232,412	 	 	 	—	 	
Capital lease obligation, net of current portion	 	 	193,741	 	 	 	197,653	 	
Construction/project financing, net of current portion	 	 	4,195,644	 	 	 	3,212,022	 	
Convertible Senior Notes Due 2006	 	 	660,059	 	 	 	1,200,000	 	
Convertible Senior Notes Due 2023	 	 	650,000	 	 	 	—	 	
Senior notes, net of current portion	 	 	9,369,253	 	 	 	6,894,801	 	
Deferred income taxes, net	 	 	1,326,044	 	 	 	1,123,729	 	
Deferred lease incentive	 	 	50,228	 	 	 	53,732	 	
Deferred revenue	 	 	116,001	 	 	 	154,969	 	
Long-term derivative liabilities	 	 	692,088	 	 	 	528,400	 	
Long-term liabilities held for sale	 	 	161	 	 	 	19	 	
Other liabilities	 	 	259,390	 	 	 	175,636	 	
 	 	 		 	 	 		 	
 	 	Total liabilities	 	 	22,271,787	 	 	 	18,065,906	 	
 	 	 		 	 	 		 	
Commitments and contingencies (see Note 24)	 	 	 	 	 	 	 	 	
Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trusts	 	 	—	 	 	 	1,123,969	 	
Minority interests	 	 	410,892	 	 	 	185,203	 	
 	 	 		 	 	 		 	
Stockholders’ equity:	 	 	 	 	 	 	 	 	
 	Preferred stock, $.001 par value per share; authorized 10,000,000 shares; none issued and outstanding in 2003 and one share in 2002	 	 	—	 	 	 	—	 	
 	Common stock, $.001 par value per share; authorized 1,000,000,000 shares; issued and outstanding 415,010,125 shares in 2003 and 380,816,132 shares in 2002	 	 	415	 	 	 	381	 	
 	Additional paid-in capital	 	 	2,995,735	 	 	 	2,802,503	 	
 	Retained earnings	 	 	1,568,509	 	 	 	1,286,487	 	
 	Accumulated other comprehensive income (loss)	 	 	56,594	 	 	 	(237,457	)	
 	 	 		 	 	 		 	
 	 	Total stockholders’ equity	 	 	4,621,253	 	 	 	3,851,914	 	
 	 	 		 	 	 		 	
 	 	Total liabilities and stockholders’ equity	 	$	27,303,932	 	 	$	23,226,992	 	
 	 	 		 	 	 		 	
The accompanying notes are an integral part of these consolidated financial statements.
F-5 

Table of Contents
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

			
		For the Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands, except	
		per share amounts)	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Electric generation and marketing revenue	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Electricity and steam revenue	 	$	4,695,744	 	 	$	3,222,202	 	 	$	2,385,324	 	
 	 	Sales of purchased power for hedging and optimization	 	 	2,714,187	 	 	 	3,145,991	 	 	 	3,332,412	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total electric generation and marketing revenue	 	 	7,409,931	 	 	 	6,368,193	 	 	 	5,717,736	 	
 	Oil and gas production and marketing revenue	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Oil and gas sales	 	 	107,662	 	 	 	120,930	 	 	 	286,241	 	
 	 	Sales of purchased gas for hedging and optimization	 	 	1,320,902	 	 	 	870,466	 	 	 	526,517	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total oil and gas production and marketing revenue	 	 	1,428,564	 	 	 	991,396	 	 	 	812,758	 	
 	Mark-to-market activities, net	 	 	(26,439	)	 	 	21,485	 	 	 	151,738	 	
 	Other revenue	 	 	107,483	 	 	 	10,787	 	 	 	32,697	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total revenue	 	 	8,919,539	 	 	 	7,391,861	 	 	 	6,714,929	 	
 	 	 		 	 	 		 	 	 		 	
Cost of revenue:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Electric generation and marketing expense	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Plant operating expense	 	 	679,031	 	 	 	505,971	 	 	 	324,029	 	
 	 	Royalty expense	 	 	24,932	 	 	 	17,615	 	 	 	27,493	 	
 	 	Purchased power expense for hedging and optimization	 	 	2,690,069	 	 	 	2,618,445	 	 	 	2,986,578	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total electric generation and marketing expense	 	 	3,394,032	 	 	 	3,142,031	 	 	 	3,338,100	 	
 	Oil and gas operating and marketing expense	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Oil and gas operating expense	 	 	106,244	 	 	 	97,499	 	 	 	90,492	 	
 	 	Purchased gas expense for hedging and optimization	 	 	1,279,568	 	 	 	821,065	 	 	 	492,587	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total oil and gas operating and marketing expense	 	 	1,385,812	 	 	 	918,564	 	 	 	583,079	 	
 	Fuel expense	 	 	2,564,742	 	 	 	1,752,901	 	 	 	1,150,786	 	
 	Depreciation, depletion and amortization expense	 	 	583,912	 	 	 	453,411	 	 	 	309,373	 	
 	Operating lease expense	 	 	112,070	 	 	 	111,022	 	 	 	99,519	 	
 	Other cost of revenue	 	 	42,270	 	 	 	7,279	 	 	 	10,943	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total cost of revenue	 	 	8,082,838	 	 	 	6,385,208	 	 	 	5,491,800	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	 	Gross profit	 	 	836,701	 	 	 	1,006,653	 	 	 	1,223,129	 	
(Income) from unconsolidated investments in power projects and oil and gas properties	 	 	(76,703	)	 	 	(16,552	)	 	 	(16,946	)	
Equipment cancellation and impairment cost	 	 	64,384	 	 	 	404,737	 	 	 	—	 	
Long-term service agreement cancellation charge	 	 	16,355	 	 	 	—	 	 	 	—	 	
Project development expense	 	 	21,804	 	 	 	66,981	 	 	 	35,879	 	
Sales, general and administrative expense	 	 	265,653	 	 	 	229,011	 	 	 	150,453	 	
Merger expense	 	 	—	 	 	 	—	 	 	 	41,627	 	
 	 	 		 	 	 		 	 	 		 	
 	Income from operations	 	 	545,208	 	 	 	322,476	 	 	 	1,012,116	 	
Interest expense	 	 	726,103	 	 	 	413,690	 	 	 	196,621	 	
Distributions on trust preferred securities	 	 	46,610	 	 	 	62,632	 	 	 	62,412	 	
F-6 

Table of Contents

			
		For the Years Ended December 31,	
			
		2003		2002		2001	

		(In thousands, except	
		per share amounts)	
Interest (income)	 	 	(39,716	)	 	 	(43,087	)	 	 	(72,448	)	
Minority interest expense (income)	 	 	27,330	 	 	 	2,716	 	 	 	(1,344	)	
(Income) from repurchase of various issuances of debt	 	 	(278,612	)	 	 	(118,020	)	 	 	(11,919	)	
Other (income)	 	 	(46,126	)	 	 	(34,200	)	 	 	(41,786	)	
 	 	 		 	 	 		 	 	 		 	
 	Income before provision (benefit) for income taxes	 	 	109,619	 	 	 	38,745	 	 	 	880,580	 	
Provision (benefit) for income taxes	 	 	(134	)	 	 	(14,945	)	 	 	297,614	 	
 	 	 		 	 	 		 	 	 		 	
 	Income before discontinued operations and cumulative effect of a change in accounting principle	 	 	109,753	 	 	 	53,690	 	 	 	582,966	 	
Discontinued operations, net of tax provision of $5,819, $42,884 and $37,899	 	 	(8,674	)	 	 	64,928	 	 	 	39,490	 	
Cumulative effect of a change in accounting principle, net of tax provision of $110,913, $ — , and $699	 	 	180,943	 	 	 	—	 	 	 	1,036	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Net income	 	$	282,022	 	 	$	118,618	 	 	$	623,492	 	
 	 	 		 	 	 		 	 	 		 	
Basic earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Weighted average shares of common stock outstanding	 	 	390,772	 	 	 	354,822	 	 	 	303,522	 	
 	Income before discontinued operations and cumulative effect of a change in accounting principle	 	$	0.28	 	 	$	0.15	 	 	$	1.92	 	
 	Discontinued operations, net of tax	 	$	(0.02	)	 	$	0.18	 	 	$	0.13	 	
 	Cumulative effect of a change in accounting principle, net of tax	 	$	0.46	 	 	$	—	 	 	$	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Net income	 	$	0.72	 	 	$	0.33	 	 	$	2.05	 	
 	 	 		 	 	 		 	 	 		 	
Diluted earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Weighted average shares of common stock outstanding before dilutive effect of certain convertible securities	 	 	396,219	 	 	 	362,533	 	 	 	317,919	 	
 	Income before dilutive effect of certain convertible securities, discontinued operations and cumulative effect of a change in accounting principle	 	$	0.28	 	 	$	0.15	 	 	$	1.83	 	
 	Dilutive effect of certain convertible securities(1)	 	$	—	 	 	$	 —	 	 	$	(0.14	)	
 	 	 		 	 	 		 	 	 		 	
 	Income before discontinued operations and cumulative effect of a change in accounting principle	 	$	0.28	 	 	$	0.15	 	 	$	1.69	 	
 	Discontinued operations, net of tax	 	$	(0.02	)	 	$	0.18	 	 	$	0.11	 	
 	Cumulative effect of a change in accounting principle, net of tax	 	$	0.45	 	 	$	—	 	 	$	—	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Net income	 	$	0.71	 	 	$	0.33	 	 	$	1.80	 	

		
(1) 	See Note 23 of the Notes to Consolidated Financial Statements for further information.	
The accompanying notes are an integral part of these consolidated financial statements.
F-7 

Table of Contents
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2003, 2002, and 2001
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
								Accumulated					
				Additional				Other		Total			
		Common		Paid-in		Retained		Comprehensive		Stockholders’		Comprehensive	
		Stock		Capital		Earnings		Income (Loss)		Equity		Income	

		(In thousands, except share amounts)	
Balance, January 1, 2001	 	$	300	 	 	$	1,896,987	 	 	$	544,377	 	 	$	(25,363	)	 	$	2,416,301	 	 	 	 	 	
 	Issuance of 6,833,497 shares of common stock, net of issuance costs	 	 	7	 	 	 	72,459	 	 	 	—	 	 	 	—	 	 	 	72,466	 	 	 	 	 	
 	Issuance of 151,176 shares of common stock for acquisitions	 	 	—	 	 	 	7,500	 	 	 	—	 	 	 	—	 	 	 	7,500	 	 	 	 	 	
 	Tax benefit from stock options exercised and other	 	 	—	 	 	 	63,887	 	 	 	—	 	 	 	—	 	 	 	63,887	 	 	 	 	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income	 	 	—	 	 	 	—	 	 	 	623,492	 	 	 	—	 	 	 	623,492	 	 	$	623,492	 	
 	Other comprehensive loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(215,517	)	 	 	(215,517	)	 	 	(215,517	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	$	407,975	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance, December 31, 2001	 	 	307	 	 	 	2,040,833	 	 	 	1,167,869	 	 	 	(240,880	)	 	 	2,968,129	 	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Issuance of 73,757,381 shares of common stock, net of issuance costs	 	 	74	 	 	 	751,721	 	 	 	 	 	 	 	—	 	 	 	751,795	 	 	 	 	 	
 	Tax benefit from stock options exercised and other	 	 	—	 	 	 	9,949	 	 	 	 	 	 	 	 	 	 	 	9,949	 	 	 	 	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income	 	 	—	 	 	 	—	 	 	 	118,618	 	 	 	—	 	 	 	118,618	 	 	$	118,618	 	
 	Other comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,423	 	 	 	3,423	 	 	 	3,423	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	 	$	122,041	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance, December 31, 2002	 	 	381	 	 	 	2,802,503	 	 	 	1,286,487	 	 	 	(237,457	)	 	 	3,851,914	 	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 	 	 	
 	Issuance of 34,194,063 shares of common stock, net of issuance costs	 	 	34	 	 	 	175,063	 	 	 	—	 	 	 	—	 	 	 	175,097	 	 	 	 	 	
 	Tax benefit from stock options exercised and other	 	 	—	 	 	 	2,097	 	 	 	—	 	 	 	—	 	 	 	2,097	 	 	 	 	 	
 	Stock compensation expense	 	 	—	 	 	 	16,072	 	 	 	—	 	 	 	—	 	 	 	16,072	 	 	 	 	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income	 	 	—	 	 	 	—	 	 	 	282,022	 	 	 	—	 	 	 	282,022	 	 	$	282,022	 	
 	Other comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	294,051	 	 	 	294,051	 	 	 	294,051	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	$	576,073	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance, December 31, 2003	 	$	415	 	 	$	2,995,735	 	 	$	1,568,509	 	 	$	56,594	 	 	$	4,621,253	 	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
F-8 

Table of Contents
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2002, and 2001
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		2001	

		(In thousands)	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net income	 	$	282,022	 	 	$	118,618	 	 	$	623,492	 	
 	 	Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Depreciation, depletion and amortization(1)	 	 	735,341	 	 	 	542,176	 	 	 	364,056	 	
 	 	Equipment cancellation and asset impairment cost	 	 	53,058	 	 	 	404,737	 	 	 	—	 	
 	 	Development cost write off	 	 	3,400	 	 	 	56,427	 	 	 	—	 	
 	 	Deferred income taxes, net	 	 	150,323	 	 	 	23,206	 	 	 	82,410	 	
 	 	Gain on sale of assets	 	 	(65,351	)	 	 	(97,377	)	 	 	(38,258	)	
 	 	Foreign currency translation loss (gain)	 	 	33,346	 	 	 	(986	)	 	 	2,930	 	
 	 	Cumulative change in accounting principle	 	 	(180,943	)	 	 	—	 	 	 	—	 	
 	 	Gain on retirement of debt	 	 	(278,612	)	 	 	(118,020	)	 	 	(9,600	)	
 	 	Minority interests	 	 	27,330	 	 	 	2,716	 	 	 	1,345	 	
 	 	Change in net derivative liability	 	 	59,490	 	 	 	(340,851	)	 	 	(239,716	)	
 	 	Income from unconsolidated investments in power projects and oil and gas properties	 	 	(76,704	)	 	 	(16,490	)	 	 	(9,433	)	
 	 	Distributions from unconsolidated investments in power projects and oil and gas properties	 	 	141,627	 	 	 	14,117	 	 	 	5,983	 	
 	 	Stock compensation expense	 	 	16,072	 	 	 	—	 	 	 	—	 	
 	 	Change in operating assets and liabilities, net of effects of acquisitions:	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Accounts receivable	 	 	(221,243	)	 	 	229,187	 	 	 	(230,400	)	
 	 	 	Other current assets	 	 	(160,672	)	 	 	405,515	 	 	 	(527,296	)	
 	 	 	Other assets	 	 	(143,654	)	 	 	(305,908	)	 	 	(120,310	)	
 	 	 	Accounts payable and accrued expense	 	 	(111,901	)	 	 	(48,804	)	 	 	449,369	 	
 	 	 	Other liabilities	 	 	27,630	 	 	 	200,203	 	 	 	68,997	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	 	Net cash provided by operating activities	 	 	290,559	 	 	 	1,068,466	 	 	 	423,569	 	
 	 	 		 	 	 		 	 	 		 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Purchases of property, plant and equipment	 	 	(1,886,013	)	 	 	(4,036,254	)	 	 	(5,832,874	)	
 	Disposals of property, plant and equipment	 	 	206,804	 	 	 	400,349	 	 	 	49,120	 	
 	Acquisitions, net of cash acquired	 	 	(6,818	)	 	 	—	 	 	 	(1,608,840	)	
 	Proceeds from sale leasebacks	 	 	—	 	 	 	—	 	 	 	517,081	 	
 	Advances to joint ventures	 	 	(54,024	)	 	 	(68,088	)	 	 	(177,917	)	
 	Project development costs	 	 	(35,778	)	 	 	(105,182	)	 	 	(147,520	)	
 	Cash flows from derivatives not designated as hedges	 	 	42,342	 	 	 	26,091	 	 	 	29,145	 	
 	(Increase) decrease in restricted cash	 	 	(766,841	)	 	 	(73,848	)	 	 	(45,642	)	
 	(Increase) decrease in notes receivable	 	 	(21,135	)	 	 	8,926	 	 	 	(40,273	)	
 	Other	 	 	6,098	 	 	 	10,179	 	 	 	17,065	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	 	Net cash used in investing activities	 	 	(2,515,365	)	 	 	(3,837,827	)	 	 	(7,240,655	)	
 	 	 		 	 	 		 	 	 		 	
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		2003		2002		2001	

		(In thousands)	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Proceeds from issuance of Zero-Coupon Convertible Debentures Due 2021	 	 	—	 	 	 	—	 	 	 	1,000,000	 	
 	Repurchase of Zero-Coupon Convertible Debentures Due 2021	 	 	—	 	 	 	(869,736	)	 	 	(110,100	)	
 	Borrowings from notes payable and lines of credit	 	 	1,672,871	 	 	 	1,348,798	 	 	 	148,863	 	
 	Repayments of notes payable and lines of credit	 	 	(1,769,072	)	 	 	(126,404	)	 	 	(962,873	)	
 	Borrowings from project financing	 	 	1,548,601	 	 	 	725,111	 	 	 	3,869,391	 	
 	Repayments of project financing	 	 	(1,638,519	)	 	 	(286,293	)	 	 	(1,712,292	)	
 	Proceeds from issuance of Convertible Senior Notes	 	 	650,000	 	 	 	100,000	 	 	 	1,100,000	 	
 	Repurchases of Convertible Senior Notes Due 2006	 	 	(455,447	)	 	 	—	 	 	 	—	 	
 	Repurchases of senior notes	 	 	(1,139,812	)	 	 	—	 	 	 	(106,300	)	
 	Proceeds from issuance of senior notes	 	 	3,892,040	 	 	 	—	 	 	 	4,596,039	 	
 	Proceeds from issuance of common stock	 	 	15,951	 	 	 	751,795	 	 	 	72,465	 	
 	Proceeds from income trust offerings	 	 	159,727	 	 	 	169,677	 	 	 	—	 	
 	Financing costs	 	 	(323,167	)	 	 	(42,783	)	 	 	(144,746	)	
 	Other	 	 	10,813	 	 	 	(12,769	)	 	 	(270	)	
 	 	 		 	 	 		 	 	 		 	
 	 	Net cash provided by financing activities	 	 	2,623,986	 	 	 	1,757,396	 	 	 	7,750,177	 	
 	 	 		 	 	 		 	 	 		 	
Effect of exchange rate changes on cash and cash equivalents	 	 	13,140	 	 	 	(2,693	)	 	 	(3,669	)	
Net increase (decrease) in cash and cash equivalents	 	 	412,320	 	 	 	(1,014,658	)	 	 	929,422	 	
Cash and cash equivalents, beginning of period	 	 	579,486	 	 	 	1,594,144	 	 	 	664,722	 	
 	 	 		 	 	 		 	 	 		 	
Cash and cash equivalents, end of period	 	$	991,806	 	 	$	579,486	 	 	$	1,594,144	 	
 	 	 		 	 	 		 	 	 		 	
Cash paid during the period for:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Interest, net of amounts capitalized	 	$	462,714	 	 	$	325,334	 	 	$	42,883	 	
 	Income taxes	 	$	18,415	 	 	$	15,451	 	 	$	271,973	 	

		
(1) 	Includes depreciation and amortization that is also recorded in sales, general and administrative expense and interest expense.	
      Schedule of non cash investing and financing activities:

			
 	— 	2003 issuance of 30 million shares of common stock in exchange for $182.5 million of debt, convertible debt and preferred securities	
 		
 	— 	2002 non-cash consideration of $88.4 million in tendered Company debt received upon the sale of its British Columbia oil and gas properties	
 		
 	— 	2001 equity investment in a power project for $17.5 million note receivable	
The accompanying notes are an integral part of these consolidated financial statements.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2003, 2002, and 2001

1.	Organization and Operations of the Company	
      Calpine Corporation (“Calpine” or “the Company”), a Delaware corporation, and subsidiaries, (collectively, also referred to as the “Company”) are engaged in the generation of electricity in the United States of America, Canada and the United Kingdom. The Company is involved in the development, construction, ownership and operation of power generation facilities and the sale of electricity and its by-product, thermal energy, primarily in the form of steam. The Company has ownership interests in, and operates, gas-fired power generation and cogeneration facilities, gas fields, gathering systems and gas pipelines, geothermal steam fields and geothermal power generation facilities in the United States of America. In Canada, the Company owns oil and gas operations and has ownership interests in, and operates, power facilities. In the United Kingdom, the Company owns and operates a gas-fired power cogeneration facility. Each of the generation facilities produces and markets electricity for sale to utilities and other third party purchasers. Thermal energy produced by the gas-fired power cogeneration facilities is primarily sold to industrial users. Gas produced, and not physically delivered to the Company’s generating plants, is sold to third parties.

2.	Summary of Significant Accounting Policies	
      Principles of Consolidation  — The accompanying consolidated financial statements as of December 31, 2002, and for the three years ended December 31, 2003, include accounts of the Company and its wholly owned and majority-owned subsidiaries. The consolidated financial statements as of December 31, 2003, include the accounts of the Company and its majority-owned subsidiaries that are not considered Variable Interest Entities (“VIE”) and all special purpose VIEs for which the Company is the Primary Beneficiary. Certain less-than-majority-owned subsidiaries are accounted for using the equity method. For equity method investments, the Company’s share of income is calculated according to the Company’s equity ownership or according to the terms of the appropriate partnership agreement (see Note 7). All intercompany accounts and transactions are eliminated in consolidation.
      Reclassifications  — Certain prior years’ amounts in the Consolidated Financial Statements have been reclassified to conform to the 2003 presentation.
      Use of Estimates in Preparation of Financial Statements  — The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. The most significant estimates with regard to these financial statements relate to useful lives and carrying values of assets (including the carrying value of projects in development, construction retirement and operation), provision for income taxes, fair value calculations of derivative instruments and associated reserves, capitalization of interest, primary beneficiary determination for our investments in variable interest entities, the outcome of pending litigation and estimates of oil and gas reserves used to calculate depletion, depreciation and impairment of natural gas and petroleum property and equipment.
      Operational data (including, but not limited to, megawatts (“MW”), megawatt hours (“MWh”), billions cubic feet equivalent (“Bcfe”) and thousand barrels (“MBbl”), throughout this Form-10K is unaudited.
      Foreign Currency Translation  — Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment and gains and losses on foreign currency transactions treated as economic hedges of a net investment in a foreign entity and intercompany foreign currency transactions which are of a long-term investment nature are translated to U.S. dollars at exchange rates in effect at the balance sheet date with the
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
resulting translation adjustments recorded in other comprehensive income. Income and expense accounts are translated at average exchange rates during the year.
      Fair Value of Financial Instruments  — The carrying value of accounts receivable, marketable securities, accounts and other payables approximate their respective fair values due to their short maturities. See Note 16 for disclosures regarding the fair value of the senior notes.
      Cash and Cash Equivalents  — The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amount of these instruments approximates fair value because of their short maturity.
      The Company has certain project debt agreements which establish working capital accounts which limit the use of certain cash balances to the operations of the respective plants. At December 31, 2003 and 2002, $342.5 million and $189.0 million, respectively, of the cash and cash equivalents balance was subject to such project debt agreements.
      Accounts Receivable and Accounts Payable  — Accounts receivable and payable represent amounts due from customers and owed to vendors. These balances also include settled but unpaid amounts relating to hedging, balancing, optimization and trading activities of Calpine Energy Services, L.P. (“CES”). Some of these receivables and payables with individual counterparties are subject to master netting agreements whereby the Company legally has a right of offset and the Company settles the balances net. However, for balance sheet presentation purposes and to be consistent with the way the Company presents the majority of amounts related to hedging, balancing and optimization activities in its statements of operations under Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition in Financial Statements,” as amended by SAB No. 104 “Revenue Recognition” (collectively “SAB No. 101”), and EITF Issue No. 99-19 “Reporting Revenue Gross as a Principal Versus Net as an Agent,” the Company presents its receivables and payables on a gross basis.
      Inventories  — The Company’s inventories primarily include spare parts, work-in-process and stored gas. Operating supplies are valued at the lower of cost or market. Cost for large replacement parts estimated to be used within one year is determined using the specific identification method. For the remaining supplies and spare parts, cost is generally determined using the weighted average cost method. Stored gas is valued at the lower of weighted average cost or market. Work-in-process represents the value of manufactured goods during the manufacturing process. The inventory balance at December 31, 2003, was $139.7 million. This balance is comprised of $90.3 million of spare parts, $43.5 million of stored gas and $5.9 million of work-in-process. The inventory balance at December 31, 2002, was $105.9 million. This balance is comprised of $72.1 million of spare parts, $31.4 million of stored gas and $2.4 million of work-in-process.
      Margin Deposits  — As of December 31, 2003 and 2002, as credit support for the gas procurement as well as risk management activities it conducts on the Company’s behalf, CES had deposited net amounts of $188.0 million and $25.2 million, respectively, in cash as margin deposits.
      Collateral Debt Securities  — The Company classifies all short-term and long-term debt securities as held-to-maturity because the Company has the intent and ability to hold the securities to maturity. The securities act as collateral to support the King City operating lease and mature serially in amounts equal to a portion of the semi-annual lease payments. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion discounts to maturity.
      Property, Plant and Equipment, Net  — See Note 4 for a discussion of the Company’s accounting policies for its property, plant and equipment.
      Project Development Costs  — The Company capitalizes project development costs once it is determined that it is probable that such costs will be realized through the ultimate construction of a power plant. These costs include professional services, salaries, permits and other costs directly related to the development of a
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
new project. Upon commencement of construction, these costs are transferred to construction in progress, a component of property, plant and equipment. Upon the start-up of plant operations, these construction costs are reclassified as buildings, machinery and equipment, also a component of property, plant and equipment, and are amortized as a component of the total cost of the plant over its estimated useful life. Capitalized project costs are charged to expense if the Company determines that the project is no longer probable or to the extent it is impaired. Outside services and other third party costs are capitalized for acquisition projects.
      Investments in Power Projects and Oil and Gas Properties  — The Company uses the equity method to recognize its pro rata share of the net income or loss of an unconsolidated investment until such time, if applicable, that the Company’s investment is reduced to zero, at which time losses are only recognized if there is a legal requirement to fund such losses. Once an investment is written down to zero equity income is generally recognized only upon receipt of cash distributions from the investee.
      Restricted Cash  — The Company is required to maintain cash balances that are restricted by provisions of its debt agreements, lease agreements and regulatory agencies. These amounts are held by depository banks in order to comply with the contractual provisions requiring reserves for payments such as for debt service, rent service, major maintenance and debt repurchases. Funds that will be used to satisfy obligations due during the next twelve months are classified as current restricted cash, with the remainder classified as non-current restricted cash. Restricted cash is invested in accounts earning market rates; therefore the carrying value approximates fair value. Such cash is excluded from cash and cash equivalents in the consolidated statement of cash flows. Of the Company’s restricted cash, $157.6 million, $4.6 million and $60.7 million are the assets of Power Contract Financing, L.L.C. (“PCF”), Calpine Northbrook Energy Marketing, LLC (“CNEM”), and Gilroy Energy Center, LLC (“GEC”), respectively, each an entity with its existence separate from the Company and other subsidiaries of the Company.
      Notes Receivable  — See Note 8 for a discussion of the Company’s accounting policies for its notes receivable.
      Deferred Financing Costs  — The deferred financing costs related to the Company’s Senior Notes and the Convertible Senior Notes are amortized over the life of the related debt, ranging from 4 to 20 years, using the effective interest rate method (see Note 16). The deferred financing costs associated with the Calpine Construction Finance Company II, LLC (“CCFC II”) facility are amortized over the 4-year facility life using the effective interest rate method (see Note 14). The deferred financing costs related to the Zero-Coupon Debentures Due 2021 were amortized over 1 year due to the put option that was exercised by the holders in 2002. Costs incurred in connection with obtaining other financing are deferred and amortized over the life of the related debt.
      Long-Lived Assets  — In accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” the Company evaluates the impairment of long-lived assets, including construction and development projects, based on the projection of undiscounted pre-interest expense and pre-tax expense cash flows whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. The significant assumptions that the Company uses in its undiscounted future cash flow estimates include the future supply and demand relationships for electricity and natural gas, and the expected pricing for those commodities and the resultant spark spreads in the various regions where the Company generates. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values (see Note 4). Certain of the Company’s generating assets are located in regions with depressed demands and market spark spreads. The Company’s forecasts assume that spark spreads will increase in future years in these regions as the supply and demand relationships improve.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Concentrations of Credit Risk  — Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable, notes receivable, and commodity contracts. The Company’s cash accounts are generally held in FDIC insured banks. The Company’s accounts and notes receivable are concentrated within entities engaged in the energy industry, mainly within the United States (see Notes 8 and 21). The Company generally does not require collateral for accounts receivable from end-user customers, but evaluates the net accounts receivable, accounts payable, and fair value of commodity contracts with trading companies and may require security deposits or letters of credit to be posted if exposure reaches a certain level.
      Deferred Revenue  — The Company’s deferred revenue consists primarily of deferred gains for the sale/leaseback transactions as well as deferred revenue for long-term power supply contracts.
      Trust Preferred Securities  — Prior to the adoption of FASB Interpretation No. 46 (Revised 2003) “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (“FIN 46-R”) on October 1, 2003, the Company’s trust preferred securities were accounted for as a minority interest in the balance sheet and reflected as “Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trusts.” The distributions were reflected in the statements of operations as “distributions on trust preferred securities” through the third quarter of 2003. Financing costs related to these issuances are netted with the principal amounts and were accreted as minority interest expense over the securities’ 30-year maturity using the straight-line method which approximated the effective interest rate method. Upon the adoption of FIN 46-R, the Company deconsolidated the Calpine Capital Trusts, which had issued the Trust Preferred Securities. Consequently, the Trust Preferred Securities are no longer on the Company’s Consolidated Balance Sheet and were replaced with the debentures issued by the Company to the Calpine Capital Trusts. The interest payments on the debentures are now reflected in the statements of operations as “interest expense.” (See Note 11).
      Revenue Recognition  — The Company is primarily an electric generation company, operating a portfolio of mostly wholly owned plants but also some plants in which its ownership interest is 50% or less or the Company is not the Primary Beneficiary under FIN 46-R and which are accounted for under the equity method. In conjunction with its electric generation business, the Company also produces, as a by-product, thermal energy for sale to customers, principally steam hosts at the Company’s cogeneration sites. In addition, the Company acquires and produces natural gas for its own consumption and sells the balance and oil produced to third parties. Where applicable, revenues are recognized under EITF No. 91-6, “Revenue Recognition of Long Term Power Sales Contracts,” ratably over the terms of the related contracts. To protect and enhance the profit potential of its electric generation plants, the Company, through its subsidiary, CES, enters into electric and gas hedging, balancing, and optimization transactions, subject to market conditions, and CES has also, from time to time, entered into contracts considered energy trading contracts under EITF Issue No. 02-3. CES executes these transactions primarily through the use of physical forward commodity purchases and sales and financial commodity swaps and options. With respect to its physical forward contracts, CES generally acts as a principal, takes title to the commodities, and assumes the risks and rewards of ownership. Therefore, when CES does not hold these contracts for trading purposes and, in accordance with SAB No. 101, and EITF Issue No. 99-19, the Company records settlement of the majority of its non-trading physical forward contracts on a gross basis. On October 1, 2003, the Company adopted EITF Issue No. 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not “Held for Trading Purposes’ As Defined in EITF Issue No. 02-3: “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (“EITF Issue No. 03-11”) and, accordingly, has begun netting certain types of hedging, balancing and optimization transactions. See discussion of the impacts of adopting EITF Issue No. 03-11 under the New Accounting Pronouncements Section of this Note. The Company settles its financial swap and option transactions net and does not take title to the underlying commodity. Accordingly,
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the Company records gains and losses from settlement of financial swaps and options net within net income. Managed risks typically include commodity price risk associated with fuel purchases and power sales.
      The Company, through its wholly owned subsidiary, Power Systems Mfg., LLC (“PSM”), designs and manufactures certain spare parts for gas turbines. The Company in the past has also generated revenue by occasionally loaning funds to power projects, by providing operation and maintenance (“O&M”) services to third parties and to certain unconsolidated power projects. The Company also sells engineering and construction services to third parties for power projects. Further details of the Company’s revenue recognition policy for each type of revenue transaction are provided below:
      Electric Generation and Marketing Revenue  — This includes electricity and steam sales and sales of purchased power for hedging, balancing and optimization. Subject to market and other conditions, the Company manages the revenue stream for its portfolio of electric generating facilities. The Company markets on a system basis both power generated by its plants in excess of amounts under direct contract between the plant and a third party, and power purchased from third parties, through hedging, balancing and optimization transactions. CES performs a market-based allocation of total electric generation and marketing revenue to electricity and steam sales (based on electricity delivered by the Company’s electric generating facilities) and the balance is allocated to sales of purchased power.
      Oil and Gas Production and Marketing Revenue  — This includes sales to third parties of oil, gas and related products that are produced by the Company’s Calpine Natural Gas and Calpine Canada Natural Gas subsidiaries and, subject to market and other conditions, sales of purchased gas arising from hedging, balancing and optimization transactions. Oil and gas sales for produced products are recognized pursuant to the sales method, net of royalties. If the Company has recorded gas sales on a particular well or field in excess of its share of remaining estimated reserves, then the excessive gas sale imbalance is recognized as a liability. If the Company is under-produced on a particular well or field, and it is determined that an over-produced partner’s share of remaining reserves is insufficient to settle the gas imbalance, the Company will recognize a receivable, to the extent collectible, from the over-produced partner.
      Mark-to-Market Activity, Net  — This includes realized settlements of and unrealized mark-to-market gains and losses on both power and gas derivative instruments undesignated as cash flow hedges, including those held for trading purposes. Gains and losses due to ineffectiveness on hedging instruments are also included in unrealized mark-to-market gains and losses. Trading activity is presented net in accordance with EITF Issue No. 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities” (“EITF Issue No. 02-3”). See New Accounting Pronouncements discussed in this Note.
      Other Revenue  — This includes O&M contract revenue, PSM and TTS revenue from sales to third parties, engineering and construction revenue and miscellaneous revenue, including amounts associated with the Company’s Enron Settlement (see Note 21).
      Plant Operating Expense  — This primarily includes employee expenses, repairs and maintenance, insurance, transmission cost and property taxes.
      Purchased Power and Purchased Gas Expense  — The cost of power purchased from third parties for hedging, balancing and optimization activities is recorded as purchased power expense, a component of electric generation and marketing expense. The Company records the cost of gas purchased from third parties for the purposes of consumption in its power plants as fuel expense, while gas purchased from third parties for hedging, balancing, and optimization activities is recorded as purchased gas expense, a component of oil and gas production and marketing expense. Certain hedging, balance and optimization activity is presented net in accordance with EITF Issue No. 03-11. See New Accounting Pronouncements discussed in this Note.
      Provision (Benefit) for Income Taxes  — Deferred income taxes are based on the differences between the financial reporting and tax bases of assets and liabilities. The deferred income tax provision represents the
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
changes during the reporting period in the deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax assets include tax losses and tax credit carryforwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Additionally, with respect to income taxes, the Company assumes the deductibility of certain costs in its income tax filings and estimates the future recovery of deferred tax assets.
      Insurance Program  — CPN Insurance Corporation, a wholly owned captive insurance subsidiary, charges the Company competitive premium rates to insure casualty lines (workers’ compensation, automobile liability, and general liability) as well as all risk property insurance including business interruption. Accruals for claims under the captive insurance program pertaining to property, including business interruption claims, are recorded on a claims-incurred basis. Accruals for casualty claims under the captive insurance program are recorded on a monthly basis, and are based upon the estimate of the total cost of claims incurred during the policy period. The captive insures limits up to $25 million per occurrence for property claims, including business interruption, and up to $500,000 per occurrence for casualty claims.
      Derivative Instruments  — SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended and interpreted by other related accounting literature, establishes accounting and reporting standards for derivative instruments (including certain derivative instruments embedded in other contracts). SFAS No. 133 requires companies to record derivatives on their balance sheets as either assets or liabilities measured at their fair value unless exempted from derivative treatment as a normal purchase and sale. All changes in the fair value of derivatives are recognized currently in earnings unless specific hedge criteria are met, which requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.
      The Company is required by GAAP to account for certain derivative contracts at fair value. Accounting for derivatives at fair value requires the Company to make estimates about future prices during periods for which price quotes are not available from sources external to the Company. As a result, the Company is required to rely on internally developed price estimates when external price quotes are unavailable. The Company derives its future price estimates, during periods where external price quotes are unavailable, based on an extrapolation of prices from periods where external price quotes are available. The Company performs this extrapolation using liquid and observable market prices and extending those prices to an internally generated long-term price forecast based on a generalized equilibrium model.
      SFAS No. 133 sets forth the accounting requirements for cash flow and fair value hedges. SFAS No. 133 provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of other comprehensive income and be reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, must be recognized currently in earnings. SFAS No. 133 provides that the changes in fair value of derivatives designated as fair value hedges and the corresponding changes in the fair value of the hedged risk attributable to a recognized asset, liability, or unrecognized firm commitment be recorded in earnings. If the fair value hedge is effective, the amounts recorded will offset in earnings. Additionally, if the underlying transaction being hedged is disposed of or otherwise terminated, the gain or loss associated with the hedge instrument is recognized currently. If the hedging instrument is terminated prior to the occurrence of the hedged transaction, the gain or loss associated with the hedge instrument remains deferred.
      Where the Company’s derivative instruments are subject to a master netting agreement and the criteria of FASB Interpretation (“FIN”) 39 “Offsetting of Amounts Related to Certain Contracts (An Interpretation of APB Opinion No. 10 and SFAS No. 105)” are met, the Company presents its derivative assets and liabilities on a net basis in its balance sheet. The Company has chosen this method of presentation because it is
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
consistent with the way related mark-to-market gains and losses on derivatives are recorded in its Consolidated Statements of Operations and within Other Comprehensive Income (“OCI”).

	New Accounting Pronouncements	
      In June 2001 FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 applies to fiscal years beginning after June 15, 2002 and amends SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies.” This standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the assets and requires that a liability for an asset retirement obligation be recognized when incurred, recorded at fair value and classified as a liability in the balance sheet. When the liability is initially recorded, the entity will capitalize the cost and increase the carrying value of the related long-lived asset. Asset retirement obligations represent future liabilities, and, as a result, accretion expense will be accrued on this liability until the obligation is satisfied. At the same time, the capitalized cost will be depreciated over the estimated useful life of the related asset. At the settlement date, the entity will settle the obligation for its recorded amount or recognize a gain or loss upon settlement.
      The Company adopted the new rules on asset retirement obligations on January 1, 2003. As required by the new rules, the Company recorded liabilities equal to the present value of expected future asset retirement obligations at January 1, 2003. The Company identified obligations related to operating gas-fired power plants, geothermal power plants and oil and gas properties. The liabilities are partially offset by increases in net assets recorded as if the provisions of SFAS No. 143 had been in effect at the date the obligation was incurred, which for power plants is generally the start of construction and typically building up during construction until commercial operations for the facility is achieved. For oil and gas properties the date the obligation is incurred is generally the start of drilling of a well or the start of construction of a facility and typically building up until completion of drilling of a well or completion of construction of a facility.
      Based on current information and assumptions, the Company recorded, as of January 1, 2003, an additional long-term liability of $25.9 million, an additional asset within property, plant and equipment, net of accumulated depreciation, of $26.9 million, and a pre-tax gain to income due to the cumulative effect of a change in accounting principle of $1.0 million. These entries include the effects of the reversal of site dismantlement and restoration costs previously expensed in accordance with SFAS No. 19.
      The table below details the change during 2003 in the Company’s asset retirement obligation (in thousands): 

Asset retirement obligation at January 1, 2003	 	$	47,274	 	
Liabilities incurred in 2003	 	 	4,368	 	
Liabilities settled in 2003	 	 	(2,012	)	
Accretion expense	 	 	5,688	 	
Revisions in the estimated cash flows	 	 	1,799	 	
Other (primarily foreign currency translation)	 	 	(3,782	)	
 	 	 		 	
Asset retirement obligation at December 31, 2003	 	$	53,335	 	
 	 	 		 	
      If SFAS No. 143 had been applied for the year ended December 31, 2001, the asset retirement obligation at December 31, 2001, would have been $31.2 million.
      In November 2002 FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”).” This Interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, the Interpretation clarifies the requirements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing the guarantee. The Company adopted the disclosure requirements of FIN 45 for the fiscal year ended December 31, 2002, and the recognition provisions on January 1, 2003. Adoption of this Interpretation did not have a material impact on the Company’s Consolidated Financial Statements.
      On January 1, 2003, the Company prospectively adopted the fair value method of accounting for stock-based employee compensation pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for companies that voluntarily change their accounting for stock-based compensation from the less preferred intrinsic value based method to the more preferred fair value based method. Prior to its amendment, SFAS No. 123 required that companies enacting a voluntary change in accounting principle from the intrinsic value methodology provided by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” could only do so on a prospective basis; no adoption or transition provisions were established to allow for a restatement of prior period financial statements. SFAS No. 148 provides two additional transition options to report the change in accounting principle — the modified prospective method and the retroactive restatement method. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has elected to adopt the provisions of SFAS No. 123 on a prospective basis; consequently, the Company is required to provide a pro-forma disclosure of net income and earnings per share as if SFAS No. 123 accounting had been applied to all prior periods presented within its financial statements. As shown below, the adoption of SFAS No. 123 has had a material impact on the Company’s financial statements. The table below reflects the pro forma impact of stock-based compensation on the Company’s net income and earnings per share for the years ended December 31, 2003, 2002 and 2001, had the Company applied the accounting provisions of SFAS No. 123 to its prior years’ financial statements (in thousands, except per share amounts): 

		2003		2002		2001	
							
Net income	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As reported	 	$	282,022	 	 	$	118,618	 	 	$	623,492	 	
 	 	Pro Forma	 	 	270,418	 	 	 	83,025	 	 	 	588,442	 	
Earnings per share data:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic earnings per share	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As reported	 	$	0.72	 	 	$	0.33	 	 	$	2.05	 	
 	 	Pro Forma	 	 	0.69	 	 	 	0.23	 	 	 	1.94	 	
 	Diluted earnings per share	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As reported	 	$	0.71	 	 	$	0.33	 	 	$	1.80	 	
 	 	Pro Forma	 	 	0.68	 	 	 	0.23	 	 	 	1.71	 	
Stock-based compensation cost included in net income, as reported	 	$	9,724	 	 	$	—	 	 	$	—	 	
Stock-based compensation cost included in net income, pro forma	 	 	21,328	 	 	 	35,593	 	 	 	35,050	 	
      The range of fair values of the Company’s stock options granted in 2003, 2002, and 2001 were as follows, based on varying historical stock option exercise patterns by different levels of Calpine employees: $1.50-$4.38 in 2003, $3.73-$6.62 in 2002, and $18.29-$30.73 in 2001 on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected dividend yields of 0%, expected volatility of 70%-113% for 2003, 70%-83% for 2002, and 55%-59% for 2001, risk-free interest rates of 1.39%-
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4.04% for 2003, 2.39%-3.83% for 2002, and 3.99%-5.07% for 2001, and expected option terms of 1.5-9.5 years for 2003 and 4-9 years for 2002 and 2001.
      In January 2003 FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB 51” (“FIN 46”). FIN 46 requires the consolidation of an entity by an enterprise that absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Historically, entities have generally been consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The objectives of FIN 46 are to provide guidance on the identification of Variable Interest Entities (“VIEs”) for which control is achieved through means other than ownership of a majority of the voting interest of the entity, and how to determine which business enterprise, as the Primary Beneficiary, should consolidate the Variable Interest Entity (“VIE”). This new model for consolidation applies to an entity in which either (1) sufficient equity is lacking to absorb expected losses without additional subordinated financial support or (2) its at-risk equity holders as a group are not able to make decisions that have a significant impact on the success or failure of the entity’s ongoing activities.
      In December 2003 FASB modified FIN 46 with FIN 46-R to make certain technical corrections and to address certain implementation issues. FIN 46, as originally issued, was effective immediately for VIEs created or acquired after January 31, 2003. FIN 46-R delayed the effective date of the interpretation to no later than March 31, 2004, (for calendar-year enterprises), except for Special Purpose Entities (“SPEs”) for which the effective date is December 31, 2003. The Company is still evaluating the impact FIN 46-R may have on its equity method joint ventures, its wholly owned subsidiaries that are subject to long-term power purchase agreements and tolling arrangements, operating leases, entities issuing mandatory redeemable non-controlling interests and other equity investments. However, one possible consequence of adopting FIN 46-R for non-SPEs is that certain equity investments might have to be consolidated and certain wholly owned subsidiaries might have to be de-consolidated.
      The ultimate determination of whether equity investments will be consolidated by the Company will be based on whether these equity investments are in entities that are VIEs and who is the Primary Beneficiary of the VIE. Since the joint venture investments have long-term sales agreements, it is possible these agreements will cause the joint ventures to be considered VIEs. The determination of whether the Company, the other equity owner or the purchaser of the power will consolidate the VIE will be based on which variable interest holder absorbs the majority of the risk of the VIE and is therefore the Primary Beneficiary.
      A similar analysis must be performed for certain 100% Company-owned subsidiaries with long term power sales or tolling agreements. If the Company-owned subsidiary is deemed a VIE by virtue of its long-term power sales or tolling agreement and if the power purchaser is the Primary Beneficiary because it absorbs the majority of the Company-owned subsidiary’s risk, the Company may be required to deconsolidate its subsidiary and account for it under the equity method of accounting. See Note 7 for more information regarding equity investments that may have to be consolidated.
      Acadia Powers Partners, LLC (“Acadia”) is the owner of a 1,160-megawatt electric wholesale generation facility located in Louisiana and is a joint venture between the Company and Cleco Corporation. The joint venture was formed in March 2000, but due to a change in the partnership agreement in May 2003, the Company was required to reconsider its investment in the entity under FIN 46, as originally issued. The Company determined that Acadia was a VIE and that it held a significant variable interest in the entity. However, the Company was not the Primary Beneficiary and therefore not required to consolidate the entity’s assets and liabilities. The total of both partners’ equity in Acadia was approximately $489.2 million as of December 31, 2003. The Company’s maximum potential exposure to loss at December 31, 2003, is limited to the book value of its investment of approximately $221.0 million. The Company continues to account for this investment under the equity method. Under the transition rules of FIN 46-R, the Company is required to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
adopt the provisions of FIN 46-R for Acadia as of March 31, 2003. The Company anticipates that it will still not be the Primary Beneficiary upon the adoption of FIN 46-R.
      On May 15, 2003, the Company’s wholly owned subsidiary, Calpine Northbrook Energy Marketing, LLC (“CNEM”), completed the $82.8 million monetization of an existing power sales agreement with the Bonneville Power Administration (“BPA”). CNEM borrowed $82.8 million secured by the spread between the BPA contract and the fixed power purchases. CNEM was established as a bankruptcy-remote entity and the $82.8 million loan is recourse only to CNEM’s assets and is not guaranteed by the Company. CNEM was determined to be a VIE in which the Company was the Primary Beneficiary. Accordingly, the entity’s assets and liabilities were consolidated into the Company’s accounts as of June 30, 2003. See Note 11 for information regarding this monetization.
      On June 13, 2003, Power Contract Financing, L.L.C. (“PCF”), a wholly owned stand-alone subsidiary of CES, completed an offering of two tranches of Senior Secured Notes Due 2006 and 2010 (collectively called the “PCF Notes”), totaling $802.2 million. To facilitate the transaction, the Company formed PCF as a wholly owned, bankruptcy remote entity with assets and liabilities consisting of the transferred power purchase and sales contracts and the PCF Notes. PCF was determined to be a VIE in which the Company was the Primary Beneficiary. Accordingly, the entity’s assets and liabilities were consolidated into the Company’s accounts as of June 30, 2003. See Note 11 for information regarding this offering.
      Upon adoption of FIN 46-R for the Company’s investments in SPEs, the Company deconsolidated Calpine Capital Trusts I, II and III (Trusts) as explained further in Note 11. The Company’s remaining portfolio of investments in joint ventures, wholly owned subsidiaries, operating leases, significant power purchase agreements and other equity investments did not involve SPEs.
      In April 2003 FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform it to language used in FIN 45, and amends certain other existing pronouncements. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively, with the exception of certain SFAS No. 133 implementation issues that were effective for all fiscal quarters prior to June 15, 2003. Any such implementation issues should continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial statements.
      In May 2003 FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003.
      The Company adopted SFAS No. 150 on July 1, 2003. As a result, approximately $82 million of mandatorily redeemable non-controlling interest in its King City facility, which had previously been included within the balance sheet caption “Minority interests,” was reclassified to “Notes payable.” Preferential distributions related to this mandatorily redeemable non-controlling interest are to be made annually beginning November 2003 through November 2019 and total approximately $169 million over the 17-year period. The preferred interest holders’ recourse is limited to the net assets of the entity and the distribution terms defined in the agreement. The Company has not guaranteed the payment of these preferential
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
distributions. The distributions and accretion of issuance costs related to this preferred interest, which was previously reported as a component of “Minority interest expense” in the Consolidated Condensed Statements of Operations, is now accounted for as interest expense. Distributions and related accretion associated with this preferred interest was $5.3 million for the six months ended December 31, 2003. SFAS No. 150 does not permit reclassification of prior period amounts to conform to the current period presentation.
      During the third quarter of 2003, the Company completed the sales of preferred equity interests for Auburndale Holdings, LLC and Gilroy Energy Center (“GEC”) Holdings, LLC. These interests, in addition to the King City interest, are classified as debt on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2003. Although the Company cannot readily determine the potential cost to repurchase the interests in Auburndale Holdings, LLC and GEC Holdings, LLC, the carrying value of its aggregate partners’ interests is approximately $161.6 million.
      In November 2003 FASB indefinitely deferred certain provisions of SFAS No. 150 as they apply to mandatorily redeemable non-controlling (minority) interests associated with finite-lived subsidiaries. Upon FASB’s finalization of this issue, the Company may be required to reclassify the minority interest relating to the Company’s investment in Calpine Power Limited Partnership (“CLP”) to debt. As of December 31, 2003, the minority interest related to the CLP was approximately $338 million. The Company owns approximately 30% of CLP, which is finite-lived, terminating on December 31, 2050. See Note 10 for a discussion of the Company’s investment in CLP. CLP is consolidated under SFAS No. 66, “Accounting for Sales of Real Estate” due to the Company’s significant continuing involvement in the assets transferred to CLP.
      The adoption of SFAS No. 150 and related balance sheet reclassifications did not have an effect on net income or total stockholders’ equity but have impacted the Company’s debt-to-equity and debt-to-capitalization ratios.
      In June 2003 FASB issued Derivatives Implementation Group (“DIG”) Issue No. C20, “Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature.” DIG Issue No. C20 superseded DIG Issue No. C11 “Interpretation of Clearly and Closely Related in Contracts That Qualify for the Normal Purchases and Normal Sales Exception,” and specified additional circumstances in which a price adjustment feature in a derivative contract would not be an impediment to qualifying for the normal purchases and normal sales scope exception under SFAS No. 133. DIG Issue No. C20 is effective as of the first day of the fiscal quarter beginning after July 10, 2003, (i.e. October 1, 2003, for the Company) with early application permitted. In conjunction with initially applying the implementation guidance, DIG Issue No. C20 requires the recognition of a special transition adjustment for certain contracts containing a price adjustment feature based on a broad market index for which the normal purchases and normal sales scope exception had been previously elected. In those circumstances, the derivative contract should be recognized at fair value as of the date of the initial application with a corresponding adjustment of net income as the cumulative effect of a change in accounting principle. It should then be applied prospectively for all existing contracts as of the effective date and for all future transactions.
      Two of the Company’s power sales contracts, which meet the definition of a derivative and for which it previously elected the normal purchases and normal sales scope exception, use a CPI or similar index to escalate the Operations and Maintenance (“O&M”) charges. Adoption of DIG Issue No. C20 required the Company to recognize a special transition accounting adjustment for the estimated future economic benefits of these contracts. The Company based the transition adjustment on the nature and extent of the key price adjustment features in the contracts and estimated future market conditions on the date of adoption, such as the forward price of power and natural gas and the expected rate of inflation. The Company will realize the actual future economic benefits of these contracts over the remaining lives of these contracts which extend through 2013 and 2023 as actual power deliveries occur, although DIG Issue No. C20 required the Company
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to account for the estimated future economic benefits currently. The Company will amortize the corresponding asset recorded upon adoption of DIG Issue No. C20 through a charge to earnings in future periods. Accordingly on October 1, 2003, the date the Company adopted DIG Issue No. C20, the Company recorded other current assets and other assets of approximately $33.5 million and $259.9 million, respectively, and a cumulative effect of a change in accounting principle of approximately $181.9 million, net of $111.5 million of tax. For all periods subsequent to October 1, 2003, the Company will account for the contracts as normal purchases and sales under the provisions of DIG Issue No. C20.
      In May 2003 the EITF reached consensus in EITF Issue No. 01-08, “Determining Whether an Arrangement Contains a Lease,” to clarify the requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The guidance in the consensus is designed to broaden the scope of arrangements, such as power purchase agreements, accounted for as leases. EITF Issue No. 01-08 requires both parties to an arrangement to determine whether a service contract or similar arrangement is, or includes, a lease within the scope of SFAS No. 13, “Accounting for Leases.” The consensus is being applied prospectively to arrangements agreed to, modified, or acquired in business combinations on or after July 1, 2003. Prior to adopting EITF Issue No. 01-08, the Company had accounted for certain contractual arrangements as leases under existing industry practices, and the adoption of EITF Issue No. 01-08 did not materially change accounting for previous arrangements that had been accounted for as leases prior to the adoption of EITF Issue No. 01-08. Currently the income to the Company under these arrangements is immaterial; however, the Company may, in the future, structure additional power purchase agreements as leases. For income statement presentation purposes, income from arrangements accounted for as leases is classified within electricity and steam revenue in the Company’s consolidated statements of operations.
      During 2003, the Emerging Issues Task Force (“the Task Force”) discussed EITF Issue No. 03-11. In EITF Issue No. 02-3 the Task Force reached a consensus that companies should present all gains and losses on derivative instruments held for trading purposes net in the income statement, whether or not settled physically. EITF Issue No. 03-11 addresses income statement classification of derivative instruments held for other than trading purposes. At the July 31, 2003, EITF meeting, the Task Force reached a consensus that determining whether realized gains and losses on derivative contracts not held for trading purposes’ should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances. The Task Force ratified this consensus at its August 13, 2003 meeting, and it is effective beginning October 1, 2003. The Task Force did not prescribe special effective date or transition guidance for this Issue. The Company determined that under the provisions of EITF Issue No. 03-11, transactions which are not physically settled should be reported net for purposes of the Consolidated Statement of Operations. Accordingly, transactions with either of the following characteristics are presented net in the Company’s financial statements: (1) transactions executed in a back-to-back buy and sale pair, primarily because of market protocols; and (2) physical power purchase and sale transactions where the Company’s power schedulers net the physical flow of the power purchase against the physical flow of the power sale as a matter of scheduling convenience to eliminate the need to schedule actual power delivery or “book out” the physical power flows. These book out transactions may occur with the same counterparty or between different counterparties where the Company has equal but offsetting physical purchase and delivery commitments.
      Based on guidance in EITF Topic No. D-1 “Implications and Implementation of an EITF Consensus” and because EITF Issue No. 03-11 is silent with respect to transition provisions, the Company has adopted EITF No. 03-11 on a prospective basis effective October 1, 2003. While adoption of EITF No. 03-11 had no effect on the Company’s gross profit or net income, it reduced the Company’s 2003 sales of purchased power for hedging and optimization and purchased power expense for hedging and optimization by approximately $256.6 million.
      In 2002 the Company sold certain gas assets, as well as the DePere Energy Center. The decision to sell these assets required the application of one of the newly issued accounting standards, SFAS No. 144, which
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
changed the criteria for determining when the disposal or sale of certain assets meets the definition of “discontinued operations.” Some of our asset sales in 2002 met the requirements of the new definition and accordingly, the Company made reclassifications to current and prior period financial statements to reflect the sale or designation as “held for sale” of certain oil and gas and power plant assets and liabilities and to separately classify the operating results of the assets sold and gain on sale of those assets from the operating results of continuing operations. See Note 10 for further information.
      In April 2002 FASB issued SFAS No. 145. SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt.” The Company elected early adoption, effective July 1, 2002, of the provisions related to the rescission of SFAS No. 4. In December 2001 the Company had recorded an extraordinary gain of $7.4 million, net of tax of $4.5 million, related to the repurchase of $122.0 million Zero Coupons. The extraordinary gain was offset by an extraordinary loss of $1.4 million, net of tax of $0.9 million, related to the write-off of unamortized deferred financing costs in connection with the repayment of $105 million of the 9 1/4% Senior Notes Due 2004 and the bridge facilities. In August 2000 in connection with repayment of outstanding borrowings, the termination of certain credit agreements and the related write-off of deferred financing costs, the Company recorded an extraordinary loss of $1.2 million, net of tax of $0.8 million.
      In October 2002 the EITF discussed EITF Issue No. 02-3. The EITF reached a consensus to rescind EITF Issue No. 98-10, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities,” the impact of which is to preclude mark-to-market accounting for all energy trading contracts not within the scope of SFAS No. 133. The EITF also reached a consensus that gains and losses on derivative instruments within the scope of SFAS No. 133 should be shown net in the income statement if the derivative instruments are held for trading purposes, as defined in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” EITF Issue No. 02-3, had no impact on the Company’s net income but affected the presentation of the Consolidated Financial Statements. Effective July 1, 2002, the Company changed its method of reporting trading revenues to conform to this standard and accordingly, the Company reclassified certain revenue amounts and cost of revenue in its Consolidated Statements of Operations.
      The reclassification of the financial information in accordance with SFAS No. 144, SFAS No. 145 and EITF Issue No. 02-3 discussed above relates exclusively to the presentation and classification of such amounts and had no effect on net income.

3.	Investment in Debt Securities	
      The Company classifies all short-term and long-term debt securities as held-to-maturity because of the intent and ability to hold the securities to maturity. The securities are pledged as collateral to support the King City operating lease and mature serially in amounts equal to a portion of the semi-annual lease payments. The following short-term debt securities are included in Other Current Assets at December 31, 2003 and 2002: 

					
		2003		2002	
					
				Gross		Gross						Gross		Gross			
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair	
		Cost		Gains		Losses		Value		Cost		Gains		Losses		Value	

		(In thousands)	
Corporate Debt Securities	 	$	6,054	 	 	$	125	 	 	$	—	 	 	$	6,179	 	 	$	2,012	 	 	$	38	 	 	$	—	 	 	$	2,050	 	
Government Agency Debt Securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,959	 	 	 	9	 	 	 	—	 	 	 	1,968	 	
U.S. Treasury Securities (non-interest bearing)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,960	 	 	 	81	 	 	 	—	 	 	 	4,041	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Debt Securities	 	$	6,054	 	 	$	125	 	 	$	—	 	 	$	6,179	 	 	$	7,931	 	 	$	128	 	 	$	—	 	 	$	8,059	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The following long-term debt securities are included in Other Assets at December 31, 2003 and 2002:

					
		2003		2002	
					
				Gross		Gross						Gross		Gross			
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair	
		Cost		Gains		Losses		Value		Cost		Gains		Losses		Value	

								(In thousands)							
Corporate Debt Securities	 	$	7,855	 	 	$	441	 	 	$	—	 	 	$	8,296	 	 	$	13,968	 	 	$	939	 	 	$	—	 	 	$	14,907	 	
U.S. Treasury Notes	 	 	1,973	 	 	 	158	 	 	 	—	 	 	 	2,131	 	 	 	1,972	 	 	 	237	 	 	 	—	 	 	 	2,209	 	
U.S. Treasury Securities (non-interest bearing)	 	 	66,700	 	 	 	15,074	 	 	 	—	 	 	 	81,774	 	 	 	62,224	 	 	 	17,068	 	 	 	—	 	 	 	79,292	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Debt Securities	 	$	76,528	 	 	$	15,673	 	 	$	—	 	 	$	92,201	 	 	$	78,164	 	 	$	18,244	 	 	$	—	 	 	$	96,408	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      The contractual maturities of debt securities at December 31, 2003, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 

		Amortized		Fair	
		Cost		Value	

		(In thousands)	
Due within one year	 	$	6,054	 	 	$	6,179	 	
Due after one year through five years	 	 	32,060	 	 	 	35,905	 	
Due after five years through ten years	 	 	26,674	 	 	 	33,022	 	
Due after ten years	 	 	17,794	 	 	 	23,274	 	
 	 	 		 	 	 		 	
 	Total debt securities	 	$	82,582	 	 	$	98,380	 	

		
4.	Property, Plant and Equipment, Net, and Capitalized Interest	
      As of December 31, 2003 and 2002, the components of property, plant and equipment, are stated at cost less accumulated depreciation and depletion as follows (in thousands): 

		2003		2002	
					
Buildings, machinery, and equipment	 	$	13,226,310	 	 	$	10,169,890	 	
Oil and gas properties, including pipelines	 	 	2,136,740	 	 	 	2,027,470	 	
Geothermal properties	 	 	460,602	 	 	 	402,643	 	
Other	 	 	234,932	 	 	 	183,571	 	
 	 	 		 	 	 		 	
 	 	 	16,058,584	 	 	 	12,783,574	 	
Less: Accumulated depreciation and depletion	 	 	(1,834,701	)	 	 	(1,211,902	)	
 	 	 		 	 	 		 	
 	 	 	14,223,883	 	 	 	11,571,672	 	
Land	 	 	95,037	 	 	 	82,158	 	
Construction in progress	 	 	5,762,132	 	 	 	7,077,017	 	
 	 	 		 	 	 		 	
Property, plant and equipment, net	 	$	20,081,052	 	 	$	18,730,847	 	
 	 	 		 	 	 		 	
      Total depreciation and depletion expense for the years ended December 31, 2003, 2002 and 2001 was $600.5 million, $457.0 million and $293.8 million, respectively.
      Buildings, Machinery, and Equipment  — This component includes electric power plants and related equipment. Depreciation is recorded utilizing the straight-line method over the estimated original composite useful life, generally 35 years for baseload power plants, exclusive of the estimated salvage value, typically
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10%. Peaking facilities are generally depreciated over 40 years, less the estimated salvage value of 10%. The Company capitalizes the costs for major gas turbine generator refurbishment and amortizes them over their estimated useful lives of generally 3 to 6 years. The Company expenses annual planned maintenance. Included in buildings, machinery and equipment are assets under capital leases. See Note 12 for more information regarding these assets under capital leases.
      Oil and Gas Properties  — The Company follows the successful efforts method of accounting for oil and natural gas activities. Under the successful efforts method, lease acquisition costs and all development costs are capitalized. Proved oil and gas properties are reviewed for potential impairment when circumstances suggest the need for such a review and, if required, the proved properties are written down to their estimated fair value. Unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value, with any such impairment charged to expense in the period. Exploratory drilling costs are capitalized until the results are determined. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploratory costs are expensed as incurred. Interest costs related to financing major oil and gas projects in progress are capitalized until the projects are evaluated or until the projects are substantially complete and ready for their intended use if the projects are evaluated as successful. The provision for depreciation, depletion, and amortization is based on the capitalized costs as determined above, plus future abandonment costs net of salvage value, using the units of production method with lease acquisition costs amortized over total proved reserves and other costs amortized over proved developed reserves.
      Geothermal Properties  — The Company capitalizes costs incurred in connection with the development of geothermal properties, including costs of drilling wells and overhead directly related to development activities, together with the costs of production equipment, the related facilities and the operating power plants at such time as management determines that it is probable the property will be developed on an economically viable basis and that costs will be recovered from operations. Proceeds from the sale of geothermal properties are applied against capitalized costs, with no gain or loss recognized.
      Geothermal costs, including an estimate of future costs to be incurred, costs to optimize the productivity of the assets, and the estimated costs to dismantle, are amortized by the units of production method based on the estimated total productive output over the estimated useful lives of the related steam fields. Depreciation of the buildings and roads is computed using the straight-line method over their estimated useful lives. It is reasonably possible that the estimate of useful lives, total unit-of-production or total capital costs to be amortized using the units-of-production method could differ materially in the near term from the amounts assumed in arriving at current depreciation expense. These estimates are affected by such factors as the ability of the Company to continue selling electricity to customers at estimated prices, changes in prices of alternative sources of energy such as hydro-generation and gas, and changes in the regulatory environment. Geothermal steam turbine generator refurbishments are expensed as incurred.
      Construction in Progress  — Construction in progress (“CIP”) is primarily attributable to gas-fired power projects under construction including prepayments on gas and steam turbine generators and other long lead-time items of equipment for certain development projects not yet in construction. Upon commencement of plant operation, these costs are transferred to the applicable property category, generally buildings, machinery and equipment.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Capital Spending — Development and Construction	
      Construction and development costs in process consisted of the following at December 31, 2003 (in thousands):

						Equipment		Project			
		# of				Included in		Development		Unassigned	
		Projects		CIP		CIP		Costs		Equipment	
											
Projects in active construction	 	 	14	(1)	 	$	4,538,093	 	 	$	1,572,708	 	 	$	—	 	 	$	—	 	
Projects in advanced development	 	 	12	 	 	 	711,779	 	 	 	599,512	 	 	 	122,248	 	 	 	—	 	
Projects in suspended development	 	 	5	 	 	 	466,350	 	 	 	204,873	 	 	 	8,753	 	 	 	—	 	
Projects in early development	 	 	3	 	 	 	—	 	 	 	—	 	 	 	8,952	 	 	 	—	 	
Other capital projects	 	 	NA	 	 	 	45,910	 	 	 	—	 	 	 	—	 	 	 	—	 	
Unassigned	 	 	NA	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	71,361	 	
 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total construction and development costs	 	 	 	 	 	$	5,762,132	 	 	$	2,377,093	 	 	$	139,953	 	 	$	71,361	 	

		
(1) 	12 gas-fired projects and 2 project expansions. Includes expansion of the Morgan Energy Center, which entered commercial operation in January 2004.	
      Projects in Active Construction  — The 14 projects in active construction are estimated to come on line from January 2004 to June 2007. These projects will bring on line approximately 6,742 MW of base load (8,004 MW base load with peaking capacity). Interest and other costs related to the construction activities necessary to bring these projects to their intended use are being capitalized. At December 31, 2003, the estimated funding requirements to complete these projects, net of expected project financing proceeds, is approximately $1.2 billion.
      Projects in Advanced Development  — There are 12 projects in advanced development. These projects will bring on line approximately 5,709 MW of base load (6,835 MW base load with peaking capacity). Interest and other costs related to the development activities necessary to bring these projects to their intended use are being capitalized. However, the capitalization of interest has been suspended on two projects for which development activities are substantially complete but construction will not commence until a power purchase agreement and financing are obtained. The estimated cost to complete the 12 projects in advanced development is approximately $3.7 billion. The Company’s current plan is to project finance these costs as power purchase agreements are arranged.
      Suspended Development Projects  — Due to current electric market conditions, the Company has ceased capitalization of additional development costs and interest expense on certain development projects on which work has been suspended. Capitalization of costs may recommence as work on these projects resumes, if certain milestones and criteria are met. These projects would bring on line approximately 2,569 MW of base load (3,029 MW base load with peaking capacity). The estimated cost to complete these projects is approximately $1.5 billion.
      Projects in Early Development  — Costs for projects that are in early stages of development are capitalized only when it is highly probable that such costs are ultimately recoverable and significant project milestones are achieved. Until then all costs, including interest costs, are expensed. The projects in early development with capitalized costs relate to 3 projects and include geothermal drilling costs and equipment purchases.
      Other Capital Projects  — Other capital projects primarily consist of enhancements to operating power plants, oil and gas and geothermal resource and facilities development, as well as software developed for internal use.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Unassigned Equipment  — As of December 31, 2003, the Company had made progress payments on 4 turbines, 1 heat recovery steam generator and other equipment with an aggregate carrying value of $71.4 million. This unassigned equipment is classified on the balance sheet as other assets because it is not assigned to specific development and construction projects. The Company is holding this equipment for potential use on future projects. It is possible that some of this unassigned equipment may eventually be sold, potentially in combination with the Company’s engineering and construction services. For equipment that is not assigned to development or construction projects, interest is not capitalized.
      Capitalized Interest  — The Company capitalizes interest on capital invested in projects during the advanced stages of development and the construction period in accordance with SFAS No. 34, “Capitalization of Interest Cost,” as amended by SFAS No. 58, “Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method (an Amendment of FASB Statement No. 34).” The Company’s qualifying assets include construction in progress, certain oil and gas properties under development, construction costs related to unconsolidated investments in power projects under construction, and advanced stage development costs. For the years ended December 31, 2003, 2002 and 2001, the total amount of interest capitalized was $444.5 million, $575.5 million and $498.7 million, including $66.0 million, $114.2 million and $136.0 million, respectively, of interest incurred on funds borrowed for specific construction projects and $378.5 million, $461.3 million and $362.7 million, respectively of interest incurred on general corporate funds used for construction. Upon commencement of plant operation, capitalized interest, as a component of the total cost of the plant, is amortized over the estimated useful life of the plant. The decrease in the amount of interest capitalized during the year ended December 31, 2003 reflects the completion of construction for several power plants and the result of the suspension of certain of the Company’s development projects.
      In accordance with SFAS No. 34, the Company determines which debt instruments best represent a reasonable measure of the cost of financing construction assets in terms of interest cost incurred that otherwise could have been avoided. These debt instruments and associated interest cost are included in the calculation of the weighted average interest rate used for capitalizing interest on general funds. The primary debt instruments included in the rate calculation of interest incurred on general corporate funds are the Company’s Senior Notes, the Company’s term loan facilities and the secured working capital revolving credit facility.
      Impairment Evaluation  — All construction and development projects and unassigned turbines are reviewed for impairment whenever there is an indication of potential reduction in fair value. Equipment assigned to such projects is not evaluated for impairment separately, as it is integral to the assumed future operations of the project to which it is assigned. If it is determined that it is no longer probable that the projects will be completed and all capitalized costs recovered through future operations, the carrying values of the projects would be written down to the recoverable value in accordance with the provisions of SFAS No. 144. The Company reviews its unassigned equipment for potential impairment based on probability-weighted alternatives of utilizing the equipment for future projects versus selling the equipment. Utilizing this methodology, the Company does not believe that the equipment not committed to sale is impaired. However, during the year ended December 31 2003, the Company recorded approximately $27.4 million in losses in connection with the sale of four turbines, and it may incur further losses should it decide to sell more unassigned equipment in the future.

5.	Goodwill and Other Intangible Assets	
      On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that all intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather tested upon adoption and at least annually for impairment. The Company was required to complete the initial step of a transitional impairment test within six months of adoption of SFAS No. 142 and to complete the final step of the transitional impairment test by
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the end of the fiscal year. Any future impairment losses will be reflected in operating income or loss in the consolidated statements of operations. The Company completed both the transitional goodwill impairment test and the first annual goodwill impairment test as required and determined that the fair value of the reporting units with goodwill exceeded their net carrying values. Therefore, the Company did not record any impairment expense.
      In accordance with the standard, the Company discontinued the amortization of its recorded goodwill as of January 1, 2002, identified reporting units based on its current segment reporting structure and allocated all recorded goodwill, as well as other assets and liabilities, to the reporting units. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization is provided below (in thousands, except per share amounts): 

		2003		2002		2001	
							
Reported income before discontinued operations and cumulative effect of accounting changes	 	$	109,753	 	 	$	53,690	 	 	$	582,966	 	
 	Add: Goodwill amortization	 	 	—	 	 	 	—	 	 	 	629	 	
 	 	 		 	 	 		 	 	 		 	
Pro forma income before discontinued operations and cumulative effect of accounting changes	 	 	109,753	 	 	 	53,690	 	 	 	583,595	 	
Discontinued operations and cumulative effect of accounting changes, net of tax	 	 	172,269	 	 	 	64,928	 	 	 	40,526	 	
 	 	 		 	 	 		 	 	 		 	
 	Pro forma net income	 	$	282,022	 	 	$	118,618	 	 	$	624,121	 	
 	 	 		 	 	 		 	 	 		 	
Basic earnings per share	 	 	 	 	 	 	 	 	 	 	 	 	
 	As reported	 	$	0.72	 	 	$	0.33	 	 	$	2.05	 	
 	Pro forma	 	 	0.72	 	 	 	0.33	 	 	 	2.06	 	
Diluted earnings per share	 	 	 	 	 	 	 	 	 	 	 	 	
 	As reported	 	$	0.71	 	 	$	0.33	 	 	$	1.80	 	
 	Pro forma	 	 	0.71	 	 	 	0.33	 	 	 	1.80	 	
      Recorded goodwill, by segment, as of December 31, 2003 and 2002, was (in thousands): 

		2003		2002	
					
Electric Generation and Marketing	 	$	—	 	 	$	—	 	
Oil and Gas Production and Marketing	 	 	—	 	 	 	—	 	
Corporate, Other and Eliminations	 	 	45,160	 	 	 	29,165	 	
 	 	 		 	 	 		 	
 	Total	 	$	45,160	 	 	$	29,165	 	
 	 	 		 	 	 		 	
      The increase in goodwill of $16.0 million during 2003 is due to the acceleration of payments that the Company originally paid annually as a contingency payment based on certain performance incentives met by PSM under the terms of the PSM purchase agreement. The Company reached a conclusion that the objective of the contingency had been fully realized by PSM, thus, accelerating to 2003 the recording of goodwill to include all future payments due. These payments will continue to be made in accordance with the original schedule. Subsequent goodwill impairment tests will be performed, at a minimum, in December of each year, in conjunction with the Company’s annual reporting process.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The Company also reassessed the useful lives and the classification of its identifiable intangible assets and determined that they continue to be appropriate. The components of the amortizable intangible assets consist of the following (in thousands):

							
		Weighted		As of December 31, 2003		As of December 31, 2002	
		Average					
		Useful Life/		Carrying		Accumulated		Carrying		Accumulated	
		Contract Life		Amount(1)		Amortization(1)		Amount(1)		Amortization(1)	
											
Patents	 	 	5	 	 	$	485	 	 	$	(320	)	 	$	485	 	 	$	(231	)	
Power sales agreements	 	 	22	 	 	 	92,947	 	 	 	(46,165	)	 	 	92,947	 	 	 	(42,360	)	
Fuel supply and fuel management contracts	 	 	26	 	 	 	22,198	 	 	 	(4,991	)	 	 	22,198	 	 	 	(4,105	)	
Geothermal lease rights	 	 	20	 	 	 	19,518	 	 	 	(450	)	 	 	19,518	 	 	 	(350	)	
Steam purchase agreement	 	 	14	 	 	 	5,766	 	 	 	(944	)	 	 	5,201	 	 	 	(486	)	
Other	 	 	5	 	 	 	2,088	 	 	 	(208	)	 	 	320	 	 	 	(71	)	
 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	 	 	 	$	143,002	 	 	$	(53,078	)	 	$	140,669	 	 	$	(47,603	)	

		
(1) 	Fully amortized intangible assets are not included.	
      Amortization expense of other intangible assets was $5.3 million, $21.5 million and $23.9 million, in 2003, 2002 and 2001, respectively. Assuming no future impairments of these assets or additions as the result of acquisitions, annual amortization expense will be $4.9 million in 2004, $4.9 million in 2005, $4.8 million in 2006, $4.8 million in 2007, and $4.8 million in 2008.

6.	Acquisitions	
      The Company seeks to acquire power generating facilities and certain oil and gas properties that provide significant potential for revenue, cash flow and earnings growth, and that provide the opportunity to enhance the operating efficiency of its plants. Acquisition activity is dependent on the availability of financing on attractive terms and the expectation of returns that meets the Company’s long-term requirements. The following material mergers and acquisitions were consummated during the years ended December 31, 2003 and 2001. There were no mergers or acquisitions consummated during the year ended December 31, 2002. All business combinations were accounted for as purchases, with the exception of the Encal pooling-of-interests transaction. For all business combinations accounted for as purchases, the results of operations of the acquired companies were incorporated into the Company’s Consolidated Financial Statements commencing on the date of acquisition.
2003 Acquisitions

	Thomassen Turbine Systems Transaction	
      On February 26, 2003, the Company, through its wholly owned subsidiary, Calpine European Finance, purchased 100% of the outstanding stock of Babcock Borsig Power Turbine Services (“BBPTS”) from its parent company, Babcock Borsig. Immediately following the acquisition, the BBPTS name was changed to Thomassen Turbine Systems (“TTS”). The Company’s total cost of the acquisition was $12.0 million and was comprised of two pieces. The first was a $7.0 million cash payment to Babcock Borsig to acquire the outstanding stock of TTS. Included in this payment was the right to a note receivable valued at 11.9 million Euro (approximately US$12.9 million on the acquisition date) due from TTS, which the Company acquired from Babcock Borsig for $1. Additionally, as of the date of the acquisition, TTS owed $5.0 million in payments to another of the Company’s wholly owned subsidiaries, PSM, under a pre-existing license agreement.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Because of the acquisition, TTS ceased to exist as a third party debtor to the Company, thereby resulting in a reduction of third party receivables of $5.0 million from the Company’s consolidated perspective.
2001 Acquisitions

	Encal Transaction	
      On April 19, 2001, the Company completed its merger with Encal, a Calgary, Alberta-based natural gas and petroleum exploration and development company. Encal shareholders received, in exchange for each share of Encal common stock, 0.1493 shares of Calpine common equivalent shares (called “exchangeable shares”) of the Company’s subsidiary, Calpine Canada Holdings Ltd. A total of 16,603,633 exchangeable shares were issued to Encal shareholders in exchange for all of the outstanding shares of Encal common stock. Each exchangeable share is exchangeable for one share of Calpine common stock. The aggregate value of the transaction was approximately US$1.1 billion, including the assumed indebtedness of Encal. The transaction was accounted for as a pooling-of-interests and, accordingly, all historical amounts reflected in the Consolidated Financial Statements have been restated to reflect the transaction in accordance with APB Opinion No. 16, “Business Combinations” (“APB 16”). Encal operated under the same fiscal year end as Calpine, and accordingly, Encal’s balance sheet as of December 31, 2000, and the statements of operations, shareholders’ equity and cash flows for the fiscal year ended December 31, 2000, have been combined with the Company’s Consolidated Financial Statements. The Company incurred $41.6 million in nonrecurring merger costs for this transaction. Upon completion of the acquisition, the Company gained approximately 664 billion cubic feet equivalent of proved natural gas reserves, net of royalties. This transaction also provided access to firm gas transportation capacity from western Canada to California and the eastern U.S., and an accomplished management team capable of leading the Company’s business expansion in Canada. In addition, Encal had proved undeveloped acreage totaling approximately 1.2 million acres.

	Saltend Transaction	
      On August 24, 2001, the Company acquired a 100% interest in and assumed operations of the Saltend Energy Centre (“Saltend”), a 1,200-megawatt natural gas-fired power plant located at Saltend near Hull, Yorkshire, England. The Company purchased the cogeneration facility from an affiliate of Entergy Corporation for £560.4 million (US$811.3 million at exchange rates at the closing of the acquisition). Saltend began commercial operation in November 2000 and is one of the largest natural gas-fired electric power generating facilities in England.

	Hog Bayou and Pine Bluff Transactions	
      On September 12, 2001, the Company purchased the remaining 33.3% interests in the 247-megawatt Hog Bayou Energy Center (“Hog Bayou”) and the 213-megawatt Pine Bluff Energy Center (“Pine Bluff”) from Houston, Texas-based InterGen (North America), Inc. for approximately $9.6 million and $1.4 million of a forgiven note receivable.

	Westcoast Transaction	
      On September 20, 2001, the Company’s wholly owned subsidiary, Canada Power Holdings Ltd., acquired and assumed operations of two Canadian power generating facilities from British Columbia-based Westcoast Energy Inc. (“Westcoast”) for C$325.2 million (US$207.0 million at exchange rates at the closing of the acquisition). The Company acquired a 100% interest in the Island Cogeneration facility (“Island”), a 250-megawatt natural gas-fired electric generating facility then in the commissioning phase of construction and located near Campbell River, British Columbia on Vancouver Island. The Company also acquired a 50% interest in the 50-megawatt Whitby Cogeneration facility (“Whitby”) located in Whitby, Ontario.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	California Energy General Corporation and CE Newburry, Inc. Transaction	
      On October 16, 2001, the Company acquired 100% of the voting stock of California Energy General Corporation (“California Energy”) and CE Newburry, Inc. (“CE Newburry”) from MidAmerican Energy Holdings Company for $22.0 million. The transaction included geothermal resource assets, contracts, leases and development opportunities associated with the Glass Mountain Known Geothermal Resource Area (“Glass Mountain KGRA”) located in Siskiyou County, California, approximately 30 miles south of the Oregon border. These purchases were directly related to the Company’s plans to develop the 49.5-megawatt Fourmile Hill Geothermal Project located in the Glass Mountain KGRA.

	Michael Petroleum Transaction	
      On October 22, 2001, the Company completed the acquisition of 100% of the voting stock of Michael Petroleum Corporation (“Michael”), a natural gas exploration and production company, for cash of $314.0 million, plus the assumption of $54.5 million of debt. The acquired assets consisted of approximately 531 wells, producing approximately 33.5 net million cubic feet equivalent (“MMcfe”)/day of which 90 percent is gas, and developed and non-developed acreage totaling approximately 82,590 net acres at year end.

	Delta, Metcalf and Russell City Transactions	
      On November 6, 2001, the Company acquired Bechtel Enterprises Holdings, Inc.’s 50% interest in the 874-megawatt Delta Energy Center (“Delta”), the 600-megawatt Metcalf Energy Center (“Metcalf”) and the 600-megawatt Russell City Energy Center (“Russell City”) for approximately $154.0 million and the assumption of approximately $141.0 million of debt. As a result of this acquisition, the Company now owns a 100% interest in all three projects.
      The initial purchase price allocation for all material business combinations initiated after June 30, 2001, the effective date of SFAS No. 141, is shown below. As of December 31, 2001, the Company had not finalized the purchase price allocation for Saltend, Michael, or Westcoast. The allocations for the three acquisitions were subsequently completed during 2002, and the final allocations and the allocations as reported at December 31, 2001, are shown below (in thousands):

	Final Purchase Price Allocation	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
				Michael			
		Saltend		Petroleum		Westcoast	
							
Current assets	 	$	16,725	 	 	$	5,970	 	 	$	14,390	 	
Property, plant and equipment	 	 	908,204	 	 	 	532,145	 	 	 	200,514	 	
Other assets	 	 	9,523	 	 	 	—	 	 	 	—	 	
Investments in power plants	 	 	—	 	 	 	—	 	 	 	26,000	 	
Current liabilities	 	 	(21,900	)	 	 	(16,852	)	 	 	(7,932	)	
Derivative liability	 	 	—	 	 	 	(1,862	)	 	 	—	 	
Notes payable	 	 	—	 	 	 	(54,500	)	 	 	—	 	
Other long-term liability	 	 	(8,045	)	 	 	—	 	 	 	—	 	
Deferred tax liabilities, net	 	 	(93,230	)	 	 	(150,944	)	 	 	(25,947	)	
 	 	 		 	 	 		 	 	 		 	
 	Net purchase price	 	$	811,277	 	 	$	313,957	 	 	$	207,025	 	
 	 	 		 	 	 		 	 	 		 	
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Initial Purchase Price Allocation

				Michael			
		Saltend		Petroleum		Westcoast	
							
Current assets	 	$	27,363	 	 	$	5,970	 	 	$	4,468	 	
Property, plant and equipment	 	 	906,801	 	 	 	535,007	 	 	 	212,902	 	
Other assets	 	 	1,478	 	 	 	—	 	 	 	—	 	
Investments in power plants	 	 	—	 	 	 	—	 	 	 	25,907	 	
Current liabilities	 	 	(21,900	)	 	 	(16,852	)	 	 	(6,802	)	
Derivative liability	 	 	—	 	 	 	(1,862	)	 	 	—	 	
Notes payable	 	 	—	 	 	 	(54,500	)	 	 	—	 	
Deferred tax liabilities, net	 	 	(95,671	)	 	 	(151,946	)	 	 	(24,408	)	
 	 	 		 	 	 		 	 	 		 	
 	Net purchase price	 	$	818,071	 	 	$	315,817	 	 	$	212,067	 	
 	 	 		 	 	 		 	 	 		 	
      The $6.8 million decrease in the net purchase price of Saltend occurred primarily due to a $10.1 million working capital adjustment that was paid to the Company during 2002. This reduction was partially offset by a $4.0 million adjustment to reflect a previously unrecorded insurance recovery receivable held by Saltend as a result of liquidated damages Saltend owed for delays in achieving commercial operations during 2000.
      The $5.0 million decrease in the net purchase price of Westcoast occurred primarily due to a performance adjustment payment to the Company to compensate for certain plant specifications that were not met of $3.4 million and a $4.2 million compensation payment for the loss of certain tax pools that were previously represented to be held by Westcoast and were used in part to help determine the original purchase price. Both amounts were paid to the Company during 2002. These reductions were partially offset by a working capital adjustment of $2.4 million that the Company paid during 2002.

	Pro Forma Effects of Acquisitions	
      Acquired subsidiaries are consolidated upon closing date of the acquisition. The table below reflects the Company’s unaudited pro forma combined results of operations for all business combinations during 2003 and 2001, as if the acquisitions had taken place at the beginning of fiscal year 2001. The Company’s combined results include the effects of Saltend, Hog Bayou, Pine Bluff, Island, Whitby, California Energy, CE Newburry, Michael, Highland, Delta, Metcalf, Russell City and TTS (in thousands, except per share amounts): 

		2003		2002		2001	
							
Total revenue	 	$	8,923,142	 	 	$	7,424,325	 	 	$	6,966,170	 	
Income before discontinued operations and cumulative effect of accounting changes	 	$	110,392	 	 	$	54,226	 	 	$	585,308	 	
Net income	 	$	282,661	 	 	$	119,154	 	 	$	625,834	 	
Net income per basic share	 	$	0.72	 	 	$	0.34	 	 	$	2.06	 	
Net income per diluted share	 	$	0.71	 	 	$	0.33	 	 	$	1.81	 	
      In management’s opinion, these unaudited pro forma amounts are not necessarily indicative of what the actual combined results of operations might have been if the 2001 acquisitions had been effective at the beginning of fiscal year 2001. In addition, they are not intended to be a projection of future results and do not reflect all the synergies that might be achieved from combined operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.	Investments in Power Projects and Oil and Gas Properties	
      The Company’s investments in power projects and oil and gas properties are integral to its operations. In accordance with APB Opinion No. 18, “The Equity Method of Accounting For Investments in Common Stock” and FASB Interpretation No. 35, “Criteria for Applying the Equity Method of Accounting for Investments in Common Stock (An Interpretation of APB Opinion No. 18),” these following investments are accounted for under the equity method (in thousands): 

					
				Investment	
		Ownership		Balance at	
		Interest as of		December 31,	
		December 31,			
		2003		2003		2002	
							
Acadia Energy Center(1)	 	 	50.0	%	 	$	221,038	 	 	$	282,634	 	
Valladolid III IPP(2)	 	 	45.0	%	 	 	67,320	 	 	 	—	 	
Aries Power Plant	 	 	50.0	%	 	 	58,205	 	 	 	30,936	 	
Grays Ferry Power Plant	 	 	40.0	%	 	 	53,272	 	 	 	42,322	 	
Whitby Cogeneration	 	 	20.8	%	 	 	31,033	 	 	 	33,502	 	
Calpine Natural Gas Trust(4)	 	 	25.0	%	 	 	28,598	 	 	 	—	 	
Androscoggin Power Plant	 	 	32.3	%	 	 	11,823	 	 	 	9,383	 	
Gordonsville Power Plant(3)	 	 	—	 	 	 	22	 	 	 	20,892	 	
Other	 	 	—	 	 	 	1,438	 	 	 	1,733	 	
 	 	 	 	 	 	 		 	 	 		 	
 	Total investments in power projects and oil and gas properties	 	 	 	 	 	$	472,749	 	 	$	421,402	 	

		
(1) 	On May 12, 2003, the Company completed the restructuring of its interest in Acadia. As part of the transaction, the partnership terminated its 580-MW, 20-year tolling arrangement with a subsidiary of Aquila, Inc. in return for a cash payment of $105.5 million. Acadia recorded a gain of $105.5 million and then made a $105.5 million distribution to Calpine. Contemporaneously, CES, a wholly owned subsidiary of Calpine, entered into a new 20-year, 580-MW tolling contract with Acadia. CES will now market all of the output from the Acadia Power Project under the terms of this new contract and an existing 20-year tolling agreement. Cleco will receive priority cash distributions as its consideration for the restructuring. As a result of this transaction, the Company recorded, as its share of the termination payment from the Aquila subsidiary, a $52.8 million gain, which was recorded within income from unconsolidated investments in power projects and oil and gas properties. Due to the restructuring of its interest in Acadia, the Company was required to reconsider its investment in the entity under FIN 46 and determined that it is not the Primary Beneficiary and accordingly will continue to account for its investment using the equity method. See Note 2 for further information.	
 		
(2) 	See Note 8 for a discussion of the Valladolid project.	
 		
(3) 	On November 26, 2003, the Company completed the sale of its 50 percent interest in the Gordonsville Power Plant. Under the terms of the transaction, the Company received $36.2 million in cash and recorded a pre-tax gain of $7.1 million. The residual investment balance in Gordonsville at December 31, 2003, is a result of third party outstanding receivables that are expected to be collected early in 2004.	
 		
(4) 	See Note 9 for information on the Calpine Natural Gas Trust.	
      On March 29, 2002, the Company sold its 11.4% interest in the Lockport Power Plant in exchange for a $27.3 million note receivable, which was subsequently paid in full, from Fortistar Tuscarora LLC, a wholly owned subsidiary of Fortistar LLC, the project’s managing general partner. As a result, the Company did not have an investment balance at December 31, 2003 or 2002, and a pre-tax gain of $9.7 million was recorded in other income during the first quarter of 2002.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The combined unaudited results of operations and financial position of the Company’s equity method affiliates are summarized below (in thousands):

			
		December 31,	
			
		2003		2002		2001	
							
Condensed statements of operations:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Revenue	 	$	427,961	 	 	$	372,212	 	 	$	401,452	 	
 	Gross profit	 	 	149,423	 	 	 	151,784	 	 	 	148,476	 	
 	Income from continuing operations	 	 	126,590	 	 	 	132,911	 	 	 	102,904	 	
 	Net income	 	 	175,892	 	 	 	70,596	 	 	 	87,003	 	
Condensed balance sheets:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Current assets	 	$	98,035	 	 	$	133,801	 	 	 	 	 	
 	Non-current assets	 	 	1,687,612	 	 	 	1,740,056	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	
 	Total assets	 	$	1,785,647	 	 	$	1,873,857	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	
 	Current liabilities	 	$	118,278	 	 	$	132,516	 	 	 	 	 	
 	Non-current liabilities	 	 	731,428	 	 	 	946,383	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	
 	Total liabilities	 	$	849,706	 	 	$	1,078,899	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	
      The debt on the books of the unconsolidated power projects is not reflected on the Company’s balance sheet. At December 31, 2003, investee debt is approximately $455.9 million. Based on the Company’s pro rata ownership share of each of the investments, the Company’s share would be approximately $145.0 million. However, all such debt is non-recourse to the Company.
      The Company owns a 32.3% interest in the unconsolidated equity method investee Androscoggin Energy LLC (“AELLC”). AELLC owns the 160-MW Androscoggin Energy Center located in Maine and has construction debt of $60.8 million outstanding as of December 31, 2003. The debt is non-recourse to Calpine Corporation (the “AELLC Non-Recourse Financing”). On December 31, 2003, the Company’s investment balance was $11.8 million and its notes receivable balance due from AELLC was $13.3 million. On and after August 8, 2003, AELLC received letters from the lenders claiming that certain events of default have occurred under the credit agreement for the AELLC Non-Recourse Financing, including, among other things, that the project has been and remains in default under its debt agreement because the lending syndication had declined to extend the dates for the conversion of the construction loan to a term loan by a certain date. AELLC disputes the purported defaults. Also, the steam host for the AELLC project, International Paper Company (“IP”), filed a complaint against AELLC in October 2000, which is disclosed in Note 24. IP’s complaint has been a complicating factor in converting the construction debt to long term financing. As a result of these events, the Company has reviewed its investment and notes receivable balances and believes that the assets are not impaired. The Company further believes that AELLC will be able to convert the construction loan to a term loan.
      The Company also owns a 50% interest in the unconsolidated equity method investee Merchant Energy Partners Pleasant Hill, LLC (“Aries”). Currently, the Company is finalizing the purchase of the 50% interest in Aries that is held by Aquila, Inc. Following the purchase, the Company will have a 100% interest in Aries. Aries owns the 591-MW Aries Power Project located in Pleasant Hill, Missouri, and has construction debt of $190.0 million as of December 31, 2003, that was due but unpaid on June 26, 2003. Due to this payment default, the partners were required to contribute their proportionate share of $75 million in additional equity. During the second quarter of 2003, the Company drew down $37.5 million under its working capital revolver to fund its equity contribution. In conjunction with the Aquila buyout negotiations, the Company is in negotiation with the lenders on a term loan for the project. The project is technically in default of its debt
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
agreement until the new term loan is completed. The Company believes that the project will be able to obtain long-term project financing at commercially reasonable terms. As a result of this event, the Company has reviewed its $58.2 million investment in the Aries project and believes that the investment is not impaired.
      The following details the Company’s income and distributions from investments in unconsolidated power projects and oil and gas properties (in thousands): 

									
		Income (loss) from Unconsolidated							
		Investments in Power Projects and			
		Oil and Gas Properties		Distributions	

		For the Years Ended December 31,	
			
		2003		2002		2001		2003		2002		2001	
													
Acadia Energy Center	 	$	75,272	 	 	$	14,590	 	 	$	—	 	 	$	136,977	 	 	$	11,969	 	 	$	—	 	
Aries Power Plant	 	 	(3,442	)	 	 	(43	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Grays Ferry Power Plant	 	 	(1,380	)	 	 	(1,499	)	 	 	594	 	 	 	—	 	 	 	—	 	 	 	—	 	
Whitby Cogeneration	 	 	303	 	 	 	411	 	 	 	684	 	 	 	—	 	 	 	—	 	 	 	637	 	
Calpine Natural Gas Trust	 	 	898	 	 	 	—	 	 	 	—	 	 	 	1,959	 	 	 	—	 	 	 	—	 	
Androscoggin Power Plant	 	 	(7,478	)	 	 	(3,951	)	 	 	(846	)	 	 	—	 	 	 	 	 	 	 	—	 	
Gordonsville Power Plant	 	 	11,985	 	 	 	5,763	 	 	 	4,453	 	 	 	2,672	 	 	 	2,125	 	 	 	825	 	
Lockport Power Plant	 	 	—	 	 	 	1,570	 	 	 	5,562	 	 	 	—	 	 	 	—	 	 	 	4,351	 	
Other	 	 	80	 	 	 	(351	)	 	 	(293	)	 	 	19	 	 	 	23	 	 	 	170	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	$	76,238	 	 	$	16,490	 	 	$	10,154	 	 	$	141,627	 	 	$	14,117	 	 	$	5,983	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Interest income on loans to power projects(1)	 	$	465	 	 	$	62	 	 	$	6,792	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total	 	$	76,703	 	 	$	16,552	 	 	$	16,946	 	 	 	 	 	 	 	 	 	 	 	 	 	

The Company provides for deferred taxes to the extent that distributions exceed earnings.

		
(1) 	At December 31, 2003 and 2002, loans to power projects represented an outstanding loan to the Company’s 32.3% owned investment, Androscoggin Energy Center LLC, in the amounts of $13.3 million and $3.1 million, respectively.	
      In the fourth quarter of 2002 income from unconsolidated investments was reclassified out of total revenue and is now presented as a component of other income from operations. Prior periods have also been reclassified accordingly.

	Related-Party Transactions	
      The Company and certain of its equity method affiliates have entered into various service agreements with respect to power projects and oil and gas properties. Following is a general description of each of the various agreements:

		
 	      Operation and Maintenance Agreements  — The Company operates and maintains the Acadia Power Plant and Androscoggin Power Plant. This includes routine maintenance, but not major maintenance, which is typically performed under agreements with the equipment manufacturers. Responsibilities include development of annual budgets and operating plans. Payments include reimbursement of costs, including Calpine’s internal personnel and other costs, and annual fixed fees.	
 		
 	      Administrative Services Agreements  — The Company handles administrative matters such as bookkeeping for certain unconsolidated investments. Payment is on a cost reimbursement basis, including Calpine’s internal costs, with no additional fee.	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
 	      Power Marketing Agreements  — Under agreements with Androscoggin Power Plant, CES can either market the plant’s power as the power facility’s agent or buy the power directly. Terms of any direct purchase are to be agreed upon at the time and incorporated into a transaction confirmation. Historically, CES has generally bought the power from the power facility rather than acting as its agent.	
 		
 	      Gas Supply Agreement  — CES can be directed to supply gas to the Androscoggin Power Plant facility pursuant to transaction confirmations between the facility and CES. Contract terms are reflected in individual transaction confirmations.	
      The power marketing and gas supply contracts with CES are accounted for as either purchase and sale arrangements or as tolling arrangements. In a purchase and sale arrangement, title and risk of loss associated with the purchase of gas is transferred from CES to the project at the gas delivery point. In a tolling arrangement, title to fuel provided to the project does not transfer, and CES pays the project a capacity and a variable fee based on the specific terms of the power marketing and gas supply agreements. In addition to the contracts specified above, CES maintains two tolling agreements with the Acadia facility. CPN Pleasant Hill LLC, a wholly owned subsidiary of Calpine, maintains two other tolling agreements with the Aries facility.
      All of the other power marketing and gas supply contracts are accounted for as purchases and sales.
      The related party balances as of December 31, 2003 and 2002, reflected in the accompanying consolidated balance sheets, and the related party transactions for the years ended December 31, 2003, 2002 and 2001, reflected in the accompanying consolidated statements of operations are summarized as follows (in thousands): 

		2003		2002			
							
As of December 31,	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	 	$	1,156	 	 	$	735	 	 	 	 	 	
Accounts payable	 	 	12,172	 	 	 	4,088	 	 	 	 	 	
Interest receivable	 	 	2,074	 	 	 	956	 	 	 	 	 	
Note Receivable	 	 	13,262	 	 	 	3,062	 	 	 	 	 	
Other receivables	 	 	8,794	 	 	 	6,002	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
		2003		2002		2001	
							
For the Years Ended December 31,	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	2,878	 	 	$	4,291	 	 	$	—	 	
Cost of Revenue	 	 	82,205	 	 	 	36,290	 	 	 	6,030	 	
Maintenance fee revenue	 	 	615	 	 	 	438	 	 	 	43	 	
Interest income	 	 	1,117	 	 	 	132	 	 	 	203	 	

8.	Notes Receivable	
      The long-term notes receivable are recorded by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. The Company intends to hold these notes to maturity.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      As of December 31, 2003, and 2002, the components of notes receivable were (in thousands):

		2003		2002	
					
PG&E (Gilroy) note	 	$	155,901	 	 	$	163,584	 	
Panda note	 	 	38,644	 	 	 	30,818	 	
Androscoggin note	 	 	13,262	 	 	 	3,062	 	
Mitsui & Co., Ltd.	 	 	8,779	 	 	 	—	 	
Other	 	 	8,506	 	 	 	6,493	 	
 	 	 		 	 	 		 	
 	Total notes receivable	 	 	225,092	 	 	 	203,957	 	
Less: Notes receivable, current portion	 	 	(11,463	)	 	 	(8,559	)	
 	 	 		 	 	 		 	
Notes receivable, net of current portion	 	$	213,629	 	 	$	195,398	 	
 	 	 		 	 	 		 	
      Calpine Gilroy Cogen, LP (“Gilroy”) had a long-term power purchase agreement (“PPA”) with Pacific Gas and Electric Company (“PG&E”) for the sale of energy through 2018. The terms of the PPA provided for 120 megawatts of firm capacity and up to 10 megawatts of as-delivered capacity. On December 2, 1999, the California Public Utilities Commission (“CPUC”) approved the restructuring of the PPA between Gilroy and PG&E. Under the terms of the restructuring, PG&E and Gilroy were each released from performance under the PPA effective November 1, 2002. Under the restructured contract, in addition to the normal capacity revenue for the period, Gilroy had earned from September 1999 to October 2002 restructured capacity revenue it would have earned over the November 2002 through March 2018 time period, for which PG&E had issued notes to the Company. These notes are scheduled to be paid by PG&E during the period from February 2003 to September 2014. The first scheduled note repayment of $1.7 million was received in February 2003.
      On December 4, 2003, the Company announced that it had sold to a group of institutional investors its right to receive payments from PG&E under the Agreement between PG&E and Calpine Gilroy Cogen, L.P (“Gilroy”), a California Limited Partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement, executed by PG&E on July 1, 1999 (the “Gilroy Receivable”) for $133.4 million in cash. Because the transaction did not satisfy the criteria for sales treatment under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125,” it is reflected in the Consolidated Financial Statements as a secured financing, with a note payable of $133.4 million. The receivable balance and note payable balance are both reduced as PG&E makes payments to the buyer of the Gilroy Receivable. The $24.1 million difference between the $157.5 million book value of the Gilroy Receivable at the transaction date and the cash received will be recognized as additional interest expense over the repayment term. The Company will continue to book interest income over the repayment term and interest expense will be accreted on the amortizing note payable balance.
      Pursuant to the applicable transaction agreements, each of Gilroy and Calpine Gilroy 1, Inc., the general partner of Gilroy, has been established as an entity with its existence separate from the Company and other subsidiaries of the Company. The Company consolidates these entities.
      In June 2000 the Company entered into a series of turbine sale contracts with, and acquired the development rights to construct, own and operate the Oneta Energy Center (“Oneta”) from, Panda Energy International, Inc. and certain related entities. As part of the transaction, the Company extended PLC II, LLC (“PLC”) a loan bearing an interest rate of LIBOR plus 5%. The loan is collateralized by PLC’s carried
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
interest in the income generated from Oneta, which achieved full commercial operations in June 2003. Additionally, Panda Energy International, Inc. executed a parental Guaranty as to the loan.
      On November 5, 2003, Panda Energy International, Inc. and certain related parties, including PLC, (collectively “Panda”) filed suit against the Company and certain of its affiliates alleging, among other things, that the Company breached duties of care and loyalty allegedly owed to Panda by failing to correctly construct and operate Oneta in accordance with Panda’s original plans. Panda alleges that it is entitled to a portion of the profits from Oneta and that the Company’s actions have reduced the profits from Oneta, thereby undermining Panda’s ability to repay monies owed to the Company under the loan. The Company has filed a counterclaim against Panda Energy International, Inc. (and PLC) based on a Guaranty, and has also filed a motion to dismiss as to the causes of action alleging federal and state securities laws violations. The Company considers Panda’s lawsuit to be without merit and intends to defend vigorously against it.
      Panda defaulted on the loan, which was due on December 1, 2003. Because of the Guaranty and the collateral, a reserve is not needed as of December 31, 2003. However, the Company ceased accruing interest after the default date and will closely monitor the receivable until the resolution of the litigation.
      The Company owns a 32.3% interest in the unconsolidated equity method investee Androscoggin Energy LLC (“AELLC”). AELLC owns the 160-MW Androscoggin Energy Center located in Maine. On December 31, 2003, the Company’s notes receivable balance due from AELLC related to unreimbursed administrative costs associated with the Company’s management of the project was $13.3 million. See Note 7 for more information on the Company’s interest in AELLC.
      In December 2003 the Company contributed two gas turbines with a book value of approximately $76.0 million in exchange for a 45% interest in the Valladolid Joint Venture project with Mitsui & Co., Ltd (“Mitsui”) in Mexico. The Company recorded its interest in the project at a value of $67.0 million, which reflects the cost of the turbines less an $9.0 million note receivable that was booked upon transfer of the turbines, representing a return of capital. Subsequently, Mitsui assumed the note receivable from the project and received additional equity in the project. The Company’s capital account on the project’s books reflects a balance of approximately $36 million. The Company’s investment in and notes receivable from Mitsui exceed its share of the underlying equity by $31 million, which will be amortized as an adjustment to the Company’s share of the project’s net income over the depreciable life of the underlying assets.

9.	Canadian Power and Gas Trusts	
      Calpine Power Income Fund  — On August 29, 2002, the Company announced it had completed a Cdn$ 230 million (US$147.5 million) initial public offering of its Canadian income fund — Calpine Power Income Fund (the “Fund”). The 23 million Trust Units issued to the public were priced at Cdn$ 10 per unit, to initially yield 9.35% per annum. The Fund indirectly owns, through its 70% ownership of Calpine Power Limited Partnership (“CLP”), interests in two of Calpine’s Canadian power generating assets, the Island Cogeneration Facility and the Calgary Energy Centre, and has a loan to a Calpine subsidiary which owns Calpine’s other Canadian power generating asset, the equity investment in the Whitby cogeneration plant. Combined, these assets represent approximately 550 net megawatts of power generating capacity.
      On September 20, 2002, the syndicate of underwriters fully exercised the over-allotment option that it was granted as part of the initial public offering of Trust Units and acquired 3,450,000 additional Trust Units of the Fund at Cdn$ 10 per Trust Unit, generating Cdn$ 34.5 million (US$21.9 million).
      On February 13, 2003, the Company completed a secondary offering of 17,034,234 Warranted Units of the Calpine Power Income Fund for gross proceeds of Cdn$ 153.3 million (US$100.9 million). The Warranted Units were sold to a syndicate of underwriters at a price of Cdn$ 9.00. Each Warranted Unit consisted of one Trust Unit and one-half of one Trust Unit purchase warrant. Each Warrant entitled the holder to purchase one Trust Unit at a price of Cdn$ 9.00 per Trust Unit at any time on or prior to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 30, 2003, after which time the Warrant became null and void. During 2003, a total of 8,508,517 Warrants were exercised, resulting in cash proceeds to the Company of Cdn$ 76.6 million (US$56.7 million). The Company’s remaining ownership interest in the Fund is less than 1%; however, the Company intends to retain its 30% subordinated interest in CLP and will retain a significant continuing involvement in the assets transferred to CLP.Therefore, the financial results of CLP are consolidated in the Company’s financial statements. The proceeds from the initial public offering, the proceeds from the secondary offering of Trust Units and the proceeds from the exercise of Warrants have been recorded as minority interests in the Company’s balance sheet.
      Calpine Natural Gas Trust  — On October 15, 2003, the Company closed the initial public offering of Calpine Natural Gas Trust (“CNG Trust”). A total of 18,454,200 trust units were issued at a price of Cdn$ 10.00 per trust unit for gross proceeds of approximately Cdn$ 184.5 million (US$139.4 million). CNG Trust acquired select natural gas and petroleum properties from Calpine with the proceeds from the initial public offering, Cdn$ 61.5 million (US$46.5 million) proceeds from a concurrent issuance of units to a Canadian affiliate of Calpine, and Cdn$ 40.0 million (US$30.2 million) proceeds from bank debt. Net proceeds to Calpine, totaling approximately Cdn$ 207.9 million (US$157.1 million), reflecting a gain of $62.2 million on the transfer of the properties, will be used for general corporate purposes. On October 22, 2003, the syndicate of underwriters fully exercised the over-allotment option associated with the initial public offering resulting in additional cash to the Calpine Natural Gas Trust. As a result of the exercise of the over-allotment option, Calpine acquired an additional 615,140 trust units at Cdn$ 10.0 per trust unit for a cash payment to the Calpine Natural Gas Trust of Cdn$ 6.2 million (US$4.7 million). Calpine holds 25 percent of the outstanding trust units of CNG Trust and will participate, by way of investment, in the future business strategy of the trust. The Company also has the option to purchase up to 100% of CNG Trust’s ongoing natural gas and petroleum production at daily spot prices. The CNG Trust receives a minimum price of $7.35 per mcf on all natural gas production for six months following closing. The Company accounts for this unconsolidated investment using the equity method.

10.	Discontinued Operations	
      The Company has adopted a strategy of conserving its core strategic assets and selectively disposing of certain less strategically important assets, which serves primarily to raise cash for general corporate purposes and strengthen the Company’s balance sheet through repayment of debt. Set forth below are all of the Company’s asset disposals by reportable segment that impacted the Company’s Consolidated Financial Statements as of December 31, 2003 and December 31, 2002:

	Corporate and Other	
      On July 31, 2003, the Company completed the sale of its specialty data center engineering business and recorded a pre-tax loss on the sale of $11.6 million.

	Oil and Gas Production and Marketing	
      On August 29, 2002, the Company completed the sale of certain non-strategic oil and gas properties (“Medicine River properties”) located in central Alberta to NAL Oil and Gas Trust and another institutional investor for Cdn$ 125.0 million (US$80.1 million). As a result of the sale, the Company recorded a pre-tax gain of $21.9 million in the third quarter 2002.
      On October 1, 2002, the Company completed the sale of substantially all of its British Columbia oil and gas properties to Calgary, Alberta-based Pengrowth Corporation for gross proceeds of approximately Cdn$ 387.5 million (US$244.3 million). Of the total consideration, the Company received US$155.9 million in cash. The remaining US$88.4 million of consideration was paid by Pengrowth Corporation’s purchase in the open market of US$203.2 million in aggregate principal amount of the Company’s debt securities. As a result
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the transaction, the Company recorded a US$37.4 million pre-tax gain on the sale of the properties and a gain on the extinguishment of debt of US$114.8 million in the fourth quarter 2002. The Company used approximately US$50.4 million of cash proceeds to repay amounts outstanding under its US$1.0 billion term loan. See Note 16 for more information about the specific debt securities delivered to the Company as a result of this transaction.
      On October 31, 2002, the Company sold all of its oil and gas properties in Drake Bay Field located in Plaquemines Parish, Louisiana for approximately $3 million to Goldking Energy Corporation. As a result of the sale, the Company recognized a pre-tax loss of $0.02 million in the fourth quarter 2002.
      On November 20, 2003, the Company completed the sale of its Alvin South Field oil and gas assets located near Alvin, Texas for approximately $0.06 million to Cornerstone Energy, Inc. As a result of the sale, the Company recognized a pre-tax loss of $0.2 million.

	Electric Generation and Marketing	
      On December 16, 2002, the Company completed the sale of the 180-megawatt DePere Energy Center in DePere, Wisconsin. The facility was sold to Wisconsin Public Service for $120.4 million, which included $72.0 million in cash at closing and a $48.4 million payment due in December 2003. As a result of the sale, the Company recognized a pre-tax gain of $35.8 million. On December 17, 2002, the Company sold its right to the December 2003 payment to a third party for $46.3 million, and recognized a pre-tax loss of $2.1 million thereon.
      In December 2003 the Company announced its intention to sell its 50% interest in the 545-Megawatt Lost Pines 1 Power Project to GenTex Power Corporation, an affiliate of the Lower Colorado River Authority (“LCRA”). The sale was subsequently completed on January 15, 2004. Under the terms of the agreement, Calpine received a cash payment of $146.8 million and recorded a gain before taxes of $35.5 million in January 2004. In addition, CES entered into a tolling agreement with LCRA to purchase 250 Megawatts of electricity through December 31, 2004.

	Summary	
      The Company made reclassifications to current and prior period financial statements to reflect the sale or designation as “held for sale” of these oil and gas and power plant assets and liabilities and to separately classify the operating results of the assets sold and gain on sale of those assets from the operating results of continuing operations.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The tables below present significant components of the Company’s income from discontinued operations for 2003, 2002 and 2001, respectively (in thousands):

					
		2003			
					
		Electric		Oil and Gas					
		Generation		Production		Corporate and			
		and Marketing		and Marketing		Other		Total	
									
Total revenue	 	$	72,968	 	 	$	1,150	 	 	$	3,748	 	 	$	77,866	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Loss on disposal before taxes	 	$	—	 	 	$	(235	)	 	$	(11,571	)	 	$	(11,806	)	
Operating income (loss) from discontinued operations before taxes	 	 	4,147	 	 	 	84	 	 	 	(6,918	)	 	 	(2,687	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Income (loss) from discontinued operations before taxes	 	$	4,147	 	 	$	(151	)	 	$	(18,489	)	 	$	(14,493	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Loss on disposal, net of tax	 	$	—	 	 	$	(146	)	 	$	(7,172	)	 	$	(7,318	)	
Operating income (loss) from discontinued operations, net of tax	 	 	2,694	 	 	 	49	 	 	 	(4,099	)	 	 	(1,356	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Income (loss) from discontinued operations, net of tax	 	$	2,694	 	 	$	(97	)	 	$	(11,271	)	 	$	(8,674	)	

					
		2002			
					
		Electric		Oil and Gas					
		Generation		Production		Corporate and			
		and Marketing		and Marketing		Other		Total	
									
Total revenue	 	$	75,004	 	 	$	76,783	 	 	$	7,653	 	 	$	159,440	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Gain on disposal before taxes	 	$	35,840	 	 	$	59,288	 	 	$	—	 	 	$	95,128	 	
Operating income (loss) from discontinued operations before taxes	 	 	16,388	 	 	 	13,264	 	 	 	(16,968	)	 	 	12,684	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Income (loss) from discontinued operations before taxes	 	$	52,228	 	 	$	72,552	 	 	$	(16,968	)	 	$	107,812	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Gain on disposal, net of tax	 	$	21,377	 	 	$	35,153	 	 	$	—	 	 	$	56,530	 	
Operating income (loss) from discontinued operations, net of tax	 	 	10,700	 	 	 	7,751	 	 	 	(10,053	)	 	 	8,398	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Income (loss) from discontinued operations, net of tax	 	$	32,077	 	 	$	42,904	 	 	$	(10,053	)	 	$	64,928	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

					
		2001			
					
		Electric		Oil and Gas					
		Generation		Production		Corporate and			
		and Marketing		and Marketing		Other		Total	
									
Total revenue	 	$	49,270	 	 	$	140,318	 	 	$	6,864	 	 	$	196,452	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Gain on disposal before taxes	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	
Operating income (loss) from discontinued operations before taxes	 	 	9,034	 	 	 	70,224	 	 	 	(1,869	)	 	 	77,389	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Income (loss) from discontinued operations before taxes	 	$	9,034	 	 	$	70,224	 	 	$	(1,869	)	 	$	77,389	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Gain on disposal, net of tax	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	
Operating income (loss) from discontinued operations, net of tax	 	 	6,148	 	 	 	34,450	 	 	 	(1,108	)	 	 	39,490	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Income (loss) from discontinued operations, net of tax	 	$	6,148	 	 	$	34,450	 	 	$	(1,108	)	 	$	39,490	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
      The table below presents the assets and liabilities held for sale on the Company’s balance sheet as of December 31, 2003 and 2002, respectively (in thousands): 

					
		2003		2002	
					
		Electric		Oil and Gas				Electric		Oil and Gas			
		Generation		Production		Corporate and				Generation		Production		Corporate and			
		and Marketing		and Marketing		Other		Total		and Marketing		and Marketing		Other		Total	
																	
Current assets of discontinued operations	 	$	651	 	 	$	—	 	 	$	—	 	 	$	651	 	 	$	664	 	 	$	—	 	 	$	2,005	 	 	$	2,669	 	
Long-term assets of discontinued operations	 	 	112,148	 	 	 	—	 	 	 	—	 	 	 	112,148	 	 	 	115,337	 	 	 	396	 	 	 	11,630	 	 	 	127,363	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total assets of discontinued operations	 	$	112,799	 	 	$	—	 	 	$	—	 	 	$	112,799	 	 	$	116,001	 	 	$	396	 	 	$	13,635	 	 	$	130,032	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Current liabilities of discontinued operations	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	1,962	 	 	$	1,962	 	
Long-term liabilities of discontinued operations	 	 	161	 	 	 	—	 	 	 	—	 	 	 	161	 	 	 	—	 	 	 	—	 	 	 	19	 	 	 	19	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total liabilities of discontinued operations	 	$	161	 	 	$	—	 	 	$	—	 	 	$	161	 	 	$	—	 	 	$	—	 	 	$	1,981	 	 	$	1,981	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      The Company allocates interest expense associated with consolidated non-specific debt to its discontinued operations based on a ratio of the net assets of its discontinued operations to the Company’s total consolidated net assets, in accordance with EITF Issue No. 87-24, “Allocation of Interest to Discontinued Operations” (“EITF Issue No. 87-24”). Also in accordance with EITF Issue No. 87-24, the Company allocated interest expense to its British Columbia oil and gas properties for approximately $50.4 million of debt the Company is required to repay under the terms of its $1.0 billion term loan. In 2002 and 2001, the Company allocated interest expense of $6.2 million and $4.5 million, respectively, to its discontinued operations. No interest expense was allocated to discontinued operations in 2003.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.	Notes Payable and Borrowings Under Lines of Credit, Notes Payable to Calpine Capital Trusts and Preferred Interests	
      The components of notes payable and borrowings under lines of credit and related outstanding letters of credit are (in thousands):

							
				Letters of Credit	
		Borrowings Outstanding		Outstanding	
		December 31,		December 31,	
					
		2003		2002		2003		2002	
									
Total term loan	 	$	—	 	 	$	949,565	 	 	$	—	 	 	$	—	 	
 	Power Contract Financing, L.L.C. 	 	 	802,246	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Gilroy note payable(1)	 	 	132,385	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Siemens Westinghouse Power Corporation	 	 	107,994	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Calpine Northbrook Energy Marketing, LLC (“CNEM”) note	 	 	74,632	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Corporate revolving lines of credit	 	 	—	 	 	 	340,000	 	 	 	135,600	 	 	 	573,899	 	
 	Other	 	 	10,607	 	 	 	8,952	 	 	 	603	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Total notes payable and borrowings under lines of credit	 	 	1,127,864	 	 	 	348,952	 	 	 	136,203	 	 	 	573,899	 	
Total notes payable to Calpine Capital Trusts	 	 	1,153,500	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Preferred interest in Auburndale Power Plant	 	 	87,632	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Preferred interest in King City Power Plant	 	 	82,000	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Preferred interest in Gilroy Energy Center Holdings, LLC	 	 	74,000	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Total preferred interests	 	 	243,632	 	 	 	—	 	 	 	—	 	 	 	—	 	
Total notes payable and borrowings under lines of credit, notes payable to Calpine Capital Trusts, preferred interests, and term loan	 	$	2,524,996	 	 	$	1,298,517	 	 	$	136,203	 	 	$	573,899	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Less: notes payable and borrowings under lines of credit, current portion, notes payable to Calpine Capital Trusts, current portion and preferred interests, current portion	 	 	265,512	 	 	 	340,703	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	
Notes payable and borrowings under lines of credit, net of current portion, notes payable to Calpine Capital Trusts, net of current portion, preferred interests, net of current portion, and term loan	 	$	2,259,484	 	 	$	957,814	 	 	 	 	 	 	 	 	 	

		
(1) 	See Note 8 for information regarding this note.	

	Notes Payable and Borrowings Under Lines of Credit and Term Loan	
      In March 2002, the Company closed a new secured credit agreement which at that point was comprised of (a) a $1.0 billion revolving credit facility expiring on May 24, 2003 and (b) a two-year term loan facility for
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
up to $600.0 million. In May 2002, the term loan facility was subsequently increased to $1.0 billion through a term of May 24, 2004, while the amount of the revolving credit facility was decreased to $600.0 million. Any letters of credit issued under the $600.0 million revolving credit facility on or prior to May 24, 2003 could be extended for up to one year at our option so long as they expired no later than five business days prior to the maturity date of the term-loan facility. As part of the March 2002 closings, the Company also amended its existing $400.0 million unsecured revolving credit agreement to provide, among other things, security for borrowings under that agreement. The $400.0 million revolving credit facility matured on May 23, 2003. All outstanding borrowings on the term loan facility and the $600.0 million and $400.0 million revolving credit facilities were repaid on July 16, 2003. All letters of credit issued under the company’s $600.0 million and $400.0 million revolving credit facilities were reissued by letters of credit issued under the company’s new $500.0 million working capital facility and the company’s new $200.0 million cash collateralized letter of credit facility, both of which closed on July 16, 2003.
      Borrowings bore variable interest and interest was paid on the last day of each interest period for such loans, at least quarterly. The term loan and credit facilities specified that the Company maintain certain covenants, with which the Company was in compliance as of December 31, 2002 and 2001, and at repayment on July 16, 2003. Commitment fees related to the revolving lines of credit are charges based on unused credit amounts. The effective interest rate on the term loan, after amortization of deferred financing charges, was 8.0% per annum at repayment on July 16, 2003. The effective interest rate on the $600.0 million revolving credit facility, after amortization of deferred financing charges, was 10.8% per annum at repayment on July 16, 2003. The effective interest rate on the $400.0 million revolving credit facility, after amortization of deferred financing charges, was 5.1% per annum at repayment on July 16, 2003.
      On July 16, 2003, the Company entered into agreements for a new $500 million working capital facility. The new first-priority senior secured facility consists of a two-year, $300 million working capital revolver and a four-year, $200 million term loan that together provide up to $500 million in combined cash borrowing and letter of credit capacity. The new facility replaced the Company’s prior $600 million and $400 million working capital facilities and is secured by a first-priority lien on the same assets that collateralize the Company’s recently completed $3.3 billion term loan and second-priority senior secured notes offering (the “$3.3 billion offering”). See Note 16 for more information on the $3.3 billion offering and the $200 million term loan discussed above. The $949.6 million outstanding under the Company’s secured term credit facility and the $555.5 million outstanding under the Company’s revolving credit facilities were repaid on July 16, 2003, with the proceeds of the $3.3 billion offering. There were no funded borrowings on the $300 million working capital revolver during 2003, while as of December 31, 2003, the company had $135.6 million in letters of credit under this facility.
      On July 16, 2003, the Company entered into a cash collateralized letter of credit facility with The Bank of Nova Scotia under which it can issue up to $200 million of letters of credit through July 15, 2005. As of December 31, 2003, the Company had $136.5 million of letters of credit issued under this facility, with a corresponding amount of cash on deposit and held by The Bank of Nova Scotia as collateral, which was classified as restricted cash in the Company’s Consolidated Balance Sheet.
      As part of the Company’s acquisition of Michael Petroleum Corporation (“MPC”) through its wholly owned subsidiary Calpine Natural Gas Company, the Company assumed a $75.0 million three-year revolving credit facility with Bank One, N.A. and other banks. Amounts outstanding under the facility bore variable interest. The interest rate ranged from 4.3% to 5.0% during 2002. The line of credit was secured by the Company’s oil and gas properties. The Company was out of compliance as of December 31, 2001, with a covenant under the loan agreement. Subsequent to December 31, 2001, the Company initiated the process to obtain a waiver for the covenant but chose to instead repay the outstanding balance of $64.8 million under the loan agreement on March 13, 2002.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      On June 13, 2003, PCF, a wholly owned stand-alone subsidiary of CES, completed an offering of $339.9 million of 5.2% Senior Secured Notes Due 2006 and $462.3 million of 6.256% Senior Secured Notes Due 2010. The two tranches of Senior Secured Notes, totaling $802.2 million of gross proceeds, are secured by fixed cash flows from a fixed-priced, long-term power sales agreement with the State of California Department of Water Resources and a fixed-priced, long-term power purchase agreement with a third party and are non-recourse to the Company’s other consolidated subsidiaries. The two tranches of Senior Secured Notes have been rated Baa2 by Moody’s Investor Service, Inc. and BBB (with a negative outlook) by S&P. As of December 31, 2003, PCF had $802.2 million outstanding under these secured note borrowings. The effective interest rate on the 5.2% Senior Secured Notes Due 2006 and 6.256% Senior Secured Notes Due 2010, after amortization of deferred financing costs, was 8.3% and 9.4%, respectively, per annum at December 31, 2003.
      Pursuant to the applicable transaction agreements, PCF has been established as an entity with its existence separate from the Company and other subsidiaries of the Company. In accordance with FIN 46 the Company consolidates this entity. See Note 2 for more information on FIN 46. The above mentioned power sales and power purchase agreements, which have been acquired by PCF from CES, and the PCF Notes are assets and liabilities of PCF, separate from the assets and liabilities of the Company and other subsidiaries of the Company. The proceeds of the Senior Secured Notes were primarily used by PCF to purchase the power sales and power purchase agreements.
      On January 31, 2002, the Company’s subsidiary, Calpine Construction Management Company, Inc., entered into an agreement with Siemens Westinghouse Power Corporation (“SWPC”) to reschedule the production and delivery of gas and steam turbine generators and related equipment. Under the agreement, the Company obtained vendor financing of up to $232.0 million bearing variable interest for gas and steam turbine generators and related equipment. The financing had been due prior to the earliest of the equipment site delivery date specified in the agreement, the Company’s requested date of turbine site delivery or June 25, 2003. On July 10, 2003, the Company renegotiated its financing agreement with SWPC to extend the monthly payment due dates through January 28, 2005. Subsequent to this renegotiation, the Company made additional payments to SWPC. As a result of these additional payments, the Company intends to repay this financing by November 2004. At December 31, 2003, there was $108.0 million in borrowings outstanding under this agreement. The interest rate at December 31, 2003 and 2002, was 8.5% and 6.6%, respectively. The interest rate ranged from 6.4% to 8.5% during 2003.
      On May 15, 2003, CNEM, a wholly owned stand-alone subsidiary of CNEM Holdings LLC, which is a wholly owned indirect subsidiary of CES, completed an offering of $82.8 million secured by an existing power sales agreement with the BPA. Under the existing 100-MW fixed-price contract, CNEM delivers baseload power to BPA through December 31, 2006. As a part of the secured transaction, CNEM entered into a contract with a third party to purchase that power based on spot prices and a fixed-price swap agreement with an affiliate of Deutsche Bank to lock in the price of the purchased power. The terms of both agreements are through December 31, 2006. To complete the transactions, CNEM then entered into an agreement with an affiliate of Deutsche Bank and borrowed $82.8 million secured by the BPA contract, the spot market power purchase agreement, the fixed price swap agreement and the equity interests in CNEM. The spread between the price for power under the BPA contract and the price for power under the fixed price swap agreement provides the cash flow to pay CNEM’s debt and other expenses. Proceeds from the borrowing were used to pay transaction expenses for plant construction and general corporate purposes, as well as fees and expenses associated with this transaction. CNEM will make quarterly principal and interest payments on the loan that matures on December 31, 2006. As of December 31, 2003, there was $74.6 million outstanding under this loan. The effective interest rate, after amortization of deferred financing charges, was 12.7% per annum at December 31, 2003.
      Pursuant to the applicable transaction agreements, each of CNEM and its parent, CNEM Holdings, LLC, has been established as an entity with its existence separate from the Company and other subsidiaries of
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the Company. In accordance with FIN 46 the Company consolidates these entities. See Note 2 for more information on FIN 46. The above mentioned power sales agreement with BPA has been acquired by CNEM from CES and the spot market power purchase agreement with a third party and the swap agreement have been entered into by CNEM and, together with the $82.8 million loan, are assets and liabilities of CNEM, separate from the assets and liabilities of the Company and other subsidiaries of the Company. The only significant asset of CNEM Holdings, LLC is its equity interest in CNEM. The proceeds of the $82.8 million loan were primarily used by CNEM to purchase the power sales agreement with BPA.

	Notes Payable to Calpine Capital Trusts	
      In 1999 and 2000 the Company, through its wholly owned subsidiaries, Calpine Capital Trust, Calpine Capital Trust II, and Calpine Capital Trust III, statutory business trusts created under Delaware law, (collectively, “the Trusts”) completed offerings of Remarketable Term Income Deferrable Equity Securities (“HIGH TIDES”) at a value of $50.00 per share. A summary of these offerings follows in the table below ($ in thousands): 

														Conversion					
								Effective						Ratio —					
								Interest Rate						Number of					
						Stated		per Annum at		Balance		Balance		Common				Initial	
						Interest		December 31,		December 31,		December 31,		Shares Per 1		First Redemption		Redemption	
		Issue Date		Shares		Rate		2003		2003		2002		High Tide		Date		Price	
																			
HIGH TIDES I	 	 	October 1999	 	 	 	5,520,000	 	 	 	5.75%	 	 	 	5.86%	 	 	$	276,000	 	 	$	268,608	 	 	 	3.4620	 	 	 	November 5, 2002	 	 	 	101.440%	 	
HIGH TIDES II	 	 	January and February 2000	 	 	 	7,200,000	 	 	 	5.50%	 	 	 	5.59%	 	 	 	360,000	 	 	 	351,499	 	 	 	1.9524	 	 	 	February 5, 2003	 	 	 	101.375%	 	
HIGH TIDES III	 	 	August 2000	 	 	 	10,350,000	 	 	 	5.00%	 	 	 	5.10%	 	 	 	517,500	 	 	 	503,862	 	 	 	1.1510	 	 	 	August 5, 2003	 	 	 	101.250%	 	
 	 	 	 	 	 	 		 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	23,070,000	 	 	 	 	 	 	 	 	 	 	$	1,153,500	(1)	 	$	1,123,969	 	 	 	 	 	 	 	 	 	 	 	 	 	

		
(1) 	Prior to the adoption of FIN 46-R on October 1, 2003, the Trusts were consolidated in the Company’s Consolidated Balance Sheet, and the HIGH TIDES were recorded between total liabilities and stockholders equity as Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trusts. However, due to the adoption of FIN 46-R, the Company deconsolidated the Trusts as of October 1, 2003, and therefore no longer records the HIGH TIDES in its Consolidated Balance Sheet. However, the Company’s debentures issued to the Trusts are now recorded as notes payable to Calpine Capital Trusts in the Company’s Consolidated Balance Sheet with an outstanding balance of $1,153,500,000 at December 31, 2003. During 2003 the Company exchanged 6.5 million Calpine common shares in privately negotiated transactions for approximately $37.5 million par value of HIGH TIDES I. The repurchased HIGH TIDES are reflected in our balance sheet in other assets as available for sale securities. See Note 2 for more information regarding the Company’s adoption of FIN 46-R.	
      The net proceeds from each of the offerings were used by the Trusts to invest in convertible subordinated debentures of the Company, which represent substantially all of the respective trusts’ assets. The Company has effectively guaranteed all of the respective trusts’ obligations under the trust preferred securities. The trust preferred securities have liquidation values of $50.00 per share, or $1.2 billion in total for all of the issuances. The Company has the right to defer the interest payments on the debentures for up to twenty consecutive quarters, which would also cause a deferral of distributions on the trust preferred securities. Currently, the Company has no intention of deferring interest payments on the debentures.
      The trust preferred securities are convertible into shares of the Company’s common stock at the holder’s option on or prior to the tender notification date. Additionally, the HIGH TIDES may be redeemed at any time on or after the initial redemption date. The redemption price declines to 100% during the one year following the initial redemption date.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Preferred Interests	
      On September 3, 2003, the Company announced that it had completed the sale of a 70% preferred interest in its Auburndale power plant to Pomifer Power Funding, LLC, (“PPF”), a subsidiary of ArcLight Energy Partners Fund I, L.P., for $88.0 million. This preferred interest meets the criteria of a mandatorily redeemable financial instrument and has been classified as debt under the guidance of SFAS No. 150, due to certain preferential distributions to PPF. The preferential distributions are to be paid quarterly beginning in November 2003 and total approximately $204.7 million over the 11-year period. The preferred interest holders’ recourse is limited to the net assets of the entity and distribution terms are defined in the agreement. The Company has not guaranteed the payment of these preferential distributions. Calpine will hold the remaining interest in the facility and will continue to provide operations and maintenance services. As of December 31, 2003, there was $87.6 million outstanding under this preferred interest. The effective interest rate, after amortization of deferred financing charges, was 16.8% per annum at December 31, 2003.
      On April 29, 2003, the Company sold a preferred interest in a subsidiary that leases and operates the 115-MW King City Power Plant to GE Structured Finance for $82.0 million. The preferred interest holder will receive approximately 60% of future cash flow distributions based on current projections. The Company will continue to provide O&M services. As of December 31, 2003, there was $82.0 million outstanding under the preferred interest. The effective interest rate, after amortization of deferred financing charges, was 12.8% per annum at December 31, 2003.
      Pursuant to the applicable transaction agreements, each of Calpine King City Cogen LLC, Calpine Securities Company, L.P., a parent company of Calpine King City Cogen LLC, and Calpine King City, LLC, an indirect parent company of Calpine Securities Company, L.P., has been established as an entity with its existence separate from the Company and other subsidiaries of the Company. The Company consolidates these entities.
      On September 30, 2003, GEC, a wholly owned subsidiary of the Company’s subsidiary GEC Holdings, LLC, completed an offering of $301.7 million of 4% Senior Secured Notes Due 2011 (see Note 16 for more information on this secured financing). In connection with this secured notes borrowing, the Company received funding on a third party preferred equity investment in GEC Holdings, LLC totaling $74.0 million. This preferred interest meets the criteria of a mandatorily redeemable financial instrument and has been classified as debt under the guidance of SFAS No. 150, due to certain preferential distributions to the third party. The preferential distributions are due bi-annually beginning in March 2004 through September 2011 and total approximately $113.3 million over the eight-year period. As of December 31, 2003, there was $74.0 million outstanding under the preferred interest. The effective interest rate, after amortization of deferred financing charges, was 11.3% per annum at December 31, 2003.
      Pursuant to the applicable transaction agreements, GEC has been established as an entity with its existence separate from the Company and other subsidiaries of the Company. The Company consolidates this entity. The long-term power sales agreement with the State of California Department of Water Resources has been acquired by GEC by means of a series of capital contributions by CES and certain of its affiliates and is an asset of GEC, and the Senior Secured Notes and preferred interest are liabilities of GEC, separate from the assets and liabilities of the Company and other subsidiaries of the Company. Aside from seven peaker power plants owned directly and the power sales agreement, GEC’s assets include cash and a 100% equity interest in each of Creed Energy Center, LLC (“Creed”) and Goose Haven Energy Center, LLC (“Goose Haven”) each of which is a wholly owned subsidiary of GEC. Each of Creed and Goose Haven has been established as an entity with its existence separate from the Company and other subsidiaries of the Company. Creed and Goose Haven each have assets consisting of various power plants and other assets.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12.	Capital Lease Obligations	
      During 2001 the Company assumed and consolidated capital leases in conjunction with certain acquisitions. As of December 31, 2003 and 2002, the asset balances for the leased assets totaled $201.5 million and $201.1 million, respectively, with accumulated amortization of $26.0 million and $20.4 million, respectively. The primary types of property leased by the Company are power plants and related equipment. The leases generally provide for the lessee to pay taxes, maintenance, insurance, and certain other operating costs of the leased property. The lease terms range up to 28 years.
      The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 2003 (in thousands): 

Years Ending December 31:	 	 	 	 	
 	2004	 	$	19,264	 	
 	2005	 	 	19,348	 	
 	2006	 	 	19,956	 	
 	2007	 	 	20,018	 	
 	2008	 	 	21,791	 	
 	Thereafter	 	 	290,519	 	
 	 	 		 	
 	 	Total minimum lease payments	 	 	390,896	 	
Less: Amount representing interest(1)	 	 	(193,147	)	
 	 	 		 	
 	Present value of net minimum lease payments	 	 	197,749	 	
Less: Capital lease obligation, current portion	 	 	4,008	 	
 	 	 		 	
 	Capital lease obligation, net of current portion	 	$	193,741	 	

		
(1) 	Amount necessary to reduce net minimum lease payments to present value calculated at the incremental borrowing rate at the time of acquisition.	

13.	Zero-Coupon Convertible Debentures	
      On April 30, 2001, the Company completed the sale of $1.0 billion of Zero-Coupon Convertible Debentures Due 2021 (“Zero Coupons”) in a private placement under Rule 144A of the Securities Act of 1933.
      In December 2001 the Company repurchased $122.0 million in aggregate principal amount of its Zero Coupons in open-market purchases at a discount, and recorded a pre-tax gain of $11.9 million after the write-off of related financing costs. In January and February 2002 the Company repurchased an additional $192.5 million of its Zero Coupons at a discount and recorded a pre-tax gain of $3.5 million, after the write-off of related financing costs. On April 30, 2002, the Company repurchased the remaining $685.5 million in aggregate principal amount of its Zero Coupons at par pursuant to a scheduled put provided for by the terms of the Zero Coupons.
      The effective interest rate, after amortization of deferred financing costs, was 2.5% in 2002.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14.	Construction/Project Financing	
      The components of construction/project financing as of December 31, 2003 and 2002, are (in thousands): 

							
						Letters of Credit	
				Outstanding at	
		Outstanding at December 31,		December 31,	
					
Projects		2003		2002		2003		2002	
									
Calpine Construction Finance Company II Revolver	 	$	2,200,358	 	 	$	2,469,642	 	 	$	53,190	 	 	$	3,224	 	
Calpine Construction Finance Company I	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Second Priority Senior Secured Floating Rate Notes Due 2011	 	 	407,598	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	First Priority Secured Institutional Term Loans Due 2009	 	 	381,391	 	 	 	—	 	 	 	—	 	 	 	—	 	
Calpine Construction Finance Company I Revolver	 	 	—	 	 	 	970,110	 	 	 	—	 	 	 	29,890	 	
Gilroy Energy Center, LLC, 4% Senior Secured Notes Due 2011	 	 	298,065	 	 	 	—	 	 	 	—	 	 	 	—	 	
Pasadena Cogeneration, L.P. 	 	 	289,115	 	 	 	388,867	 	 	 	—	 	 	 	—	 	
Broad River Energy LLC	 	 	291,612	 	 	 	300,974	 	 	 	—	 	 	 	—	 	
SWPC(1)	 	 	—	 	 	 	169,180	 	 	 	—	 	 	 	—	 	
Riverside Energy Center	 	 	165,347	 	 	 	—	 	 	 	—	 	 	 	—	 	
Blue Spruce Energy Center LLC	 	 	140,000	 	 	 	83,540	 	 	 	—	 	 	 	—	 	
California Peaker Financing	 	 	—	 	 	 	50,000	 	 	 	—	 	 	 	—	 	
Calpine Newark, Inc. 	 	 	47,815	 	 	 	50,000	 	 	 	—	 	 	 	—	 	
Calpine Parlin Inc. 	 	 	32,451	 	 	 	37,000	 	 	 	—	 	 	 	—	 	
Otay Mesa Generating Company, LLC — Ground Lease	 	 	7,000	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Total	 	 	4,260,752	 	 	 	4,519,313	 	 	$	53,190	 	 	$	33,114	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	
Less: Current portion	 	 	65,108	 	 	 	1,307,291	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	 	 	 	 	
Long-term project financing	 	$	4,195,644	 	 	$	3,212,022	 	 	 	 	 	 	 	 	 	

		
(1) 	See Note 11 for information regarding the SWPC vendor financing.	
      In October 2000 the Company entered into a credit agreement for $2.5 billion through its wholly owned subsidiary Calpine Construction Finance Company II, LLC (“CCFC II”) with a consortium of banks. The lead arrangers were The Bank of Nova Scotia and Credit Suisse First Boston. The non-recourse credit facility is utilized to finance the construction of certain of the Company’s gas-fired power plants currently under construction. As of December 31, 2003, the Company had $2.2 billion in borrowings outstanding under the facility. Borrowings under this facility bear variable interest. The credit facility specifies that the Company maintain certain covenants, with which the Company was in compliance as of December 31, 2003. The interest rate at December 31, 2003 and 2002, was 2.6% and 2.9%, respectively. The interest rate ranged from 2.6% to 2.9% during 2003. The effective interest rate, after amortization of deferred financing costs, was 3.4% per annum at December 31, 2003. See Note 27 for information regarding the Company’s refinancing of this facility.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      In November 1999 the Company entered into a credit agreement for $1.0 billion through its wholly owned subsidiary Calpine Construction Finance Company L.P. (“CCFC I”) with a consortium of banks. The lead arranger was The Bank of Nova Scotia and the lead arranger syndication agent was Credit Suisse First Boston. The non-recourse credit facility was utilized to finance the construction of certain of the Company’s gas-fired power plants. The Company repaid the outstanding balance of $880.1 million in August 2003. Borrowings under this facility bore variable interest. The interest rate at December 31, 2002, was 2.9%. The interest rate ranged from 2.6% to 5.0% during 2003. The effective interest rate, after amortization of deferred financing costs, averaged 4.3% per annum in 2003.
      On August 14, 2003, the Company’s wholly owned subsidiaries, CCFC I and CCFC Finance Corp., closed a $750.0 million institutional term loans and secured notes offering, proceeds from which were utilized to repay a majority of CCFC I’s indebtedness which would have matured in the fourth quarter of 2003. The offering included $385.0 million of First Priority Secured Institutional Term Loans Due 2009 (the “CCFC I Term Loans”) offered at 98% of par and priced at LIBOR plus 600 basis points, with a LIBOR floor of 150 basis points, and $365.0 million of Second Priority Senior Secured Floating Rate Notes Due 2011 (the “CCFC I Senior Notes”) offered at 98.01% of par and priced at LIBOR plus 850 basis points, with a LIBOR floor of 125 basis points. On September 25, 2003, CCFC I and CCFC Finance Corp. closed on an additional $50.0 million of the CCFC I Senior Notes offered at 99% of par. The noteholders’ recourse is limited to seven of CCFC I’s natural gas-fired electric generating facilities located in various power markets in the United States, and related assets and contracts. S&P has assigned a B corporate credit rating to CCFC I. S&P also assigned a B+ rating (with a negative outlook) to the CCFC I Term Loans and a B- rating (with a negative outlook) to the CCFC I Senior Notes.
      As of December 31, 2003, the company had $407.6 million in borrowings outstanding under the CCFC I Senior Notes. The interest rate at December 31, 2003, was 9.8%. The effective interest rate, after amortization of deferred financing costs, was 10.0% per annum at December 31, 2003.
      As of December 31, 2003, the company had $381.4 million in borrowings outstanding under the CCFC I Term Loans. The interest rate during 2003 was 7.5%. The effective interest rate, after amortization of deferred financing costs, was 8.2% per annum at December 31, 2003.
      On September 30, 2003, GEC, a wholly owned, stand-alone subsidiary of the Company’s subsidiary GEC Holdings, LLC, closed on $301.7 million of 4% Senior Secured Notes Due 2011. The senior secured notes are secured by GEC’s and its subsidiaries’ 11 peaking units located at nine power-generating sites in northern California. The notes also are secured by a long-term power sales agreement for 495 megawatts of peaking capacity with the State of California Department of Water Resources, which is being served by the 11 peaking units. In addition, payment of the principal and interest on the notes when due is insured by an unconditional and irrevocable financial guaranty insurance policy that was issued simultaneously with the delivery of the notes. Proceeds of the notes offering (after payment of transaction expenses, including payment of the financial guaranty insurance premium, which are capitalized and included in deferred financing costs on the balance sheet) will be used to reimburse costs incurred in connection with the development and construction of the peaker projects. The noteholders’ recourse is limited to the financial guaranty insurance policy and, insofar as payment has not been made under such policy, to the assets of GEC and its subsidiaries. The Company has not guaranteed repayment of the notes. As of December 31, 2003, there was $298.1 million outstanding under this secured notes borrowing. The effective interest rate, after amortization of deferred financing charges, was 5.1% per annum at December 31, 2003. In connection with this offering, the Company has received funding on a third party preferred equity investment in GEC Holdings, LLC totaling $74.0 million. See Note 11 for more information regarding this preferred interest.
      In September 2000, the Company completed the financing, which matures in 2048, for both Phase I and Phase II of the Pasadena, Texas cogeneration project. Under the terms of the project financing, the Company
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
received $400.0 million in gross proceeds. At December 31, 2003, the Company had $289.1 million in borrowings outstanding. The interest rate at December 31, 2003 and 2002, was 8.6%.
      In October 2001, the Company completed the financing, which matures in 2041, for the Broad River Energy Center in South Carolina. Under the terms of the project financing, the Company received $300.0 million in gross proceeds. At December 31, 2003, the Company had $291.6 million in borrowings outstanding. The interest rate at December 31, 2003 and 2002, was 8.1%.
      On August 25, 2003, the Company announced that it had completed a $230.0 million non-recourse project financing for its 600-megawatt Riverside Energy Center. The natural gas-fueled electric generating facility is currently under construction in Beloit, Wisconsin. Upon completion of the project, which is scheduled for June 2004, Calpine will sell 450 megawatts of electricity to Wisconsin Power and Light under the terms of a nine-year tolling agreement and provide 75 megawatts of capacity to Madison Gas & Electric under a nine-year power sales agreement. A group of banks, including Credit Lyonnais, Co-Bank, Bayerische Landesbank, HypoVereinsbank and NordLB, will finance construction of the plant at a rate of Libor plus 250 basis points. Upon commercial operation of the Riverside Energy Center, the banks will provide a three-year term-loan facility initially priced at Libor plus 275 basis points. At December 31, 2003, there was $165.3 million outstanding under this project financing. The interest rate at December 31, 2003 was 3.7%. The interest rate ranged from 3.6% to 5.8% during 2003. The effective interest rate, after amortization of deferred financing costs, was 5.3% per annum at December 31, 2003.
      On August 22, 2002, the Company completed a $106.0 million non-recourse project financing for the construction of its 300-megawatt Blue Spruce Energy Center. On November 7, 2003, the Company repaid the outstanding balance of $102.0 million with the proceeds of a new term financing described below. The effective interest rate, after amortization of deferred financing costs, and interest rate swap effect, was 14.1% in 2003.
      On November 7, 2003, the Company completed a new $140.0 million term loan financing for the Blue Spruce Energy Center. The term loan is made up of two facilities, Tranche A and Tranche B, which have 15-year and 6-year repayment terms, respectively. At December 31, 2003, there was $100.0 million outstanding under Tranche A and $40.0 million outstanding under Tranche B. The interest rate at December 31, 2003, for Tranche A and Tranche B was 7.67% and 8.57%, respectively. The effective interest rate, after amortization of deferred financing costs, for Tranche A and Tranche B was 8.2% and 8.6%, respectively, per annum at December 31, 2003.
      On May 14, 2002, the Company’s subsidiary, Calpine California Energy Finance, LLC, entered into an $100.0 million amended and restated credit agreement with ING Capital LLC for the funding of 9 California peaker facilities, of which $100.0 million was drawn on May 24, 2002,and $50.0 million was repaid on August 7, 2002, and the remaining $50.0 million was repaid on July 21, 2003. The interest rate ranged from 3.5% to 3.9% during 2003. The effective interest rate, after amortization of deferred financing costs, was 4.0% per annum at December 31, 2003.
      In December 2002 the Company completed a $50.0 million project financing secured by the Newark Power Plant. At December 31, 2003, the Company had $47.8 million in funded borrowings under this project financing. The interest rate at December 31, 2003 and 2002, was 10.6%. This project financing will mature in 2014.
      In December 2002 the Company completed a $37.0 million project financing secured by the Parlin Power Plant. At December 31, 2003, the Company had $32.5 million in funded borrowings under this project financing. The interest rate at December 31, 2003 and 2002, was 9.8%. This project financing will mature in 2010.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      On July 8, 2003, Otay Mesa Generating Company, LLC, entered into a ground lease and easement agreement with D&D Landholdings, a Limited Partnership. At December 31, 2003, there was $7.0 million outstanding under this financing arrangement. The interest rate at December 31, 2003 was 12.6%.

15.	Convertible Senior Notes	

	4% Convertible Senior Notes Due 2006	
      In December 2001 and January 2002 the Company completed the issuance of $1.2 billion in aggregate principal amount of 4% Convertible Senior Notes Due 2006 (“2006 Convertible Senior Notes”). These securities are convertible, at the option of the holder, into shares of Calpine common stock at a price of $18.07. Holders have the right to require the Company to repurchase all or a portion of the 2006 Convertible Senior Notes on December 26, 2004, at 100% of their principal amount plus any accrued and unpaid interest. The Company has the right to repurchase the 2006 Convertible Senior Notes with cash, shares of Calpine common stock, or a combination of cash and stock. During 2003 the Company repurchased approximately $474.9 million in aggregate outstanding principal amount of the 2006 Convertible Senior Notes at a repurchase price of $458.8 million plus accrued interest Additionally, during 2003, approximately $65.0 million in aggregate outstanding principal amount of the 2006 Convertible Senior Notes were exchanged for 12.0 million shares of Calpine common stock in privately negotiated transactions. The Company recorded a pre-tax gain on these transactions in the amount of $13.6 million, net of write-offs of the associated unamortized deferred financing costs and unamortized premiums or discounts. At December 31, 2003, there was $660.1 million in outstanding borrowings under these notes. The effective interest rate on these notes at December 31, 2003 and 2002, after amortization of deferred financing costs, was 4.9% per annum, respectively

	4 3/4% Contingent Convertible Senior Notes Due 2023	
      On November 17, 2003, the Company completed the issuance of $650 million 4 3/4% Contingent Convertible Senior Notes Due 2023 (“2023 Convertible Notes”). These 2023 Convertible Notes are convertible, at the option of holder, into cash and into shares of Calpine common stock at a price of $6.50 per share, which represents a 38% premium over the New York Stock Exchange closing price of $4.71 per Calpine common share on November 6, 2003. Holders have the right to require the Company to repurchase all or a portion of these securities on November 15, 2009, November 15, 2013, and November 15, 2018, at 100% of their principal amount plus any accrued and unpaid interest and liquidated damages, if any, up to the date of repurchase. The Company has the right to pay the repurchase price in cash, shares of Calpine common stock, or a combination of cash and stock. At December 31, 2003, there was $650.0 million in outstanding borrowings under these notes. The effective interest rate on these notes, after amortization of deferred financing costs, was approximately 4.9% per annum at December 31, 2003. See Note 27 regarding a subsequent event relating to these notes.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16.	Senior Notes	
      Senior Notes payable consist of the following as of December 31, 2003 and 2002, (in thousands): 

											
								Fair Value as of	
						December 31,		December 31,(3)	
		Interest		First Call					
		Rates		Date		2003		2002		2003		2002	
													
First Priority Senior Secured Notes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	First Priority Senior Secured Term Loan B Notes Due 2007	 	 	(4)	 	 	 	(2)	 	 	$	199,500	 	 	$	—	 	 	$	202,243	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Total First Priority Senior Secured Notes	 	 	 	 	 	 	 	 	 	 	199,500	 	 	 	—	 	 	 	202,243	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Second Priority Senior Secured Notes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Second Priority Senior Secured Term Loan B Notes Due 2007	 	 	(5)	 	 	 	(8)	 	 	 	748,125	 	 	 	—	 	 	 	727,552	 	 	 	—	 	
 	Second Priority Senior Secured Floating Rate Notes Due 2007	 	 	(6)	 	 	 	(7)	 	 	 	498,750	 	 	 	—	 	 	 	488,775	 	 	 	—	 	
 	Second Priority Senior Secured Notes Due 2010	 	 	8 1/2	%	 	 	(7)	 	 	 	1,150,000	 	 	 	—	 	 	 	1,127,000	 	 	 	—	 	
 	Second Priority Senior Secured Notes Due 2013	 	 	8 3/4	%	 	 	(7)	 	 	 	900,000	 	 	 	—	 	 	 	877,500	 	 	 	—	 	
 	Second Priority Senior Secured Notes Due 2011	 	 	9 7/8	%	 	 	(1)	 	 	 	392,159	 	 	 	—	 	 	 	401,963	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Total Second Priority Senior Secured Notes	 	 	 	 	 	 	 	 	 	 	3,689,034	 	 	 	—	 	 	 	3,622,790	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
Unsecured Senior Notes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Senior Notes Due 2005	 	 	8 1/4	%	 	 	(2)	 	 	 	224,679	 	 	 	249,420	 	 	 	215,692	 	 	 	117,227	 	
 	Senior Notes Due 2006	 	 	10 1/2	%	 	 	2001	 	 	 	166,575	 	 	 	171,750	 	 	 	163,243	 	 	 	82,440	 	
 	Senior Notes Due 2006	 	 	7 5/8	%	 	 	(1)	 	 	 	214,613	 	 	 	249,821	 	 	 	191,006	 	 	 	107,423	 	
 	Senior Notes Due 2007	 	 	8 3/4	%	 	 	2002	 	 	 	226,120	 	 	 	275,107	 	 	 	187,679	 	 	 	118,296	 	
 	Senior Notes Due 2007(9)	 	 	8 3/4	%	 	 	(2)	 	 	 	154,120	 	 	 	125,782	 	 	 	114,049	 	 	 	55,973	 	
 	Senior Notes Due 2008	 	 	7 7/8	%	 	 	(1)	 	 	 	305,323	 	 	 	379,689	 	 	 	236,624	 	 	 	155,672	 	
 	Senior Notes Due 2008	 	 	8 1/2	%	 	 	(2)	 	 	 	1,925,067	 	 	 	2,027,859	 	 	 	1,540,053	 	 	 	892,258	 	
 	Senior Notes Due 2008(10)	 	 	8 3/8	%	 	 	(2)	 	 	 	154,140	 	 	 	183,509	 	 	 	114,064	 	 	 	67,898	 	
 	Senior Notes Due 2009	 	 	7 3/4	%	 	 	(1)	 	 	 	232,520	 	 	 	329,593	 	 	 	179,041	 	 	 	135,133	 	
 	Senior Notes Due 2010	 	 	8 5/8	%	 	 	(2)	 	 	 	496,909	 	 	 	707,036	 	 	 	390,074	 	 	 	304,025	 	
 	Senior Notes Due 2011	 	 	8 1/2	%	 	 	(2)	 	 	 	1,179,911	 	 	 	1,875,571	 	 	 	932,130	 	 	 	806,496	 	
 	Senior Notes Due 2011(11)	 	 	8 7/8	%	 	 	(2)	 	 	 	215,242	 	 	 	319,664	 	 	 	157,127	 	 	 	115,079	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	Total Other Senior Notes	 	 	 	 	 	 	 	 	 	 	5,495,219	 	 	 	6,894,801	 	 	 	4,420,782	 	 	 	2,957,920	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Total Senior Notes	 	 	 	 	 	 	 	 	 	 	9,383,753	 	 	 	6,894,801	 	 	 	8,245,815	 	 	 	2,957,920	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	Less: Senior Notes, current portion	 	 	 	 	 	 	 	 	 	 	14,500	 	 	 	—	 	 	 	14,500	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	 	Senior Notes, net of current portion	 	 	 	 	 	 	 	 	 	$	9,369,253	 	 	$	6,894,801	 	 	$	8,231,315	 	 	$	2,957,920	 	

		
  (1) 	Not redeemable prior to maturity.	
 		
  (2) 	Redeemable by the Company at any time prior to maturity.	
 		
  (3) 	Represents the market values of the Senior Notes at the respective dates.	
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		
  (4) 	3-month US$ LIBOR, plus a spread.	
 		
  (5) 	U.S. Prime Rate in combination with the Federal Funds Effective Rate, plus a spread.	
 		
  (6) 	British Bankers Association LIBOR Rate for deposit in U.S. dollars for a period of three months, plus a spread.	
 		
  (7) 	At any time before July 15, 2005, with respect to the Second Priority Senior Secured Floating Rate Notes Due 2007 (the “2007 notes”) and before July 15, 2006, with respect to the Second Priority Senior Secured Notes Due 2010 (the “2010 notes”) and the Second Priority Senior Secured Notes Due 2013 (the “2013 notes”), on one or more occasions, the Company can choose to redeem up to 35% of the outstanding principal amount of the applicable series of notes, including any additional notes issued in such series, with the net cash proceeds of any one or more public equity offerings so long as (1) the Company pays holders of the notes a redemption price equal to par plus the applicable Eurodollar rate then in effect with respect to the 2007 notes, 108.500% with respect to the 2010 notes, and 108.750% with respect to the 2013 notes, at the face amount of the notes the Company redeems, plus accrued interest; (2) the Company must redeem the notes within 45 days of such public equity offering; and (3) at least 65% of the aggregate principal amount of the applicable series of notes originally issued under the applicable indenture, including the principal amount of any additional notes, remains outstanding immediately after each such redemption.	
 		
  (8) 	The Company may not voluntarily prepay these notes prior to July 15, 2005, except that the Company may on any one or more occasions make such prepayment with the proceeds of one or more public equity offerings.	
 		
  (9) 	Issued in Canadian dollars.	

		
(10) 	Issued in Euros.	
 		
(11) 	Issued in Sterling.	
      The Company has completed a series of public debt offerings since 1994. Interest is payable semiannually at specified rates. Deferred financing costs are amortized using the effective interest method, over the respective lives of the notes. There are no sinking fund or mandatory redemptions of principal before the maturity dates of each offering. Certain of the Senior Note indentures limit the Company’s ability to incur additional debt, pay dividends, sell assets and enter into certain transactions. As of December 31, 2003, the Company was in compliance with all debt covenants relating to the Senior Notes. The effective interest rates for each of the Company’s Senior Notes outstanding at December 31, 2003, are consistent with the respective notes outstanding during 2002, unless otherwise noted.
      In October 2002, $88.4 million of purchase price consideration for certain oil and gas assets was paid by Pengrowth Corporation’s purchase in the open market and delivery to the Company of $203.2 million in aggregate principal amount of certain of the Company’s Senior Notes. The Company recorded a pre-tax gain, net of write-off of unamortized deferred financing costs, of US$114.8 million related to these purchases. See Note 12 for more details regarding this transaction.
      The following debt securities were delivered to the Company by Pengrowth Corporation (in millions): 

Debt Security		Principal Amount	
			
7 7/8% Senior Notes Due 2008	 	$	19.6	 	
7 3/4% Senior Notes Due 2009	 	 	20.2	 	
8 5/8% Senior Notes Due 2010	 	 	42.3	 	
8 1/2% Senior Notes Due 2011	 	 	121.1	 	
 	 	 		 	
 	Total	 	$	203.2	 	
 	 	 		 	
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Senior notes repurchased by the Company during the year totaled $1,378.5 million in aggregate outstanding principal amount at a repurchase price of $1,116.5 million plus accrued interest. The Company recorded a pre-tax gain on these transactions in the amount of $245.5 million, net of write-offs of unamortized deferred financing costs and the unamortized premiums or discounts. The following table summarizes the total senior notes repurchased by the Company in the year ended December 31, 2003 (in millions): 

		Principal		Amount	
Debt Security		Amount		Repurchased	
					
8 1/4% Senior Notes Due 2005	 	$	25.0	 	 	$	24.5	 	
10 1/2% Senior Notes Due 2006	 	 	5.2	 	 	 	5.1	 	
7 5/8% Senior Notes Due 2006	 	 	35.3	 	 	 	32.5	 	
8 3/4% Senior Notes Due 2007	 	 	48.9	 	 	 	45.0	 	
7 7/8% Senior Notes Due 2008	 	 	74.8	 	 	 	58.3	 	
8 1/2% Senior Notes Due 2008	 	 	48.3	 	 	 	42.3	 	
8 3/8% Senior Notes Due 2008	 	 	59.2	 	 	 	46.6	 	
7 3/4% Senior Notes Due 2009	 	 	97.2	 	 	 	75.9	 	
8 5/8% Senior Notes Due 2010	 	 	210.4	 	 	 	170.7	 	
8 1/2% Senior Notes Due 2011	 	 	648.4	 	 	 	521.3	 	
8 7/8% Senior Notes Due 2011	 	 	125.8	 	 	 	94.3	 	
 	 	 		 	 	 		 	
 	 	$	1,378.5	 	 	$	1,116.5	 	
 	 	 		 	 	 		 	
      Additionally, senior notes totaling $80.0 million in principal amount were exchanged for 11.5 million shares of Calpine common stock in privately negotiated transactions during the year. The Company recorded a $17.9 million pre-tax gain on these transactions, net of write-offs of unamortized deferred financing costs and the unamortized premiums or discounts. The following table summarizes the total senior notes exchanged for common stock by the Company in the year ended December 31, 2003 (in millions): 

		Principal		Common Stock	
Debt Security		Amount		Issued	
					
8 1/2% Senior Notes Due 2008	 	$	55.0	 	 	 	8.1	 	
8 1/2% Senior Notes Due 2011	 	 	25.0	 	 	 	3.4	 	
 	 	 		 	 	 		 	
 	 	$	80.0	 	 	 	11.5	 	

		
	First Priority Senior Secured Term Loan B Notes Due 2007	
      The Company must repay these notes in 16 consecutive quarterly installments, commencing on October 15, 2003, and ending on July 15, 2007, the first fifteen of which will be for 0.25% of the original principal amount of the notes thru April 15, 2007. The final installment, on July 15, 2007, will be 96.25% of the original principal amount. Interest is payable on each quarterly payment date occurring after the closing date of July 16, 2003. These notes may be redeemed at any time prior to maturity provided, however, that (1) any such prepayment shall be made pro rata among loans of the same type and, if applicable, having the same interest period, of all lenders; (2) each such voluntary partial prepayment shall be in an aggregate minimum amount of $2.0 million; and (3) that no voluntary prepayment of these notes shall be permitted unless the $300 million working capital revolver is reduced by at least a ratable amount. Interest is payable on each quarterly payment date occurring after the closing date of July 16, 2003. At December 31, 2003, both the book and face value of these notes was $199.5 million. The effective interest rate, after amortization of deferred financing costs, was 5.0% per annum at December 31, 2003.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Second Priority Senior Secured Term Loan B Notes Due 2007	
      The Company must repay these notes in 16 consecutive quarterly installments, commencing on October 15, 2003, and ending on July 15, 2007, the first fifteen of which will be 0.25% of the original principal amount of the notes thru April 15, 2007. The final installment, on July 15, 2007, will be 96.25% of the original principal amount. Interest is payable on each quarterly payment date occurring after the closing date of July 16, 2003. The Company may not voluntarily prepay these notes prior to July 15, 2005, except that the Company may on any one or more occasions make such prepayment with the proceeds of one or more public equity offerings. At December 31, 2003, both the book and face value of these notes was $748.1 million. The effective interest rate, after amortization of deferred financing costs, was 7.5% per annum at December 31, 2003.

	Second Priority Senior Secured Floating Rate Notes Due 2007	
      The Company must repay these notes in 16 consecutive quarterly installments, commencing on October 15, 2003, and ending on July 15, 2007, the first fifteen of which will be 0.25% of the original principal amount of the notes thru April 15, 2007. The final installment, on July 15, 2007, will be 96.25% of the original principal amount. On or before July 15, 2005, on one or more occasions, the Company may use the proceeds from one or more public equity offerings to redeem up to 35% of the aggregate principal amount of the notes at the stated redemption price of par plus the applicable Eurodollar rate in effect at the time of redemption. Interest is payable on each quarterly payment date occurring after the closing date of July 16, 2003. At December 31, 2003, both the book and face value of these notes was $498.8 million. The effective interest rate, after amortization of deferred financing costs, was 7.4% per annum at December 31, 2003.

	Second Priority Senior Secured Notes Due 2010	
      Interest is payable on these notes on January 15 and July 15 of each year. The notes will mature on July 15, 2010. On or before July 15, 2006, on one or more occasions, the Company may use the proceeds from one or more public equity offerings to redeem up to 35% of the aggregate principal amount of the notes at the stated redemption price of 108.5%. At December 31, 2003, both the book and face value of these notes were $1,150.0 million. The effective interest rate, after amortization of deferred financing costs, was 8.8% per annum at December 31, 2003.

	Second Priority Senior Secured Notes Due 2013	
      Interest is payable on these notes on January 15 and July 15 of each year. The notes will mature on July 15, 2013. On or before July 15, 2006, on one or more occasions, the Company may use the proceeds from one or more public equity offerings to redeem up to 35% of the aggregate principal amount of the notes at the stated redemption price of 108.75%. At December 31, 2003, both the book and face value of these notes were $900.0 million. The effective interest rate, after amortization of deferred financing costs, was 9.0% per annum at December 31, 2003.

	Second Priority Senior Secured Notes Due 2011	
      Interest is payable on these notes on June 1 and December 1 of each year, commencing on June 1, 2004. The notes will mature on December 1, 2011, and are not redeemable prior to maturity. At December 31, 2003, the book and face value of these notes were $392.2 million and $400.0 million, respectively. The effective interest rate, after amortization of deferred financing costs, was 10.5% per annum at December 31, 2003.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Senior Notes Due 2005	
      Interest on the 8 1/4% notes is payable semi-annually on February 15 and August 15. The notes mature on August 15, 2005, or may be redeemed at any time prior to maturity at a redemption price equal to 100% of their principal amount plus accrued and unpaid interest plus a make-whole premium. At December 31, 2003, the book value and face value of these notes were $224.7 million and $225.0 million, respectively. The effective interest rate, after amortization of deferred financing costs, is 8.7% per annum.

	Senior Notes Due 2006	
      Interest on the 10 1/2% notes is payable semi-annually on May 15 and November 15 each year. The notes mature on May 15, 2006, or are redeemable, at the option of the Company, at any time on or after May 15, 2001, at various redemption prices. In addition, the Company may redeem up to $63.0 million of the Senior Notes Due 2006 from the proceeds of any public equity offering. At December 31, 2003, both the book value and face value of these notes were $166.6 million. The effective interest rate, after amortization of deferred financing costs, was 10.6% per annum at December 31, 2003, and 10.8% per annum at December 31, 2002.
      Interest on the 7 5/8% notes is payable semi-annually on April 15 and October 15 each year. The notes mature on April 15, 2006, and are not redeemable prior to maturity. At December 31, 2003, the book value and face value of these notes were $214.6 million and $214.7 million, respectively. The effective interest rate, after amortization of deferred financing costs, is 7.9% per annum.

	Senior Notes Due 2007	
      Interest on the 8 3/4% notes maturing on July 15, 2007, is payable semi-annually on January 15 and July 15 each year. These notes are redeemable, at the option of the Company, at any time on or after July 15, 2002, at various redemption prices. In addition, the Company may redeem up to $96.3 million of the Senior Notes Due 2007 from the proceeds of any public equity offering. At December 31, 2003, both the book value and face value of these notes were $226.1 million. The effective interest rate, after amortization of deferred financing costs, is 9.1% per annum.
      Interest on the 8 3/4% notes maturing on October 15, 2007, is payable semi-annually on April 15 and October 15 each year. The Notes and may be redeemed prior to maturity, at any time in whole or from time to time in part, at a redemption price equal to the greater of (a) the “Discounted Value” of the senior notes, which equals the sum of the present values of all remaining scheduled payments of principal and interest, or (b) 100% of the principal amount plus accrued and unpaid interest to the redemption date. The Notes are fully and unconditionally guaranteed by the Company. At December 31, 2003, the book value and face value of these notes were $154.1 million and $154.8 million, respectively. The effective interest rate, after amortization of deferred financing costs and the effect of cross currency swaps, was 8.9% at December 31, 2003, and 9.1% per annum at December 31, 2002.

	Senior Notes Due 2008	
      Interest on the 7 7/8% notes is payable semi-annually on April 1 and October 1 each year. These notes mature on April 1, 2008, and are not redeemable prior to maturity. At December 31, 2003, the book value and face value of these notes were $305.3 million and $305.7 million, respectively. The effective interest rate, after amortization of deferred financing costs, was 8.1% per annum at December 31, 2003, and 8.0% per annum at December 31, 2002. The Notes are fully and unconditionally guaranteed by the Company.
      Interest on the 8 1/2% notes is payable semi-annually on May 1 and November 1 each year. The notes mature on May 1, 2008, or may be redeemed prior to maturity at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest plus a make-whole premium. At December 31, 2003, the book value and face value of these notes were $1,925.1 million and $1,926.7 million, respectively. The effective
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
interest rate, after amortization of deferred financing costs, was 8.7% per annum at December 31, 2003, and 8.8% per annum at December 31, 2002.
      Interest on the 8 3/8% notes is payable semi- annually on April 15 and October 15 each year. The notes mature on October 15, 2008, or may be redeemed prior to maturity at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest plus a make-whole premium. At December 31, 2003, both the book value and face value of these notes were $154.1 million. The effective interest rate, after amortization of deferred financing costs and the effect of cross currency swaps, was 8.7% per annum at December 31, 2003, and 9.5% per annum at December 31, 2002.

	Senior Notes Due 2009	
      Interest on these 7 3/4% notes is payable semi-annually on April 15 and October 15 each year. The notes mature on April 15, 2009, and are not redeemable prior to maturity. At December 31, 2003, the book value and face value of these notes were $232.5 million and $232.6 million, respectively. The effective interest rate, after amortization of deferred financing costs, was 8.0% per annum at December 31, 2003, and 7.9% per annum at December 31, 2002.

	Senior Notes Due 2010	
      Interest on these 8 5/8% notes is payable semi-annually on August 15 and February 15 each year. The notes mature on August 15, 2010, and may be redeemed at any time prior to maturity at a redemption price equal to 100% of their principal amount plus accrued and unpaid interest plus a make-whole premium. At December 31, 2003, the book value and face value of these notes were $496.9 million and $497.3 million, respectively. The effective interest rate, after amortization of deferred financing costs, was 8.8% per annum.

	Senior Notes Due 2011	
      Interest on the 8 1/2% notes is payable semi-annually on February 15 and August 15 each year. The notes mature on February 15, 2011, and may be redeemed prior to maturity at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest plus a make-whole premium. At December 31, 2003, the book value and face value of these notes were $1,179.9 million and $1,181.8 million, respectively. The effective interest rate, after amortization of deferred financing costs, was 8.7% per annum.
      Interest on the 8 7/8% notes is payable semi-annually on April 15 and October 15 each year. The notes mature on October 15, 2011, and may be redeemed prior to maturity at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest plus a make-whole premium. At December 31, 2003, the book value and face value of these notes were $215.2 million and $216.7 million, respectively. The effective interest rate, after amortization of deferred financing costs and the effect of cross currency swaps, was 9.4% per annum at December 31, 2003, and 8.9% per annum at December 31, 2002.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17.	Annual Debt Maturities and Minimum Sublease Rentals	
      The annual principal repayments or maturities of notes payable and borrowings under lines of credit, notes payable to Calpine Capital Trusts, preferred interests, construction/project financing, 2006 Convertible Senior Notes, 2023 Convertible Notes, senior notes and capital lease obligations as of December 31, 2003, are as follows (in thousands):

	Annual Debt Repayments or Maturities	
 	 	 	 	 	 	
2004	 	$	349,128	 	
2005	 	 	506,639	 	
2006	 	 	1,332,800	 	
2007	 	 	2,187,223	 	
2008	 	 	2,599,421	 	
Thereafter	 	 	10,702,098	 	
 	 	 		 	
 	Total	 	$	17,677,309	 	

		
	Minimum Sublease Rentals	
      The Company has a power sales agreement for the Broad River facility that is accounted for as a lease. The minimum sublease rentals to be received by the Company in connection with this agreement is $16.5 million, $16.8 million, $17.2 million, $17.5 million, and $17.9 million for the years 2004 through 2008, respectively. Minimum sublease rentals for 2009 and thereafter are $250.9 million.

18.	Provision for Income Taxes	
      The jurisdictional components of income before provision for income taxes at December 31, 2003, 2002, and 2001, are as follows (in thousands): 

		2003		2002		2001	
							
U.S. 	 	$	42,667	 	 	$	94,633	 	 	$	914,490	 	
International	 	 	66,952	 	 	 	(55,888	)	 	 	(33,910	)	
 	 	 		 	 	 		 	 	 		 	
 	Income before provision for income taxes	 	$	109,619	 	 	$	38,745	 	 	$	880,580	 	
 	 	 		 	 	 		 	 	 		 	
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The provision (benefit) for income taxes for the years ended December 31, 2003, 2002, and 2001, consists of the following (in thousands):

		2003		2002		2001	
							
Current:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	$	137,008	 	 	$	(39,402	)	 	$	183,533	 	
 	State	 	 	25,582	 	 	 	3,837	 	 	 	43,676	 	
 	Foreign	 	 	(10,647	)	 	 	5,898	 	 	 	5,810	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Total Current	 	 	151,943	 	 	 	(29,667	)	 	 	233,019	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	 	(180,181	)	 	 	99,595	 	 	 	96,848	 	
 	State	 	 	(36,270	)	 	 	13,970	 	 	 	(16,863	)	
 	Foreign	 	 	64,374	 	 	 	(98,843	)	 	 	(15,390	)	
 	 	 		 	 	 		 	 	 		 	
 	 	Total Deferred	 	 	(152,077	)	 	 	14,722	 	 	 	64,595	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total provision (benefit)	 	$	(134	)	 	$	(14,945	)	 	$	297,614	 	
 	 	 		 	 	 		 	 	 		 	
      The Company’s effective rate for income taxes for the years ended December 31, 2003, 2002, and 2001, differs from the United States statutory rate, as reflected in the following reconciliation: 

		2003		2002		2001	
							
United States statutory tax rate	 	 	35.0	%	 	 	35.0	%	 	 	35.0	%	
State income tax, net of federal benefit	 	 	4.8	 	 	 	29.9	 	 	 	2.0	 	
Depletion and other permanent items	 	 	0.8	 	 	 	(0.2	)	 	 	0.0	 	
Tax credits	 	 	(2.3	)	 	 	(9.0	)	 	 	0.0	 	
Foreign tax at rates other than U.S. statutory	 	 	(83.2	)	 	 	(102.8	)%	 	 	(3.2	)	
Other, net (including U.S. tax on Foreign Income)	 	 	44.8	 	 	 	8.5	 	 	 	0.0	 	
 	 	 		 	 	 		 	 	 		 	
Effective income tax rate	 	 	(0.1	)%	 	 	(38.6	)%	 	 	33.8	%	
 	 	 		 	 	 		 	 	 		 	
      The components of the deferred income taxes, net as of December 31, 2003 and 2002, are as follows (in thousands): 

		2003		2002	
					
Net operating loss and credit carryforwards	 	$	478,118	 	 	$	109,500	 	
Taxes related to risk management activities and SFAS 133	 	 	77,905	 	 	 	103,604	 	
Other differences	 	 	78,776	 	 	 	197,609	 	
Valuation allowance	 	 	(19,335	)	 	 	(26,665	)	
 	 	 		 	 	 		 	
 	Deferred tax assets	 	 	615,464	 	 	 	384,048	 	
 	 	 		 	 	 		 	
Property differences	 	 	(1,941,508	)	 	 	(1,321,445	)	
Other differences	 	 	—	 	 	 	(186,332	)	
 	 	 		 	 	 		 	
 	Deferred tax liabilities	 	 	(1,941,508	)	 	 	(1,507,777	)	
 	 	 		 	 	 		 	
 	 	Net deferred income taxes	 	$	(1,326,044	)	 	$	(1,123,729	)	
 	 	 		 	 	 		 	
      The net operating loss consists of federal and state carryforwards of $364.8 million which expire between 2004 and 2023. The federal and state net operating loss carryforwards available are subject to limitations on annual usage. The Company also has loss carryforwards in certain foreign subsidiaries, resulting in tax benefits
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of approximately $113.3 million, the majority of which expire by 2008. The Company has provided a valuation allowance to reduce deferred tax assets to the extent necessary to result in an amount that is more likely than not of being realized. Realization of the deferred tax assets and net operating loss carryforwards is dependent, in part, on generating sufficient taxable income prior to expiration of the loss carryforwards. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Company is under an Internal Revenue Service review for the years 1999 through 2002. The Company believes that the ultimate resolution will not have a material effect on its financial position.
      The Company’s foreign subsidiaries had no cumulative undistributed earnings at December 31, 2003.

19.	Employee Benefit Plans	

	Retirement Savings Plan	
      The Company has a defined contribution savings plan under Section 401(a) and 501(a) of the Internal Revenue Code. The plan provides for tax deferred salary deductions and after-tax employee contributions. Employees are immediately eligible upon hire. Contributions include employee salary deferral contributions and employer profit-sharing contributions of 4% of employees’ salaries up to $8,000 per year for 2003 and increasing to $8,200 per year for 2004, made entirely in cash. Employer profit-sharing contributions in 2003, 2002, and 2001 totaled $10.7 million, $11.6 million, and $6.9 million, respectively.

	2000 Employee Stock Purchase Plan	
      The Company adopted the 2000 Employee Stock Purchase Plan (“ESPP”) in May 2000. Eligible employees may in the aggregate purchase up to 12,000,000 shares of common stock at semi-annual intervals through periodic payroll deductions. Purchases are limited to a maximum value of $25,000 per calendar year based on the IRS code Section 423 limitation. Shares are purchased on May 31 and November 30 of each year until termination of the plan on May 31, 2010. Under the ESPP, 3,636,139 and 2,611,597 shares were issued at a weighted average fair value of $3.69 and $5.72 per share in 2003 and 2002, respectively. The purchase price is 85% of the lower of (i) the fair market value of the common stock on the participant’s entry date into the offering period, or (ii) the fair market value on the semi-annual purchase date. The purchase price discount is significant enough to cause the ESPP to be considered compensatory under SFAS No. 123. As a result, the ESPP is accounted for as stock-based compensation in accordance with SFAS No. 123. See Note 2 for information related to the Company’s stock-based compensation expense.

	1996 Stock Incentive Plan	
      The Company adopted the 1996 Stock Incentive Plan (“SIP”) in September 1996. The SIP succeeded the Company’s previously adopted stock option program. Prior to the adoption of SFAS No. 123 prospectively on January 1, 2003, (see Note 3), the Company accounted for the SIP under APB Opinion No. 25, “Accounting for Stock Issued to Employees” under which no compensation cost was recognized through December 31, 2002. See Note 2 for the effects the SIP would have on the Company’s financial statements if stock-based compensation was accounted for under SFAS No. 123 prior to January 1, 2003.
      For the year ended December 31, 2003, the Company had granted options to purchase 5,998,585 shares of common stock. Over the life of the SIP, options exercised have equaled 4,702,674, leaving 28,715,414 granted and not yet exercised. Under the SIP, the option exercise price generally equals the stock’s fair market value on date of grant. The SIP options generally vest ratably over four years and expire after 10 years.
      In connection with the merger with Encal, the Company adopted Encal’s existing stock option plan. All outstanding options under the Encal stock option plan were converted at the time of the merger into options to purchase Calpine stock. No new options may be granted under the Encal stock option plan.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Changes in options outstanding, granted, exercisable and canceled during the years 2003, 2002, and 2001, under the option plans of Calpine and Encal were as follows:

						Weighted	
		Available for		Outstanding		Average	
		Option or		Number of		Exercise	
		Award		Options		Price	
							
Outstanding January 1, 2001	 	 	3,465,023	 	 	 	30,672,061	 	 	$	6.09	 	
 	 	 		 	 	 		 	 	 		 	
 	Additional shares reserved	 	 	2,837,150	 	 	 	—	 	 	 	—	 	
 	 	Granted	 	 	(3,034,014	)	 	 	3,034,014	 	 	 	42.89	 	
 	 	Exercised	 	 	—	 	 	 	(5,745,505	)	 	 	8.64	 	
 	 	Canceled	 	 	270,006	 	 	 	(270,006	)	 	 	34.20	 	
 	 	Canceled options available for award(1)	 	 	(682,216	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
Outstanding December 31, 2001	 	 	2,855,949	 	 	 	27,690,564	 	 	$	9.32	 	
 	 	 		 	 	 		 	 	 		 	
 	Additional shares reserved	 	 	15,070,588	 	 	 	 	 	 	 	 	 	
 	 	Granted	 	 	(8,997,720	)	 	 	8,997,720	 	 	 	7.20	 	
 	 	Exercised	 	 	—	 	 	 	(5,112,535	)	 	 	0.77	 	
 	 	Canceled	 	 	1,470,802	 	 	 	(1,470,802	)	 	 	26.53	 	
 	 	Canceled options available for award(1)	 	 	(237,705	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
Outstanding December 31, 2002	 	 	10,161,914	 	 	 	30,104,947	 	 	$	9.30	 	
 	 	 		 	 	 		 	 	 		 	
 	Granted	 	 	(5,998,585	)	 	 	5,998,585	 	 	 	3.93	 	
 	Exercised	 	 	—	 	 	 	(536,730	)	 	 	2.01	 	
 	Canceled	 	 	1,725,221	 	 	 	(1,725,221	)	 	 	13.59	 	
 	Canceled options available for award(1)	 	 	(72,470	)	 	 	 	 	 	 	 	 	
 	Awards issued	 	 	—	 	 	 	(3,150	)	 	 	4.03	 	
 	 	 		 	 	 		 	 	 		 	
Outstanding December 31, 2003	 	 	5,816,080	 	 	 	33,838,431	 	 	$	8.25	 	
 	 	 		 	 	 		 	 	 		 	
Options exercisable:	 	 	 	 	 	 	 	 	 	 	 	 	
 	December 31, 2001	 	 	 	 	 	 	18,642,381	 	 	 	3.81	 	
 	December 31, 2002	 	 	 	 	 	 	19,418,489	 	 	 	7.14	 	
 	December 31, 2003	 	 	 	 	 	 	22,953,781	 	 	 	8.02	 	

		
(1) 	Represents cessation of options awarded under the Encal stock option plan	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The following tables summarizes information concerning outstanding and exercisable options at December 31, 2003:

				Weighted							
				Average		Weighted				Weighted	
		Number of		Remaining		Average		Number of		Average	
		Options		Contractual		Exercise		Options		Exercise	
Range of Exercise Prices		Outstanding		Life in Years		Price		Exercisable		Price	
											
$ 0.570 – $ 1.070	 	 	5,043,246	 	 	 	1.46	 	 	$	0.783	 	 	 	5,043,246	 	 	$	0.783	 	
$ 1.105 – $ 2.250	 	 	3,954,946	 	 	 	4.01	 	 	 	2.136	 	 	 	3,954,946	 	 	 	2.136	 	
$ 2.345 – $ 3.860	 	 	3,777,939	 	 	 	5.02	 	 	 	3.746	 	 	 	3,768,439	 	 	 	3.748	 	
$ 3.960 – $ 3.980	 	 	5,466,259	 	 	 	9.02	 	 	 	3.980	 	 	 	10,000	 	 	 	3.960	 	
$ 4.010 – $ 5.240	 	 	3,256,157	 	 	 	8.37	 	 	 	5.162	 	 	 	1,029,516	 	 	 	5.000	 	
$ 5.250 – $ 7.640	 	 	4,098,249	 	 	 	7.03	 	 	 	7.557	 	 	 	2,444,893	 	 	 	7.515	 	
$ 7.750 – $13.850	 	 	3,757,882	 	 	 	5.84	 	 	 	10.598	 	 	 	3,348,139	 	 	 	10.207	 	
$13.917 – $48.150	 	 	4,319,587	 	 	 	5.97	 	 	 	31.172	 	 	 	3,215,995	 	 	 	28.792	 	
$48.188 – $56.920	 	 	162,216	 	 	 	7.22	 	 	 	51.317	 	 	 	136,657	 	 	 	51.267	 	
$56.990 – $56.990	 	 	1,950	 	 	 	7.33	 	 	 	56.990	 	 	 	1,950	 	 	 	56.990	 	
 	 	 		 	 	 	 	 	 	 	 	 	 	 		 	 	 	 	 	
$ 0.570 – $56.990	 	 	33,838,431	 	 	 	5.81	 	 	$	8.245	 	 	 	22,953,781	 	 	$	8.015	 	

		
20.	Stockholders’ Equity	

	Common Stock	
      Increase in Authorized Shares  — On July 26, 2001, the Company filed amended certificates with the Delaware Secretary of State to increase the number of authorized shares of common stock to 1,000,000,000 from 500,000,000.
      Equity Offering  — On April 30, 2002, Calpine completed a registered offering of 66,000,000 shares of common stock at $11.50 per share. The proceeds from this offering, after underwriting fees, were $734.3 million.

	Preferred Stock and Preferred Share Purchase Rights	
      On June 5, 1997, Calpine adopted a stockholders’ rights plan to strengthen Calpine’s ability to protect Calpine’s stockholders. The plan was amended on September 19, 2001. 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. On December 31, 2003, there were 415,010,125 rights outstanding. 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 $140.00 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
stock. In the event of Calpine’s liquidation, each share of the participating preferred stock will be entitled to any payment made per share of common stock.
      If Calpine is acquired in a merger or other business combination transaction after a person or group has acquired 15% or more of Calpine’s common stock, each right will entitle its holder to purchase at the right’s exercise price a number of the acquiring company’s shares of common stock having a market value of twice the right’s exercise price. In addition, if a person or group acquires 15% or more of Calpine’s common stock, each right will entitle its holder (other than the acquiring person or group) to purchase, at the right’s exercise price, a number of fractional shares of Calpine’s participating preferred stock or shares of Calpine’s common stock having a market value of twice the right’s exercise price.
      The rights remain exercisable for up to 90 days following a triggering event (such as a person acquiring 15% or more of the Company’s common Stock). 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.

	Comprehensive Income (Loss)	
      Comprehensive income is the total of net income and all other non-owner changes in equity. Comprehensive income includes the Company’s net income, unrealized gains and losses from derivative instruments that qualify as cash flow hedges and the effects of foreign currency translation adjustments. The Company reports Accumulated Other Comprehensive Income (AOCI) in its Consolidated Balance Sheet. The tables below detail the changes during 2003, 2002 and 2001 in the Company’s AOCI balance and the components of the Company’s comprehensive income (in thousands): 

						Total			
						Accumulated			
						Other			
				Foreign		Comprehensive		Comprehensive	
		Cash Flow		Currency		Income		Income	
		Hedges(1)		Translation		(Loss)		(Loss)	
									
Accumulated other comprehensive loss at January 1, 2001	 	$	—	 	 	$	(25,363	)	 	$	(25,363	)	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	623,492	 	
 	Cash flow hedges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Comprehensive pre-tax loss on cash flow hedges before reclassification adjustment	 	$	(171,400	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Reclassification adjustment for gain included in net income	 	 	(126,009	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Income tax benefit	 	 	116,590	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	(180,819	)	 	 	 	 	 	 	(180,819	)	 	 	(180,819	)	
 	Foreign currency translation loss	 	 	 	 	 	 	(34,698	)	 	 	(34,698	)	 	 	(34,698	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	407,975	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
Accumulated other comprehensive loss at December 31, 2001	 	$	(180,819	)	 	$	(60,061	)	 	$	(240,880	)	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

						Total			
						Accumulated			
						Other			
				Foreign		Comprehensive		Comprehensive	
		Cash Flow		Currency		Income		Income	
		Hedges(1)		Translation		(Loss)		(Loss)	
									
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	118,618	 	
 	Cash flow hedges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Comprehensive pre-tax gain on cash flow hedges before reclassification adjustment	 	 	96,905	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Reclassification adjustment for gain included in net income	 	 	(169,205	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Income tax benefit	 	 	28,705	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	(43,595	)	 	 	 	 	 	 	(43,595	)	 	 	(43,595	)	
 	Foreign currency translation gain	 	 	 	 	 	 	47,018	 	 	 	47,018	 	 	 	47,018	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	122,041	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
Accumulated other comprehensive loss at December 31, 2002	 	$	(224,414	)	 	$	(13,043	)	 	$	(237,457	)	 	 	 	 	
 	 	 		 	 	 		 	 	 		 	 	 	 	 	
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	282,022	 	
 	Cash flow hedges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Comprehensive pre-tax gain on cash flow hedges before reclassification adjustment	 	 	112,481	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Reclassification adjustment for loss included in net income	 	 	55,620	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Income tax expense	 	 	(74,106	)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	93,995	 	 	 	 	 	 	 	93,995	 	 	 	93,995	 	
 	Foreign currency translation gain	 	 	 	 	 	 	200,056	 	 	 	200,056	 	 	 	200,056	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	576,073	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
Accumulated other comprehensive gain (loss) at December 31, 2003	 	$	(130,419	)	 	$	187,013	 	 	$	56,594	 	 	 	 	 	

		
(1) 	Includes accumulated other comprehensive income (loss) from cash flow hedges held by unconsolidated investees. At December 31, 2003, 2002 and 2001, these amounts were $6,911, $12,018 and $(1,984) respectively.	

21.	Customers	
      In 2003 and 2002, the California Department of Water Resources (“DWR”) was a significant customer (accounting for more than 10% of the Company’s annual consolidated revenues). In 2001 PG&E and Enron Corp. (“Enron”), both of which remain in bankruptcy as of March 12, 2004, were significant customers. Significant customers relate exclusively to the Electric Generation and Marketing segment, with the exception of $33.3 million from Enron, which was derived from Oil and Gas Production and Marketing in 2001.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Revenues earned from the significant customers for the years ended December 31, 2003, 2002, and 2001, were as follows (in thousands):

		2003		2002		2001	
							
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	
DWR	 	$	1,219,656	 	 	$	754,191	 	 	$	*	 	
PG&E(1)	 	 	*	 	 	 	*	 	 	 	723,062	 	
Enron	 	 	*	 	 	 	*	 	 	 	1,671,737	 	
      Receivables due from the significant customers at December 31, 2003 and 2002, were as follows (in thousands): 

		2003		2002	
					
Receivables:	 	 	 	 	 	 	 	 	
DWR	 	$	97,777	 	 	$	78,842	 	

		
*	Customer not significant in respective year.	
 		
(1) 	See Note 8 for a discussion of the December 2003 sale of the PG&E notes receivable.	
      The Company’s customer and supplier base is concentrated within the energy industry. See below for a discussion of the declaration of bankruptcy by PG&E. Additionally, the Company has exposure to trends within the energy industry, including declines in the creditworthiness of its marketing counterparties. Currently, multiple companies within the energy industry are in bankruptcy or have below investment grade credit ratings. The Company has post-petition exposure to three such counterparties, NRG Power Marketing, Inc. (“NRG Power Marketing”), PG&E Energy Trading (“PGET”) and Mirant Americas Energy Marketing, L.P. (“Mirant”), which filed for bankruptcy. The Company believes that its credit exposure to other companies in the energy industry is not significant either by individual company or in the aggregate. The table below shows our post-petition exposure to these counterparties at December 31, 2003 (in thousands): 

		Net									
		Derivative		Net Accounts				Letters of Credit,			
		Assets and		Receivable and				Margin or Other			
		Liabilities		Accounts Payable		Reserve		Offsets		Net Exposure	
											
NRG Power Marketing	 	$	—	 	 	$	5,349	 	 	$	—	 	 	$	 —	 	 	$	5,349	 	
PGET	 	$	—	 	 	$	 —	 	 	$	—	 	 	$	(402	)(1)	 	$	(402	)	
Mirant	 	$	3,433	 	 	$	1,688	 	 	$	(451	)	 	$	(500	)(1)	 	$	4,170	 	

		
(1) 	Margin deposit held by the Company on its balance sheet classified as other current liabilities.	
      On May 14, 2003, NRG Energy, Inc. (“NRG”) and several affiliates filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Southern District of New York. The Company filed proofs of claim in the NRG bankruptcy for certain contingent, unliquidated amounts, and pre-petition delivery of electric energy by the Company to NRG for April and the first half of May 2003. On December 5, 2003, NRG’s plan of reorganization became effective. On December 29, 2003, the Company collected pre-petition amounts of $7.8 million. At December 31, 2003, the Company had approximately $5.3 million in net post-petition exposure; however, the receivables balance is current.
      The Company had an exposure of $1.3 million to PGET, one of PG&E’s affiliates, at December 31, 2003. PGET filed for bankruptcy on July 8, 2003. PGET’s bankruptcy triggered a contract early termination event and Calpine kept the margin deposit it held of $1.7 million that had been posted by PGET. The bankruptcy court approved the termination event.
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CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      On July 14, 2003, Mirant Americas Energy Marketing, L.P. (“Mirant”) and several affiliates filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Northern District of Texas. Pursuant to an order entered by the bankruptcy court on July 15, 2003, Mirant has timely made all payments under the Master Power Purchase and Sale Agreement between the parties (the “Master Agreement”), on both pre- and post-petition obligations. The Company has also executed a post-petition assurance agreement (the “Assurance Agreement”) with Mirant, covering continued performance of Mirant’s post-petition obligations on its contracts with the Company. Mirant’s motion for approval of the Assurance Agreement and the assumption of the Master Agreement was granted by the bankruptcy court on August 27, 2003; therefore, Mirant is required to continue to timely pay all post-petition obligations under the Master Agreement. Additionally, the post-petition assurance agreement provides certain other protections to the Company. The Company’s current post-petition exposure to Mirant as of December 31, 2003, is $4.2 million, and the Company has no pre-petition exposure to Mirant.
      Enron and a number of its subsidiaries and affiliates (including Enron North America Corp. (“ENA”) and Enron Power Marketing, Inc. (“EPMI”)) (collectively “Enron” or the “Enron Bankrupt Entities”) filed for Chapter 11 bankruptcy protection on December 2, 2001. At the time of the filing, CES was a party to various open energy derivatives, swaps, and forward power and gas transactions stemming from agreements with ENA and EPMI. On November 14, 2001, CES, ENA, and EPMI entered into a Master Netting Agreement, which granted the parties a contractual right to setoff amounts owed between them pursuant to the above agreements. The above agreements were terminated by CES on December 10, 2001. The Master Netting Agreement however remained in place. In October 2002 the Company and various affiliates filed proofs of claim against the Enron Bankrupt Entities.
      Calpine and Enron reached a final settlement agreement with regard to the Company’s terminated trading positions with Enron. The agreement was approved by the Unsecured Creditors’ committee on July 24, 2003, and by the Enron Bankruptcy Court on August 7, 2003. Under the terms of the settlement agreement, CES made five monthly installment payments of $19.4 million beginning August 22, 2003, and ending December 22, 2003. The aggregate total of the payments to Enron was $97.0 million. The settlement is now final.
      In connection with this settlement, the Company recorded other revenue of $67.3 million related to settlement of net liabilities associated with terminated derivative positions and receivables and payables with the Enron Bankrupt Entities. Prior to reaching final settlement, the Company had recorded a net liability to the Enron Bankrupt Entities relating to these transactions. The ultimate obligation to the Enron Bankrupt Entities based upon the terms of the final negotiated settlement agreement was less than the net liability the Company had previously recorded. The reduction to the previously recorded net liability was the result of giving economic recognition in the settlement to value associated with: 1) commodity contracts that were not given accounting recognition (i.e. in-the-money commodity contracts accounted for as normal purchases and sales), 2) forgiveness of liabilities due to differences in discounting assumptions, and 3) claims recoveries. Because of the character of the transactions giving rise to the Enron liability, the Company classified the settlement as other revenue.
      A significant portion of the liability to the Enron Bankrupt Entities related to commodity derivatives that had been designated as hedges of price risk associated with the Company’s natural gas consumption, and to a lesser degree, its electric power generation. Under the hedge accounting rules, losses associated with designated hedges are recorded in a company’s balance sheet and recognized into earnings when the transactions being hedged occur even if the hedge instruments are terminated prior to the occurrence of the hedged transactions. As of December 31, 2003, the Company has reclassified losses of approximately $186.3 million into income related to 2003 transactions hedged by Enron derivatives. Most of these losses were recorded as fuel expense consistent with the Company’s policy for classifying gains and losses on designated fuel hedges.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	California Department of Water Resources	
      In 2001 California adopted legislation permitting it to issue long-term revenue bonds to fund wholesale purchases of power by the DWR. The bonds will be repaid with the proceeds of payments by retail power customers over time. CES and DWR entered into four long-term supply contracts during 2001. The Company has recorded deferred revenue in connection with one of the long-term power supply contracts (Contract 3). All of the Company’s accounts receivables from DWR are current, with the exception of approximately $1.0 million which the Company is working to resolve with the customer.
      In early 2002, the California Public Utilities Commission (“CPUC”) and the California Electricity Oversight Board (“EOB”) filed complaints under Section 206 of the Federal Power Act with the Federal Energy Regulatory Commission (“FERC”) alleging that the prices and terms of the long-term contracts with DWR were unjust and unreasonable and contrary to the public interest (the “206 Complaint”). The contracts entered into by CES and DWR were subject to the 206 Complaint.
      On April 22, 2002, the Company announced that it had renegotiated CES’s long-term power contracts with DWR and settled the 206 Complaint. The Office of the Governor, the CPUC, the EOB and the Attorney General for the State of California all endorsed the renegotiated contracts and dropped all pending claims against the Company and its affiliates, including any efforts by the CPUC and the EOB to seek refunds from the Company and its affiliates through the FERC California Refund Proceedings. In connection with the renegotiation, the Company agreed to pay $6 million over three years to the Attorney General to resolve any and all possible claims.

	PG&E	
      The Company’s northern California Qualifying Facility (“QF”) subsidiaries sell power to PG&E under the terms of long-term contracts at eleven facilities. On April 6, 2001, PG&E filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. PG&E is the regulated subsidiary of PG&E Corporation, and the information on PG&E disclosed herein excludes PG&E Corporation’s non-regulated subsidiary activity. The Company has transactions with certain of the non-regulated subsidiaries, which have not been affected by PG&E’s bankruptcy. On July 12, 2001, the U.S. Bankruptcy Court for the Northern District of California approved the agreement the Company had entered into with PG&E to modify and assume all of Calpine’s QF contracts with PG&E. Under the terms of the agreement, the Company will continue to receive its contractual capacity payments plus a five-year fixed energy price component that averages 5.37 cents per kilowatt-hour in lieu of the short run avoided cost. In addition, all past due receivables under the QF contracts were elevated to administrative priority status to be paid to the Company, with interest, upon the effective date of a confirmed plan of reorganization. On September 20, 2001, PG&E filed its proposed plan of reorganization with the bankruptcy court.
      As of April 6, 2001, the date of PG&E’s bankruptcy filing, the Company had recorded $265.6 million in accounts receivable with PG&E under the QF contracts, plus $68.7 million in notes receivable not yet due and payable. PG&E has paid currently for power delivered after April 6, 2001.
      In December 2001 the bankruptcy court approved an agreement between Calpine and PG&E providing that PG&E repay the $265.6 million in past due pre-petition receivables plus accrued interest ($10.3 million through December 31, 2001) thereon beginning on December 31, 2001, and with monthly payments thereafter over the next 11 months. Shortly following receipt of this bankruptcy court approval and the first payments from PG&E on December 31, 2001, the Company sold the remaining PG&E receivables to a third party at a $9.0 million discount. The cash for the sale of the receivables was collected in January 2002.
      CPUC Proceeding Regarding QF Contract Pricing for Past Periods. The Company’s 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 by determining the short run avoided cost (“SRAC”) energy
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
price formula. In mid-2000 the Company’s QF facilities elected the option set forth in Section 390 of the California Public Utility Code, which provides QFs the right to elect to receive energy payments based on the California Power Exchange (“PX”) market clearing price instead of the price determined by SRAC. Having elected such option, the Company was 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. 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 at one point issued a proposed decision to the effect that the PX Price was the appropriate price for energy payments under the California Public Utility Code but tabled it, and 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. The Company believes 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.
      The Company had a combined accounts receivable balance of $24.2 million as of December 31, 2003, from the California Independent System Operator Corporation (“CAISO”) and Automated Power Exchange, Inc. (“APX”). Of this balance, $9.5 million relates to past due balances prior to the PG&E bankruptcy filing. The Company expects that a portion of these past due receivables will be offset against refund obligations under FERC’s California Refund Proceedings (see Note 26) and the Company has provided a partial reserve for these past due receivables. CAISO’s ability to pay the Company is directly impacted by PG&E’s ability to pay CAISO. APX’s ability to pay the Company is directly impacted by PG&E’s ability to pay the PX, which in turn would pay APX for energy delivered by the Company through APX. As noted above, the PX ceased operating in January 2001. See Note 26 for an update on the FERC investigation into the western markets.

	Credit Evaluations	
      The Company’s treasury department includes a credit group focused on monitoring and managing counterparty risk. The credit group monitors the net exposure with each counterparty on a daily basis. The analysis is performed on a mark-to-market basis using the forward curves analyzed by the Company’s Risk Controls group. The net exposure is compared against a counterparty credit risk threshold which is determined based on each counterparty’s credit rating and evaluation of the financial statements. The credit department monitors these thresholds to determine the need for additional collateral or restriction of activity with the counterparty.
22.     Derivative Instruments

	Commodity Derivative Instruments	
      As an independent power producer primarily focused on generation of electricity using gas-fired turbines, the Company’s natural physical commodity position is “short” fuel (i.e., natural gas consumer) and “long” power (i.e., electricity seller). To manage forward exposure to price fluctuation in these and (to a lesser extent) other commodities, the Company enters into derivative commodity instruments. The Company enters into commodity instruments to convert floating or indexed electricity and gas (and to a lesser extent oil and refined product) prices to fixed prices in order to lessen its vulnerability to reductions in electric prices for the electricity it generates, to reductions in gas prices for the gas it produces, and to increases in gas prices for the fuel it consumes in its power plants. The Company seeks to “self-hedge” its gas consumption exposure to an extent with its own gas production position. Any hedging, balancing, or optimization activities that the Company engages in are directly related to the Company’s asset-based business model of owning and operating gas-fired electric power plants and are designed to protect the Company’s “spark spread” (the difference between the Company’s fuel cost and the revenue it receives for its electric generation). The Company hedges exposures that arise from the ownership and operation of power plants and related sales of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
electricity and purchases of natural gas, and the Company utilizes derivatives to optimize the returns the Company is able to achieve from these assets for the Company’s shareholders. From time to time the Company has entered into contracts considered energy trading contracts under EITF Issue No. 02-3. However, the Company’s traders have low capital at risk and value at risk limits for energy trading, and its risk management policy limits, at any given time, its net sales of power to its generation capacity and limits its net purchases of gas to its fuel consumption requirements on a total portfolio basis. This model is markedly different from that of companies that engage in significant commodity trading operations that are unrelated to underlying physical assets. Derivative commodity instruments are accounted for under the requirements of SFAS No. 133.
      The Company also routinely enters into physical commodity contracts for sales of its generated electricity and sales of its natural gas production to ensure favorable utilization of generation and production assets. Such contracts often meet the criteria of SFAS No. 133 as derivatives but are generally eligible for the normal purchases and sales exception. Some of those contracts that are not deemed normal purchases and sales can be designated as hedges of the underlying consumption of gas or production of electricity.
      In 2001 FASB cleared SFAS No. 133 Implementation Issue No. C16 “Applying the Normal Purchases and Normal Sales Exception to Contracts That Combine a Forward Contract and a Purchased Option Contract” (“C16”). The guidance in C16 applies to fuel supply contracts that require delivery of a contractual minimum quantity of fuel at a fixed price and have an option that permits the holder to take specified additional amounts of fuel at the same fixed price at various times. Under C16, the volumetric optionality provided by such contracts is considered a purchased option that disqualifies the entire derivative fuel supply contract from being eligible to qualify for the normal purchases and normal sales exception in SFAS No. 133. On April 1, 2002, the Company adopted C16. At June 30, 2002, the Company had no fuel supply contracts to which C16 applies. However, one of the Company’s equity method investees has fuel supply contracts subject to C16. The equity method investee also adopted C16 in April 2002 at which time the fuel contracts qualified for and were designated as highly effective cash flow hedges of the equity method investee’s forecasted purchase of gas. Accordingly, the Company has recorded $7.8 million net of tax as a cumulative effect of change in accounting principle to other comprehensive income for its share of the equity method investee’s other comprehensive income from this accounting change.

	Interest Rate and Currency Derivative Instruments	
      The Company also enters into various interest rate swap agreements to hedge against changes in floating interest rates on certain of its project financing facilities. The interest rate swap agreements effectively convert floating rates into fixed rates so that the Company can predict with greater assurance what its future interest costs will be and protect itself against increases in floating rates.
      In conjunction with its capital markets activities, the Company enters into various forward interest rate agreements to hedge against interest rate fluctuations that may occur after the Company has decided to issue long-term fixed rate debt but before the debt is actually issued. The forward interest rate agreements effectively prevent the interest rates on anticipated future long-term debt from increasing beyond a certain level, allowing the Company to predict with greater assurance what its future interest costs on fixed rate long-term debt will be.
      The Company enters into various foreign currency swap agreements to hedge against changes in exchange rates on certain of its senior notes denominated in currencies other than the U.S. dollar. The foreign currency swaps effectively convert floating exchange rates into fixed exchange rates so that the Company can predict with greater assurance what its U.S. dollar cost will be for purchasing foreign currencies to satisfy the interest and principal payments on these senior notes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Summary of Derivative Values	
      The table below reflects the amounts (in thousands) that are recorded as assets and liabilities at December 31, 2003, for the Company’s derivative instruments:

				Commodity			
		Interest Rate		Derivative		Total	
		Derivative		Instruments		Derivative	
		Instruments		Net		Instruments	
							
Current derivative assets	 	$	5,908	 	 	$	491,059	 	 	$	496,967	 	
Long-term derivative assets	 	 	—	 	 	 	673,979	 	 	 	673,979	 	
 	 	 		 	 	 		 	 	 		 	
 	Total assets	 	$	5,908	 	 	$	1,165,038	 	 	$	1,170,946	 	
 	 	 		 	 	 		 	 	 		 	
Current derivative liabilities	 	$	12,446	 	 	$	444,242	 	 	$	456,688	 	
Long-term derivative liabilities	 	 	47,833	 	 	 	644,255	 	 	 	692,088	 	
 	 	 		 	 	 		 	 	 		 	
 	Total liabilities	 	$	60,279	 	 	$	1,088,497	 	 	$	1,148,776	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Net derivative assets (liabilities)	 	$	(54,371	)	 	$	76,541	 	 	$	22,170	 	
 	 	 		 	 	 		 	 	 		 	
      Of the Company’s net derivative assets, $434.6 million and $80.2 million are net derivative assets of PCF and CNEM, respectively, each of which is an entity with its existence separate from the Company and other subsidiaries of the Company, but both of which are consolidated by the Company pursuant to FIN 46.
      At any point in time, it is highly unlikely that total net derivative assets and liabilities will equal accumulated OCI, net of tax from derivatives, for three primary reasons:

			
 	• 	Tax effect of OCI — When the values and subsequent changes in values of derivatives that qualify as effective hedges are recorded into OCI, they are initially offset by a derivative asset or liability. Once in OCI, however, these values are tax effected against a deferred tax liability or asset account, thereby creating an imbalance between net OCI and net derivative assets and liabilities.	
 		
 	• 	Derivatives not designated as cash flow hedges and hedge ineffectiveness — Only derivatives that qualify as effective cash flow hedges will have an offsetting amount recorded in OCI. Derivatives not designated as cash flow hedges and the ineffective portion of derivatives designated as cash flow hedges will be recorded into earnings instead of OCI, creating a difference between net derivative assets and liabilities and pre-tax OCI from derivatives.	
 		
 	• 	Termination of effective cash flow hedges prior to maturity — Following the termination of a cash flow hedge, changes in the derivative asset or liability are no longer recorded to OCI. At this point, an accumulated OCI balance remains that is not recognized in earnings until the forecasted initially hedged transactions occur. As a result, there will be a temporary difference between OCI and derivative assets and liabilities on the books until the remaining OCI balance is recognized in earnings.	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Below is a reconciliation of the Company’s net derivative assets to its accumulated other comprehensive loss, net of tax from derivative instruments at December 31, 2003 (in thousands):

Net derivative assets	 	$	22,170	 	
Derivatives not designated as cash flow hedges and recognized hedge ineffectiveness	 	 	(119,168	)	
Cash flow hedges terminated prior to maturity	 	 	(106,023	)	
Deferred tax asset attributable to accumulated other comprehensive loss on cash flow hedges	 	 	71,189	 	
Accumulated OCI from unconsolidated investees	 	 	1,413	 	
 	 	 		 	
Accumulated other comprehensive loss from derivative instruments, net of tax(1)	 	$	(130,419	)	

		
(1) 	Amount represents one portion of the Company’s total accumulated OCI balance. See Note 20 for further information.	
      The asset and liability balances for the Company’s commodity derivative instruments represent the net totals after offsetting certain assets against certain liabilities under the criteria of FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts (an Interpretation of APB Opinion No. 10 and FASB Statement No. 105)” (“FIN 39”). For a given contract, FIN 39 will allow the offsetting of assets against liabilities so long as four criteria are met: (1) each of the two parties under contract owes the other determinable amounts; (2) the party reporting under the offset method has the right to set off the amount it owes against the amount owed to it by the other party; (3) the party reporting under the offset method intends to exercise its right to set off; and; (4) the right of set-off is enforceable by law. The table below reflects both the amounts (in thousands) recorded as assets and liabilities by the Company and the amounts that would have been recorded had the Company’s commodity derivative instrument contracts not qualified for offsetting as of December 31, 2003. 

			
		December 31, 2003	
			
		Gross		Net	
					
Current derivative assets	 	$	863,861	 	 	$	491,059	 	
Long-term derivative assets	 	 	1,176,423	 	 	 	673,979	 	
 	 	 		 	 	 		 	
 	Total derivative assets	 	$	2,040,284	 	 	$	1,165,038	 	
 	 	 		 	 	 		 	
Current derivative liabilities	 	$	817,044	 	 	$	444,242	 	
Long-term derivative liabilities	 	 	1,146,699	 	 	 	644,255	 	
 	 	 		 	 	 		 	
 	Total derivative liabilities	 	$	1,963,743	 	 	$	1,088,497	 	
 	 	 		 	 	 		 	
 	 	Net commodity derivative assets	 	$	76,541	 	 	$	76,541	 	
 	 	 		 	 	 		 	
      The table above excludes the value of interest rate and currency derivative instruments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The tables below reflect the impact of the Company’s derivative instruments on its pre-tax earnings, both from cash flow hedge ineffectiveness and from the changes in market value of derivatives not designated as hedges of cash flows, for the years ended December 31, 2003, 2002 and 2001, respectively (in thousands):

							
		2003		2002		2001	
							
		Hedge		Undesignated				Hedge		Undesignated				Hedge		Undesignated			
		Ineffectiveness		Derivatives		Total		Ineffectiveness		Derivatives		Total		Ineffectiveness		Derivatives		Total	
																			
Natural gas derivatives(1)	 	$	3,153	 	 	$	7,768	 	 	$	10,921	 	 	$	2,147	 	 	$	(14,792	)	 	$	(12,645	)	 	$	(5,788	)	 	$	30,113	 	 	$	24,325	 	
Power derivatives(1)	 	 	(5,001	)	 	 	(56,693	)	 	 	(61,694	)	 	 	(4,934	)	 	 	12,974	 	 	 	8,040	 	 	 	1,866	 	 	 	96,402	 	 	 	98,268	 	
Interest rate derivatives(2)	 	 	(974	)	 	 	—	 	 	 	(974	)	 	 	(810	)	 	 	—	 	 	 	(810	)	 	 	(1,330	)	 	 	(5,785	)	 	 	(7,115	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	$	(2,822	)	 	$	(48,925	)	 	$	(51,747	)	 	$	(3,597	)	 	$	(1,818	)	 	$	(5,415	)	 	$	(5,252	)	 	$	120,730	 	 	$	115,478	 	

		
(1) 	Represents the unrealized portion of mark-to-market activity on gas and power transactions. The unrealized portion of mark-to-market activity is combined with the realized portions of mark-to-market activity and presented in the Consolidated Statements of Operations as mark-to-market activities, net.	
 		
(2) 	Recorded within Other Income	
      The table below reflects the contribution of the Company’s cash flow hedge activity to pre-tax earnings based on the reclassification adjustment from OCI to earnings for the years ended December 31, 2003, 2002 and 2001, respectively (in thousands): 

		2003		2002		2001	
							
Natural gas and crude oil derivatives	 	$	40,752	 	 	$	(119,419	)	 	$	(30,745	)	
Power derivatives	 	 	(79,233	)	 	 	304,073	 	 	 	163,228	 	
Interest rate derivatives	 	 	(27,727	)	 	 	(10,993	)	 	 	(6,474	)	
Foreign currency derivatives	 	 	10,588	 	 	 	(4,456	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	
 	Total derivatives	 	$	(55,620	)	 	$	169,205	 	 	$	126,009	 	
 	 	 		 	 	 		 	 	 		 	
      As of December 31, 2003 the maximum length of time over which the Company was hedging its exposure to the variability in future cash flows for forecasted transactions was 8 and 13 years, for commodity and interest rate derivative instruments, respectively. The Company estimates that pre-tax losses of $42.9 million would be reclassified from accumulated OCI into earnings during the twelve months ended December 31, 2004, as the hedged transactions affect earnings assuming constant gas and power prices, interest rates, and exchange rates over time; however, the actual amounts that will be reclassified will likely vary based on the probability that gas and power prices as well as interest rates and exchange rates will, in fact, change. Therefore, management is unable to predict what the actual reclassification from OCI to earnings (positive or negative) will be for the next twelve months.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The table below presents (in thousands) the pre-tax gains (losses) currently held in OCI that will be recognized annually into earnings, assuming constant gas and power prices, interest rates, and exchange rates over time.

												2009 &			
		2004		2005		2006		2007		2008		After		Total	
															
Gas OCI	 	$	24,628	 	 	$	(27,989	)	 	$	14,036	 	 	$	479	 	 	$	426	 	 	$	1,045	 	 	$	12,625	 	
Power OCI	 	 	(46,119	)	 	 	(39,554	)	 	 	(31,060	)	 	 	(1,255	)	 	 	354	 	 	 	705	 	 	 	(116,929	)	
Interest rate OCI	 	 	(19,578	)	 	 	(15,675	)	 	 	(10,865	)	 	 	(7,470	)	 	 	(5,308	)	 	 	(31,356	)	 	 	(90,252	)	
Foreign currency OCI	 	 	(1,869	)	 	 	(1,869	)	 	 	(1,869	)	 	 	(1,479	)	 	 	32	 	 	 	—	 	 	 	(7,054	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total pre-tax OCI	 	$	(42,938	)	 	$	(85,087	)	 	$	(29,758	)	 	$	(9,725	)	 	$	(4,496	)	 	$	(29,606	)	 	$	(201,610	)	

		
23.	Earnings per Share	
      Basic earnings per common share were computed by dividing net income by the weighted average number of common shares outstanding for the period. The dilutive effect of the potential exercise of outstanding options to purchase shares of common stock is calculated using the treasury stock method. The dilutive effect of the assumed conversion of certain convertible securities into the Company’s common stock is based on the dilutive common share equivalents and the after tax distribution expense avoided upon conversion. The reconciliation of basic earnings per common share to diluted earnings per share is shown in the following table (in thousands except per share data): 

			
		For the Years Ended December 31,	

		2003		2002		2001	
							
		Net				Net				Net			
		Income		Shares		EPS		Income		Shares		EPS		Income		Shares		EPS	
																			
Basic earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before discontinued operations and cumulative effect of a change in accounting principle	 	$	109,753	 	 	 	390,772	 	 	$	0.28	 	 	$	53,690	 	 	 	354,822	 	 	$	0.15	 	 	$	582,966	 	 	 	303,522	 	 	$	1.92	 	
 	Discontinued operations, net of tax	 	 	(8,674	)	 	 	 	 	 	 	(0.02	)	 	 	64,928	 	 	 	 	 	 	 	0.18	 	 	 	39,490	 	 	 	 	 	 	 	0.13	 	
 	Cumulative effect of a change in accounting principle	 	 	180,943	 	 	 	 	 	 	 	0.46	 	 	 	—	 	 	 	 	 	 	 	—	 	 	 	1,036	 	 	 	 	 	 	 	—	 	
 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	
 	Net income	 	$	282,022	 	 	 	390,772	 	 	$	0.72	 	 	$	118,618	 	 	 	354,822	 	 	$	0.33	 	 	$	623,492	 	 	 	303,522	 	 	$	2.05	 	
 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	 	 		 	
Diluted earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income before dilutive effect of certain convertible securities, discontinued operations and cumulative effect of a change in accounting principle	 	$	109,753	 	 	 	396,219	 	 	$	0.28	 	 	$	53,690	 	 	 	362,533	 	 	$	0.15	 	 	$	582,966	 	 	 	317,919	 	 	$	1.83	 	
 	Dilutive effect of certain convertible securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	46,632	 	 	 	54,337	 	 	 	(0.14	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			
		For the Years Ended December 31,	

		2003		2002		2001	
							
		Net				Net				Net			
		Income		Shares		EPS		Income		Shares		EPS		Income		Shares		EPS	
																			
Income before discontinued operations and cumulative effect of a change in accounting principle	 	 	109,753	 	 	 	396,219	 	 	 	0.28	 	 	 	53,690	 	 	 	362,533	 	 	 	0.15	 	 	 	629,598	 	 	 	372,256	 	 	 	1.69	 	
Discontinued operations, net of tax	 	 	(8,674	)	 	 	 	 	 	 	(0.02	)	 	 	64,928	 	 	 	 	 	 	 	0.18	 	 	 	39,490	 	 	 	 	 	 	 	0.11	 	
Cumulative effect of a change in accounting principle	 	 	180,943	 	 	 	 	 	 	 	0.45	 	 	 	—	 	 	 	 	 	 	 	—	 	 	 	1,036	 	 	 	 	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income, as adjusted	 	$	282,022	 	 	 	396,219	 	 	$	0.71	 	 	$	118,618	 	 	 	362,533	 	 	$	0.33	 	 	$	670,124	 	 	 	372,256	 	 	$	1.80	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      Potentially convertible securities and unexercised employee stock options to purchase 127,057,325, 136,744,307, and 13,293,586, shares of the Company’s common stock were not included in the computation of diluted shares outstanding during the years ended December 31, 2003, 2002, and 2001, respectively, because such inclusion would be anti-dilutive.

24.	Commitments and Contingencies	
      Turbines. On February 11, 2003, the Company announced a significant restructuring of its turbine agreements (see Note 4), which enables the Company to cancel up to 131 steam and gas turbines. The Company recorded a pre-tax charge of $207.4 million in the quarter ending December 31, 2002, in connection with fees paid to vendors to restructure these contracts. To date 60 of these turbines have been cancelled, leaving the disposition of 71 turbines still to be determined.
      In July 2003 the Company completed a restructuring of its existing agreements with Siemens Westinghouse Power Corporation for 20 gas and 2 steam turbines. The new agreement provides for later payment dates, which are in line with the Company’s construction program. The table below sets forth future turbine payments for construction and development projects, as well as for unassigned turbines. It includes previously delivered turbines, payments and delivery year for the remaining 5 turbines to be delivered as well as payment required for the potential cancellation costs of the remaining 71 gas and steam turbines. The table does not include payments that would result if the Company were to release for manufacturing any of these remaining 71 turbines. 

				Units to	
Year		Total		Be Delivered	
					
		(In thousands)			
2004	 	$	100,186	 	 	 	5	 	
2005	 	 	18,641	 	 	 	—	 	
2006	 	 	2,516	 	 	 	—	 	
 	 	 		 	 	 		 	
Total	 	$	121,343	 	 	 	5	 	
 	 	 		 	 	 		 	
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Power Plant Operating Leases  — The Company has entered into long-term operating leases for power generating facilities, expiring through 2049. Many of the lease agreements provide for renewal options at fair value, and some of the agreements contain customary restrictions on dividends, additional debt and further encumbrances similar to those typically found in project finance agreements. In accordance with SFAS No. 13 and SFAS No. 98, “Accounting for Leases” the Company’s operating leases are not reflected on our balance sheet. Future minimum lease payments under these leases are as follows (in thousands): 

		Initial															
		Year		2004		2005		2006		2007		2008		Thereafter		Total	
																	
Watsonville	 	 	1995	 	 	$	2,905	 	 	$	2,905	 	 	$	2,905	 	 	$	2,905	 	 	$	2,905	 	 	$	4,065	 	 	$	18,590	 	
King City	 	 	1996	 	 	 	13,746	 	 	 	10,344	 	 	 	9,700	 	 	 	9,100	 	 	 	9,050	 	 	 	87,100	 	 	 	139,040	 	
Greenleaf	 	 	1998	 	 	 	8,858	 	 	 	8,723	 	 	 	8,650	 	 	 	8,650	 	 	 	7,495	 	 	 	38,133	 	 	 	80,509	 	
Geysers	 	 	1999	 	 	 	55,415	 	 	 	55,890	 	 	 	47,991	 	 	 	47,150	 	 	 	42,886	 	 	 	140,533	 	 	 	389,865	 	
KIAC	 	 	2000	 	 	 	24,251	 	 	 	24,077	 	 	 	23,875	 	 	 	23,845	 	 	 	24,473	 	 	 	264,619	 	 	 	385,140	 	
Rumford/ Tiverton	 	 	2000	 	 	 	35,365	 	 	 	44,942	 	 	 	45,000	 	 	 	45,000	 	 	 	45,000	 	 	 	608,292	 	 	 	823,599	 	
South Point	 	 	2001	 	 	 	31,627	 	 	 	9,620	 	 	 	9,620	 	 	 	9,620	 	 	 	9,620	 	 	 	316,810	 	 	 	386,917	 	
RockGen	 	 	2001	 	 	 	26,565	 	 	 	27,031	 	 	 	26,088	 	 	 	27,478	 	 	 	28,732	 	 	 	198,612	 	 	 	334,506	 	
 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	 	 	 	$	198,732	 	 	$	183,532	 	 	$	173,829	 	 	$	173,748	 	 	$	170,161	 	 	$	1,658,164	 	 	$	2,558,166	 	
 	 	 	 	 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
      In 2003, 2002, and 2001 rent expense for power plant operating leases amounted to $112.1 million, $111.0 million, and $99.5 million, respectively. Calpine guarantees $1.7 billion of the total future minimum lease payments of its consolidated subsidiaries.
      The King City operating lease commitment is supported by collateral debt securities that mature serially in amounts equal to a portion of the semi-annual lease payment. These debt securities are classified as held-to-maturity and are recorded at an amortized cost of $82.6 million at December 31, 2003.
      The Company has two tolling agreements with Acadia Energy Center, an equity method affiliate in which the Company has a 50% interest. The total future minimum lease payments for the tolling agreements are as follows (in thousands): 

2004	 	$	63,967	 	
2005	 	 	63,967	 	
2006	 	 	63,967	 	
2007	 	 	65,902	 	
2008	 	 	67,836	 	
Thereafter	 	 	915,788	 	
 	 	 		 	
 	Total	 	$	1,241,427	 	
 	 	 		 	
      Production Royalties and Leases  — The Company is committed under numerous geothermal leases and right-of-way, easement and surface agreements. The geothermal leases generally provide for royalties based on production revenue with reductions for property taxes paid. The right-of-way, easement and surface agreements are based on flat rates or adjusted based on CPI changes and are not material. Under the terms of most geothermal leases, prior to May 1999, when the Company consolidated the steam field and power plant operations in Lake and Sonoma Counties in northern California (“The Geysers”), royalties were based on steam and effluent revenue. Following the consolidation of operations, the royalties began to accrue as a percentage of electrical revenues. Certain properties also have net profits and overriding royalty interests that are in addition to the land base lease royalties. Some lease agreements contain clauses providing for minimum lease payments to lessors if production temporarily ceases or if production falls below a specified level.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      Production royalties for the years ended December 31, 2003, 2002, and 2001, were $24.9 million, $17.6 million, and $27.5 million, respectively.
      Office and Equipment Leases  — The Company leases its corporate, regional and satellite offices as well as some of its office equipment under noncancellable operating leases expiring through 2013. Future minimum lease payments under these leases are as follows (in thousands): 

2004	 	$	29,065	 	
2005	 	 	27,173	 	
2006	 	 	22,768	 	
2007	 	 	20,395	 	
2008	 	 	19,573	 	
Thereafter	 	 	76,820	 	
 	 	 		 	
 	Total	 	$	195,794	 	
 	 	 		 	
      Lease payments are subject to adjustments for the Company’s pro rata portion of annual increases or decreases in building operating costs. In 2003, 2002, and 2001 rent expense for noncancellable operating leases amounted to $21.6 million, $25.8 million, and $16.2 million, respectively.
      Natural Gas Purchases  — The Company enters into gas purchase contracts of various terms with third parties to supply gas to its gas-fired cogeneration projects.
      Gas Pipeline Transportation in Canada  — To support production and marketing operations, Calpine has firm commitments in the ordinary course of business for gathering, processing and transmission services that require the Company to deliver certain minimum quantities of natural gas to third parties or pay the corresponding tariffs. The agreements expire at various times through 2015. Estimated payments to be made under these arrangements are $6.5 million, $6.6 million, $6.0 million, $6.0 million, $6.2 million and $48.6 million for each of the next five years and thereafter, respectively.
      Guarantees  — As part of normal business, Calpine enters into various agreements providing, or otherwise arranges, financial or performance assurance to third parties on behalf of its subsidiaries. Such arrangements include guarantees, standby letters of credit and surety bonds. These arrangements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended commercial purposes.
      Calpine routinely issues guarantees to third parties in connection with contractual arrangements entered into by Calpine’s direct and indirect wholly owned subsidiaries in the ordinary course of such subsidiaries’ respective business, including power and natural gas purchase and sale arrangements and contracts associated with the development, construction, operation and maintenance of Calpine’s fleet of power generating facilities and natural gas facilities. Under these guarantees, if the subsidiary in question were to fail to perform its obligations under the guaranteed contract, giving rise to a default and/or an amount owing by the subsidiary to the third party under the contract, Calpine could be called upon to pay such amount to the third party or, in some instances, to perform the subsidiary’s obligations under the contract. It is Calpine’s policy to attempt to negotiate specific limits or caps on Calpine’s overall liability under these types of guarantees; however, in some instances, Calpine’s liability is not limited by way of such a contractual liability cap.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      At December 31, 2003, guarantees of subsidiary debt, standby letters of credit and surety bonds to third parties and guarantees of subsidiary operating lease payments and their respective expiration dates were as follows (in thousands):

Commitments Expiring		2004		2005		2006		2007		2008		Thereafter		Total	
															
Guarantee of subsidiary debt	 	$	27,194	 	 	$	17,531	 	 	$	15,128	 	 	$	171,621	 	 	$	2,099,553	 	 	$	658,876	 	 	$	2,989,903	 	
Standby letters of credit(1)	 	 	320,580	 	 	 	75,756	 	 	 	10,666	 	 	 	3,401	 	 	 	400	 	 	 	—	 	 	 	410,803	 	
Surety bonds(2)	 	 	34,273	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	36,207	 	 	 	70,480	 	
Guarantee of subsidiary operating lease payments	 	 	96,688	 	 	 	83,169	 	 	 	81,772	 	 	 	82,487	 	 	 	115,604	 	 	 	1,277,760	 	 	 	1,737,480	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	$	478,735	 	 	$	176,456	 	 	$	107,566	 	 	$	257,509	 	 	$	2,215,557	 	 	$	1,972,843	 	 	$	5,208,666	 	

		
(1) 	The Standby letters of credit disclosed above include those disclosed in Notes 11 and 14.	
 		
(2) 	The bonds that do not have expiration or cancellation dates are included in the Thereafter column.	
      The balance of the guarantees of subsidiary debt, standby letters of credit and surety bonds were as follows (in thousands): 

			
		Balance at December 31,	
			
		2003		2002	
					
Guarantee of subsidiary debt	 	$	2,989,903	 	 	$	3,259,878	 	
Standby letters of credit	 	 	410,803	 	 	 	685,606	 	
Surety bonds	 	 	70,480	 	 	 	72,267	 	
 	 	 		 	 	 		 	
 	 	$	3,471,186	 	 	$	4,017,751	 	
 	 	 		 	 	 		 	
      The Company has guaranteed the principal payment of $2,448.6 million and $2,656.8 million, as of December 31, 2003 and 2002, respectively, of Senior Notes for two wholly owned finance subsidiaries of Calpine, Calpine Canada Energy Finance ULC and Calpine Canada Energy Finance II ULC. As of December 31, 2003, the Company has guaranteed $291.6 million and $214.1 million, respectively, of project financing for the Broad River Energy Center and Pasadena Power Plant and $301.0 million and $214.1 million, respectively, as of December 31, 2002, for these power plants. As of December 31, 2003 and 2002, the Company has also guaranteed $35.6 million and $38.0 million, respectively, of other miscellaneous debt. All of the guaranteed debt is recorded on the Company’s Consolidated Balance Sheet.
      The King City operating lease commitment is supported by collateral debt securities that mature serially in amounts equal to a portion of the semi-annual lease payment. See “Financial Market Risks — Collateral Debt Securities” for more information.
      Calpine routinely arranges for the issuance of letters of credit and various forms of surety bonds to third parties in support of its subsidiaries’ contractual arrangements of the types described above and may guarantee the operating performance of some of its partially owned subsidiaries up to the Company’s ownership percentage. The letters of credit outstanding under various credit facilities support CES risk management, and other operational and construction activities. Of the total letters of credit outstanding, $14.5 million and $106.1 million were issued to support CES risk management at December 31, 2003 and 2002, respectively. In the event a subsidiary were to fail to perform its obligations under a contract supported by such a letter of credit or surety bond, and the issuing bank or surety were to make payment to the third party, Calpine would be responsible for reimbursing the issuing bank or surety within an agreed timeframe, typically a period of 1 to 10 days. To the extent liabilities are incurred as a result of activities covered by letters of credit or the surety bonds, such liabilities are included in the Consolidated Balance Sheets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      At December 31, 2003, investee debt was $455.9 million. Based on the Company’s ownership share of each of the investments, the Company’s share would be approximately $145.0 million. However, all such debt is non-recourse to the Company.
      In the course of its business, Calpine and its subsidiaries have entered into various purchase and sale agreements relating to stock and asset acquisitions or dispositions. These purchase and sale agreements customarily provide for indemnification by each of the purchaser and the seller, and/or their respective parent, to the counter-party for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party. These indemnification obligations generally have a discrete term and are intended to protect the parties against risks that are difficult to predict or impossible to quantify at the time of the consummation of a particular transaction. The Company has no reason to believe that it currently has any material liability relating to such routine indemnification obligations.
      Additionally, Calpine and its subsidiaries from time to time assume other indemnification obligations in conjunction with transactions other than purchase or sale transactions. These indemnification obligations generally have a discrete term and are intended to protect our counterparties against risks that are difficult to predict or impossible to quantify at the time of the consummation of a particular transaction, such as the costs associated with litigation that may result from the transaction. The Company has no reason to believe that it currently has any material liability relating to such routine indemnification obligations.
      Calpine has in a few limited circumstances directly or indirectly guaranteed the performance of obligations by unrelated third parties. These circumstances have arisen in situations in which a third party has contractual obligations with respect to the construction, operation or maintenance of a power generating facility or related equipment owned in whole or in part by Calpine. Generally, the third party’s obligations with respect to related equipment are guaranteed for the direct or indirect benefit of Calpine by the third party’s parent or other party. A financing party or investor in such facility or equipment may negotiate for Calpine also to guarantee the performance of such third party’s obligations as additional support for the third party’s obligations. For example, in conjunction with the financing of California peaker program, Calpine guaranteed for the benefit of the lenders certain warranty obligations of third party suppliers and contractors. Calpine has entered into few guarantees of unrelated third party’s obligations. Calpine has no reason to believe that it currently has any liability with respect to these guarantees.
      The Company believes that the likelihood that it would be required to perform or otherwise incur any significant losses associated with any of these guarantees is remote.

	Litigation	
      The Company is party to various litigation matters arising out of the normal course of business, the more significant of which are summarized below. The ultimate outcome of each of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome be reasonably estimated presently for every case. The liability the Company may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result, these matters may potentially be material to the Company’s consolidated financial statements.
      Securities Class Action Lawsuits. Since March 11, 2002, fourteen shareholder lawsuits have been filed against the Company and certain of its officers in the United States District Court, Northern District of California. The actions captioned Weisz v. Calpine Corp., et al. , filed March 11, 2002, and Labyrinth Technologies, Inc. v. Calpine Corp., et al. , filed March 28, 2002, are purported class actions on behalf of purchasers of Calpine stock between March 15, 2001 and December 13, 2001. Gustaferro v. Calpine Corp. , filed April 18, 2002, is a purported class action on behalf of purchasers of Calpine stock between February 6, 2001 and December 13, 2001. The eleven other actions, captioned Local 144 Nursing Home Pension Fund v.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Calpine Corp. , Lukowski v. Calpine Corp. , Hart v. Calpine Corp. , Atchison v. Calpine Corp. , Laborers Local 1298 v. Calpine Corp. , Bell v. Calpine Corp. , Nowicki v. Calpine Corp. Pallotta v. Calpine Corp. , Knepell v. Calpine Corp. , Staub v. Calpine Corp. , and Rose v. Calpine Corp. were filed between March 18, 2002 and April 23, 2002. The complaints in these eleven actions are virtually identical — they are filed by three law firms, in conjunction with other law firms as co-counsel. All eleven lawsuits are purported class actions on behalf of purchasers of the Company’s securities between January 5, 2001 and December 13, 2001.
      The complaints in these fourteen actions allege that, during the purported class periods, certain Calpine executives issued false and misleading statements about the Company’s financial condition in violation of Sections 10(b) and 20(1) of the Securities Exchange Act of 1934, as well as Rule 10b-5. These actions seek an unspecified amount of damages, in addition to other forms of relief.
      In addition, a fifteenth securities class action, Ser v. Calpine, et al. , was filed on May 13, 2002. The underlying allegations in the Ser action are substantially the same as those in the above-referenced actions. However, the Ser action is brought on behalf of a purported class of purchasers of Calpine’s 8.5% Senior Notes Due February 15, 2011 (“2011 Notes”) and the alleged class period is October 15, 2001 through December 13, 2001. The Ser complaint alleges that, in violation of Sections 11 and 15 of the Securities Act of 1933, the Supplemental Prospectus for the 2011 Notes contained false and misleading statements regarding the Company’s financial condition. This action names the Company, certain of its officers and directors, and the underwriters of the 2011 Notes offering as defendants, and seeks an unspecified amount of damages, in addition to other forms of relief.
      All fifteen of these securities class action lawsuits were consolidated in the U.S. District Court for the Northern District Court of California. The plaintiffs filed a first amended complaint in October 2002. The amended complaint did not include the 1933 Act complaints raised in the bondholders’ complaint, and the number of defendants named was reduced. On January 16, 2003, before our response was due to this amended complaint, the plaintiffs filed a further second complaint. This second amended complaint added three additional Calpine executives and Arthur Andersen LLP as defendants. The second amended complaint set forth additional alleged violations of Section 10 of the Securities Exchange Act of 1934 relating to allegedly false and misleading statements made regarding Calpine’s role in the California energy crisis, the long term power contracts with the California Department of Water Resources, and Calpine’s dealings with Enron, and additional claims under Section 11 and Section 15 of the Securities Act of 1933 relating to statements regarding the causes of the California energy crisis. The Company filed a motion to dismiss this consolidated action in early April 2003.
      On August 29, 2003, the judge issued an order dismissing, with leave to amend, all of the allegations set forth in the second amended complaint except for a claim under Section 11 of the Securities Act relating to statements relating to the causes of the California energy crisis and the related increase in wholesale prices contained in the Supplemental Prospectuses for the 2011 Notes. The judge instructed plaintiffs to file a third amended complaint, which they did on October 17, 2003. The third amended complaint names Calpine and three executives as defendants and alleges the Section 11 claim that survived the judge’s August 29, 2003 order.
      On November 21, 2003, Calpine and the individual defendants moved to dismiss the third amended complaint on the grounds that plaintiff’s Section 11 claim was barred by the applicable one-year statute of limitations. On February 5, 2004, the judge denied our motion to dismiss but has asked the parties to be prepared to file summary judgment motions to address the statute of limitations issue. Our answer to the third amended complaint has been filed. The Company considers the lawsuit to be without merit and intends to continue to defend vigorously against these allegations.
      Hawaii Structural Ironworkers Pension Fund v. Calpine, et al. A securities class action, Hawaii Structural Ironworkers Pension Fund v. Calpine, et al. , was filed on March 11, 2003, against Calpine, its
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
directors and certain investment banks in the California Superior Court, San Diego County. The underlying allegations in the Hawaii Structural Ironworkers Pension Fund action (“Hawaii action”) are substantially the same as the federal securities class actions described above. However, the Hawaii action is brought on behalf of a purported class of purchasers of the Company’s equity securities sold to public investors in its April 2002 equity offering. The Hawaii action alleges that the Registration Statement and Prospectus filed by Calpine which became effective on April 24, 2002, contained false and misleading statements regarding the Company’s financial condition in violation of Sections 11, 12 and 15 of the Securities Act of 1933. The Hawaii action relies in part on the Company’s restatement of certain past financial results, announced on March 3, 2003, to support its allegations. The Hawaii action seeks an unspecified amount of damages, in addition to other forms of relief.
      The Company removed the Hawaii action to federal court in April 2003 and filed a motion to transfer the case for consolidation with the other securities class action lawsuits in the U.S. District Court Northern District Court of California in May 2003. The plaintiff sought to have the action remanded to state court, and on August 27, 2003, the U.S. District Court for the Southern District of California granted plaintiff’s motion to remand the action to state court. In early October 2003 plaintiff agreed to dismiss the claims it has against three of the outside directors.
      On November 5, 2003, Calpine, the individual defendants and the underwriter defendants filed motions to dismiss this complaint on numerous grounds. On February 6, 2004, the court issued a tentative ruling sustaining our motion to dismiss on the issue of the plaintiff’s standing. The court found that the plaintiff had not shown that it had purchased Calpine’ stock “traceable” to the April 2002 equity offering. The court overruled our motion to dismiss on all other grounds. The Company has requested oral argument on these other issues which oral argument is currently scheduled for March 2004. The Company considers this lawsuit to be without merit and intends to continue to defend vigorously against it.
      Phelps v. Calpine Corporation, et al. On April 17, 2003, a participant in the Calpine Corporation Retirement Savings Plan (the “401(k) Plan”) filed a class action lawsuit in the Northern District Court of California. The underlying allegations in this action (“Phelps action”) are substantially the same as those in the securities class actions described above. However, the Phelps action is brought on behalf of a purported class of participants in the 401(k) Plan. The Phelps action alleges that various filings and statements made by Calpine during the class period were materially false and misleading, and that the defendants failed to fulfill their fiduciary obligations as fiduciaries of the 401(k) Plan by allowing the 401(k) Plan to invest in Calpine common stock. The Phelps action seeks an unspecified amount of damages, in addition to other forms of relief. In May 2003 Lennette Poor-Herena, another participant in the 401(k) Plan, filed a substantially similar class action lawsuit as the Phelps action also in the Northern District of California. Plaintiffs’ counsel is the same in both of these actions, and they have agreed to consolidate these two cases and to coordinate them with the consolidated federal securities class actions described above. On January 20, 2004, plaintiff James Phelps filed a consolidated ERISA complaint naming the Company and numerous individual current and former Calpine Board members and employees as defendants. Calpine’s response to the amended complaint is due March 22, 2004. The Company considers this lawsuit to be without merit and intends to vigorously defend against it.
      Johnson v. Peter Cartwright, et al. On December 17, 2001, a shareholder filed a derivative lawsuit on behalf of the Company against its directors and one if its senior officers. This lawsuit is captioned Johnson v. Cartwright, et al. and is pending in the California Superior Court, Santa Clara County. The Company is a nominal defendant in this lawsuit, which alleges claims relating to purportedly misleading statements about Calpine and stock sales by certain of the director defendants and the officer defendant. In December 2002 the court dismissed the complaint with respect to certain of the director defendants for lack of personal jurisdiction, though the plaintiff may appeal this ruling. In early February 2003 the plaintiff filed an amended complaint. In March 2003 the Company and the individual defendants filed motions to dismiss and motions to stay this proceeding in favor of the federal securities class actions described above. In July 2003 the Court
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granted the motions to stay this proceeding in favor of the consolidated federal securities class actions described above. The Company considers this lawsuit to be without merit and intends to vigorously defend against it.
      Gordon v. Peter Cartwright, et al. On August 8, 2002, a shareholder filed a derivative suit in the United States District Court for the Northern District California on behalf of Calpine against its directors, captioned Gordon v. Cartwright, et al. similar to Johnson v. Cartwright. Motions have been filed to dismiss the action against certain of the director defendants on the grounds of lack of personal jurisdiction, as well as to dismiss the complaint in total on other grounds. In February 2003 plaintiff agreed to stay these proceedings in favor of the consolidated federal securities class actions described above and to dismiss without prejudice certain director defendants. On March 4, 2003, the plaintiff filed papers with the court voluntarily agreeing to dismiss without prejudice the claims he had against three of the outside directors. The Company considers this lawsuit to be without merit and intends to continue to defend vigorously against it.
      Calpine Corporation v. Automated Credit Exchange. On March 5, 2002, the Company sued Automated Credit Exchange (“ACE”) in the Superior Court of the State of California for the County of Alameda for negligence and breach of contract to recover reclaim trading credits, a form of emission reduction credits that should have been held in the Company’s account with U.S. Trust Company (“US Trust”). Calpine wrote off $17.7 million in December 2001 related to losses that it alleged were caused by ACE. Calpine and ACE entered into a Settlement Agreement on March 29, 2002, pursuant to which ACE made a payment to the Company of $7 million and transferred to the Company the rights to the emission reduction credits to be held by ACE. The Company recognized the $7 million as income in the second quarter of 2002. In June 2002 a complaint was filed by InterGen North America, L.P. (“InterGen”) against Anne M. Sholtz, the owner of ACE, and EonXchange, another Sholtz-controlled entity, which filed for bankruptcy protection on May 6, 2002. InterGen alleges it suffered a loss of emission reduction credits from EonXchange in a manner similar to the Company’s loss from ACE. InterGen’s complaint alleges that Anne Sholtz co-mingled assets among ACE, EonXchange and other Sholtz entities and that ACE and other Sholtz entities should be deemed to be one economic enterprise and all retroactively included in the EonXchange bankruptcy filing as of May 6, 2002. By a judgment entered on October 30, 2002, the Bankruptcy Court consolidated ACE and the other Sholtz controlled entities with the bankruptcy estate of EonXchange. Subsequently, the Trustee of EonXchange filed a separate motion to substantively consolidate Anne Sholtz into the bankruptcy estate of EonXchange. Although Anne Sholtz initially opposed such motion, she entered into a settlement agreement with the Trustee consenting to her being substantively consolidated into the bankruptcy proceeding. The Bankruptcy Court entered an order approving Anne Sholtz’s settlement agreement with the Trustee on April 3, 2002. On July 10, 2003, Howard Grobstein, the Trustee in the EonXchange bankruptcy, filed a complaint for avoidance against Calpine, seeking recovery of the $7 million (plus interest and costs) paid to Calpine in the March 29, 2002 Settlement Agreement. The complaint claims that the $7 million received by Calpine in the Settlement Agreement was transferred within 90 days of the filing of bankruptcy and therefore should be avoided and preserved for the benefit of the bankruptcy estate. On August 28, 2003, Calpine filed its answer denying that the $7 million is an avoidable preference. Discovery is currently ongoing. Calpine believes that it has valid defenses to this claim and will vigorously defend against this complaint. On January 26, 2004, Calpine filed a Motion for Partial Summary Judgment asserting that the Bankruptcy Court did not properly consolidate Anne Sholtz into the bankruptcy estate of EonXchange. If the motion is granted, at least $2.9 million of the $7 million that the Trustee is seeking to recover from the Company could not be avoided as a preferential transfer. The Company believes it has adequately reserved for the possible loss, if any, it may ultimately incur as a result of this matter.
      International Paper Company v. Androscoggin Energy LLC. In October 2000 International Paper Company (“IP”) filed a complaint in the Federal District Court for the Northern District of Illinois against Androscoggin Energy LLC (“AELLC”) alleging that AELLC breached certain contractual representations and warranties by failing to disclose facts surrounding the termination, effective May 8, 1998, of one of
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AELLC’s fixed-cost gas supply agreements. The Company had acquired a 32.3% interest in AELLC as part of the SkyGen transaction which closed in October 2000. AELLC filed a counterclaim against IP that has been referred to arbitration. AELLC may commence the arbitration counterclaim after discovery has progressed further. On November 7, 2002, the court issued an opinion on the parties’ cross motions for summary judgment finding in AELLC’s favor on certain matters though granting summary judgment to IP on the liability aspect of a particular claim against AELLC. The Court also denied a motion submitted by IP for preliminary injunction to permit IP to make payment of funds into escrow (not directly to AELLC) and require AELLC to post a significant bond.
      In mid-April of 2003 IP unilaterally availed itself to self-help in withholding amounts in excess of $2.0 million as a set-off for litigation expenses and fees incurred to date as well as an estimated portion of a rate fund to AELLC. Upon AELLC’s amended complaint and request for immediate injunctive relief against such actions, the Court ordered that IP must pay the approximately $1.2 million withheld as attorneys’ fees related to the litigation as any such perceived entitlement was premature, but deferred to provide injunctive relief on the incomplete record concerning the offset of $799,000 as an estimated pass-through of the rate fund. IP complied with the order on April 29, 2003, and tendered payment to AELLC of the approximately $1.2 million. On June 26, 2003, the court entered an order dismissing AELLC’s Amended Counterclaim without prejudice to AELLC refiling the claims as breach of contract claims in a separate lawsuit. On June 30, 2003, AELLC filed a motion to reconsider the order dismissing AELLC’s Amended Counterclaim. On December 11, 2003, the Court denied in part IP’s summary judgment motion pertaining to damages. In short, the Court: (i) determined that, as a matter of law, IP is entitled to pursue an action for damages as a result of AELLC’s breach, and (ii) ruled that sufficient questions of fact remain to deny IP summary judgment on the measure of damages as IP did not sufficiently establish causation resulting from AELLC’s breach of contract (the liability aspect of which IP obtained a summary judgment in December 2002). On February 2, 2004, the parties filed a pretrial order with the Court. The case appears likely scheduled for trial in the second quarter of 2004, subject to the Court’s discretion and calendar. The Company believes it has adequately reserved for the possible loss, if any, it may ultimately incur as a result of this matter.
      Pacific Gas and Electric Company v. Calpine Corporation, et al. On July 22, 2003, Pacific Gas and Electric Company (“PG&E”) filed with the California Public Utilities Commission (“CPUC”) a Complaint of PG&E and Request for Immediate Issuance of an Order to Show Cause (“Complaint”) against Calpine Corporation, CPN Pipeline Company, Calpine Energy Services, L.P., Calpine Natural Gas Company, and Lodi Gas Storage, LLC (“LGS”) . The Complaint requests the CPUC to issue an order requiring the defendants to show cause why they should not be ordered to cease and desist from using any direct interconnections between the facilities of CPN Pipeline and those of LGS unless LGS and Calpine first seek and obtain regulatory approval from the CPUC. The Complaint also seeks an order directing defendants to pay to PG&E any underpayments of PG&E’s tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS’ direct interconnections to any entity other than PG&E. The Complaint further alleges that various natural gas consumers, including Company-affiliated generation projects within California, are engaged with defendants in the acts complained of, and that the defendants unlawfully bypass PG&E’s system and operate as an unregulated local distribution company within PG&E’s service territory. On August 27, 2003, Calpine filed its answer and a motion to dismiss. LGS has also made similar filings. On October 16, 2003, the presiding administrative law judge denied the motion to dismiss and on October 24, 2003, issued a Scoping Memo and Ruling establishing a procedural schedule and set the matter for an evidentiary hearing. Although Calpine has denied the allegations in the Complaint and believes this Complaint to be without merit, on January 15, 2004, Calpine, LGS and PG&E executed a Settlement Agreement to resolve all outstanding allegations and claims raised in the Complaint. Certain aspects of the Settlement Agreement are effective immediately and the effectiveness of other provisions is subject to the approval of the Settlement Agreement by the CPUC; in the event the CPUC fails to approve the Settlement Agreement, its operative terms and conditions become null and void. The Settlement Agreement provides, in
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part, for: 1) PG&E to be paid $2.7 million; 2) the disconnection of the LGS interconnections with Calpine; 3) Calpine to obtain PG&E consent or regulatory or other governmental approval before resuming any sales or exchanges at the Ryer Island Meter Station; 4) PG&E’s withdrawal of its public utility claims against Calpine; and 5) no party admitting any wrongdoing. Accordingly, the presiding administrative law judge vacated the hearing schedule and established a new procedural schedule for the filing of the Settlement Agreement. On February 6, 2004, the Settlement Agreement was filed with the CPUC. Parties have the opportunity to submit comments and reply comments on the Settlement Agreement and then the matter shall be before the CPUC for its consideration.
      Panda Energy International, Inc., et al. v. Calpine Corporation, et al. On November 5, 2003, Panda Energy International, Inc. and certain related parties, including PLC II, LLC, (collectively “Panda”) filed suit against the Company and certain of its affiliates in the U.S. District Court for the Northern District of Texas, alleging, among other things, that the Company breached duties of care and loyalty allegedly owed to Panda by failing to correctly construct and operate the Oneta Energy Center (“Oneta”), which the Company acquired from Panda, in accordance with Panda’s original plans. Panda alleges that it is entitled to a portion of the profits from Oneta and that the Company’s actions have reduced the profits from Oneta thereby undermining Panda’s ability to repay monies owed to the Company on December 1, 2003, under a promissory note on which approximately $38.6 million (including interest) is currently outstanding. The note is collateralized by Panda’s carried interest in the income generated from Oneta, which achieved full commercial operations in June 2003. The Company has filed a counterclaim against Panda Energy International, Inc. (and PLC II, LLC) based on a guaranty, and has also filed a motion to dismiss as to the causes of action alleging federal and state securities laws violations. The Company considers Panda’s lawsuit to be without merit and intends to defend vigorously against it. The Company stopped accruing interest income on the promissory note due December 1, 2003, as of the due date because of Panda’s default in repayment of the note.
      California Business & Professions Code Section 17200 Cases, of which the lead case is T&E Pastorino Nursery v. Duke Energy Trading and Marketing, L.L.C., et al. This purported class action complaint filed in May 2002 against twenty energy traders and energy companies, including CES, alleges that defendants exercised market power and manipulated prices in violation of California Business & Professions Code Section 17200 et seq., and seeks injunctive relief, restitution, and attorneys’ fees. The Company also has been named in seven other similar complaints for violations of Section 17200. All seven cases were removed from the various state courts in which they were originally filed to federal court for pretrial proceedings with other cases in which the Company is not named as a defendant. The Company considers the allegations to be without merit, and filed a motion to dismiss on August 28, 2003. The court granted the motion, and plaintiffs have appealed.
      Prior to the motion to dismiss being granted, one of the actions, captioned Millar v. Allegheny Energy Supply Co., LLP, et al. , was remanded to the Superior Court of the State of California for the County of Alameda. On January 12, 2004, CES was added as a defendant in Millar . This action includes similar allegations to the other 17200 cases, but also seeks rescission of the long term power contracts with the California Department of Water Resources. The Company anticipates filing a timely motion for dismissal of this action as well.
      McClintock et al. v. Vikram Budhraja, et al. California Department of Water Resources Case. On May 1, 2002, California State Senator Tom McClintock and others filed a complaint against Vikram Budhraja, a consultant to the California Department of Water Resources (“DWR”), DWR itself, and more than twenty-nine energy providers and other interested parties, including Calpine. The complaint alleged that the long term power contracts that DWR entered into with these energy providers, including Calpine, were rendered void because Budhraja, who negotiated the contracts on behalf of DWR, allegedly had an undisclosed financial interest in the contracts due to his connection with one of the energy providers, Edison International. Among other things, the complaint sought an injunction prohibiting further performance of the
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long term contracts and restitution of any funds paid to energy providers by the State of California under the contracts. The action had been stayed by order of the Court since August 26, 2002, pending resolution of an earlier filed state court action involving the same parties and subject matter captioned Carboneau v. State of California in which the Company is not a defendant. The Company considered the allegations against it in this lawsuit to be without merit and filed a motion for dismissal with prejudice on November 26, 2003, which was granted. No appeal was filed and therefore the case has been concluded in its entirety.
      Nevada Power Company and Sierra Pacific Power Company v. Calpine Energy Services, L.P. before the FERC, filed on December 4, 2001. Nevada Section 206 Complaint. On December 4, 2001, Nevada Power Company (“NPC”) and Sierra Pacific Power Company (“SPPC”) filed a complaint with FERC under Section 206 of the Federal Power Act against a number of parties to their power sales agreements, including the Company. NPC and SPPC allege in their complaint, which seeks a refund, that the prices they agreed to pay in certain of the power sales agreements, including those signed with Calpine, were negotiated during a time when the power market was dysfunctional and that they are unjust and unreasonable. The Administrative Law Judge issued an Initial Decision on December 19, 2002, that found for Calpine and the other respondents in the case and denied NPC the relief that it was seeking. In June 2003, FERC rejected the complaint. Some plaintiffs appealed to the FERC and their request for rehearing was denied. The FERC decision is therefore final, and the matter is pending on appeal before the United States Court of Appeals for the Ninth Circuit.
      Calpine Canada Natural Gas Partnership v. Enron Canada Corp. On February 6, 2002, Calpine Canada Natural Gas Partnership (“Calpine Canada”) filed a complaint in the Alberta Court of Queens Branch alleging that Enron Canada Corp. (“Enron Canada”) owed it approximately $1.5 million from the sale of gas in connection with two Master Firm gas Purchase and Sale Agreements. To date, Enron Canada has not sought bankruptcy relief and has counterclaimed in the amount of $18 million. Discovery is currently in progress, and the Company believes that Enron Canada’s counterclaim is without merit and intends to vigorously defend against it.
      Jones v. Calpine Corporation. On June 11, 2003, the Estate of Darrell Jones and the Estate of Cynthia Jones filed a complaint against Calpine in the U.S. District Court, Western District of Washington. Calpine purchased Goldendale Energy, Inc., a Washington Corporation, from Darrell Jones. The agreement provided, among other things, that upon substantial completion of the Goldendale facility, Calpine would pay Mr. Jones (i) $6.0 million and (ii) $18.0 million less $0.2 million per day for each day that elapsed between July 1, 2002, and the date of substantial completion. Substantial completion of the Goldendale facility has not occurred and the daily reduction in the payment amount has reduced the $18.0 million payment to zero. The complaint alleges that by not achieving substantial completion by July 1, 2002, Calpine breached its contract with Mr. Jones, violated a duty of good faith and fair dealing, and caused an inequitable forfeiture. The complaint seeks damages in an unspecified amount in excess of $75,000. On July 28, 2003, Calpine filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The court granted Calpine’s motion to dismiss the complaint on March 10, 2004. The plaintiffs have filed a motion for reconsideration of the decision, and the plaintiffs may also ultimately appeal. Calpine still, however, expects to make the $6.0 million payment to the estates when the project is completed.
      In addition, the Company is involved in various other legal actions proceedings, and state and regulatory investigations relating to the Company’s business. The Company is involved in various other claims and legal actions arising out of the normal course of its business. The Company does not expect that the outcome of these proceedings will have a material adverse effect on the Company’s financial position or results of operations.

25.	Operating Segments	
      The Company is first and foremost an electric generating company. In pursuing this single business strategy, it is the Company’s long-range objective to produce at a level of approximately 25% of its fuel
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consumption requirements from its own natural gas reserves (“equity gas”). Since the Company’s oil and gas production and marketing activity has reached the quantitative criteria to be considered a reportable segment under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the following represents reportable segments and their defining criteria. The Company’s segments are electric generation and marketing; oil and gas production and marketing; and corporate and other activities. Electric generation and marketing includes the development, acquisition, ownership and operation of power production facilities, hedging, balancing, optimization, and trading activity transacted on behalf of the Company’s power generation facilities. Oil and gas production includes the ownership and operation of gas fields, gathering systems and gas pipelines for internal gas consumption, third party sales and hedging, balancing, optimization, and trading activity transacted on behalf of the Company’s oil and gas operations. Corporate activities and other consists primarily of financing activities, the Company’s specialty data center engineering business, which was divested in the third quarter of 2003 and general and administrative costs. Certain costs related to company-wide functions are allocated to each segment, such as interest expense, distributions on HIGH TIDES prior to October 1, 2003, and interest income, which are allocated based on a ratio of segment assets to total assets.
      The Company evaluates performance based upon several criteria including profits before tax. The accounting policies of the operating segments are the same as those described in Note 2. The financial results for the Company’s operating segments have been prepared on a basis consistent with the manner in which the Company’s management internally disaggregates financial information for the purposes of assisting in making internal operating decisions.
      Due to the integrated nature of the business segments, estimates and judgments have been made in allocating certain revenue and expense items, and reclassifications have been made to prior periods to present the allocation consistently. 

		Electric		Oil and Gas					
		Generation		Production		Corporate			
		and Marketing		and Marketing		and Other		Total	

		(In thousands)	
2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue from external customers	 	$	8,798,695	 	 	$	82,542	 	 	$	38,302	 	 	$	8,919,539	 	
Depreciation and amortization	 	 	407,547	 	 	 	173,262	 	 	 	3,103	 	 	 	583,912	 	
Interest expense	 	 	640,034	 	 	 	47,808	 	 	 	38,261	 	 	 	726,103	 	
Interest (income)	 	 	(35,008	)	 	 	(2,615	)	 	 	(2,093	)	 	 	(39,716	)	
Income before taxes	 	 	(42,966	)	 	 	169,066	 	 	 	(16,481	)	 	 	109,619	 	
Discontinued operations, net of tax	 	 	2,694	 	 	 	(97	)	 	 	(11,271	)	 	 	(8,674	)	
Cumulative effect of a change in accounting principle, net gain (loss)	 	 	183,270	 	 	 	(1,443	)	 	 	(884	)	 	 	180,943	 	
(Income) from unconsolidated investments in power projects and oil and gas properties	 	 	(76,703	)	 	 	—	 	 	 	—	 	 	 	(76,703	)	
(Income) from repurchase of various issuances of debt	 	 	—	 	 	 	—	 	 	 	(278,612	)	 	 	(278,612	)	
Other (income) expense	 	 	(50,517	)	 	 	(47,941	)	 	 	52,332	 	 	 	(46,126	)	
Total assets	 	 	24,067,448	 	 	 	1,797,755	 	 	 	1,438,729	 	 	 	27,303,932	 	
Investments in power plants and oil and gas properties	 	 	444,151	 	 	 	28,598	 	 	 	—	 	 	 	472,749	 	
Property Additions	 	 	1,848,318	 	 	 	46,633	 	 	 	4,288	 	 	 	1,899,239	 	
Equipment cancellation and impairment cost	 	 	64,384	 	 	 	—	 	 	 	—	 	 	 	64,384	 	
Intersegment revenues	 	 	—	 	 	 	409,063	 	 	 	—	 	 	 	409,063	 	
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		Electric		Oil and Gas					
		Generation		Production		Corporate			
		and Marketing		and Marketing		and Other		Total	

		(In thousands)	
2002	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue from external customers	 	$	7,088,665	 	 	$	301,304	 	 	$	1,892	 	 	$	7,391,861	 	
Depreciation and amortization	 	 	298,928	 	 	 	146,448	 	 	 	8,035	 	 	 	453,411	 	
Interest expense	 	 	331,066	 	 	 	30,514	 	 	 	52,110	 	 	 	413,690	 	
Interest (income)	 	 	(34,500	)	 	 	(3,182	)	 	 	(5,405	)	 	 	(43,087	)	
Income before taxes	 	 	175,960	 	 	 	(4,940	)	 	 	(132,275	)	 	 	38,745	 	
Discontinued operations, net of tax	 	 	32,076	 	 	 	42,905	 	 	 	(10,053	)	 	 	64,928	 	
(Income) from unconsolidated investments in power projects and oil and gas properties	 	 	(16,552	)	 	 	—	 	 	 	—	 	 	 	(16,552	)	
(Income) from repurchase of various issuances of debt	 	 	—	 	 	 	—	 	 	 	(118,020	)	 	 	(118,020	)	
Other (income) expense	 	 	(41,043	)	 	 	(7,674	)	 	 	14,517	 	 	 	(34,200	)	
Total assets	 	 	18,587,342	 	 	 	1,713,085	 	 	 	2,926,565	 	 	 	23,226,992	 	
Investments in power plants and oil and gas properties	 	 	421,402	 	 	 	—	 	 	 	—	 	 	 	421,402	 	
Property Additions	 	 	3,274,051	 	 	 	413,174	 	 	 	344,311	 	 	 	4,031,536	 	
Merger costs	 	 	404,737	 	 	 	—	 	 	 	—	 	 	 	404,737	 	
Intersegment revenues	 	 	—	 	 	 	180,374	 	 	 	—	 	 	 	180,374	 	
2001	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue from external customers	 	$	6,290,302	 	 	$	406,536	 	 	$	18,091	 	 	$	6,714,929	 	
Depreciation and amortization	 	 	181,078	 	 	 	122,129	 	 	 	6,166	 	 	 	309,373	 	
Interest expense	 	 	150,237	 	 	 	15,281	 	 	 	31,103	 	 	 	196,621	 	
Interest (income)	 	 	(55,507	)	 	 	(5,578	)	 	 	(11,363	)	 	 	(72,448	)	
Income before taxes	 	 	849,527	 	 	 	116,509	 	 	 	(85,456	)	 	 	880,580	 	
Discontinued operations, net of tax	 	 	6,149	 	 	 	34,449	 	 	 	(1,108	)	 	 	39,490	 	
Cumulative effect of a change in accounting principle, net gain (loss)	 	 	1,036	 	 	 	—	 	 	 	—	 	 	 	1,036	 	
(Income) from unconsolidated investments in power projects and oil and gas properties	 	 	(16,946	)	 	 	—	 	 	 	—	 	 	 	(16,946	)	
Merger costs	 	 	—	 	 	 	41,627	 	 	 	—	 	 	 	41,627	 	
(Income) from repurchase of various issuances of debt	 	 	—	 	 	 	—	 	 	 	(11,919	)	 	 	(11,919	)	
Other (income) expense	 	 	(30,869	)	 	 	(13,455	)	 	 	2,338	 	 	 	(41,786	)	
Intersegment revenues	 	 	—	 	 	 	123,845	 	 	 	—	 	 	 	123,845	 	
      Intersegment revenues primarily relate to the use of internally procured gas for the Company’s power plants. These intersegment revenues have been included in Total Revenue and Income before taxes in the oil and gas production and marketing reporting segment and eliminated in the corporate and other reporting segment.
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	Geographic Area Information	
      As of December 31, 2003, the Company owned interests in 87 operating power plants in the United States, three operating power plants in Canada and one operating power plant in the United Kingdom. In addition, the Company had oil and gas interests in the United States and Canada. Geographic revenue and property, plant and equipment information is based on physical location of the assets at the end of each period. 

						United			
		United States		Canada		Kingdom		Total	
									
2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Revenue	 	$	8,384,544	 	 	$	244,917	 	 	$	290,078	 	 	$	8,919,539	 	
Property, plant and equipment, net	 	 	18,069,817	 	 	 	972,467	 	 	 	1,038,768	 	 	 	20,081,052	 	
2002	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Revenue	 	$	7,062,069	 	 	$	123,908	 	 	$	205,884	 	 	$	7,391,861	 	
Property, plant and equipment, net	 	 	16,841,885	 	 	 	925,787	 	 	 	963,175	 	 	 	18,730,847	 	
2001	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Revenue	 	$	6,428,137	 	 	$	192,097	 	 	$	94,695	 	 	$	6,714,929	 	

26.	California Power Market	
      California Refund Proceeding. On August 2, 2000, the California Refund Proceeding was initiated by a complaint made at FERC by San Diego Gas & Electric Company under Section 206 of the Federal Power Act alleging, among other things, that the markets operated by the California Independent System Operator (“CAISO”) and the California Power Exchange (“CalPX”) were dysfunctional. In addition to commencing an inquiry regarding the market structure, FERC established a refund effective period of October 2, 2000, to June 19, 2001, for sales made into those markets.
      On December 12, 2002, the Administrative Law Judge issued a Certification of Proposed Finding on California Refund Liability (“December 12 Certification”) making an initial determination of refund liability. On March 26, 2003, FERC also issued an order adopting many of the ALJ’s findings set forth in the December 12 Certification (the “March 26 Order”). In addition, as a result of certain findings by the FERC staff concerning the unreliability or misreporting of certain reported indices for gas prices in California during the refund period, FERC ordered that the basis for calculating a party’s potential refund liability be modified by substituting a gas proxy price based upon gas prices in the producing areas plus the tariff transportation rate for the California gas price indices previously adopted in the refund proceeding. The Company believes, based on the available information, that any refund liability that may be attributable to it will increase modestly, from approximately $6.2 million to $8.4 million, after taking the appropriate set-offs for outstanding receivables owed by the CalPX and CAISO to Calpine. The Company has fully reserved the amount of refund liability that by its analysis would potentially be owed under the refund calculation clarification in the March 26 order. The final determination of the refund liability is subject to further Commission proceedings to ascertain the allocation of payment obligations among the numerous buyers and sellers in the California markets. At this time, the Company is unable to predict the timing of the completion of these proceedings or the final refund liability. Thus the impact on the Company’s business is uncertain at this time.
      FERC Investigation into Western Markets. On February 13, 2002, FERC initiated an investigation of potential manipulation of electric and natural gas prices in the western United States. This investigation was initiated as a result of allegations that Enron and others used their market position to distort electric and natural gas markets in the West. The scope of the investigation is to consider whether, as a result of any manipulation in the short-term markets for electric energy or natural gas or other undue influence on the wholesale markets by any party since January 1, 2000, the rates of the long-term contracts subsequently entered into in the West are potentially unjust and unreasonable. FERC has stated that it may use the
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information gathered in connection with the investigation to determine how to proceed on any existing or future complaint brought under Section 206 of the Federal Power Act involving long-term power contracts entered into in the West since January 1, 2000, or to initiate a Federal Power Act Section 206 or Natural Gas Act Section 5 proceeding on its own initiative. On August 13, 2002, the FERC staff issued the Initial Report on Company-Specific Separate Proceedings and Generic Reevaluations; Published Natural Gas Price Data; and Enron Trading Strategies (the “Initial Report”) summarizing its initial findings in this investigation. There were no findings or allegations of wrongdoing by Calpine set forth or described in the Initial Report. On March 26, 2003, the FERC staff issued a final report in this investigation (the “Final Report”). The FERC staff recommended that FERC issue a show cause order to a number of companies, including Calpine, regarding certain power scheduling practices that may have been be in violation of the CAISO’s or CalPX’s tariff. The Final Report also recommended that FERC modify the basis for determining potential liability in the California Refund Proceeding discussed above. Calpine believes that it did not violate these tariffs and that, to the extent that such a finding could be made, any potential liability would not be material.
      Also, on June 25, 2003, FERC issued a number of orders associated with these investigations, including the issuance of two show cause orders to certain industry participants. FERC did not subject Calpine to either of the show cause orders. FERC also issued an order directing the FERC Office of Markets and Investigations to investigate further whether market participants who bid a price in excess of $250 per megawatt hour into markets operated by either the CAISO or the CalPX during the period of May 1, 2000, to October 2, 2000, may have violated CAISO and CalPX tariff prohibitions. No individual market participant was identified. The Company believes that it did not violate the CAISO and CalPX tariff prohibitions referred to by FERC in this order; however, the Company is unable to predict at this time the final outcome of this proceeding or its impact on Calpine.
      CPUC Proceeding Regarding QF Contract Pricing for Past Periods. Our Qualifying Facilities (“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 by determining the short run avoided cost (“SRAC”) energy price formula. In mid-2000 our QF facilities elected the option set forth in Section 390 of the California Public Utility Code, which provides QFs the right to elect to receive energy payments based on the California Power Exchange (“PX”) market clearing price instead of the price determined by SRAC. Having elected such option, the Company was 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. 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 at one point issued a proposed decision to the effect that the PX Price was the appropriate price for energy payments under the California Public Utility Code but tabled it, and 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. The Company believes 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.
      City of Lodi Agreement. On February 9, 2001, the Company entered into an agreement with the City of Lodi (the Northern California Power Agency acted as agent on behalf of the City of Lodi) whereby CES would sell 25 MW of ATC fixed price power plus a 1.7 MW day-ahead call option to the City of Lodi for delivery from January 1, 2002, through December 31, 2011. In September 2002 the City of Lodi and Calpine agreed to terminate this agreement resulting in a $41.5 million gain to the Company. The gain is included in Other income in the accompanying consolidated financial statements.
      Geysers Reliability Must Run Section 206 Proceeding. California Independent System Operator, California Electricity Oversight Board, Public Utilities Commission of the State of California, Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison (collectively referred to as the “Buyers Coalition”) filed a complaint on November 2, 2001 at the FERC requesting the
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commencement of a Federal Power Act Section 206 proceeding to challenge one component of a number of separate settlements previously reached on the terms and conditions of “reliability must run” contracts (“RMR Contracts”) with certain generation owners, including Geysers Power Company, LLC, which settlements were also previously approved by the FERC. RMR Contracts require the owner of the specific generation unit to provide energy and ancillary services when called upon to do so by the ISO to meet local transmission reliability needs or to manage transmission constraints. The Buyers Coalition has asked FERC to find that the availability payments under these RMR Contracts are not just and reasonable. Geysers Power Company, LLC filed an answer to the complaint in November 2001. To date, FERC has not established a Section 206 proceeding. The outcome of this litigation and the impact on the Company’s business cannot be determined at the present time.

27.	Subsequent Events	
      On January 9, 2004, one of the initial purchasers of the 2023 Convertible Notes exercised in full its option to purchase an additional $250.0 million of these notes. The notes are convertible into cash and into shares of Calpine common stock upon the occurrence of certain contingencies at an initial conversion price of $6.50 per share, which represents a 38% premium over the New York Stock Exchange closing price of $4.71 per share on November 6, 2003, the date the notes were originally priced. Upon conversion of the notes, Calpine will deliver par value in cash and any additional value in Calpine shares.
      On January 15, 2004, the Company completed the sale of its 50-percent undivided interest in the 545 megawatt Lost Pines 1 Power Project to GenTex Power Corporation, an affiliate of the Lower Colorado River Authority (LCRA). Under the terms of the agreement, Calpine received a cash payment of $146.8 million and recorded a gain before taxes of $35.5. In addition, Calpine Energy Services entered into a tolling agreement with LCRA to purchase 250 megawatts of electricity through December 31, 2004. At December 31, 2003, the Company’s undivided interest in the Lost Pines facility was classified as “held for sale” and all current and historical results reclassified to discontinued operations (see Note 10).
      In January 2004 CES concluded a settlement with the Commodity Futures Trading Commission (“CFTC”) related to the CFTC’s finding of inaccurate reporting of certain natural gas trading information by one former CES employee during 2001 and 2002. Neither Calpine nor CES benefited from the trader’s conduct. Under the terms of the agreement, CES paid a civil monetary penalty in the amount of $1.5 million without admitting or denying the findings in the CFTC’s order.
      Subsequent to December 31, 2003, the Company repurchased approximately $177.0 million in principal amount of our outstanding 2006 Convertible Senior Notes that can be put to the Company in exchange for approximately $176.0 million in cash. Additionally, on February 9, 2004, the Company made a cash tender offer, which expired on March 9, 2004, for all of the outstanding 2006 Convertible Senior Notes at a price of par plus accrued interest. On March 10, 2004, the Company paid an aggregate amount of $412.8 million for the tendered 2006 Convertible Senior Notes which included accrued interest of $3.4 million. Currently, 2006 Convertible Senior Notes in the aggregate principal amount of $73.7 million remain outstanding.
      On February 2, 2004, a class action complaint was filed in the United States District Court for the Southern District of New York against CES and others. The complaint alleges unlawful manipulation of natural gas futures and options contracts traded on NYMEX during the period January 21, 2000 through December 31, 2002. The causes of action alleged are fraudulent concealment and violations of the Commodity Exchange Act, and CES anticipates filing a motion to dismiss the complaint. This complaint was filed as a related action to another consolidated class action complaint involving numerous other defendants. The court has not granted class action certification for any of the matters at this time.
      On February 18, 2004, one of the Company’s wholly owned subsidiaries closed on the sale of natural gas properties to Calpine Natural Gas Trust (“CNG Trust”). The Company received consideration of
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Cdn$40.5 million (US$30.9 million). Calpine holds 25% of the outstanding trust units of CNG Trust and accounts for the investment using the equity method.
      On February 20, 2004, the Company completed a $250.0 million, non-recourse project financing for the 600-megawatt Rocky Mountain Energy Center. A consortium of banks financed the construction of the plant at a rate of LIBOR plus 250 basis points. Upon commercial operation of the Rocky Mountain Energy Center, the banks will provide a three-year term-loan facility.
      On March 23, 2004, the Company’s wholly owned subsidiary Calpine Generating Company, LLC (“CalGen”), formerly Calpine Construction Finance Company II, LLC (“CCFC II”), completed its offering of secured term loans and secured notes. As expected, the Company realized net total proceeds from the offerings (after payment of transaction fees and expenses, including the fee payable to Morgan Stanley in connection with an index hedge) in the approximate amount of $2.3 billion. The offerings included: 

Amount		Description		Interest Rate	
					
$235.0 million	 	First Priority Secured Floating Rate Notes Due 2009	 	 	LIBOR plus 375 basis points	 	
$640.0 million	 	Second Priority Secured Floating Rate Notes Due 2010	 	 	LIBOR plus 575 basis points	 	
$680.0 million	 	Third Priority Secured Floating Rate Notes Due 2011	 	 	LIBOR plus 900 basis points	 	
$150.0 million	 	Third Priority Secured Notes Due 2011	 	 	11.50%	 	
$600.0 million	 	First Priority Secured Term Loans due 2009	 	 	LIBOR plus 375 basis points	(1)	
$100.0 million	 	Second Priority Secured Term Loans due 2010	 	 	LIBOR plus 575 basis points	(2)	

		
(1) 	The Company may also elect a Base Rate plus 275 basis points.	
 		
(2) 	The Company may also elect a Base Rate plus 475 basis points.	
      The secured term loans and secured notes described above in each case are secured, through a combination of pledges of the equity interests in CalGen and its first tier subsidiary, CalGen Expansion Company, liens on the assets of CalGen’s power generating facilities (other than its Goldendale facility) and related assets located throughout the United States. The lenders’ recourse is limited to such security, and none of the indebtedness is guaranteed by Calpine. Net proceeds from the offerings were used to refinance amounts outstanding under the $2.5 billion CCFC II revolving construction credit facility, which was scheduled to mature in November 2004, and to pay fees and transaction costs associated with the refinancing. Concurrently with this refinancing, the Company amended and restated the CCFC II credit facility (as amended and restated, the “CalGen revolving credit facility”) to reduce the commitments under the facility to $200.0 million and extend its maturity to March 2007. Interest under the CalGen revolving facility equals LIBOR plus 350 basis points (or, at the Company’s election, the Base Rate plus 250 basis points). Outstanding indebtedness and letters of credit at December 31, 2003, and at the refinancing date, under the CCFC II credit facility totaled approximately $2.3 billion and 2.4 billion, respectively.

28.	Quarterly Consolidated Financial Data (unaudited)	
      The Company’s quarterly operating results have fluctuated in the past and may continue to do so in the future as a result of a number of factors, including, but not limited to, the timing and size of acquisitions, the completion of development projects, the timing and amount of curtailment of operations under the terms of certain power sales agreements, the degree of risk management and trading activity, and variations in levels of production. Furthermore, the majority of the dollar value of capacity payments under certain of the Company’s power sales agreements are received during the months of May through October.
      The Company’s common stock has been traded on the New York Stock Exchange since September 19, 1996. There were 2,173 common stockholders of record at December 31, 2003. No dividends were paid for the
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years ended December 31, 2002 and 2001. All share data has been adjusted to reflect the two-for-one stock split effective June 8, 2000, and the two-for-one stock split effective November 14, 2000.

			
		Quarter Ended	
			
		December 31,		September 30,		June 30,		March 31,	

		(In thousands, except per share amounts)	
2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	$	1,920,575	 	 	$	2,667,723	(i)	 	$	2,165,308	(i)	 	$	2,165,933	(i)	
Gross profit	 	 	126,691	 	 	 	353,987	 	 	 	183,232	 	 	 	172,791	 	
Income (loss) from operations	 	 	(20,032	)	 	 	292,729	 	 	 	153,471	 	 	 	119,040	 	
Income (loss) before discontinued operations	 	 	(59,827	)	 	 	237,493	 	 	 	(16,375	)	 	 	(51,538	)	
Discontinued operations, net of tax	 	 	(967	)	 	 	290	 	 	 	(6,991	)	 	 	(1,006	)	
Cumulative effect of a change in accounting principle	 	 	180,414	 	 	 	—	 	 	 	—	 	 	 	529	 	
Net income (loss)	 	$	119,622	 	 	$	237,782	 	 	$	(23,366	)	 	$	(52,016	)	
Basic earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income (loss) before discontinued operations and cumulative effect of a change in accounting principle	 	$	(0.15	)	 	$	0.61	 	 	$	(0.04	)	 	$	(0.14	)	
 	Discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	(0.02	)	 	 	—	 	
 	Cumulative effect of a change in accounting principle	 	 	0.44	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Net income (loss)	 	 	0.29	 	 	 	0.61	 	 	 	(0.06	)	 	 	(0.14	)	
Diluted earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income (loss) before discontinued operations and dilutive effect of certain trust preferred securities	 	$	(0.15	)	 	$	0.60	 	 	$	(0.04	)	 	$	(0.14	)	
 	Dilutive effect of certain trust preferred securities	 	 	—	 	 	 	(0.09	)	 	 	—	 	 	 	—	 	
 	Income (loss) before discontinued operations and cumulative effect of a change in accounting principle	 	 	(0.15	)	 	 	0.51	 	 	 	(0.04	)	 	 	(0.14	)	
 	Discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	(0.02	)	 	 	—	 	
 	Cumulative effect of a change in accounting principle	 	 	0.44	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Net income (loss)	 	 	0.29	 	 	 	(0.51	)	 	 	(0.06	)	 	 	(0.14	)	
Common stock price per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	High	 	$	5.25	 	 	$	8.03	 	 	$	7.25	 	 	$	4.42	 	
 	Low	 	 	3.28	 	 	 	4.76	 	 	 	3.33	 	 	 	2.51	 	
2002	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	$	1,869,640	(ii)	 	$	2,457,346	(ii)	 	$	1,744,592	(ii)	 	$	1,320,283	(ii)	
Gross profit	 	 	236,942	 	 	 	345,965	 	 	 	244,847	 	 	 	178,899	 	
Income (loss) from operations	 	 	(71,152	)	 	 	284,266	 	 	 	166,601	 	 	 	(57,239	)	
Income (loss) before discontinued operations	 	 	(64,397	)	 	 	138,884	 	 	 	57,732	 	 	 	(78,529	)	
Discontinued operations, net of tax	 	 	39,239	 	 	 	12,245	 	 	 	10,588	 	 	 	2,856	 	
Net income (loss)	 	$	(25,158	)	 	$	151,128	 	 	$	68,321	 	 	$	(75,673	)	
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		Quarter Ended	
			
		December 31,		September 30,		June 30,		March 31,	

		(In thousands, except per share amounts)	
Basic earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income (loss) before discontinued operations	 	$	(0.17	)	 	$	0.37	 	 	$	0.16	 	 	$	(0.26	)	
 	Discontinued operations, net of tax	 	 	0.10	 	 	 	0.03	 	 	 	0.03	 	 	 	0.01	 	
 	Net income (loss)	 	 	(0.07	)	 	 	0.40	 	 	 	0.19	 	 	 	(0.25	)	
Diluted earnings per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Income (loss) before discontinued operations and dilutive effect of certain trust preferred securities	 	$	(0.17	)	 	$	0.36	 	 	$	0.16	 	 	$	(0.26	)	
 	Dilutive effect of certain trust preferred securities	 	 	—	 	 	 	(0.04	)	 	 	(0.01	)	 	 	—	 	
 	Income (loss) before discontinued operations	 	 	(0.17	)	 	 	0.32	 	 	 	0.15	 	 	 	(0.26	)	
 	Discontinued operations, net of tax	 	 	0.10	 	 	 	0.02	 	 	 	0.03	 	 	 	0.01	 	
 	Net income (loss)	 	 	(0.07	)	 	 	0.34	 	 	 	0.18	 	 	 	(0.25	)	
Common stock price per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	High	 	$	4.69	 	 	$	7.29	 	 	$	13.55	 	 	$	17.28	 	
 	Low	 	 	1.55	 	 	 	2.36	 	 	 	5.30	 	 	 	6.15	 	

		
 (i) 	The total revenue amounts reported for the quarters ended September 30, 2003, June 30, 2003, and March 31, 2003, were $2,687,127, $2,186,056, and $2,186,277, respectively. The total revenue amounts above for the first, second and third quarters of 2003 have been restated as a result of discontinued operations. See Note 10 for more information regarding discontinued operations.	
 		
(ii) 	The total revenue amounts reported for the quarters ended December 31, 2002, September 30, 2002, June 30, 2002, and March 31, 2002, were $1,886,470, $2,474,698, $1,758,372, and $1,332,535, respectively. The total revenue amounts above for the four quarters in 2003 have been restated as a result of discontinued operations. See Note 10 for more information regarding discontinued operations.	
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SCHEDULE II
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

						Charged to									
						Accumulated									
		Balance at				Other									
		Beginning		Charged to		Comprehensive		Reserved						Balance at	
Description		of Year		Expense		Loss		Gain		Reductions(1)		Other(2)		End of Year	

		(In thousands)	
Year ended December 31, 2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	5,955	 	 	$	3,278	 	 	$	—	 	 	$	—	 	 	$	(2,099	)	 	$	480	 	 	$	7,614	 	
 	Reserve for notes receivable	 	 	—	 	 	 	273	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	273	 	
 	Gross reserve for California Refund Liability	 	 	10,700	 	 	 	2,205	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	12,905	 	
 	Reserve for derivative assets	 	 	16,452	 	 	 	19,459	 	 	 	3,640	 	 	 	—	 	 	 	(32,097	)	 	 	 	 	 	 	7,454	 	
 	Gain reserved on certain Enron transactions	 	 	17,862	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(17,862	)	 	 	 	 	 	 	—	 	
 	Repayment reserve for third-party default on emission reduction credits’ settlement	 	 	—	 	 	 	3,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	3,000	 	
 	Deferred tax asset valuation allowance	 	 	26,665	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(7,330	)	 	 	—	 	 	 	19,335	 	
Year Ended December 31, 2002	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	15,422	 	 	$	1,636	 	 	$	—	 	 	$	—	 	 	$	(11,246	)	 	$	143	 	 	$	5,955	 	
 	Gross reserve for California Refund Liability	 	 	—	 	 	 	10,700	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	10,700	 	
 	Reserve for derivative assets	 	 	1,583	 	 	 	17,253	 	 	 	8,444	 	 	 	—	 	 	 	(10,828	)	 	 	 	 	 	 	16,452	 	
 	Gain reserved on certain Enron transactions	 	 	17,862	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	17,862	 	
 	Reserve for third-party default on emission reduction credits	 	 	17,677	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(17,677	)	 	 	 	 	 	 	—	 	
 	Deferred tax asset valuation allowance	 	 	26,665	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	26,665	 	
Year Ended December 31, 2001	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	11,555	 	 	$	11,528	 	 	$	—	 	 	$	—	 	 	$	(7,656	)	 	$	(4	)	 	$	15,423	 	
 	Reserve for notes receivable	 	 	2,920	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2,920	)	 	 	 	 	 	 	—	 	
 	Reserve for derivative assets	 	 	—	 	 	 	23	 	 	 	1,560	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	1,583	 	
 	Gain reserved on certain Enron transactions	 	 	—	 	 	 	—	 	 	 	—	 	 	 	17,862	 	 	 	—	 	 	 	 	 	 	 	17,862	 	
 	Reserve for third-party default on emission reduction credits	 	 	—	 	 	 	17,677	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	17,677	 	

		
(1) 	Represents write-offs of accounts considered to be uncollectible and recoveries of amounts previously written off or reserved.	
 		
(2) 	Primarily relates to foreign currency translation adjustments.	
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SUPPLEMENTAL OIL AND GAS DISCLOSURES
(Unaudited)
Oil and Gas Producing Activities
      The following disclosures for Calpine Corporation (the “Company”) are made in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 69, “Disclosures About Oil and Gas Producing Activities (An Amendment of FASB Statements 19, 25, 33 and 39).” Users of this information should be aware that the process of estimating quantities of proved, proved developed and proved undeveloped crude oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.
      Proved reserves represent estimated quantities of natural gas and crude oil that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made.
      Proved developed reserves are proved reserves expected to be recovered, through wells and equipment in place and under operating methods being utilized at the time the estimates were made.
      Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Estimates for proved undeveloped reserves are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.
      Estimates of proved and proved developed reserves as of December 31, 2003, 2002, and 2001, were based on estimates made by Netherland, Sewell & Associates Inc. (“NSA”) for reserves in the United States; and Gilbert Laustsen Jung Associates Ltd. (“GLJ”) for reserves in Canada, both independent petroleum consultants.
      Market prices as of each year-end were used for future sales of natural gas, crude oil and natural gas liquids. Future operating costs, production and ad valorem taxes and capital costs were based on current costs as of each year-end, with no escalation. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and timing of development expenditures. Reserve data represent estimates only and should not be construed as being exact. Moreover, the standardized measure should not be construed as the current market value of the proved oil and gas reserves or the costs that would be incurred to obtain equivalent reserves. A market value determination would include many additional factors including (a) anticipated future changes in natural gas and crude oil prices, production and development costs, (b) an allowance for return on investment, (c) the value of additional reserves, not considered proved at present, which may be recovered as a result of further exploration and development activities, and (d) other business risk.
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	Capitalized Costs Relating to Oil and Gas Producing Activities	
      The following table sets forth the capitalized costs relating to the Company’s natural gas and crude oil producing activities (excluding pipeline and related assets) at December 31, 2003, 2002 and 2001, (in thousands):

		2003		2002		2001	
							
Proved properties	 	$	2,079,871	 	 	$	1,668,626	 	 	$	1,913,025	 	
Unproved properties	 	 	63,143	 	 	 	305,639	 	 	 	322,735	 	
 	 	 		 	 	 		 	 	 		 	
 	Total	 	 	2,143,014	 	 	 	1,974,265	 	 	 	2,235,760	 	
Less: Accumulated depreciation, depletion and amortization	 	 	(703,581	)	 	 	(525,700	)	 	 	(519,747	)	
 	 	 		 	 	 		 	 	 		 	
 	Net capitalized costs	 	$	1,439,433	 	 	$	1,448,565	 	 	$	1,716,013	 	
 	 	 		 	 	 		 	 	 		 	
 	Company’s share of equity method investees’ net capitalized costs	 	$	54,453	 	 	$	—	 	 	$	—	 	
 	 	 		 	 	 		 	 	 		 	
      Pursuant to SFAS No. 143, net capitalized cost includes related asset retirement cost, net of $13,819.

	Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development	
		
Activities		
      The acquisition, exploration and development costs disclosed in the following tables are in accordance with definitions in SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies.” Acquisition costs include costs incurred to purchase, lease or otherwise acquire property. Exploration costs include exploration expenses and additions to exploration wells, including those in progress. Development costs include additions to production facilities and equipment, as well as additions to development wells, including those in progress. The following table sets forth costs incurred related to the Company’s oil and gas activities for the years ended December 31, 2003, 2002, and 2001, (in thousands): 

		United States		Canada		Total	
							
December 31, 2003:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Acquisition costs of properties	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Proved	 	$	14,156	 	 	$	7,109	 	 	$	21,265	 	
 	 	Unproved	 	 	13,617	 	 	 	3,304	 	 	 	16,921	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Subtotal	 	 	27,773	 	 	 	10,413	 	 	 	38,186	 	
 	Exploration costs	 	 	36,129	 	 	 	4,073	 	 	 	40,202	 	
 	Development costs	 	 	58,130	 	 	 	51,986	 	 	 	110,116	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total	 	$	122,032	 	 	$	66,472	 	 	$	188,504	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Company’s share of equity method investees’ costs of property acquisition, exploration and development	 	$	1,268	 	 	$	53,039	 	 	$	54,307	 	
December 31, 2002:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Acquisition costs of properties	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Proved	 	$	9,763	 	 	$	2,650	 	 	$	12,413	 	
 	 	Unproved	 	 	8,460	 	 	 	1,694	 	 	 	10,154	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Subtotal	 	 	18,223	 	 	 	4,344	 	 	 	22,567	 	
 	Exploration costs	 	 	10,958	 	 	 	7,559	 	 	 	18,517	 	
 	Development costs	 	 	54,986	 	 	 	61,209	 	 	 	116,195	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total	 	$	84,167	 	 	$	73,112	 	 	$	157,279	 	
 	 	 		 	 	 		 	 	 		 	
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		United States		Canada		Total	
							
December 31, 2001:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Acquisition costs of properties	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Proved	 	$	342,941	 	 	$	6,762	 	 	$	349,703	 	
 	 	Unproved	 	 	234,789	 	 	 	17,780	 	 	 	252,569	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Subtotal	 	 	577,730	 	 	 	24,542	 	 	 	602,272	 	
 	Exploration costs	 	 	20,495	 	 	 	17,970	 	 	 	38,465	 	
 	Development costs	 	 	86,311	 	 	 	162,343	 	 	 	248,654	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total	 	$	684,536	 	 	$	204,855	 	 	$	889,391	 	

		
	Results of Operations for Oil and Gas Producing Activities	
      The following table sets forth results of operations for oil and gas producing activities (excluding pipeline and related operations) for the years ended December 31, 2003, 2002, and 2001, (in thousands):

		United States		Canada		Total	
							
December 31, 2003:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Oil and gas production revenues	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Third-party	 	$	57,748	 	 	$	33,834	 	 	$	91,582	 	
 	 	Intercompany	 	 	247,631	 	 	 	146,631	 	 	 	394,262	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total revenues	 	 	305,379	 	 	 	180,465	 	 	 	485,844	 	
 	Exploration expenses, including dry hole	 	 	16,869	 	 	 	2,443	 	 	 	19,312	 	
 	Production costs	 	 	47,848	 	 	 	35,658	 	 	 	83,506	 	
 	Depreciation, depletion and amortization	 	 	83,238	 	 	 	85,879	 	 	 	169,117	 	
 	 	 		 	 	 		 	 	 		 	
 	Income before income taxes	 	 	157,424	 	 	 	56,485	 	 	 	213,909	 	
 	Income tax provision	 	 	59,963	 	 	 	25,317	 	 	 	85,280	 	
 	(Income)/loss after income taxes from discontinued operations	 	 	(110	)	 	 	95	 	 	 	(15	)	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Results of operations	 	$	97,571	 	 	$	31,073	 	 	$	128,644	 	
 	 	 		 	 	 		 	 	 		 	
Company’s share of equity method investees’ results of operations for producing activities	 	$	86	 	 	$	101	 	 	$	187	 	
 	 	 		 	 	 		 	 	 		 	
December 31, 2002:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Oil and gas production revenues	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Third-party	 	$	39,739	 	 	$	61,067	 	 	$	100,806	 	
 	 	Intercompany	 	 	138,010	 	 	 	62,844	 	 	 	200,854	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total revenues	 	 	177,749	 	 	 	123,911	 	 	 	301,660	 	
 	Exploration expenses, including dry hole	 	 	10,287	 	 	 	2,797	 	 	 	13,084	 	
 	Production costs	 	 	36,927	 	 	 	42,304	 	 	 	79,231	 	
 	Depreciation, depletion and amortization	 	 	77,497	 	 	 	67,400	 	 	 	144,897	 	
 	 	 		 	 	 		 	 	 		 	
 	Income before income taxes	 	 	53,038	 	 	 	11,410	 	 	 	64,448	 	
 	Income tax provision	 	 	20,685	 	 	 	5,438	 	 	 	26,123	 	
 	(Income)/loss after income taxes from discontinued operations	 	 	1,795	 	 	 	(15,762	)	 	 	(13,967	)	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Results of operations	 	$	30,558	 	 	$	21,734	 	 	$	52,292	 	
 	 	 		 	 	 		 	 	 		 	
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		United States		Canada		Total	
							
December 31, 2001:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Oil and gas production revenues	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Third-party	 	$	92,345	 	 	$	194,452	 	 	$	286,797	 	
 	 	Intercompany	 	 	112,171	 	 	 	3,730	 	 	 	115,901	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total revenues	 	 	204,516	 	 	 	198,182	 	 	 	402,698	 	
 	Exploration expenses, including dry hole	 	 	4,311	 	 	 	9,284	 	 	 	13,595	 	
 	Production costs	 	 	28,128	 	 	 	40,645	 	 	 	68,773	 	
 	Depreciation, depletion and amortization	 	 	58,779	 	 	 	62,082	 	 	 	120,861	 	
 	 	 		 	 	 		 	 	 		 	
 	Income before income taxes	 	 	113,298	 	 	 	86,171	 	 	 	199,469	 	
 	Income tax provision	 	 	40,610	 	 	 	41,069	 	 	 	81,679	 	
 	(Income)/loss after income taxes from discontinued operations	 	 	35	 	 	 	(38,009	)	 	 	(37,974	)	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Results of operations	 	$	72,653	 	 	$	83,111	 	 	$	155,764	 	
 	 	 		 	 	 		 	 	 		 	
      The results of operations for oil and gas producing activities exclude interest charges and general corporate expenses.

	Net Proved and Proved Developed Reserve Summary	
      The following table sets forth the Company’s net proved and proved developed reserves at December 31 for each of the three years in the period ended December 31, 2003, and the changes in the net proved reserves for each of the three years in the period then ended as estimated by the independent petroleum consultants.

		United States		Canada		Total	
							
Natural gas (Bcf)(1):	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net proved reserves at December 31, 2000	 	 	333	 	 	 	537	 	 	 	870	 	
 	 	Revisions of previous estimates	 	 	(24	)	 	 	(49	)	 	 	(73	)	
 	 	Purchases in place	 	 	208	 	 	 	—	 	 	 	208	 	
 	 	Extensions, discoveries and other additions	 	 	125	 	 	 	31	 	 	 	156	 	
 	 	Sales in place	 	 	(11	)	 	 	(13	)	 	 	(24	)	
 	 	Production	 	 	(41	)	 	 	(61	)	 	 	(102	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2001	 	 	590	 	 	 	445	 	 	 	1,035	 	
 	 	Revisions of previous estimates	 	 	(23	)	 	 	(1	)	 	 	(24	)	
 	 	Purchases in place	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	Extensions, discoveries and other additions	 	 	64	 	 	 	22	 	 	 	86	 	
 	 	Sales in place	 	 	(3	)	 	 	(119	)	 	 	(122	)	
 	 	Production	 	 	(53	)	 	 	(46	)	 	 	(99	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2002	 	 	575	 	 	 	301	 	 	 	876	 	
 	 	Revisions of previous estimates	 	 	(25	)	 	 	(22	)	 	 	(47	)	
 	 	Purchases in place	 	 	7	 	 	 	3	 	 	 	10	 	
 	 	Extensions, discoveries and other additions	 	 	58	 	 	 	14	 	 	 	72	 	
 	 	Sales in place	 	 	(5	)	 	 	(64	)	 	 	(69	)	
 	 	Production	 	 	(55	)	 	 	(31	)	 	 	(86	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2003	 	 	555	 	 	 	201	 	 	 	756	 	
 	 	 		 	 	 		 	 	 		 	
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		United States		Canada		Total	
							
Natural gas liquids and crude oil (MBbl)(2)(3):	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net proved reserves at December 31, 2000	 	 	3,539	 	 	 	46,661	 	 	 	50,200	 	
 	 	Revisions of previous estimates	 	 	(238	)	 	 	(1,492	)	 	 	(1,730	)	
 	 	Purchases in place	 	 	1,116	 	 	 	450	 	 	 	1,566	 	
 	 	Extensions, discoveries and other additions	 	 	671	 	 	 	2,243	 	 	 	2,914	 	
 	 	Sales in place	 	 	(80	)	 	 	(3,054	)	 	 	(3,134	)	
 	 	Production	 	 	(434	)	 	 	(6,192	)	 	 	(6,626	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2001	 	 	4,574	 	 	 	38,616	 	 	 	43,190	 	
 	 	Revisions of previous estimates	 	 	265	 	 	 	782	 	 	 	1,047	 	
 	 	Purchases in place	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	Extensions, discoveries and other additions	 	 	191	 	 	 	819	 	 	 	1,010	 	
 	 	Sales in place	 	 	(347	)	 	 	(23,620	)	 	 	(23,967	)	
 	 	Production	 	 	(574	)	 	 	(3,704	)	 	 	(4,278	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2002	 	 	4,109	 	 	 	12,893	 	 	 	17,002	 	
 	 	Revisions of previous estimates	 	 	(357	)	 	 	(882	)	 	 	(1,239	)	
 	 	Purchases in place	 	 	19	 	 	 	11	 	 	 	30	 	
 	 	Extensions, discoveries and other additions	 	 	166	 	 	 	789	 	 	 	955	 	
 	 	Sales in place	 	 	(113	)	 	 	(3,788	)	 	 	(3,901	)	
 	 	Production	 	 	(456	)	 	 	(1,480	)	 	 	(1,936	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2003	 	 	3,368	 	 	 	7,543	 	 	 	10,911	 	
 	 	 		 	 	 		 	 	 		 	
(Bcfe)(1) equivalents(4):	 	 	 	 	 	 	 	 	 	 	 	 	
 	Net proved reserves at December 31, 2000	 	 	355	 	 	 	816	 	 	 	1,171	 	
 	 	Revisions of previous estimates	 	 	(25	)	 	 	(58	)	 	 	(83	)	
 	 	Purchases in place	 	 	214	 	 	 	3	 	 	 	217	 	
 	 	Extensions, discoveries and other additions	 	 	129	 	 	 	45	 	 	 	174	 	
 	 	Sales in place	 	 	(12	)	 	 	(32	)	 	 	(44	)	
 	 	Production	 	 	(44	)	 	 	(97	)	 	 	(141	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2001	 	 	617	 	 	 	677	 	 	 	1,294	 	
 	 	Revisions of previous estimates	 	 	(21	)	 	 	4	 	 	 	(17	)	
 	 	Purchases in place	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	Extensions, discoveries and other additions	 	 	65	 	 	 	27	 	 	 	92	 	
 	 	Sales in place	 	 	(5	)	 	 	(261	)	 	 	(266	)	
 	 	Production	 	 	(56	)	 	 	(69	)	 	 	(125	)	
 	 	 		 	 	 		 	 	 		 	
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		United States		Canada		Total	
							
 	Net proved reserves at December 31, 2002	 	 	600	 	 	 	378	 	 	 	978	 	
 	 	Revisions of previous estimates	 	 	(27	)	 	 	(27	)	 	 	(54	)	
 	 	Purchases in place	 	 	7	 	 	 	3	 	 	 	10	 	
 	 	Extensions, discoveries and other additions	 	 	59	 	 	 	19	 	 	 	78	 	
 	 	Sales in place	 	 	(6	)	 	 	(87	)	 	 	(93	)	
 	 	Production	 	 	(58	)	 	 	(40	)	 	 	(98	)	
 	 	 		 	 	 		 	 	 		 	
 	Net proved reserves at December 31, 2003	 	 	575	 	 	 	246	 	 	 	821	 	
 	 	 		 	 	 		 	 	 		 	
 	 	Company’s proportional interest in reserves of investees accounted for by the equity method — December 31, 2003	 	 	1	 	 	 	18	 	 	 	19	 	
 	 	 		 	 	 		 	 	 		 	
Net proved developed reserves:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Natural gas (Bcf)(1)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2001	 	 	378	 	 	 	394	 	 	 	772	 	
 	 	December 31, 2002	 	 	378	 	 	 	262	 	 	 	640	 	
 	 	December 31, 2003	 	 	369	 	 	 	176	 	 	 	545	 	
 	Natural gas liquids and crude oil (MBbl)(2)(3)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2001	 	 	2,719	 	 	 	34,131	 	 	 	36,850	 	
 	 	December 31, 2002	 	 	2,509	 	 	 	11,623	 	 	 	14,132	 	
 	 	December 31, 2003	 	 	1,870	 	 	 	6,820	 	 	 	8,690	 	
 	Bcf(1) equivalents(4)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2001	 	 	394	 	 	 	599	 	 	 	993	 	
 	 	December 31, 2002	 	 	393	 	 	 	332	 	 	 	725	 	
 	 	December 31, 2003	 	 	380	 	 	 	216	 	 	 	596	 	

		
(1) 	Billion cubic feet or billion cubic feet equivalent, as applicable.	
 		
(2) 	Thousand barrels.	
 		
(3) 	Includes crude oil, condensate and natural gas liquids.	
 		
(4) 	Natural gas liquids and crude oil volumes have been converted to equivalent gas volumes using a conversion factor of six cubic feet of gas to one barrel of natural gas liquids and crude oil.	

	Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves	
      The following information has been developed utilizing procedures prescribed by SFAS No. 69 and based on natural gas and crude oil reserve and production volumes estimated by the independent petroleum consultants. This information may be useful for certain comparison purposes but should not be solely relied upon in evaluating the Company or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the standardized measure of discounted future net cash flows be viewed as representative of the current value of the Company’s oil and gas assets.
      The future cash flows presented below are based on sales prices, cost rates and statutory income tax rates in existence as of the date of the projections. It is expected that material revisions to some estimates of natural gas and crude oil reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used. Income tax expense, for both the United States and Canada, has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities.
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      Management does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable as well as proved reserves and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated.
      The following table sets forth the standardized measure of discounted future net cash flows from projected production of the Company’s natural gas and crude oil reserves for the years ended December 31, 2003, 2002, and 2001, (in millions): 

		United States		Canada		Total	
							
December 31, 2003:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Future cash inflows	 	$	3,365	 	 	$	1,233	 	 	$	4,598	 	
 	Future production and development costs	 	 	(982	)	 	 	(496	)	 	 	(1,478	)	
 	 	 		 	 	 		 	 	 		 	
 	Future net cash flows before income taxes	 	 	2,383	 	 	 	737	 	 	 	3,120	 	
 	Future income taxes	 	 	(666	)	 	 	(135	)	 	 	(801	)	
 	 	 		 	 	 		 	 	 		 	
 	Future net cash flows	 	 	1,717	 	 	 	602	 	 	 	2,319	 	
 	Discount to present value at 10% annual rate	 	 	(792	)	 	 	(186	)	 	 	(978	)	
 	 	 		 	 	 		 	 	 		 	
 	Standardized measure of discounted future net cash flows relating to proved gas, natural gas liquids and crude oil reserves	 	$	925	 	 	$	416	 	 	$	1,341	 	
 	 	 		 	 	 		 	 	 		 	
 	Company’s share of equity method investees’ standardized measure of discounted future net cash flows	 	$	2	 	 	$	18	 	 	$	20	 	
 	 	 		 	 	 		 	 	 		 	
      Pursuant to SFAS No. 143, future production and development cost includes future cash outflows related to the settlement of asset retirement obligations for the United States of $45 and Canada of $61. 

		United States		Canada		Total	
							
December 31, 2002:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Future cash inflows	 	$	2,798	 	 	$	1,569	 	 	$	4,367	 	
 	Future production and development costs	 	 	(852	)	 	 	(435	)	 	 	(1,287	)	
 	 	 		 	 	 		 	 	 		 	
 	Future net cash flows before income taxes	 	 	1,946	 	 	 	1,134	 	 	 	3,080	 	
 	Future income taxes	 	 	(548	)	 	 	(379	)	 	 	(927	)	
 	 	 		 	 	 		 	 	 		 	
 	Future net cash flows	 	 	1,398	 	 	 	755	 	 	 	2,153	 	
 	Discount to present value at 10% annual rate	 	 	(622	)	 	 	(272	)	 	 	(894	)	
 	 	 		 	 	 		 	 	 		 	
 	Standardized measure of discounted future net cash flows relating to proved gas, natural gas liquids and crude oil reserves	 	$	776	 	 	$	483	 	 	$	1,259	 	
 	 	 		 	 	 		 	 	 		 	
December 31, 2001:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Future cash inflows	 	$	1,609	 	 	$	1,621	 	 	$	3,230	 	
 	Future production and development costs	 	 	(602	)	 	 	(569	)	 	 	(1,171	)	
 	 	 		 	 	 		 	 	 		 	
 	Future net cash flows before income taxes	 	 	1,007	 	 	 	1,052	 	 	 	2,059	 	
 	Future income taxes	 	 	(217	)	 	 	(245	)	 	 	(462	)	
 	 	 		 	 	 		 	 	 		 	
 	Future net cash flows	 	 	790	 	 	 	807	 	 	 	1,597	 	
 	Discount to present value at 10% annual rate	 	 	(349	)	 	 	(269	)	 	 	(618	)	
 	 	 		 	 	 		 	 	 		 	
 	Standardized measure of discounted future net cash flows relating to proved gas, natural gas liquids and crude oil reserves	 	$	441	 	 	$	538	 	 	$	979	 	
 	 	 		 	 	 		 	 	 		 	
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	Changes in Standardized Measure of Discounted Future Net Cash Flows	
      The following table sets forth the changes in the standardized measure of discounted future net cash flows at December 31, 2003, 2002, and 2001 (in millions):

		United States		Canada		Total	
							
Balance, December 31, 2000	 	$	1,198	 	 	$	1,880	 	 	$	3,078	 	
 	Sales and transfers of gas, natural gas liquids and crude oil produced, net of production costs	 	 	(177	)	 	 	(273	)	 	 	(450	)	
 	Net changes in prices and production costs	 	 	(1,314	)	 	 	(1,733	)	 	 	(3,047	)	
 	Extensions, discoveries, additions and improved recovery, net of related costs	 	 	165	 	 	 	70	 	 	 	235	 	
 	Development costs incurred	 	 	26	 	 	 	46	 	 	 	72	 	
 	Revisions of previous quantity estimates and development costs	 	 	(110	)	 	 	(298	)	 	 	(408	)	
 	Accretion of discount	 	 	120	 	 	 	40	 	 	 	160	 	
 	Net change in income taxes	 	 	370	 	 	 	869	 	 	 	1,239	 	
 	Purchases of reserves in place	 	 	187	 	 	 	6	 	 	 	193	 	
 	Sales of reserves in place	 	 	(48	)	 	 	(36	)	 	 	(84	)	
 	Changes in timing and other	 	 	24	 	 	 	(33	)	 	 	(9	)	
 	 	 		 	 	 		 	 	 		 	
Balance, December 31, 2001	 	$	441	 	 	$	538	 	 	$	979	 	
 	Sales and transfers of gas, natural gas liquids and crude oil produced, net of production costs	 	 	(140	)	 	 	(143	)	 	 	(283	)	
 	Net changes in prices and production costs	 	 	529	 	 	 	640	 	 	 	1,169	 	
 	Extensions, discoveries, additions and improved recovery, net of related costs	 	 	120	 	 	 	44	 	 	 	164	 	
 	Development costs incurred	 	 	47	 	 	 	(22	)	 	 	25	 	
 	Revisions of previous quantity estimates and development costs	 	 	(88	)	 	 	12	 	 	 	(76	)	
 	Accretion of discount	 	 	44	 	 	 	6	 	 	 	50	 	
 	Net change in income taxes	 	 	(181	)	 	 	(65	)	 	 	(246	)	
 	Purchases of reserves in place	 	 	—	 	 	 	2	 	 	 	2	 	
 	Sales of reserves in place	 	 	(6	)	 	 	(515	)	 	 	(521	)	
 	Changes in timing and other	 	 	10	 	 	 	(14	)	 	 	(4	)	
 	 	 		 	 	 		 	 	 		 	
Balance, December 31, 2002	 	$	776	 	 	$	483	 	 	$	1,259	 	
 	Sales and transfers of gas, natural gas liquids and crude oil produced, net of production costs	 	 	(258	)	 	 	(145	)	 	 	(403	)	
 	Net changes in prices and production costs	 	 	316	 	 	 	(78	)	 	 	238	 	
 	Extensions, discoveries, additions and improved recovery, net of related costs	 	 	133	 	 	 	44	 	 	 	177	 	
 	Development costs incurred	 	 	64	 	 	 	25	 	 	 	89	 	
 	Revisions of previous quantity estimates and development costs	 	 	(91	)	 	 	(69	)	 	 	(160	)	
 	Accretion of discount	 	 	78	 	 	 	36	 	 	 	114	 	
 	Net change in income taxes	 	 	(52	)	 	 	193	 	 	 	141	 	
 	Purchases of reserves in place	 	 	10	 	 	 	11	 	 	 	21	 	
 	Sales of reserves in place	 	 	(6	)	 	 	(166	)	 	 	(172	)	
 	Changes in timing and other	 	 	(45	)	 	 	82	 	 	 	37	 	
 	 	 		 	 	 		 	 	 		 	
Balance, December 31, 2003	 	$	925	 	 	$	416	 	 	$	1,341	 	
 	 	 		 	 	 		 	 	 		 	
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EXHIBIT INDEX 

Exhibit			
Number		Description	
			
 	3.1.1	 	 	Amended and Restated Certificate of Incorporation of Calpine Corporation.(a)	
 	3.1.2	 	 	Certificate of Correction of Calpine Corporation.(b)	
 	3.1.3	 	 	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Calpine Corporation.(c)	
 	3.1.4	 	 	Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation.(b)	
 	3.1.5	 	 	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation.(b)	
 	3.1.6	 	 	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation.(c)	
 	3.1.7	 	 	Certificate of Designation of Special Voting Preferred Stock of Calpine Corporation.(d)	
 	3.1.8	 	 	Certificate of Ownership and Merger Merging Calpine Natural Gas GP, Inc. into Calpine Corporation.(e)	
 	3.1.9	 	 	Certificate of Ownership and Merger Merging Calpine Natural Gas Company into Calpine Corporation.(e)	
 	3.1.10	 	 	Amended and Restated By-laws of Calpine Corporation.(f)	
 	4.1.1	 	 	Indenture dated as of May 16, 1996, between the Company and U.S. Bank (as successor trustee to Fleet National Bank), as Trustee, including form of Notes.(g)	
 	4.1.2	 	 	First Supplemental Indenture dated as of August 1, 2000, between the Company and U.S. Bank (as successor trustee to Fleet National Bank), as Trustee.(b)	
 	4.2.1	 	 	Indenture dated as of July 8, 1997, between the Company and The Bank of New York, as Trustee, including form of Notes.(h)	
 	4.2.2	 	 	Supplemental Indenture dated as of September 10, 1997, between the Company and The Bank of New York, as Trustee.(i)	
 	4.2.3	 	 	Second Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.3.1	 	 	Indenture dated as of March 31, 1998, between the Company and The Bank of New York, as Trustee, including form of Notes.(j)	
 	4.3.2	 	 	Supplemental Indenture dated as of July 24, 1998, between the Company and The Bank of New York, as Trustee.(j)	
 	4.3.3	 	 	Second Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.4.1	 	 	Indenture dated as of March 29, 1999, between the Company and The Bank of New York, as Trustee, including form of Notes.(k)	
 	4.4.2	 	 	First Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.5.1	 	 	Indenture dated as of March 29, 1999, between the Company and The Bank of New York, as Trustee, including form of Notes.(k)	
 	4.5.2	 	 	First Supplemental Indenture dated as of July 31, 2000, between the Company and The Bank of New York, as Trustee.(b)	
 	4.6.1	 	 	Indenture dated as of August 10, 2000, between the Company and Wilmington Trust Company, as Trustee.(l)	
 	4.6.2	 	 	First Supplemental Indenture dated as of September 28, 2000, between the Company and Wilmington Trust Company, as Trustee.(b)	
 	4.7	 	 	Indenture, dated as of April 30, 2001, between the Company and Wilmington Trust Company, as Trustee.(m)	
 	4.8.1	 	 	Amended and Restated Indenture dated as of October 16, 2001, between Calpine Canada Energy Finance ULC and Wilmington Trust Company, as Trustee.(n)	

Table of Contents

Exhibit			
Number		Description	
			
 	4.8.2	 	 	Guarantee Agreement dated as of April 25, 2001, between the Company and Wilmington Trust Company, as Trustee.(o)	
 	4.8.3	 	 	First Amendment, dated as of October 16, 2001, to Guarantee Agreement dated as of April 25, 2001, between the Company and Wilmington Trust Company, as Trustee.(n)	
 	4.9.1	 	 	Indenture dated as of October 18, 2001, between Calpine Canada Energy Finance II ULC and Wilmington Trust Company, as Trustee.(n)	
 	4.9.2	 	 	First Supplemental Indenture, dated as of October 18, 2001, between Calpine Canada Energy Finance II ULC and Wilmington Trust Company, as Trustee.(n)	
 	4.9.3	 	 	Guarantee Agreement dated as of October 18, 2001, between the Company and Wilmington Trust Company, as Trustee.(n)	
 	4.9.4	 	 	First Amendment, dated as of October 18, 2001, to Guarantee Agreement dated as of October 18, 2001, between the Company and Wilmington Trust Company, as Trustee.(n)	
 	4.10	 	 	Indenture, dated as of June 13, 2003, between Power Contract Financing, L.L.C. and Wilmington Trust Company, as Trustee, Accounts Agent, Paying Agent and Registrar, including form of Notes.(p)	
 	4.11	 	 	Indenture, dated as of July 16, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(p)	
 	4.12	 	 	Indenture, dated as of July 16, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(p)	
 	4.13	 	 	Indenture, dated as of July 16, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(p)	
 	4.14.1	 	 	Indenture, dated as of August 14, 2003, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee, including form of Notes.(q)	
 	4.14.2	 	 	Supplemental Indenture, dated as of September 18, 2003, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee.(q)	
 	4.14.3	 	 	Second Supplemental Indenture, dated as of January 14, 2004, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee.(*)	
 	4.14.4	 	 	Third Supplemental Indenture, dated as of March 5, 2004, among Calpine Construction Finance Company, L.P., CCFC Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, and Wilmington Trust Company, as Trustee.(*)	
 	4.15	 	 	Indenture, dated as of September 30, 2003, among Gilroy Energy Center, LLC, each of Creed Energy Center, LLC and Goose Haven Energy Center, as Guarantors, and Wilmington Trust Company, as Trustee and Collateral Agent, including form of Notes.(q)	
 	4.16	 	 	Indenture, dated as of November 18, 2003, between the Company and Wilmington Trust Company, as Trustee, including form of Notes.(*)	
 	4.17.1	 	 	Amended and Restated Indenture, dated as of March 12, 2004, between the Company and Wilmington Trust Company, including form of Notes.(*)	
 	4.17.2	 	 	Registration Rights Agreement, dated as of November 14, 2003, between the Company and Deutsche Bank Securities, Inc., as Representative of the Initial Purchasers.(*)	
 	4.18	 	 	Amended and Restated Rights Agreement, dated as of September 19, 2001, between Calpine Corporation and Equiserve Trust Company, N.A., as Rights Agent.(r)	
 	4.19	 	 	First Priority Indenture, dated as of March 23, 2004, among Calpine Generating Company, LLC, CalGen Finance Corp. and Wilmington Trust FSB, as Trustee, including form of Notes.(*)	
 	4.20	 	 	Second Priority Indenture, dated as of March 23, 2004, among Calpine Generating Company, LLC, CalGen Finance Corp. and Wilmington Trust FSB, as Trustee, including form of Notes.(*)	

Table of Contents

Exhibit			
Number		Description	
			
 	4.21	 	 	Third Priority Indenture, dated as of March 23, 2004, among Calpine Generating Company, LLC, CalGen Finance Corp. and Wilmington Trust FSB, as Trustee, including form of Notes.(*)	
 	4.22	 	 	HIGH TIDES I.	
 	4.22.1	 	 	Certificate of Trust of Calpine Capital Trust, a Delaware statutory trust, dated September 29, 1999.(s)	
 	4.22.2	 	 	Corrected Certificate of Certificate of Trust of Calpine Capital Trust, a Delaware statutory trust, filed October 4, 1999.(s)	
 	4.22.3	 	 	Declaration of Trust of Calpine Capital Trust, dated as of October 4, 1999, among Calpine Corporation, as Depositor, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee, and the Administrative Trustees named therein.(s)	
 	4.22.4	 	 	Indenture, dated as of November 2, 1999, between Calpine Corporation and The Bank of New York, as Trustee, including form of Debenture.(s)	
 	4.22.5	 	 	Remarketing Agreement, dated November 2, 1999, among Calpine Corporation, Calpine Capital Trust, The Bank of New York, as Tender Agent, and Credit Suisse First Boston Corporation, as Remarketing Agent.(s)	
 	4.22.6	 	 	Amended and Restated Declaration of Trust of Calpine Capital Trust, dated as of November 2, 1999, among Calpine Corporation, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, and The Bank of New York, as Property Trustee, and the Administrative Trustees named therein, including form of Preferred Security and form of Common Security.(s)	
 	4.22.7	 	 	Preferred Securities Guarantee Agreement, dated as of November 2, 1999, between Calpine Corporation and The Bank of New York, as Guarantee Trustee.(s)	
 	4.23	 	 	HIGH TIDES II.	
 	4.23.1	 	 	Certificate of Trust of Calpine Capital Trust II, a Delaware statutory trust, filed January 25, 2000.(t)	
 	4.23.2	 	 	Declaration of Trust of Calpine Capital Trust II, dated as of January 24, 2000, among Calpine Corporation, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee, and the Administrative Trustees named therein.(t)	
 	4.23.3	 	 	Indenture, dated as of January 31, 2000, between Calpine Corporation and The Bank of New York, as Trustee, including form of Debenture.(t)	
 	4.23.4	 	 	Remarketing Agreement, dated as of January 31, 2000, among Calpine Corporation, Calpine Capital Trust II, The Bank of New York, as Tender Agent, and Credit Suisse First Boston Corporation, as Remarketing Agent.(t)	
 	4.23.5	 	 	Registration Rights Agreement, dated January 31, 2000, among Calpine Corporation, Calpine Capital Trust II, Credit Suisse First Boston Corporation and ING Barings LLC.(t)	
 	4.23.6	 	 	Amended and Restated Declaration of Trust of Calpine Capital Trust II, dated as of January 31, 2000, among Calpine Corporation, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee, and the Administrative Trustees named therein, including form of Preferred Security and form of Common Security.(t)	
 	4.23.7	 	 	Preferred Securities Guarantee Agreement, dated as of January 31, 2000, between Calpine Corporation and The Bank of New York, as Guarantee Trustee.(t)	
 	4.24	 	 	HIGH TIDES III.	
 	4.24.1	 	 	Amended and Restated Certificate of Trust of Calpine Capital Trust III, a Delaware statutory trust, filed July 19, 2000.(u)	
 	4.24.2	 	 	Declaration of Trust of Calpine Capital Trust III dated June 28, 2000, among the Company, as Depositor and Debenture Issuer, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Property Trustee and the Administrative Trustees named therein.(u)	

Table of Contents

Exhibit			
Number		Description	
			
 	4.24.3	 	 	Amendment No. 1 to the Declaration of Trust of Calpine Capital Trust III dated July 19, 2000, among the Company, as Depositor and Debenture Issuer, Wilmington Trust Company, as Delaware Trustee, Wilmington Trust Company, as Property Trustee, and the Administrative Trustees named therein.(u)	
 	4.24.4	 	 	Indenture dated as of August 9, 2000, between the Company and Wilmington Trust Company, as Trustee.(u)	
 	4.24.5	 	 	Remarketing Agreement dated as of August 9, 2000, among the Company, Calpine Capital Trust III, Wilmington Trust Company, as Tender Agent, and Credit Suisse First Boston Corporation, as Remarketing Agent.(u)	
 	4.24.6	 	 	Registration Rights Agreement dated as August 9, 2000, between the Company, Calpine Capital Trust III, Credit Suisse First Boston Corporation, ING Barings LLC and CIBC World Markets Corp.(u)	
 	4.24.7	 	 	Amended and Restated Declaration of Trust of Calpine Capital Trust III dated as of August 9, 2000, the Company, as Depositor and Debenture Issuer, Wilmington Trust Company, as Delaware Trustee, Wilmington Trust Company, as Property Trustee, and the Administrative Trustees named therein, including the form of Preferred Security and form of Common Security.(u)	
 	4.24.8	 	 	Preferred Securities Guarantee Agreement dated as of August 9, 2000, between the Company, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.(u)	
 	4.25	 	 	PASS THROUGH CERTIFICATES (TIVERTON AND RUMFORD).	
 	4.25.1	 	 	Pass Through Trust Agreement dated as of December 19, 2000, among Tiverton Power Associates Limited Partnership, Rumford Power Associates Limited Partnership and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including the form of Certificate.(b)	
 	4.25.2	 	 	Participation Agreement dated as of December 19, 2000, among the Company, Tiverton Power Associates Limited Partnership, Rumford Power Associates Limited Partnership, PMCC Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee.(b)	
 	4.25.3	 	 	Appendix A — Definitions and Rules of Interpretation.(b)	
 	4.25.4	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of December 19, 2000, between PMCC Calpine New England Investment LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, including the forms of Lessor Notes.(b)	
 	4.25.5	 	 	Calpine Guaranty and Payment Agreement (Tiverton) dated as of December 19, 2000, by Calpine, as Guarantor, to PMCC Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(b)	
 	4.25.6	 	 	Calpine Guaranty and Payment Agreement (Rumford) dated as of December 19, 2000, by Calpine, as Guarantor, to PMCC Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(b)	
 	4.26	 	 	PASS THROUGH CERTIFICATES (SOUTH POINT, BROAD RIVER AND ROCKGEN).	
 	4.26.1	 	 	Pass Through Trust Agreement A dated as of October 18, 2001, among South Point Energy Center, LLC, Broad River Energy LLC, RockGen Energy LLC and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including the form of 8.400% Pass Through Certificate, Series A.(f)	
 	4.26.2	 	 	Pass Through Trust Agreement B dated as of October 18, 2001, among South Point Energy Center, LLC, Broad River Energy LLC, RockGen Energy LLC and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including the form of 9.825% Pass Through Certificate, Series B.(f)	

Table of Contents

Exhibit			
Number		Description	
			
 	4.26.3	 	 	Participation Agreement (SP-1) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-1, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.4	 	 	Participation Agreement (SP-2) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-2, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.5	 	 	Participation Agreement (SP-3) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-3, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.6	 	 	Participation Agreement (SP-4) dated as of October 18, 2001, among the Company, South Point Energy Center, LLC, South Point OL-4, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.7	 	 	Participation Agreement (BR-1) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-1, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.8	 	 	Participation Agreement (BR-2) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-2, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.9	 	 	Participation Agreement (BR-3) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-3, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.10	 	 	Participation Agreement (BR-4) dated as of October 18, 2001, among the Company, Broad River Energy LLC, Broad River OL-4, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	

Table of Contents

Exhibit			
Number		Description	
			
 	4.26.11	 	 	Participation Agreement (RG-1) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-1, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.12	 	 	Participation Agreement (RG-2) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-2, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.13	 	 	Participation Agreement (RG-3) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-3, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.14	 	 	Participation Agreement (RG-4) dated as of October 18, 2001, among the Company, RockGen Energy LLC, RockGen OL-4, LLC, Wells Fargo Bank Northwest, National Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, National Association, as Pass Through Trustee, including Appendix A — Definitions and Rules of Interpretation.(f)	
 	4.26.15	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-1, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.16	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-2, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.17	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-3, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.18	 	 	Indenture of Trust, Deed of Trust, Assignment of Rents and Leases, Security Agreement and Financing Statement, dated as of October 18, 2001, between South Point OL-4, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of South Point Lessor Notes.(f)	
 	4.26.19	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-1, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	
 	4.26.20	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-2, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	
 	4.26.21	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-3, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	

Table of Contents

Exhibit			
Number		Description	
			
 	4.26.22	 	 	Indenture of Trust, Mortgage, Security Agreement and Fixture Filing, dated as of October 18, 2001, between Broad River OL-4, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee, Mortgagee and Account Bank, including the form of Broad River Lessor Notes.(f)	
 	4.26.23	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-1, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.24	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-2, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.25	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-3, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.26	 	 	Indenture of Trust, Mortgage and Security Agreement, dated as of October 18, 2001, between RockGen OL-4, LLC and State Street Bank and Trust Company of Connecticut, National Association, as Indenture Trustee and Account Bank, including the form of RockGen Lessor Notes.(f)	
 	4.26.27	 	 	Calpine Guaranty and Payment Agreement (South Point SP-1) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.28	 	 	Calpine Guaranty and Payment Agreement (South Point SP-2) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.29	 	 	Calpine Guaranty and Payment Agreement (South Point SP-3) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.30	 	 	Calpine Guaranty and Payment Agreement (South Point SP-4) dated as of October 18, 2001, by Calpine, as Guarantor, to South Point OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.31	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-1) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.32	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-2) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.33	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-3) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.34	 	 	Calpine Guaranty and Payment Agreement (Broad River BR-4) dated as of October 18, 2001, by Calpine, as Guarantor, to Broad River OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	

Table of Contents

Exhibit			
Number		Description	
			
 	4.26.35	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-1) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.36	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-2) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.37	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-3) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	4.26.38	 	 	Calpine Guaranty and Payment Agreement (RockGen RG-4) dated as of October 18, 2001, by Calpine, as Guarantor, to RockGen OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of Connecticut, as Indenture Trustee, and State Street Bank and Trust Company of Connecticut, as Pass Through Trustee.(f)	
 	10.1	 	 	Financing Agreements.	
 	10.1.1.1	 	 	Calpine Construction Finance Company Financing Agreement (“CCFC II”), dated as of October 16, 2000.(b)(v)	
 	10.1.1.2	 	 	Amended and Restated Credit Agreement, dated as of March 23, 2004, among Calpine Generating Company, LLC, the Guarantors named therein, the Lenders named therein, The Bank of Nova Scotia, as Administrative Agent, LC Bank, Lead Arranger and Sole Bookrunner, Bayerische Landesbank Cayman Islands Branch, as Arranger and Co-Syndication Agent, Credit Lyonnais New York Branch, as Arranger and Co-Syndication Agent, ING Capital LLC, as Arranger and Co-Syndication Agent, Toronto-Dominion (Texas) Inc., as Arranger and Co-Syndication Agent, and Union Bank of California, N.A., as Arranger and Co-Syndication Agent.(*)	
 	10.1.2.1	 	 	Amended and Restated Credit Agreement, dated as of July 16, 2003 (“Amended and Restated Credit Agreement”), among the Company, the Lenders named therein, The Bank of Nova Scotia, as Administrative Agent, Funding Agent, Lead Arranger and Bookrunner, Bayerische Landesbank, Cayman Islands Branch, as Lead Arranger, as Co-Bookrunner and Documentation Agent, and ING Capital LLC and Toronto Dominion (Texas) Inc., as Lead Arrangers, Co-Bookrunners and Syndication Agents.(p)	
 	10.1.2.2	 	 	First Amendment to Amended and Restated Credit Agreement, dated as of August 7, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(p)	
 	10.1.2.3	 	 	Amendment and Waiver to Amended and Restated Credit Agreement, dated as of August 28, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(q)	
 	10.1.2.4	 	 	Letter Agreement regarding Technical Correction to Amendment and Waiver to Amended and Restated Credit Agreement, dated as of September 5, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(q)	
 	10.1.2.5	 	 	Third Amendment to Amended and Restated Credit Agreement, dated as of November 6, 2003, among the Company, each of Quintana Minerals (USA) Inc., JOQ Canada, Inc., and Quintana Canada Holdings, LLC, as a Guarantor, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(q)	
 	10.1.2.6	 	 	Fourth Amendment and Waiver to Amended and Restated Credit Agreement, dated as of November 19, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	
 	10.1.2.7	 	 	Fifth Amendment and Waiver to Amended and Restated Credit Agreement, dated as of December 30, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	

Table of Contents

Exhibit			
Number		Description	
			
 	10.1.2.8	 	 	Technical Correction to Fifth Amendment and Waiver to Amended and Restated Credit Agreement, dated as of December 31, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	
 	10.1.2.9	 	 	Waiver to Amended and Restated Credit Agreement, dated as of March 5, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent.(*)	
 	10.1.3	 	 	Letter of Credit Agreement, dated as of July 16, 2003, among the Company, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent.(p)	
 	10.1.4	 	 	Guarantee and Collateral Agreement, dated as of July 16, 2003, made by Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.5	 	 	First Amendment Pledge Agreement, dated as of July 16, 2003, made by JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.6	 	 	First Amendment Assignment and Security Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.7.1	 	 	Second Amendment Pledge Agreement (Stock Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.7.2	 	 	Amendment No. 1 to the Second Amendment Pledge Agreement (Stock Interests), dated as of November 18, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(*)	
 	10.1.8.1	 	 	Second Amendment Pledge Agreement (Membership Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.8.2	 	 	Amendment No. 1 to the Second Amendment Pledge Agreement (Membership Interests), dated as of November 18, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(*)	
 	10.1.9	 	 	First Amendment Note Pledge Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.10.	1	 	Collateral Trust Agreement, dated as of July 16, 2003, among Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit Partners L.P., as Administrative Agent, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.10.	2	 	First Amendment to the Collateral Trust Agreement, dated as of November 18, 2003, among Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit Partners L.P., as Administrative Agent, and The Bank of New York, as Collateral Trustee.(*)	
 	10.1.11	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Denis O’Meara and James Trimble, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.12	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.13	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Colorado), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	

Table of Contents

Exhibit			
Number		Description	
			
 	10.1.14	 	 	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (New Mexico), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.15	 	 	Form of Amended and Restated Mortgage, Assignment, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.16	 	 	Form of Amended and Restated Deed of Trust with Power of Sale, Assignment of Production, Security Agreement, Financing Statement and Fixture Filings (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, as Trustee, and The Bank of New York, as Collateral Trustee.(p)	
 	10.1.17	 	 	Form of Deed to Secure Debt, Assignment of Rents and Security Agreement (Georgia), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.18	 	 	Form of Mortgage, Assignment of Rents and Security Agreement (Florida), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.19	 	 	Form of Deed of Trust, Assignment of Rents and Security Agreement and Fixture Filing (Texas), dated as of July 16, 2003, from Calpine Corporation to Malcolm S. Morris, as Trustee, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.20	 	 	Form of Deed of Trust, Assignment of Rents and Security Agreement (Washington), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.21	 	 	Form of Deed of Trust, Assignment of Rents, and Security Agreement (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.22	 	 	Form of Mortgage, Collateral Assignment of Leases and Rents, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee.(p)	
 	10.1.23	 	 	Amended and Restated Hazardous Materials Undertaking and Indemnity (Multistate), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.24	 	 	Amended and Restated Hazardous Materials Undertaking and Indemnity (California), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee.(p)	
 	10.1.25	 	 	Designated Asset Sale Proceeds Account Control Agreement, dated as of July 16, 2003, among Calpine Corporation, Union Bank of California, N.A., and The Bank of New York, as Collateral Agent.(*)	
 	10.2	 	 	Term Loan Agreements.	
 	10.2.1	 	 	Credit Agreement, dated as of July 16, 2003, among the Company, the Lenders named therein, Goldman Sachs Credit Partners L.P., as Sole Lead Arranger, Sole Bookrunner and Administrative Agent, The Bank of Nova Scotia, as Arranger and Syndication Agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen, as Co-Arrangers, and Credit Lyonnais New York Branch and Union Bank of California, N.A., as Managing Agents.(p)	
 	10.2.2.1	 	 	Credit and Guarantee Agreement, dated as of August 14, 2003, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(q)	
 	10.2.2.2	 	 	Amendment No. 1 to the Credit and Guarantee Agreement, dated as of September 12, 2003, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(q)	

Table of Contents

Exhibit			
Number		Description	
			
 	10.2.2.3	 	 	Amendment No. 2 to the Credit and Guarantee Agreement, dated as of January 13, 2004, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(*)	
 	10.2.2.4	 	 	Amendment No. 3 to the Credit and Guarantee Agreement, dated as of March 5, 2004, among Calpine Construction Finance Company, L.P., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as Guarantors, the Lenders named therein, and Goldman Sachs Credit Partners L.P., as Administrative Agent and Sole Lead Arranger.(*)	
 	10.2.3	 	 	Credit and Guarantee Agreement, dated as of March 23, 2004, among Calpine Generating Company, LLC, the Guarantors named therein, the Lenders named therein, Morgan Stanley Senior Funding, Inc., as Administrative Agent, and Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Bookrunner.(*)	
 	10.2.4	 	 	Credit and Guarantee Agreement, dated as of March 23, 2004, among Calpine Generating Company, LLC, the Guarantors named therein, the Lenders named therein, Morgan Stanley Senior Funding, Inc., as Administrative Agent, and Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Bookrunner.(*)	
 	10.3	 	 	Management Contracts or Compensatory Plans or Arrangements.	
 	10.3.1	 	 	Calpine Corporation 1996 Stock Incentive Plan and forms of agreements there under.(*)(w)	
 	10.3.2	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Peter Cartwright.(t)(w)	
 	10.3.3	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Ms. Ann B. Curtis.(f)(w)	
 	10.3.4	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Ron A. Walter.(f)(w)	
 	10.3.5	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Robert D. Kelly.(f)(w)	
 	10.3.6	 	 	Employment Agreement, dated as of January 1, 2000, between Calpine Corporation and Mr. Thomas R. Mason.(f)(w)	
 	10.3.7	 	 	Consulting Contract, dated as of January 1, 2004, between Calpine Corporation and Mr. George J. Stathakis. (*)(w)	
 	10.3.8	 	 	Calpine Corporation Annual Management Incentive Plan.(x)(w)	
 	10.3.9	 	 	$500,000 Promissory Note Secured by Deed of Trust made by Thomas R. Mason and Debra J. Mason in favor of Calpine Corporation.(x)(w)	
 	10.3.10	 	 	2000 Employee Stock Purchase Plan (y)(w)	
 	10.3.11	 	 	Form of Indemnification Agreement for directors and officers.(z)(w)	
 	10.3.12	 	 	Form of Indemnification Agreement for directors and officers.(f)(w)	
 	12.1	 	 	Statement on Computation of Ratio of Earnings to Fixed Charges.(*)	
 	21.1	 	 	Subsidiaries of the Company.(*)	
 	23.1	 	 	Consent of Deloitte & Touche LLP, Independent Public Accountants.(*)	
 	23.2	 	 	Consent of PricewaterhouseCoopers LLP, Independent Public Accountants.(*)	
 	23.3	 	 	Consent of Netherland, Sewell & Associates, Inc., independent engineer.(*)	
 	23.4	 	 	Consent of Gilbert Laustsen Jung Associates, Ltd., independent engineer.(*)	
 	24.1	 	 	Power of Attorney of Officers and Directors of Calpine Corporation (set forth on the signature pages of this report).(*)	
 	31.1	 	 	Certification of the Chairman, President and Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)	

Table of Contents

Exhibit			
Number		Description	
			
 	31.2	 	 	Certification of the Executive Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(*)	
 	32.1	 	 	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(*)	
 	99.1	 	 	Acadia Power Partners, LLC and Subsidiary, Consolidated Financial Statements, December 31, 2003, 2002 and 2001.(*)	
 	99.2	 	 	Consent of PricewaterhouseCoopers LLP, Independent Public Accountants.(*)	

 
			
(*)		Filed herewith.	
 		
(a)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-40652) filed with the SEC on June 30, 2000.	
 		
(b)		Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, filed with the SEC on March 15, 2001.	
 		
(c)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-66078) filed with the SEC on July 27, 2001.	
 		
(d)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2001, filed with the SEC on May 15, 2001.	
 		
(e)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2002, filed with the SEC on May 15, 2002.	
 		
(f)		Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K dated December 31, 2001, filed with the SEC on March 29, 2002.	
 		
(g)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-4 (Registration Statement No. 333-06259) filed with the SEC on June 19, 1996.	
 		
(h)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated June 30, 1997, filed with the SEC on August 14, 1997.	
 		
(i)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-4 (Registration Statement No. 333-41261) filed with the SEC on November 28, 1997.	
 		
(j)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-4 (Registration Statement No. 333-61047) filed with the SEC on August 10, 1998.	
 		
(k)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3/ A (Registration Statement No. 333-72583) filed with the SEC on March 8, 1999.	
 		
(l)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-76880) filed with the SEC on January 17, 2002.	
 		
(m)		Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated October 16, 2001, filed with the SEC on November 13, 2001.	
 		
(n)		Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated October 16, 2001, filed with the SEC on November 13, 2001.	
 		
(o)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3/ A (Registration No. 333-57338) filed with the SEC on April 19, 2001.	
 		
(p)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated June 30, 2003, filed with the SEC on August 14, 2003.	
 		
(q)		Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated September 30, 2003, filed with the SEC on November 13, 2003.	
 		
(r)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form 8-A/ A (Registration No. 001-12079) filed with the SEC on September 28, 2001.	
 		
(s)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3/ A (Registration Statement No. 333-87427) filed with the SEC on October 26, 1999.	

Table of Contents

			
(t)		Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999, filed with the SEC on February 29, 2000.	
 		
(u)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration Statement No. 333-47068) filed with the SEC on September 29, 2000.	
 		
(v)		Approximately 71 pages of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted language has been filed separately with the SEC.	
 		
(w)		Management contract or compensatory plan or arrangement.	
 		
(x)		Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated March 30, 2000, filed with the SEC on April 3, 2000.	
 		
(y)		Incorporated by reference to Calpine Corporation’s Definitive Proxy Statement on Schedule 14A dated April 13, 2000, filed with the SEC on April 13, 2000.	
 		
(z)		Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-1/ A (Registration Statement No. 333-07497) filed with the SEC on August 22, 1996.	
 
EXHIBIT 4.14.3
SECOND SUPPLEMENTAL INDENTURE
Dated as of January 14, 2004
among
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.
CCFC FINANCE CORP.
THE GUARANTORS NAMED HEREIN
and
WILMINGTON TRUST FSB,
as Trustee
Supplementing the Indenture
Dated as of August 14, 2003
and
Amended as of September 18, 2003
SECOND SUPPLEMENTAL INDENTURE, dated as of January 14, 2004 (the "Second Supplemental Indenture"), among Calpine Construction Finance Company, L.P., a Delaware limited partnership (the "Company"), CCFC Finance Corp., a Delaware corporation ("Finance Corp."), the Guarantors and Wilmington Trust FSB, as trustee (the "Trustee").
WHEREAS, the Company, Finance Corp., the Guarantors and the Trustee have executed that certain Indenture, dated as of August 14, 2003, as supplemented by that certain Supplemental Indenture, dated as of September 18, 2003 (as supplemented, the "Indenture"), in connection with the co-issuance by the Company and Finance Corp. of certain Second Priority Senior Secured Floating Rate Notes due 2011 (the "Notes");
WHEREAS, pursuant to a Consent Solicitation dated as of January 7, 2004 (the "Consent Solicitation"), the Company and Finance Corp. have proposed to supplement and amend Section 4.10 of the Indenture as provided herein (the "Proposed Amendment");
WHEREAS, pursuant to Section 9.02 of the Indenture, the Holders of at least a majority in aggregate principal amount of the Notes have consented to the Proposed Amendment; and
WHEREAS, the Company and Finance Corp. have directed the Trustee to execute and deliver this Second Supplemental Indenture in accordance with the terms of the Indenture;
NOW THEREFORE, for and in consideration of the premises and mutual covenants herein contained, the Company, Finance Corp., the Guarantors and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definition of Terms.
Unless the context otherwise requires, capitalized terms used herein that are not otherwise defined herein shall have the meaning assigned to such terms in the Indenture.
ARTICLE II
AMENDMENTS TO THE INDENTURE
Section 2.1 Amendments.
Section 4.10 (Asset Sales) of the Indenture is hereby amended to insert the following sentence at the end of the second full paragraph of such section:
Notwithstanding anything herein to the contrary, the Company and Finance Corp. are authorized to take the following actions:
2
(i) to place in an account (the "Lost Pines Proceeds Account") maintained with the Collateral Agent the Net Proceeds of the sale of the Company's 50% undivided ownership interest in the Lost Pines facility (the "Lost Pines Interest"), which Lost Pines Proceeds Account and the Net Proceeds held therein shall constitute Collateral;
(ii) the Collateral Agent and the Company may execute an escrow and exchange agreement with respect to the Lost Pines Proceeds Account, in such form as they may agree, containing customary terms and conditions intended to assure that the Lost Pines Proceeds Account is a "qualified escrow account," and the Collateral Agent is acting either as an "escrow holder" or a "qualified intermediary" with respect thereto, in each case for purposes of Section 1031 of the Internal Revenue Code of 1986, as amended; provided that nothing in this clause (ii) shall modify the Company's obligation to maintain valid and perfected security interest in the Collateral as provided in this Indenture;
(iii) on or before the 181st day (or, if such date is not a Business Day, the first Business Day thereafter) following the consummation of the sale of the Lost Pines Interest (the "Latest Replacement Facility Closing Date"), and subject to obtaining the consent of the Holders of a majority in aggregate principal amount of the Notes, to use such Net Proceeds to purchase an additional natural gas-fired combined cycle power generating facility (the "Replacement Facility");
provided, however, that if the purchase of such Replacement Facility is not consummated on or before the Latest Replacement Facility Closing Date (or, if earlier, the Company and Finance Corp. notify the Trustee in writing that the Company is no longer pursuing the acquisition of a Replacement Facility), then the Company shall apply the Net Proceeds of such sale as otherwise provided in this Section 4.10 as if the date of the sale of the Lost Pines Interest were the first Business Day after the Latest Replacement Facility Closing Date (or such earlier date as the Company and Finance Corp. notify the Trustee in writing that the Company is no longer pursuing the acquisition of a Replacement Facility).
3
ARTICLE III
MISCELLANEOUS
Section 3.1 Interpretation.
Upon execution and delivery of this Second Supplemental Indenture, the Indenture shall be modified and amended in accordance with this Second Supplemental Indenture, and all the terms and conditions of both shall be read together as though they constitute one instrument, except that, in case of conflict, the provisions of this Second Supplemental Indenture will control. The Indenture, as modified and amended by this Second Supplemental Indenture, is hereby ratified and confirmed in all respects and shall bind every holder of Notes. In case of conflict between the terms and conditions contained in the Notes and those contained in the Indenture, as modified and amended by this Second Supplemental Indenture, the provisions of the Indenture, as modified and amended by this Second Supplemental Indenture, shall control.
Section 3.2 The Trustee.
The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and Finance Corp.
Section 3.3 Certain Duties and Responsibilities of the Trustee.
In entering into this Second Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.
Section 3.4 Counterparts.
This Second Supplemental Indenture may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature of this Second Supplemental Indenture by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
Section 3.5 Applicable Law.
This Second Supplemental Indenture and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
* * *
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the day and year first above written.
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.

By: /s/ ERIC N. PRYOR
    --------------------------------------------
    Name: Eric N. Pryor
    Title: Senior Vice President	

CCFC FINANCE CORP.

By: /s/ ERIC N. PRYOR
    --------------------------------------------
    Name: Eric N. Pryor
    Title: Senior Vice President	

CALPINE HERMISTON, LLC, as a Guarantor

By: /s/ ERIC N. PRYOR
    --------------------------------------------
    Name: Eric N. Pryor
    Title:  Senior Vice President	

CPN HERMISTON, LLC, as a Guarantor

By: /s/ ERIC N. PRYOR
    --------------------------------------------
    Name: Eric N. Pryor
    Title:  Senior Vice President	

HERMISTON POWER PARTNERSHIP, as a Guarantor
By: Calpine Hermiston, LLC, its General Partner

By: /s/ ERIC N. PRYOR
    --------------------------------------------
    Name: Eric N. Pryor
    Title:  Senior Vice President	

5
WILMINGTON TRUST FSB, as Trustee

By: /s/ JAMES J. McGINLEY
    --------------------------------------------
    Name: James J. McGinley
    Title: Authorized Signer	

6
 
EXHIBIT 4.14.4
THIRD SUPPLEMENTAL INDENTURE
Dated as of March 5, 2004
among
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.
CCFC FINANCE CORP.
THE GUARANTORS NAMED HEREIN
and
WILMINGTON TRUST FSB,
as Trustee
Supplementing the Indenture
Dated as of August 14, 2003
and
Amended as of September 18, 2003 and January 14, 2004
THIRD SUPPLEMENTAL INDENTURE, dated as of March 5, 2004 (the "Third Supplemental Indenture"), among Calpine Construction Finance Company, L.P., a Delaware limited partnership (the "Company"), CCFC Finance Corp., a Delaware corporation ("Finance Corp."), the Guarantors and Wilmington Trust FSB, as trustee (the "Trustee").
WHEREAS, the Company, Finance Corp., the Guarantors and the Trustee have executed that certain Indenture, dated as of August 14, 2003, as supplemented by that certain Supplemental Indenture, dated as of September 18, 2003, and as further supplemented by that certain Second Supplemental Indenture, dated as of January 14, 2004 (as supplemented, the "Indenture"), in connection with the co-issuance by the Company and Finance Corp. of certain Second Priority Senior Secured Floating Rate Notes due 2011 (the "Notes");
WHEREAS, pursuant to a Consent Solicitation dated as of February 20, 2004 (the "Consent Solicitation"), the Company and Finance Corp. have proposed to supplement and amend certain Sections of the Indenture as provided herein (the "Proposed Amendments");
WHEREAS, pursuant to Section 9.02 of the Indenture, the Holders of at least a majority in aggregate principal amount of the Notes have consented to the Proposed Amendments; and
WHEREAS, the Company and Finance Corp. have directed the Trustee to execute and deliver this Third Supplemental Indenture in accordance with the terms of the Indenture;
NOW THEREFORE, for and in consideration of the premises and mutual covenants herein contained, the Company, Finance Corp., the Guarantors and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definition of Terms.
Unless the context otherwise requires, capitalized terms used herein that are not otherwise defined herein shall have the meaning assigned to such terms in the Indenture.
ARTICLE II
AMENDMENTS TO THE INDENTURE
Section 2.1 Amendments. (a) Section 1.01 (Definitions) of the Indenture is hereby amended to insert the following new definitions in alphabetical order in such Section:
"Acquisition Companies" means each of Calpine Brazos Valley Energy Center GP, LLC, a Delaware limited liability company, and Calpine Brazos Valley Energy Center LP, LLC, a Delaware limited liability company.
"Affiliate Purchase Agreement" means that certain Purchase Agreement, dated as of February 18, 2004, by and between the Company and Calpine Power Corporation, a Delaware corporation.
"Brazos Subsidiaries" means each of Brazos Valley Energy LP, a Delaware limited partnership, and Brazos Valley Technology LP, a Delaware limited partnership.
"Calpine Pledge Agreement" means that certain Pledge Agreement by and between Calpine Corporation and the Company related to the pledge by the Company to Calpine of certain Equity Interests in the Acquisition Subsidiaries.
"Calpine Credit Agreement" means that certain Credit Agreement by and between Calpine Corporation and the Company, relating to Indebtedness incurred by the Company to complete the acquisition, indirectly through the acquisition of the Acquisition Subsidiaries, of the Brazos Subsidiaries, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
(b) The definition of "Excess Cash Flow" in Section 1.01 (Definitions) of the Indenture is hereby amended by inserting the phrase "other than Fixed Charges relating to the Calpine Credit Agreement," immediately following "for such period," at the end of clause (2)(C) of such definition.
(c) The definition of "Excluded Assets" in Section 1.01 (Definitions) of the Indenture is hereby amended, as follows:
(i) by deleting the word "and" at the end of clause (4) under such definition;
(ii) by deleting the period and adding "; and" at the end of clause (5) of such definition; and
(iii) by adding the following new clause (6) to the end of such definition:
(6) (A) that portion of the Capital Stock of each of the Acquisition Companies pledged by the Company to Calpine Corporation in accordance with the terms and provisions of the Calpine Pledge Agreement, until such time as all amounts outstanding under the Calpine Credit Agreement have been paid in full and the Calpine Pledge Agreement has been terminated, (B) the Equity Interests of the Brazos Subsidiaries and
(C) the real and personal property (i) of the Acquisition Companies, (ii) of the Brazos Subsidiaries and (iii) constituting the Brazos Valley electric generating facility located in Thompsons, Texas.
2
(d) The definition of "Permitted Liens" in Section 1.01 (Definitions) of the Indenture is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (13) of such definition;
(ii) by deleting the period and adding "; and" at the end of clause (14) of such definition;
(iii) by adding the following new clause (15) to the end of such definition:
(15) the pledge by the Company of the Capital Stock of each of the Acquisition Companies to Calpine Corporation in accordance with the terms and provisions of the Calpine Pledge Agreement.
(e) Section 4.09 (Incurrence of Indebtedness and Issuance of Preferred Equity) of the Indenture is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (10) of the second paragraph of such Section;
(ii) by deleting the period and adding "; and" at the end of clause (11) of the second paragraph of such Section;
(iii) by adding the following new clause (12) to the end of such definition:
(12) the incurrence by the Company of Indebtedness under the Calpine Credit Agreement as of the date of its execution and delivery by the parties thereto;
(f) Section 4.11 (Transactions with Affiliates) of the Indenture is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (12) of the second paragraph of such Section;
(ii) changing the number of the old clause (13) of the second paragraph of such Section from (13) to (14);
(iii) by adding the following new clause (13) to the second paragraph of such Section:
"(13) transactions contemplated under the Affiliate Purchase Agreement, the Calpine Credit Agreement and the Calpine Pledge Agreement; and"
3
(g) Section 4.21 (Additional Subsidiaries) of the Indenture is hereby amended to insert a new third paragraph at the end of such Section, as follows:
"Notwithstanding anything to the contrary in this Section 4.21, (i) the Acquisition Companies and the Brazos Subsidiaries shall not be required to comply with the provisions of the first paragraph of this Section 4.21 and (ii) the Company shall not be required to comply with the provisions of the first paragraph of this Section 4.21 with respect to the Acquisition Companies and the Brazos Subsidiaries; provided that (x) the Acquisition Companies and the Brazos Subsidiaries shall become Guarantors if, in the good faith determination of the Company, the limitations imposed by the debt instruments of Calpine Corporation and its Subsidiaries on the ability of the Acquisition Companies and the Brazos Subsidiaries to become Guarantors are no longer applicable, (y) all of the Equity Interests in each of the Acquisition Companies, other than such Equity Interests pledged to Calpine Corporation pursuant to the Calpine Pledge Agreement, shall be required to become part of the Collateral within 30 days of the date of acquisition of such Acquisition Companies by the Company, and (z) 100% of the Equity Interests in each of the Acquisition Companies shall be required to become part of the Collateral (in accordance with the terms and provisions of the Pledge and Security Agreement) promptly following the termination of the Calpine Pledge Agreement in accordance with its terms."
ARTICLE III
MISCELLANEOUS
Section 3.1 Condition to Operative Effect. The operative effect of this Third Supplemental Indenture is conditioned upon the occurrence of the consummation of the transactions contemplated by the Purchase Agreement, dated as of February 18, 2004, between Calpine Brazos Valley Energy Center GP, LLC and Calpine Brazos Valley Energy Center LP, LLC, as purchasers, and Brazos Valley Special Purpose GP Limited Partnership and Brazos Valley Special Purpose LP Limited Partnership, as sellers.
Section 3.2 Interpretation.
Upon execution and delivery of this Third Supplemental Indenture, and subject to Section 3.1, the Indenture shall be modified and amended in accordance with this Third Supplemental Indenture, and all the terms and conditions of both shall be read together as though they constitute one instrument, except that, in case of conflict, the provisions of this Third Supplemental Indenture will control. The Indenture, as modified and amended by this Third Supplemental Indenture, is hereby ratified and confirmed in all respects and shall bind every holder of Notes. In case of conflict between the terms and conditions contained in the Notes and those contained in the Indenture, as modified and amended by this Third Supplemental
4
Indenture, the provisions of the Indenture, as modified and amended by this Third Supplemental Indenture, shall control.
Section 3.3 The Trustee.
The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Third Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and Finance Corp.
Section 3.4 Certain Duties and Responsibilities of the Trustee.
In entering into this Third Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.
Section 3.5 Counterparts.
This Third Supplemental Indenture may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature of this Third Supplemental Indenture by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
Section 3.6 Applicable Law.
This Third Supplemental Indenture and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
* * *
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the day and year first above written.
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

CCFC FINANCE CORP.

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

CALPINE HERMISTON, LLC, as a Guarantor

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

CPN HERMISTON, LLC, as a Guarantor

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

HERMISTON POWER PARTNERSHIP, as a Guarantor
By: Calpine Hermiston, LLC, its General Partner

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

WILMINGTON TRUST FSB, as Trustee

By:  /s/ W. CHRIS SPONENBERG
   --------------------------------------------
   Name:  W. Chris Sponenberg
   Title:  Authorized Signatory	

EXHIBIT 4.16

CALPINE CORPORATION
9.875% SECOND PRIORITY SENIOR SECURED NOTES DUE 2011

INDENTURE
Dated as of November 18, 2003

WILMINGTON TRUST COMPANY
Trustee

 
CROSS-REFERENCE TABLE*

Trust Indenture
Act Section                                                                      Indenture Section
310(a)(1)...................................................................             7.10
   (a)(2)...................................................................             7.10
   (a)(3)...................................................................             N.A.
   (a)(4)...................................................................             N.A.
   (a)(5)...................................................................             7.10
   (b)......................................................................             7.10
   (c)......................................................................             N.A.
311(a)......................................................................             7.11
   (b)......................................................................             7.11
   (c)......................................................................             N.A.
312(a)......................................................................             2.05
313(a)......................................................................             7.06
   (b)(1)...................................................................            10.03
   (b)(2)...................................................................          7.06; 7.07
   (c)......................................................................             7.06
   (d)......................................................................             7.06
314(a)......................................................................             4.03
   (a)(4)...................................................................            12.05
   (b)......................................................................             N.A.
   (c)(3)...................................................................             N.A.
   (e)......................................................................            12.05
   (f)......................................................................             N.A.
315(a)......................................................................             7.01
   (b)......................................................................             7.05
   (c)......................................................................             7.01
   (d)......................................................................             7.01
   (e)......................................................................             6.11
316(a) (last sentence)......................................................             2.09
   (a)(1)(A)................................................................             6.05
   (a)(1)(B)................................................................             6.04
   (a)(2)...................................................................             N.A.
   (b)......................................................................             6.07
   (c)......................................................................             2.12
317(a)(1)...................................................................             6.08
   (a)(2)...................................................................             6.09
   (b)......................................................................             2.04
318(a)......................................................................             N.A.
   (b)......................................................................            12.03
   (c)......................................................................     12.01; 12.02; 12.03	

N.A. means not applicable.
* This Cross Reference Table is not part of this Indenture.
TABLE OF CONTENTS

                                                                                                                 Page
                                                        ARTICLE 1.
                                               DEFINITIONS AND INCORPORATION
                                                      BY REFERENCE

Section 1.01      Definitions..................................................................................   1
Section 1.02      Other Definitions............................................................................  28
Section 1.03      Incorporation by Reference of Trust Indenture Act............................................  28
Section 1.04      Rules of Construction........................................................................  29

                                                        ARTICLE 2.
                                                        THE NOTES

Section 2.01      Form and Dating..............................................................................  30
Section 2.02      Execution and Authentication.................................................................  30
Section 2.03      Registrar and Paying Agent...................................................................  31
Section 2.04      Paying Agent to Hold Money in Trust..........................................................  31
Section 2.05      Holder Lists.................................................................................  31
Section 2.06      Transfer and Exchange........................................................................  31
Section 2.07      Replacement Notes............................................................................  38
Section 2.08      Outstanding Notes............................................................................  38
Section 2.09      Treasury Notes...............................................................................  38
Section 2.10      Temporary Notes..............................................................................  38
Section 2.11      Cancellation.................................................................................  39
Section 2.12      Defaulted Interest...........................................................................  39

                                                        ARTICLE 3.
                                               REPURCHASE AND PREPAYMENT

Section 3.01      [Reserved]...................................................................................  39
Section 3.02      Selection of Notes to Be Purchased...........................................................  39
Section 3.03      Deposit of Purchase Price....................................................................  40
Section 3.04      Notes Purchased in Part......................................................................  40
Section 3.05      Optional Redemption..........................................................................  40
Section 3.06      Mandatory Redemption.........................................................................  40
Section 3.07      Offer to Purchase by Application of Excess Proceeds..........................................  40

                                                        ARTICLE 4.
                                                        COVENANTS

Section 4.01      Payment of Notes.............................................................................  42
Section 4.02      Maintenance of Office or Agency..............................................................  42
Section 4.03      Reports......................................................................................  43
Section 4.04      Compliance Certificate.......................................................................  43
Section 4.05      Taxes........................................................................................  44
Section 4.06      Stay, Extension and Usury Laws...............................................................  44
Section 4.07      Restricted Payments..........................................................................  44
Section 4.08      Dividend and Other Payment Restrictions Affecting Subsidiaries...............................  47
Section 4.09      Incurrence of Indebtedness and Issuance of Preferred Stock...................................  48
Section 4.10      Asset Sales..................................................................................  51
Section 4.11      Transactions with Affiliates.................................................................  53
Section 4.12      Liens........................................................................................  54	

i

Section 4.13      Limitation on Changes in the Nature of the Business..........................................  54
Section 4.14      Corporate Existence..........................................................................  55
Section 4.15      Offer to Repurchase Upon Change of Control...................................................  55
Section 4.16      Limitation on Sale and Leaseback Transactions................................................  56
Section 4.17      Limitation on Issuances of Guarantees of Indebtedness........................................  56
Section 4.18      Payments for Consent.........................................................................  57
Section 4.19      Designation of Restricted and Unrestricted Subsidiaries......................................  57
Section 4.20      Changes in Covenant When Notes Rated Investment Grade........................................  57

                                                        ARTICLE 5.
                                                        SUCCESSORS

Section 5.01      Merger, Consolidation, or Sale of Assets.....................................................  58
Section 5.02      Successor Corporation Substituted............................................................  59

                                                        ARTICLE 6.
                                                 DEFAULTS AND REMEDIES

Section 6.01      Events of Default............................................................................  59
Section 6.02      Acceleration.................................................................................  61
Section 6.03      Other Remedies...............................................................................  61
Section 6.04      Waiver of Past Defaults......................................................................  61
Section 6.05      Control by Majority..........................................................................  62
Section 6.06      Limitation on Suits..........................................................................  62
Section 6.07      Rights of Holders of Notes to Receive Payment................................................  62
Section 6.08      Collection Suit by Trustee...................................................................  62
Section 6.09      Trustee May File Proofs of Claim.............................................................  63
Section 6.10      Priorities...................................................................................  63
Section 6.11      Undertaking for Costs........................................................................  63

                                                        ARTICLE 7.
                                                         TRUSTEE

Section 7.01      Duties of Trustee............................................................................  64
Section 7.02      Rights of Trustee............................................................................  65
Section 7.03      Individual Rights of Trustee.................................................................  65
Section 7.04      Trustee's Disclaimer.........................................................................  66
Section 7.05      Notice of Defaults...........................................................................  66
Section 7.06      Reports by Trustee to Holders of the Notes...................................................  66
Section 7.07      Compensation and Indemnity...................................................................  66
Section 7.08      Replacement of Trustee.......................................................................  67
Section 7.09      Successor Trustee by Merger, etc.............................................................  68
Section 7.10      Eligibility; Disqualification................................................................  68
Section 7.11      Preferential Collection of Claims Against Company............................................  68

                                                        ARTICLE 8.
                                      LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01      Option to Effect Legal Defeasance or Covenant Defeasance.....................................  68
Section 8.02      Legal Defeasance and Discharge...............................................................  68
Section 8.03      Covenant Defeasance..........................................................................  69
Section 8.04      Conditions to Legal or Covenant Defeasance...................................................  69
Section 8.05      Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions  70
Section 8.06      Repayment to the Company.....................................................................  71	

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Section 8.07      Reinstatement................................................................................  71

                                                        ARTICLE 9.
                                             AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01      Without Consent of Holders of Notes..........................................................  72
Section 9.02      With Consent of Holders of Notes.............................................................  73
Section 9.03      Compliance with Trust Indenture Act..........................................................  74
Section 9.04      Revocation and Effect of Consents............................................................  74
Section 9.05      Notation on or Exchange of Notes.............................................................  74
Section 9.06      Trustee to Sign Amendments, etc..............................................................  74

                                                        ARTICLE 10.
                                                COLLATERAL AND SECURITY

Section 10.01     Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation.  75
Section 10.02     Ranking of Note Liens........................................................................  75
Section 10.03     Release of Security Interest in Respect of Notes.............................................  76

                                                        ARTICLE 11.
                                                SATISFACTION AND DISCHARGE

Section 11.01     Satisfaction and Discharge...................................................................  76
Section 11.02     Application of Trust Money...................................................................  77

                                                        ARTICLE 12.
                                                      MISCELLANEOUS

Section 12.01     Trust Indenture Act Controls.................................................................  77
Section 12.02     Notices......................................................................................  78
Section 12.03     Communication by Holders of Notes with Other Holders of Notes................................  79
Section 12.04     Certificate and Opinion as to Conditions Precedent...........................................  79
Section 12.05     Statements Required in Certificate or Opinion................................................  79
Section 12.06     Rules by Trustee and Agents..................................................................  79
Section 12.07     No Personal Liability of Directors, Officers, Employees and Stockholders.....................  79
Section 12.08     Governing Law................................................................................  80
Section 12.09     No Adverse Interpretation of Other Agreements................................................  80
Section 12.10     Successors...................................................................................  80
Section 12.11     Severability.................................................................................  80
Section 12.12     Counterpart Originals........................................................................  80
Section 12.13     Table of Contents, Headings, etc.............................................................  80	

EXHIBITS

Exhibit A         FORM OF NOTE
Exhibit B         FORM OF CERTIFICATE OF TRANSFER
Exhibit C         FORM OF CERTIFICATE OF EXCHANGE
Exhibit D         FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR	

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INDENTURE dated as of November 18, 2003 between Calpine Corporation, a Delaware corporation and Wilmington Trust Company (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the 9.875% Second Priority Senior Secured Notes due 2011 (the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions.
"144A Global Note" means a Global Note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
Acquired Debt shall be deemed to be incurred on the date the acquired Person becomes a Restricted Subsidiary.
"Additional Notes" means Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. For purposes of Section 4.11 herein, "Affiliate" shall also mean any Person of which the Company owns 10% or more of any class of Capital Stock or rights to acquire 10% or more of any class of Capital Stock and any Person who would be an Affiliate of any such Person pursuant to the first sentence hereof.
"Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and
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its Restricted Subsidiaries taken as a whole shall be governed by
Section 4.15 of this Indenture and/or Section 5.01 and not by Section 4.10; and
(2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, none of the following items shall be deemed to be an Asset Sale:
(1) (A) any single transaction or series of related transactions that involves the sale of uninstalled turbines and related equipment, and (B) any single transaction or series of related transactions that involves other assets having a Fair Market Value of less than $50.0 million, it being understood that, in connection with any sale, lease, conveyance or other disposition of any Designated Assets or rights relating thereto in connection with a farm-out transaction, such transaction shall be valued as at the time of execution and delivery of binding contractual arrangements relating thereto;
(2) a transfer of assets between or among the Company and its Restricted Subsidiaries,
(3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary of the Company;
(4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment that does not violate Section 4.07 herein or a Permitted Investment; and
(7) the sale or other disposition of all or any part of the Company's right to amounts that have or are to become due and payable by Pacific Gas & Electric Company under that certain Agreement dated as of July 1, 1999, as amended, between Pacific Gas & Electric Company and Calpine Gilroy L.P., a California limited partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P. by the Company pursuant to the Purchase Agreement dated as of March 8, 2002, as amended, between Calpine Gilroy Cogen L.P. and the Company.
"Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby shall be determined in accordance with the definition of "Capital Lease Obligation."
"Bankruptcy Case" means any case under Title 11 of the United States Code or any successor bankruptcy law commenced voluntarily or involuntarily against the Company or any other Obligor.
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"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership;
(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
"Business Day" means any day other than a Legal Holiday.
"Canadian Gas Assets" means Designated Assets owned by a direct or indirect Restricted Subsidiary of one or more Canadian Guarantors.
"Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana Canada Holdings LLC, a Delaware limited liability company, and any successor to any of the foregoing.
"Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of
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the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Cash Equivalents" means:
(1) the lawful currency of any country where the Company owns or operates a Facility;
(2) securities issued or directly and fully guaranteed or insured by the United States government or any state thereof (or any agency or instrumentality thereof), by the Canadian government (or any agency or instrumentality thereof), or by the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch or successor rating agency rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P and maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition.
"CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited liability company that is wholly-owned by the Canadian Guarantors.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution of the Company;
(3) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares;
(4) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is
4
converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance); or
(5) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors.
"Clearstream" means Clearstream Banking, S.A.
"Collateral" means all properties and assets at any time owned or acquired by the Company, except the Excluded Assets, and the Canadian Guarantors' ownership interest in 65% of the aggregate outstanding voting stock of CCEC.
"Collateral Trust Agreement" means that certain Collateral Trust Agreement dated as of July 16, 2003, as amended, among the Company, the Canadian Guarantors, the Credit Agreement Agent, the Trustee and the Bank of New York.
"Collateral Trustee" means The Bank of New York in its capacity as collateral trustee under the Collateral Trust Agreement, together with its successors and assigns in such capacity.
"Company" means Calpine Corporation, a Delaware Corporation and any and all successors thereto.
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income;
minus non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business;
in each case, on a consolidated basis and determined in accordance with GAAP.
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"Consolidated Current Liabilities," as of the date of determination, means the aggregate amount of liabilities of the Company and its Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), after eliminating (i) all inter-company items between the Company and any consolidated Subsidiary and (ii) all current maturities of long-term Indebtedness, all as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and
(3) the cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of:
(1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock.
"Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors as of July 16, 2003; or
(2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors then still in office or with the approval of a majority of Directors whose election was previously so approved from time to time.
"Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company.
"Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of July 16, 2003, by and among the Company and The Bank of Nova Scotia and Bayerische Landesbank, as lead arrangers and bookrunners, providing for up to $500.0 million of revolving credit and term loan
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borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Credit Agreement Agent" means, at any time, the Person serving at such time as the "Agent" or "Administrative Agent" under the Credit Agreement or any other representative of the Lenders then most recently designated by a majority of the Lenders, in a written notice delivered to each Parity Debt Representative and the Collateral Trustee, as the Credit Agreement Agent for the purposes of the Parity Lien Debt Documents.
"Credit Facilities" means one or more debt facilities (including the Credit Agreement) with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
"Designated Assets" means all geothermal energy assets (including any related extraction, processing or similar equipment and geothermal power plants) and all natural gas assets (including any related extraction, processing or similar equipment, other than natural gas power plants) owned by the Company or any of its Restricted Subsidiaries from time to time, including the equity interests of any Restricted Subsidiary owning any Designated Assets, but excluding (i) any geothermal energy assets that are both unproven and undeveloped and (ii) contracts for the purchase or sale of natural gas and natural gas supplied under such contracts.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes issued pursuant to this Indenture mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for
7
purposes of this Indenture shall be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" means:
(1) any lease of property other than (i) a lease of a geothermal energy or natural gas interest or property, (ii) a lease of real estate underlying a power generation property or (iii) a capital lease;
(2) all deposit accounts (as defined in Article 9 of the Uniform Commercial Code of any relevant jurisdiction) and deposits therein to the extent not exceeding $50.0 million in the aggregate, except for the Designated Assets Sale Proceeds Account and any deposit account and deposits therein holding amounts referred to in clause (7) of this definition;
(3) the fixtures and equipment relating to any pipeline if, to the extent that and for so long as (i) the ownership or operation of such pipeline is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (a) such fixtures and equipment shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (3) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (b) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein;
(4) all easements, rights-of-way, licenses and other real property interests for or pertaining to the construction, operation, use or maintenance of any pipeline over, upon or under land owned by another Person;
(5) with respect to personal property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not
8
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (a) such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (5) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (b) the proceeds of any sale, lease or other disposition of any such lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein;
(6) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein (i) requires a third party consent which has not been obtained or (ii) constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for as long as the conditions set forth in clause (i) or (ii) of this clause (6) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein;
(7) any cash proceeds (including any earnings thereon) of Priority Lien Debt that are pledged to cash collateralize letters of credit;
(8) any turbines which serve as collateral pursuant to that certain General Agreement dated as of January 31, 2002 among the Company, various Subsidiaries of the Company and Siemens Westinghouse Power Corporation relating to various purchase contracts and letters of intent for gas turbine generators, steam turbine generators and related accessories;
(9) proved oil and gas reserves located in Oklahoma and undeveloped reserves and unproven acreage located in California, Texas, Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided that such reserves and acreage has a Fair Market Value not exceeding $20.0 million in the aggregate;
(10) Capital Stock of Subsidiaries designated by the Company, but only for so long as (i) the Capital Stock of such Subsidiaries is not pledged to any Person (other than the Collateral Trustee on behalf of all holders of all Secured Debt) and (ii) such Subsidiaries collectively own less than 5.0% of the Company's total consolidated assets and collectively account for less than 5.0% of the Company's Consolidated Cash Flow; and
9
(11) any other property in which a security interest cannot be perfected by the filing of a financing statement under the Uniform Commercial Code of the relevant jurisdiction; provided that such property has a Fair Market Value not exceeding $25.0 million in the aggregate.
"Existing Guarantees" means the Guarantees of the Term Loans, the Second Priority Senior Secured Notes, the Notes and certain obligations under the Credit Agreement that exist on the date of this Indenture.
"Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid.
"Facility" means a power generation facility or energy producing facility, including any related fuel reserves.
"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company (unless otherwise provided in this Indenture).
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation, or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect (in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to
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such Fixed Charges shall not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on such Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases; plus
(2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, except interest on Indebtedness incurred to finance the development or construction of a Facility; plus
(3) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon, but excluding any such Guarantee or Lien in effect on July 16, 2003 unless the same is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Foreign Asset Sale" means an Asset Sale in respect of the Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described in Section 936 of the Internal Revenue Code of 1986, as amended, to the extent that the proceeds of such Asset Sale are received by a Person subject in respect of such proceeds to the tax laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia.
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"Foreign Subsidiary" means a Subsidiary that is incorporated in a jurisdiction other than the United States of America or a State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect and, to the extent optional, adopted by the Company, on the applicable date of determination.
"Global Notes" means, individually and collectively, each of the Restricted Global Notes, substantially in the form of Exhibit A hereto issued in accordance with Section 2.01 or 2.06(b)(3) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(e)(2), which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantor" means each Subsidiary of Calpine that Guarantees the Notes.
"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage interest rate risk; and
(3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means a Global Note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
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(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;
(5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(A) the Fair Market Value of such asset at such date of determination, and
(B) the amount of the Indebtedness of such other Person.
Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation.
"Indenture" means this indenture, as amended or supplemented from time to time.
"Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant.
"Initial Notes" means the first $400,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof.
"Insolvency Proceeding" means:
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(1) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Company or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Company or any other Obligor or any similar case or proceeding relative to the Company or any other Obligor or its creditors, as such, in each case whether or not voluntary;
(2) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Company or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or
(3) any other proceeding of any type or nature in which substantially all claims of creditors of the Company or any other Obligor are determined and any payment or distribution is or may be made on account of such claims.
"Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 4.07(b). Except as otherwise provided in this Indenture, the amount of an Investment shall be determined at the time the Investment is made and without giving effect to subsequent changes in value.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.
"Lenders" means, at any time, the parties to the Credit Agreement then holding (or committed to provide) loans, letters of credit or other extensions of credit that constitute (or when provided shall constitute) Priority Lien Debt outstanding under the Credit Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Magic Valley Generating Assets" means the Magic Valley Generating Station, a natural gas fired power plant in commercial operation in Edinburg, Texas.
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"Material Designated Assets" means Designated Assets having a Fair Market Value in the aggregate in excess of $50.0 million.
"Moody's" means Moody's Investors Service, Inc. (or, if such entity ceases to rate the applicable notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency).
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, without duplication:
(1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary that is incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or any Restricted Subsidiary; provided that such Indebtedness is without recourse to the Company (except as permitted by clause
(8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any property or assets of the Company or any Restricted Subsidiary other than property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of the definition of Permitted Liens or property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (19) of the definition of Permitted Liens.
"Note Documents" means this Indenture, the Notes, each Sharing Confirmation and the Security Documents.
"Note Obligations" means the Notes (including any Additional Notes issued under the this Indenture) and all other Obligations of any Obligor under this Indenture, the Notes (including any Additional Notes issued under this Indenture) and the Security Documents.
"Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the
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context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes.
"Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness (including the Notes and this Indenture).
"Obligor" means the Company and each Restricted Subsidiary of the Company (if any) that at any time guarantees or provides collateral security or credit support for any Secured Obligations.
"Offering Memorandum" means that certain offering memorandum dated as of November 7, 2003, with respect to the $400.0 million in aggregate principal amount offering of the Initial Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
"Officer's Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.
"Parity Debt Representative" means:
(1) in the case of each of the Second Priority Senior Secured Notes and the Notes, the applicable trustee thereof;
(2) in the case of the Term Loans, the Term Loan Administrative Agent; or
(3) in the case of any other Series of Parity Debt, the trustee, agent or representative of the holders of such Series of Parity Lien Debt who maintains the transfer register for such Series of Parity Lien Debt and is appointed as a Parity Debt Representative (for purposes related to the administration of the Security Documents) pursuant to this Indenture or other agreement governing such Series of Parity Lien Debt.
"Parity Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Parity Lien Obligations.
"Parity Lien Debt" means:
(1) the Notes and the Second Priority Senior Secured Notes;
(2) the Term Loans; and
(3) any other Indebtedness (including additional notes and Term Loans) that:
(A) is permitted to be incurred under Section 4.09 herein; and
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(B) is permitted to be secured by Parity Liens by clause (2) of the definition of Permitted Liens;
provided, in the case of each issue or series of Indebtedness referred to in this clause (3), that:
(i) on or before the date on which such Indebtedness was incurred by the Company such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Parity Lien Debt for the purposes of this Indenture and the Collateral Trust Agreement,
(ii) such Indebtedness is governed by an indenture or other agreement that includes a Sharing Confirmation and
(iii) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Trustee's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied
(and the satisfaction of such requirements and the other provisions of this clause (3) shall be conclusively established, for purposes of entitling the holders of such Indebtedness to share equally and ratably with the other holders of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's Liens on the Collateral, if the Company delivers to the Collateral Trustee an Officer's Certificate in the form required pursuant to the Collateral Trust Agreement stating that such requirements and other provisions have been satisfied and that such Indebtedness is Parity Lien Debt, together with an opinion of counsel stating that such Officer's Certificate has been duly authorized by the Board of Directors of the Company and has been duly executed and delivered, and the holders of such Indebtedness and Obligations in respect thereof shall be entitled to rely conclusively thereon).
"Parity Lien Debt Documents" means, collectively, the Term Loan Documents, the Note Documents, and the indenture or agreement governing each other Series of Parity Lien Debt and all agreements binding on any Obligor related thereto.
"Parity Lien Obligations" means Parity Lien Debt and all other Obligations in respect thereof.
"Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).
"Permitted Business" means the business of acquiring, constructing, managing, developing, improving, owning and operating Facilities, as well as any other activities reasonably related to the foregoing activities (including acquiring and holding reserves), including investing in Facilities.
"Permitted Investments" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
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(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 herein;
(5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(6) any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates;
(7) Investments represented by Hedging Obligations;
(8) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary in an aggregate principal amount not to exceed $5.0 million at any one time outstanding;
(9) repurchases of the Notes; and
(10) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) that are at the time outstanding not to exceed $100.0 million;
provided that Designated Assets held by the Company may not be invested in, leased to or otherwise transferred to any Restricted Subsidiary; provided, however, that the Company may transfer proven undeveloped gas reserves to its Restricted Subsidiaries in the ordinary course of business for consumption in the power generating business of such Restricted Subsidiaries during the 12-month period following transfer.
"Permitted Liens" means:
(1) Liens on assets of the Company or any Canadian Guarantor securing Obligations of the Company or such Canadian Guarantor under one or more Credit Facilities in an aggregate amount not exceeding the Priority Lien Cap;
(2) Liens held by the Collateral Trustee equally and ratably securing the Notes to be issued on the date of this Indenture, the Second Priority Senior Secured Notes and the Term Loans and all future Parity Lien Debt and other Parity Lien Obligations; provided that the Collateral Trustee's Liens may secure Parity Lien Debt incurred after the date of this Indenture or Obligations in respect thereof only if, on the date of the incurrence of such Parity Lien Debt, after giving pro forma effect to the incurrence thereof and the application of the proceeds therefrom, the Secured Leverage Ratio is not greater than 2.75:1.0;
(3) Liens in favor of the Company;
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(4) Pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or leases to which such Person is a party, and Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
(5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the definition of Permitted Debt covering only the assets acquired, designed, constructed, installed or improved with or financed by such Indebtedness;
(6) Liens existing on the date of this Indenture;
(7) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Restricted Subsidiary;
(8) (A) Liens on assets or property of a Restricted Subsidiary (other than Material Designated Assets) incurred by any Restricted Subsidiary to secure Indebtedness of such Restricted Subsidiary incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or such Restricted Subsidiary, which Liens may include Liens on the Capital Stock of such Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a direct Subsidiary of the Company or (ii) owns, directly or indirectly, Material Designated Assets), (B) Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary that does not own, directly or indirectly, at the time of original incurrence of such a Lien under this clause (B) any Material Designated Assets or 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 the original incurrence of such Lien, which Liens contemplated by this clause (8) may include Liens on the Capital Stock of one or more Restricted Subsidiaries that (i) are not direct Subsidiaries of the Company and (ii) do not, directly or indirectly, own any Material Designated Assets or operating properties or assets at the time of original incurrence of such Lien; or (C) without duplication, Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary (which Liens may include Liens on Capital Stock of such Restricted Subsidiary so long as the Capital Stock of such Restricted Subsidiary is not pledged as Collateral) that owned as of July 16, 2003 all or part of one or more of the peaking power plants (and no other significant unrelated assets) constructed for the purpose of providing peaking capacity and energy to the California Department of Water Resources; provided, that the Indebtedness secured by any such Lien contemplated by this clause (8) may not be issued more than 365 days (or, in the case of clause (C) above, two years) 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 asset being so financed;
(9) Liens on property or shares of Capital Stock of a Subsidiary at the time such Person becomes a Subsidiary; provided that any such Lien may not extend to any other property owned by the Company;
(10) Liens on property at the time a Subsidiary acquires the property, including any acquisition by means of a merger or consolidation with or into the Subsidiary; provided that such Liens are not incurred in connection with, or in contemplation of, such merger or consolidation;
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and provided, further, that the Lien may not extend to any other property owned by the Company or any Restricted Subsidiary;
(11) Liens incurred by a Person other than the Company or any Subsidiary on assets that are the subject of a Capitalized Lease Obligation to which the Company or a Subsidiary is a party; provided that any such Lien may not secure Indebtedness of the Company or any Subsidiary (except Indebtedness secured by a Lien on any property or assets of the Company or such Subsidiary incurred in connection with Indebtedness of another Person), with the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured) and may not extend to any other property owned by the Company or any Restricted Subsidiary;
(12) Liens on assets of the Company Construction Finance Company, L.P. (and/or any other Restricted Subsidiary that subsequently owns any such assets) relating to the Magic Valley Generating Station;
(13) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to leases incurred in the ordinary course of business and not otherwise prohibited by this Indenture;
(14) Liens not in respect of Indebtedness consisting of the interest of the lessor under any lease entered into in the ordinary course of business and not otherwise prohibited by this Indenture; and Liens on shares of Capital Stock of a subsidiary that does not own any significant assets other than a lessee's interest in a Facility or on the Capital Stock of a subsidiary whose only significant asset is its direct or indirect interest in such lessee subsidiary; provided that in no event shall this clause (14) allow a lien on any Capital Stock constituting Collateral;
(15) Liens which constitute banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract;
(16) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(17) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens, in each case, arising in the ordinary course of business and with respect to amounts not yet due or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be diligently prosecuting appeal or other proceedings for review;
(18) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of the Company or any Restricted Subsidiary or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of the Company or any Restricted Subsidiary;
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(19) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses
(6), (8), (9) and (10); provided that (A) such new Lien shall be limited to all or part of the same property or assets that secured the original Lien (plus repairs, improvements and additions to such property or assets and Liens on the stock or other ownership interest in one or more Restricted Subsidiaries beneficially owning such property or assets) and (B) the amount of the Indebtedness secured by such Lien at such time (or, if the amount that may be realized in respect of such Lien is limited, by contract or otherwise, such limited lesser amount) is not increased (other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal or replacement of such Indebtedness);
(20) Liens on assets of Restricted Subsidiaries to secure letters of credit issued pursuant to clause (14) of the definition of Permitted Debt; provided if and to the extent such letters of credit are drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit and Liens to secure letters of credit incurred pursuant to clause (15) of the definition of Permitted Debt on cash collateral constituting the proceeds of Priority Lien Debt;
(21) Liens (A) on cash and short-term investments of Restricted Subsidiaries to secure obligations with respect to (i) contracts for commercial and trading activities in the ordinary course of business and contracts (including physical delivery, option (whether cash or financial), exchange, swap and futures contracts) for the purchase, transmission, distribution, sale, lease or hedge of any energy-related commodity or service or (ii) interest rate, commodity price, or currency rate management contracts or derivatives and (B) encumbering assets of a Restricted Subsidiary, other than (i) Material Designated Assets or (ii) accounts or receivables, which Liens arise out of contracts or agreements relating to the generation, distribution or transmission or sale of energy and/or fuel; provided that all such agreements or contracts are entered into in the ordinary course of business; and
(22) other Liens to secure Indebtedness in an aggregate amount not to exceed $50.0 million at any time outstanding.
"Permitted Prior Liens" means (a) Liens securing Priority Lien Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses
(5), (6), (10) or (11) of the definition of "Permitted Liens" and (c) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued or accumulated interest on the Indebtedness and the amount of all fees, costs, expenses and premiums, including swap breakage and defeasance costs, incurred in connection therewith);
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(2) such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that such Permitted Refinancing Indebtedness may have such shorter final maturity date and Weighted Average Life to Maturity as is equal to or greater than the latest maturity date of any Notes issued under this Indenture; and
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
provided that Permitted Refinancing Indebtedness shall not include (A) Indebtedness of the Company incurred to refinance Non-Recourse Debt of a Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the Company that refinances Indebtedness of the Company or (C) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"Placement Agent" means Morgan Stanley & Co. Incorporated.
"Priority Foreclosure Event" means the failure to pay at maturity or upon acceleration of maturity all outstanding Priority Lien Debt at any time when no Bankruptcy Case or Insolvency Proceeding is pending.
"Priority Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Priority Lien Obligations not exceeding the Priority Lien Cap.
"Priority Lien Agent" means the Credit Agreement Agent or any other agent for holders of Priority Lien Debt.
"Priority Lien Cap" means an amount equal to (a) the Indebtedness outstanding under the Credit Agreement or any other Credit Facility in an aggregate principal amount not exceeding the greater of (1) $500.0 million, less the amount of any Net Proceeds of a Sale of Designated Assets applied to repay Priority Lien Debt and/or cash collateralize letters of credit that constitute Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available, plus (b) any interest (including any interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, premiums, fees, costs, expenses or other Obligations in respect of such Indebtedness. For purposes of this definition of Priority Lien Cap, all letters of credit shall be valued at face amount, whether or not drawn, and all letters of credit denominated in a currency other than U.S. dollars shall be valued at all times at the Equivalent Amount (as defined in the Credit Agreement) thereof on the date of issue thereof.
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"Priority Lien Debt" means Indebtedness under (a) the Credit Agreement or (b) any other Credit Facility that is secured by a Priority Lien that was permitted to be incurred under clause (1) of the definition of "Permitted Liens" but only if on or before the day on which such Indebtedness under a Credit Facility described in clause (b) above is incurred by the Company such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt Documents and the Collateral Trust Agreement.
"Priority Lien Documents" means the Credit Agreement or any other Credit Facility pursuant to which any Priority Lien Debt is incurred and all other agreements governing, securing or relating to any Priority Lien Obligations.
"Priority Lien Obligations" means the Priority Lien Debt and all other Obligations in respect of Priority Lien Debt.
"Private Placement Legend" means the legend set forth in Section 2.06(e)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means an underwritten primary public offering of the Company's equity securities pursuant to an effective registration statement under the Securities Act.
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Global Note bearing the Private Placement Legend and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Required Parity Debtholders" means, at any time in respect of any action or matter, holders of a majority in aggregate outstanding principal amount of all Parity Lien Debt then outstanding, voting together as a single class. For this purpose, Parity Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding.
"Required Priority Debtholders" means, at any time in respect of any action or matter, (1) holders of the outstanding principal amount of, or commitments with respect to, the applicable Priority Lien Debt then outstanding required pursuant to the terms of the applicable Credit Facility, voting as a single class, to approve such action or matter or (2) the Priority Lien Agent acting upon the authorization or consent of the holders referred to in the immediately preceding clause (1). For this purpose, Priority Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding.
"Responsible Officer," means, with respect to the Collateral Trustee, any officer within the corporate trust department of the Collateral Trustee including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Collateral Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity
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with the particular subject and who shall have direct responsibility for the administration of the Collateral Trust Agreement.
"Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Period" means the 40-day distribution compliance period as defined in Regulation S.903(b)(3)
"Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate the Notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency).
"Sale of Designated Assets" means any Asset Sale involving a sale or other disposition of Designated Assets.
"SEC" means the Securities and Exchange Commission.
"Second Priority Senior Secured Notes" means the $500.0 million in aggregate principal amount of the Company's Second Priority Senior Secured Floating Rate Notes due 2007, the $1.15 billion in aggregate principal amount of the Company's 8.500% Second Priority Senior Secured Notes due 2010, and the $900.0 million in aggregate principal amount of the Company's 8.750% Second Priority Senior Secured Notes due 2013.
"Secured Debt" means Parity Lien Debt and Priority Lien Debt.
"Secured Debt Documents" means the Parity Lien Debt Documents and the Priority Lien Documents.
"Secured Debt Representative" means each Parity Debt Representative and the Priority Lien Agent.
"Secured Leverage Ratio" means, on any date, the ratio of:
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(1) the aggregate principal amount of Secured Debt outstanding on such date (and, for this purpose, letters of credit shall be deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) to
(2) the aggregate amount of the Company's Consolidated Cash Flow for the most recent four-quarter period for which financial information is available.
In addition, for purposes of calculating the Secured Leverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the date on which the event for which the calculation of the Secured Leverage Ratio is made (the "Leverage Calculation Date") shall be given pro forma effect in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Leverage Calculation Date, shall be excluded;
(3) any Person that is a Restricted Subsidiary on the Leverage Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the Leverage Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Leverage Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Secured Obligations" means the Parity Lien Obligations and the Priority Lien Obligations.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Documents" means the Collateral Trust Agreement and one or more security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any other Obligor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Trustee, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms.
"Series of Parity Lien Debt" means, severally, each series of the Notes, the Second Priority Senior Secured Notes, the Term Loans and each other issue or series of Parity Lien Debt for which a single transfer register is maintained.
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"Series of Secured Debt" means, severally, each series of the Notes, the Second Priority Senior Secured Notes, the Term Loans, each other issue or series of Parity Lien Debt for which a single transfer register is maintained and each issue or series of Priority Lien Debt for which a single register is maintained.
"Sharing Confirmation" means, as to any Series of Parity Lien Debt, the written agreement of the holders of such Series of Parity Lien Debt, as set forth in the indenture or agreement governing such Series of Parity Lien Debt, for the enforceable benefit of all holders of each other existing and future Series of Parity Lien Debt and each existing and future Parity Debt Representative, that all Parity Lien Obligations shall be and are secured equally and ratably by all Liens at any time granted by the Company or any other Obligor to secure any Obligations in respect of such Series of Parity Lien Debt, whether or not upon property otherwise constituting Collateral, that all such Liens shall be enforceable by the Collateral Trustee for the benefit of all holders of Parity Lien Obligations equally and ratably, and that the holders of Obligations in respect of such Series of Parity Lien Debt are bound by the provisions in the Collateral Trust Agreement relating to the order of application of proceeds from enforcement of the Collateral Trustee's Liens upon the Collateral, and consent to and direct the Collateral Trustee to perform its obligations under the Collateral Trust Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of July 16, 2003, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, as applied to any Person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of at least 50% of the outstanding Voting Shares, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person.
"Term Loan Administrative Agent" means Goldman Sachs Credit Partners L.P., as administrative agent under the Term Loan Agreement, together with its successors in such capacity.
"Term Loan Agreement" means that certain Term Loan Agreement dated as of July 16, 2003 between the Company and the Term Loan Administrative Agent, relating to $750.0 million in aggregate principal amount of Term Loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, increased, renewed, restated or replaced, in whole or in part, from time to time.
"Term Loan Documents" means the Term Loan Agreement, each Sharing Confirmation and the Security Documents.
"Term Loan Obligations" means the Term Loans (including additional Term Loans) and all other Obligations under the Term Loan Agreement and the Security Documents.
"Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Term Loan Agreement.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb), as amended, as in effect on the date hereof, except as provided in Section 9.03 of this Indenture.
"Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary (and any subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed after the date of this Indenture, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Indebtedness that is non-recourse to the Company and its Restricted Subsidiaries;
(2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries;
provided, however, that a corporation with no significant assets created for the sole purpose of serving as a co-obligor to facilitate a financing by a partnership of a limited liability company may be designated as an Unrestricted Subsidiary.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 herein, regarding Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 herein, the Company shall be in default of such Section 4.09. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under Section 4.09 herein, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
"U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act.
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"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years or portion thereof obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that shall elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person.
Section 1.02 Other Definitions.

                                                                                        Defined in
Term                                                                                     Section
----                                                                                    ----------
"Affiliate Transaction".............................................................       4.11
"Asset Sale Offer"..................................................................       3.07
"Authentication Order"..............................................................       2.02
"Change of Control Offer"...........................................................       4.15
"Change of Control Payment".........................................................       4.15
"Change of Control Payment Date"....................................................       4.15
"Covenant Defeasance"...............................................................       8.03
"DTC"...............................................................................       2.03
"Event of Default"..................................................................       6.01
"Excess Proceeds"...................................................................       4.10
"incur".............................................................................       4.09
"Legal Defeasance"..................................................................       8.02
"Offer Amount"......................................................................       3.07
"Offer Period"......................................................................       3.07
"Paying Agent"......................................................................       2.03
"Permitted Debt"....................................................................       4.09
"Purchase Date".....................................................................       3.07
"Registrar".........................................................................       2.03
"Restricted Payments"...............................................................       4.07	

Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
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"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes and the Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include the singular;
(5) "shall" shall be interpreted to express a command;
(6) provisions apply to successive events and transactions; and
(7) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time.
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ARTICLE 2.
THE NOTES
Section 2.01 Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and repayments. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.
(c) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream shall be applicable to transfers of beneficial interests in the Global Notes that are held by Participants through Euroclear or Clearsteam.
Section 2.02 Execution and Authentication.
One Officer must sign the Notes for the Company by manual or facsimile signature.
If the Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee will, upon receipt of a written order of the Company signed by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an aggregate principal amount up to $400.0 million on the date of this Indenture and (ii) Additional Notes from time to time as permitted under this Indenture.
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The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company.
Section 2.03 Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes.
Section 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a).
Section 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the
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Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes shall be exchanged by the Company for Definitive Notes if:
(1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or
(2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee.
Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated by the Trustee pursuant to an Authentication Order and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than the Placement Agent). No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1).
(2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar both:
(A) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and
(B) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase.
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(3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following:
(A) if the transferee shall take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(B) if the transferee shall take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and
(C) if the transferee shall take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable.
(4) Transfer and Exchange of Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (a) thereof;
(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (a) thereof;
(E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or
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(G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the Company shall execute and the Trustee shall authenticate, upon receipt of an Authentication Order, and deliver to the Person designated in such Authentication Order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(c) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or
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(G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note.
(d) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(d), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(d).
(1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer shall be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(B) if the transfer shall be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and
(C) if the transfer shall be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.
(e) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.
(1) Private Placement Legend.
(A) Each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
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144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS."
(2) Global Note Legend. Each Global Note shall bear a legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to
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a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
(g) General Provisions Relating to Transfers and Exchanges.
(1) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request.
(2) No service charge shall be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.04, 3.07, 4.10, 4.15 and 9.05 hereof).
(3) The Registrar shall not be required to register the transfer of or exchange any Note selected for repurchase in whole or in part, except the unpurchased portion of any Note being repurchased in part.
(4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(5) The Company shall not be required:
(A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for repurchase under Section 3.02 hereof and ending at the close of business on the day of selection;
(B) to register the transfer of or to exchange any Note selected for repurchase in whole or in part, except the unpurchased portion of any Note being repurchased in part; or
(C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
(6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary.
(7) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof.
(8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.
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Section 2.07 Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge the applicable Holder for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.
If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded.
Section 2.10 Temporary Notes.
Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall, upon receipt of an Authentication Order, authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this Indenture.
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Section 2.11 Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes in accordance with its customary practices (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
ARTICLE 3.
REPURCHASE AND PREPAYMENT
Section 3.01 [Reserved]
Section 3.02 Selection of Notes to Be Purchased.
If less than all of the Notes are to be purchased in an offer to purchase pursuant to Sections 4.10 or 4.15 at any time, the Trustee shall select Notes for purchase as follows:
(1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate.
In the event of purchase by lot, the particular Notes to be purchased shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the purchase date by the Trustee from the outstanding Notes not previously called for purchase.
The Trustee shall promptly notify the Company in writing of the Notes selected for purchase and, in the case of any Note selected for partial purchase, the principal amount thereof to be purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for purchase also apply to portions of Notes called for purchase.
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Section 3.03 Deposit of Purchase Price.
Not less than one Business Day prior to the purchase price date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the purchase price of and accrued interest on all Notes to be purchased on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the purchase price of, and accrued interest on, all Notes to be purchased.
If the Company complies with the provisions of the preceding paragraph, on and after the purchase date, interest shall cease to accrue on the Notes or the portions of Notes called for purchase. If a Note is purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for purchase is not so paid upon surrender for purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.04 Notes Purchased in Part.
Upon surrender of a Note that is purchased in part, the Company shall issue and, upon receipt of an Authentication Order, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unpurchased portion of the Note surrendered.
Section 3.05 Optional Redemption.
[Reserved]
Section 3.06 Mandatory Redemption.
The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
Section 3.07 Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company is required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase with the proceeds of sales and assets. The Asset Sale Offer shall remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than three Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is
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registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The written notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The written notice, which shall govern the terms of the Asset Sale Offer, shall state:
(1) that the Asset Sale Offer is being made pursuant to this Section 3.07 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open;
(2) the Offer Amount, the purchase price and the Purchase Date;
(3) that any Note not tendered or accepted for payment shall continue to accrue interest;
(4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only;
(6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date;
(7) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;
(8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and
(9) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officer's Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.07. The Company, either
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directly or through the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company and receipt of an Authentication Order shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.07, any purchase pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.02 through 3.04 hereof.
ARTICLE 4.
COVENANTS
Section 4.01 Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof.
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Section 4.03 Reports.
(a) Whether or not required by the Commission's rules and regulations, so long as any Notes are outstanding, the Company shall furnish to the holders of Notes, within the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual reports that would be required to be filed with the Commission on Forms 10-Q and 10-K if the Company were required to file such reports; and
(2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports.
(b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, the Company shall file a copy of each of the reports referred to in clauses (1) and (2) in Section 4.03(a) above with the Commission for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the Commission shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request.
(c) If, at any time, the Company is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Company shall nevertheless continue filing the reports specified in Section 4.03(a) with the Commission within the time periods specified above unless the Commission shall not accept such a filing. The Company agrees that it shall not take any action for the purpose of causing the Commission not to accept any such filings. If, notwithstanding the foregoing, the Commission shall not accept the Company's filings for any reason, the Company shall post the reports referred to in
Section 4.03(a) on its website within the time periods that would apply if the Company were required to file those reports with the Commission.
(d) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by Section 4.03(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
(e) In addition, the Company agrees that, for so long as any Notes remain outstanding, at any time it is not required to file the reports required by Section 4.03(a) with the Commission, it shall furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04 Compliance Certificate.
(a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officer's Certificate prescribed by the TIA stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Security Documents, and further stating, as to such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the Security Documents
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and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or the Security Documents (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.
Section 4.05 Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.
Section 4.06 Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.07 Restricted Payments.
(a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or
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distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Restricted Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company that is contractually subordinated to the Notes (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries and excluding the purchase, repurchase or other acquisition of such subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), except a payment of interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment);
(2) the Company would, after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and
(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since July 16, 2003 (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and (9) of the next succeeding paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after July 16, 2003 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company since July 16, 2003 as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus
(c) to the extent that any Restricted Investment that was made after July 16, 2003 is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus
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(d) to the extent that any Unrestricted Subsidiary of the Company designated as such after July 16, 2003 is redesignated as a Restricted Subsidiary after July 16, 2003, the Fair Market Value of the Company's Investment in such Subsidiary as of the date of such redesignation, plus
(e) 100% of any payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets received by the Company or a Restricted Subsidiary of the Company after July 16, 2003 from an Unrestricted Subsidiary of the Company, to the extent that such payments, dividends, repayments or transfers were not otherwise included in Consolidated Net Income of the Company for such period, plus
(f) $628.3 million.
The preceding provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of this Indenture;
(2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment shall be excluded from clause
(3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of Indebtedness of the Company that is contractually subordinated to the Notes with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness, so long as no Default has occurred and is continuing or would be caused thereby;
(4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to the holders of any class or series of such Restricted Subsidiary's Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former officer, direct or employee of the Company (or any of its Restricted Subsidiaries) pursuant to any equity subscription agreement, stock option agreement, shareholders' agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any twelve-month period, so long as no Default has occurred and is continuing or would be caused thereby;
(6) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of those stock options;
(7) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiary of the Company issued on or after July 16, 2003 in accordance with the Fixed Charge Coverage test described under Section
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4.09 herein; provided that no Default has occurred and is continuing or would be caused thereby (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and
(8) any purchase, redemption, defeasance or other acquisition or retirement for value of subordinated Indebtedness upon a Change of Control or an Asset Sale to the extent required by this Indenture or other agreement pursuant to which such subordinated Indebtedness was issued, but only if the Company (a) in the case of a Change of Control, has made an offer to repurchase the Notes as described under Section 4.15 herein or (b) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions described under Section 4.10 herein, so long as no Default has occurred and is continuing or would be caused thereby.
(b) The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries.
(a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries.
However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of this Indenture;
(2) this Indenture, the Notes, the Second Priority Senior Secured Notes and the indentures governing such notes, and the Term Loan Agreement or any other indenture governing letters of credit, loans or debt securities issued by or on behalf of the Company that are no more restrictive, taken as a whole, with respect to such dividend, distribution or other payment restrictions and loan or investment restrictions than those contained in this Indenture, the Notes, the Second-Priority Senior Secured Notes and the indentures governing such notes, and the Term Loan Agreement as in effect on the date of this Indenture;
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(3) applicable law, rule, regulation or order;
(4) customary non-assignment provisions in leases, contracts and licenses entered into in the ordinary course of business and consistent with past practices;
(5) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.08(a);
(6) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition;
(7) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(8) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 4.12 herein that limit the right of the debtor to dispose of the assets subject to such Liens;
(9) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements;
(10) any encumbrance or restriction imposed pursuant to the terms of any Non-Recourse Debt incurred pursuant to clause (6) of the definition of Permitted Debt or any preferred stock issued pursuant to clause (7) of the definition of Permitted Debt; provided that such encumbrance or restriction, in the written opinion of the President, Vice Chairman, Chief Operating Officer or Chief Financial Officer of the Company, (x) is required in order to obtain such financing or to place such preferred stock, (y) is customary for such financings or placements and (z) applies only to the assets or revenues of the applicable Restricted Subsidiary;
(11) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Acquired Debt incurred pursuant to clause (10) of the definition of Permitted Debt; provided that such encumbrance or restriction was not incurred in connection with or in contemplation of such Restricted Subsidiary becoming a Restricted Subsidiary; and
(12) restrictions on cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business.
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock.
(a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the Fixed Charge Coverage Ratio
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for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period.
(b) Section 4.09(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"):
(1) the incurrence by the Company and the Guarantee by the Canadian Guarantors of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) not to exceed on any date of incurrence the greater of (A) $500.0 million or (B) the dollar amount that is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available;
(2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness;
(3) the incurrence by the Company and the Canadian Guarantors of Indebtedness represented by the Notes and the related Guarantees;
(4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Company or any of its Restricted Subsidiaries, in an aggregate principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to extend, refund, refinance, renew, replace or defease any Indebtedness incurred pursuant to this clause (4), not to exceed $100.0 million at any one time outstanding;
(5) Indebtedness of the Company which is owed to and owned by a Restricted Subsidiary and Indebtedness of a Restricted Subsidiary that is owed to and owned by the Company or a Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the Company or by a Restricted Subsidiary, as the case may be;
(6) the incurrence of Non-Recourse Debt by any Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets);
(7) the issuance of preferred stock by a Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets), the net proceeds of which are applied to finance the exploration, drilling, development, construction or purchase of or by, or repairs or improvements or additions to, property or assets of the Company or any Restricted Subsidiary;
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(8) the incurrence by the Company of Guarantees of Indebtedness of Restricted Subsidiaries which, but for such Guarantees, would be permitted to be incurred pursuant to clause (6) of Section
4.09 (b); provided that the aggregate principal amount of Indebtedness incurred pursuant to this clause (8) does not exceed $100.0 million at any one time outstanding;
(9) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance, replace, defease or discharge Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a) or clauses (2), (3), (4), (5), (6), (8) or (10) of this Section 4.09(b) or this clause (9);
(10) the incurrence of Acquired Debt by any Restricted Subsidiary of the Company at the time such Restricted Subsidiary becomes a Restricted Subsidiary of the Company so long as such Acquired Debt was not incurred in connection with or in contemplation of such Person becoming a Restricted Subsidiary of the Company; provided that the Company would have been able to incur such Indebtedness at the time of incurrence thereof by the Restricted Subsidiary pursuant to Section 4.09 (a);
(11) the incurrence of Indebtedness pursuant to Hedging Obligations incurred in the ordinary course of business and not for speculative purposes;
(12) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances and performance and surety bonds in the ordinary course of business;
(13) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days;
(14) the incurrence by any Restricted Subsidiary of Indebtedness represented by letters of credit (or Guarantees thereof) entered into in the ordinary course of business to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit; provided that such letters of credit shall not constitute Permitted Debt pursuant to this clause (14) if they are issued in support of Indebtedness;
(15) the incurrence of Indebtedness by the Company represented by letters of credit cash collateralized with the proceeds of Priority Lien Debt; and
(16) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to extend, refinance, renew, replace, defease or refund any Indebtedness incurred pursuant to this clause (16), not to exceed $100.0 million.
The Company shall not incur and shall not permit any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes (and the Applicable Guarantee) and the Term Loans on
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substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured or by virtue of being secured on a junior basis.
Section 4.10 Asset Sales.
(a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of Designated Assets) unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;
(2) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following shall be deemed to be cash:
(A) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Restricted Subsidiary from further liability;
(B) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and
(C) except in the case of a Sale of Designated Assets, any stock or assets of the kind referred to in clauses
(4) or (6) of Section 4.10(b); and
(3) in the case of a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the case may be) shall deposit the Net Proceeds as cash collateral in a segregated account (a "Designated Asset Sale Proceeds Account") held by the Collateral Trustee or its agent to secure the Secured Obligations; provided, that for so long as the terms of any of the Company's senior unsecured notes that were issued prior to August 10, 2000 would prevent such a pledge by a Restricted Subsidiary, the Company shall deposit with the Collateral Trustee or its agent an amount of cash equal to the Net Proceeds as cash collateral to secure the Secured Obligations, and the applicable Restricted Subsidiary shall not be obligated to do so.
(b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas Assets, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply those Net Proceeds:
(1) to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt;
(2) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of Calpine Canada Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing as of July 16, 2003;
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(3) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of any Restricted Subsidiary and, if such Indebtedness is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto;
(4) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of the Company;
(5) to make a capital expenditure; or
(6) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business.
(c) Within 180 days after the receipt of any Net Proceeds from an Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary that disposed of those Designated Assets, as the case may be) may apply those Net Proceeds to purchase other assets that would constitute Designated Assets or to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt and, if such Priority Lien Debt is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto.
(d) Any Net Proceeds from Asset Sales (including Sales of Designated Assets) that are not applied or invested as provided in the preceding clauses of this Section 4.10 shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of the Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase with the proceeds of sales of assets, including the Second Priority Senior Secured Notes, the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
(e) Notwithstanding the foregoing, to the extent that any or all of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by applicable local law from being repatriated to the United States, the portion of such Net Proceeds so affected shall not be required to be applied at the time provided above, but may be retained by the applicable Restricted Subsidiary so long, but only so long, as the applicable local law shall not permit repatriation to the United States. The Company shall promptly take or cause the applicable Restricted Subsidiary to promptly take all actions required by the applicable local law to permit such repatriation. Once such repatriation of any of the affected Net Proceeds is permitted under the applicable local law, the repatriation shall be immediately effected and the repatriated Net Proceeds shall be applied in the manner set forth in this Section 4.10 as if the Asset Sale had occurred on the date of such repatriation.
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(f) Notwithstanding the foregoing, to the extent that the Board of Directors determines, in good faith, that repatriation of any or all of the Net Proceeds of any Foreign Asset Sale would have a material adverse tax consequence to the Company, the Net Proceeds so affected may be retained outside of the United States by the applicable Restricted Subsidiary for so long as such material adverse tax consequence would continue.
(g) The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Asset Sale provisions of this Indenture by virtue of such conflict.
Section 4.11 Transactions with Affiliates.
(a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.5 million, an Officer's Certificate certifying that such Affiliate Transaction complies with this Section 4.11(a); and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this Section 4.11 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors or, if there are no disinterested members of the Board of Directors, the Board of Directors shall have received a written opinion of an accounting, appraisal or investment banking firm of national standing stating that such Affiliate Transaction or series of Affiliate Transactions is fair to the Company or such Restricted Subsidiary from a financial point of view.
(b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 4.11(a):
(1) any employment agreement, employee benefit plan, stock option plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business;
(2) transactions between or among the Company and its Restricted Subsidiaries and between or among the Company's Restricted Subsidiaries;
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(3) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company;
(5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company;
(6) Restricted Payments that do not violate the provisions of Section 4.07 hereof;
(7) loans or advances to employees in the ordinary course of business;
(8) any repurchase, redemption or other retirement of Capital Stock of the Company held by employees of the Company or any of its Subsidiaries upon death, disability or termination of employment at a price not in excess of the Fair Market Value thereof approved by the Board of Directors;
(9) any transaction between or among the Company and any of its Subsidiaries in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries; and
(10) any agreement to do any of the foregoing.
(c) Any transaction which has been determined, in the written opinion of an independent nationally recognized investment banking firm, to be fair, from a financial point of view, to the Company or the applicable Restricted Subsidiary shall be deemed to be in compliance with this Section 4.11.
Section 4.12 Liens.
(a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens.
(b) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, grant or permit to exist a Lien upon any property (whether then held by it or to be acquired by it at a future time) as security for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt on an equal and ratable basis and (2) the Collateral Trustee holds an enforceable and perfected Lien upon such property as security equally and ratably for all Parity Lien Obligations in second priority to Priority Lien Debt.
Section 4.13 Limitation on Changes in the Nature of the Business.
The Company and its Restricted Subsidiaries shall engage only in Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. In addition, the Company will, and shall cause its Subsidiaries, to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law; provided to the extent that any such law is amended following the date of this Indenture in such a manner that would (absent application of this proviso) make non-compliance with this Section 4.13 not result in a material adverse effect on the Company's results of operations or financial condition, then the
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Company shall not be required to comply with this Section 4.13, but only to the extent of actions or failures to act that would (absent application of this
Section 4.13) constitute violations of this Section 4.13 solely as a result of such amendment.
Section 4.14 Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect:
(1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and
(2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.15 Offer to Repurchase Upon Change of Control.
(a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in this Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the change of control payment date (the "Change of Control Payment Date") specified in the notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control provisions of this Indenture by virtue of such compliance.
(b) On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and
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(3) deliver or cause to be delivered to the trustee the Notes properly accepted together with an Officer's Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company.
The Paying Agent shall promptly mail to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee upon receipt of an Authentication Order from the Company shall promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new note shall be in a principal amount of $1,000 or an integral multiple of $1,000. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
(c) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer.
Section 4.16 Limitation on Sale and Leaseback Transactions.
(a) The Company shall not enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if:
(1) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in
Section 4.09 (a) herein and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12 herein;
(2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, as determined in good faith by the Board of Directors and set forth in an Officer's Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10 herein.
(b) This Section 4.16 shall not apply to the Company's Subsidiaries.
Section 4.17 Limitation on Issuances of Guarantees of Indebtedness.
The Company shall not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company (other than the Existing Guarantees by the Canadian Guarantors) unless such Restricted Subsidiary simultaneously executes and delivers (1) supplemental indentures providing for the Guarantees of the payment of the Notes by such Restricted Subsidiary, which Guarantees shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness unless the Indebtedness of the Company so Guaranteed or secured is senior Indebtedness of the Company, in which case the Guarantees of the Notes may be pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness of the Company, and (2) a pledge or security agreement providing for a pledge of such assets to secure the Notes and all other Parity Lien Debt on an equal and ratable basis (subject only to Permitted Prior Liens).
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Section 4.18 Payments for Consent.
The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of the Notes, the Second Priority Senior Secured Notes or the Term Loans for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Notes, the Second Priority Senior Secured Notes, the Term Loans, the Term Loan Agreement or any Security Documents unless such consideration is offered to be paid or agreed to be paid to all holders of such notes and/or Term Loans that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Section 4.19 Designation of Restricted and Unrestricted Subsidiaries.
The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be deemed to be an Investment made as of the time of the designation and shall reduce the remaining amount available for Restricted Payments under Section 4.07 herein or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation shall only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default.
Section 4.20 Changes in Covenant When Notes Rated Investment Grade.
If on any date following the date of this Indenture:
(1) any series of the notes is rated Baa3 or better by Moody's and BBB- or better by S&P; and
(2) no Default or Event of Default shall have occurred and be continuing, then, beginning on that day and subject to the provisions of the following paragraph, the provisions of Section 4.07, 4.08, 4.09, 4.10, 4.11, 4.13, 4.19 and clause (4) of Section 5.01 hereof shall be suspended.
Notwithstanding the foregoing, if the rating assigned by either such rating agency should subsequently decline to below Baa3 or BBB-, respectively, the foregoing provisions shall be reinstituted as of and from the date of such rating decline. Calculations under the reinstated Section 4.07 shall be made as if Section 4.07 had been in effect since July 16, 2003 except that no default shall be deemed to have occurred solely by reason of a Restricted Payment made while that Section 4.07 was suspended. These covenant suspension provisions shall continue to be applicable following any such reinstatement. The Company shall notify the Trustee if any covenants are suspended or reinstated pursuant to this Section 4.20.
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ARTICLE 5.
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of Assets.
The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless:
(1) either:
(A) the Company is the surviving corporation; or
(B) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the Notes, this Indenture, and the Security Documents pursuant to agreements reasonably satisfactory to the Trustee and the Collateral Trustee;
(3) immediately after such transaction, no Default or Event of Default exists;
(4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made:
(A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and
(B) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and
(5) such transaction shall not impair the ability of the Company or any of its Subsidiaries to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law, unless such exemption is no longer material to the Company and its Restricted Subsidiaries taken as a whole or to the Person formed by or surviving any such consolidation or merger (if other then the Company) and its Restricted Subsidiaries taken as a whole.
In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person.
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Notwithstanding the foregoing:
(1) the Company may merge with an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction; and
(2) the Company and its Restricted Subsidiaries may sell, assign, transfer, lease, convey or otherwise dispose of assets between or among each other (including by way of merger).
Section 5.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
Each of the following is an "Event of Default":
(1) default for 30 days in the payment when due of interest on the Notes;
(2) default in payment when due of the principal of, or premium, if any, on the Notes;
(3) failure to purchase the Notes when required pursuant to Section 4.10, 4.15 or otherwise as required pursuant to this Indenture or the Notes;
(4) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of that series of notes to comply with any of the other agreements in this Indenture, the Notes or the Security Documents;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default:
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(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or such Restricted Subsidiary becoming aware of such default; provided that the provisions of this clause (5) shall not apply to any default on Non-Recourse Debt;
(6) failure by the Company or any of its Significant Subsidiaries to pay final judgments (not covered by insurance) aggregating in excess of $50.0 million, which judgments are not paid, discharged or stayed for a period of 30 days;
(7) the repudiation by the Company or any of its Restricted Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against the Company or any of its Restricted Subsidiaries for any reason; provided that such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more;
(8) except as permitted by this Indenture, any note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Canadian Guarantor, or any Person acting on behalf of any Canadian Guarantor, shall deny or disaffirm its obligations under its note Guarantee and such condition shall not have been cured within 30 days of written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes; and
(9) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an involuntary case,
(C) consents to the appointment of a custodian of it or for all or substantially all of its property,
(D) makes a general assignment for the benefit of its creditors, or
(E) generally is not paying its debts as they become due; and
(10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
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(A) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case;
(B) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or
(C) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02 Acceleration.
In the case of an Event of Default specified in clause (9) or (10) of
Section 6.01 hereof, with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.
Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (9) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or
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Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.05 Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability.
Section 6.06 Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if:
(1) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy;
(3) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and
(5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.
Section 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien.
Section 6.08 Collection Suit by Trustee.
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If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs.
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In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under
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this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02 Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
(g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder, except for Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and until the Trustee shall have received from a Holder of a Note or from the Company express written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Event of Default hereunder.
(h) If the Trustee is acting as Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Paying Agent and Registrar.
Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after ascertaining it has such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and
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subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06 Reports by Trustee to Holders of the Notes.
(a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee shall also transmit by mail all reports as required by TIA Section 313(c).
(b) A copy of each report at the time of its mailing to the Holders of Notes shall be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07 Compensation and Indemnity.
(a) The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel.
(b) The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture (and any other Note Documents to which it is a party) against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent
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any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld.
(c) The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture.
(d) To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture.
(e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
Section 7.08 Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a custodian or public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
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(e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b).
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officer's Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.02 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
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Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and
(2) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder:
(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof;
(2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof;
(3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith; and
(4) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof.
Section 8.03 Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company (to the extent applicable) shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(5) hereof shall not constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof:
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(1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable repurchase date, as the case may be, and the Company must specify whether such Notes are being defeased to maturity or to a particular repurchase date;
(2) in the case of an election under Section 8.02 hereof, the Company has delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that:
(A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or
(B) since the date of this Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(6) the Company must deliver to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and
(7) the Company must deliver to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.
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Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.
Notwithstanding anything in this Article 8 to the contrary, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to the Company.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter be permitted to look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company.
Section 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.
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ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to provide for the assumption of the Company's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 hereof;
(4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes;
(5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;
(6) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof;
(7) to allow any Guarantor to execute a supplemental indenture and/or a Guarantee with respect to the Notes;
(8) to make, complete or confirm any grant of Collateral permitted or required by this Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Indenture or any of the Security Documents;
(9) to conform the text of this Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Memorandum to the extent that such provision of the Description of the Notes section of the Offering Memorandum was intended to be a verbatim recitation of a provision of this Indenture, the Notes or the Security Documents; or
(10) to reflect any waiver or termination of any right arising under the provisions of this Indenture that otherwise would be enforceable by any holder of the Term Loan Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise.
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Section 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation,
Section 3.07, 4.10 and 4.15 hereof), the Guarantees and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes).
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture.
It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the repurchase of the Notes except as provided above with respect to Sections 3.07, 4.10 and 4.15 hereof;
(3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;
(4) waive a Default or Event of Default in the payment of principal of, or interest or premium, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of
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at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium, if any, on the Notes;
(7) waive a repurchase payment with respect to any Note (other than a payment required under Section 4.10 and Section 4.15);
(8) release (A) any Collateral from the Liens created by the Security Documents except as specifically provided in this Indenture and the Security Documents as of the date of this Indenture or (B) all or substantially all of the Collateral or all or substantially all of the Canadian Guarantors from their obligations under the Guarantee and Collateral Agreement dated July 16, 2003 without the prior written consent of all Holders; or
(9) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions.
Section 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
Section 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of
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Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 and 7.02 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture is authorized or permitted by this Indenture.
ARTICLE 10.
COLLATERAL AND SECURITY
Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation.
Notwithstanding (1) anything to the contrary contained in the Security Documents, (2) the time of incurrence of any Series of Parity Lien Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Parity Lien Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral, (5) the time of taking possession or control over any Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens:
(A) all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall secure, equally and ratably, all present and future Parity Lien Obligations; and
(B) all proceeds of all Liens at any time granted by the Company or any Obligor to secure any of the Parity Lien Debt and other Parity Lien Obligations shall be allocated and distributed equally and ratably on account of the Parity Lien Debt and other Parity Lien Obligations; provided, that, for the avoidance of doubt, in the absence of an Event of Default, the Company shall be entitled to utilize cash proceeds of Collateral in the ordinary course of its business.
The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Parity Lien Obligations, each present and future Parity Debt Representative and the Collateral Trustee as holder of Parity Liens. The Company shall not incur any future Series of Parity Lien Debt unless the agreement governing such Series of Parity Lien Debt includes a Sharing Confirmation at the time of incurrence of such Series of Parity Lien Debt.
Section 10.02 Ranking of Note Liens
Notwithstanding:
(1) anything to the contrary contained in the Security Documents,
(2) the time of incurrence of any Series of Secured Debt,
(3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt,
(4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral,
(5) the time of taking possession or control over any Collateral or
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(6) the rules for determining priority under any law governing relative priorities of Liens,
all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall be subject and subordinate to Priority Liens securing Priority Lien Obligations up to the Priority Lien Cap.
The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Priority Lien Obligations, each present and future Priority Lien Agent and the Collateral Trustee as holder of Priority Liens. No other Person shall be entitled to rely on, have the benefit of or enforce this provision.
In addition, the foregoing provision is intended solely to set forth the relative ranking, as Liens, of the Liens securing Parity Lien Debt as against the Priority Liens. Neither the Notes, the Second Priority Senior Secured Notes nor the Term Loans nor any other Parity Lien Obligations nor the exercise or enforcement of any right or remedy for the payment or collection thereof are intended to be, or shall ever by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced.
Section 10.03 Release of Security Interest in Respect of Notes
The Collateral Trustee's Liens upon the Collateral shall no longer secure the Notes or any other Obligations under this Indenture, and the right of the holders of the Notes and Obligations to the benefits and proceeds of the Collateral Trustee's Liens on Collateral shall terminate and be discharged:
(1) upon satisfaction and discharge of this Indenture in accordance with Article 11 hereof;
(2) upon a Legal Defeasance or Covenant Defeasance of the Notes in accordance with Article 8 hereof; or
(3) upon payment in full and discharge of all Notes outstanding under this Indenture and all related Obligations that are outstanding, due and payable under this Indenture at the time the Notes are paid in full and discharged.
ARTICLE 11.
SATISFACTION AND DISCHARGE
Section 11.01 Satisfaction and Discharge.
This Indenture shall be discharged and shall cease to be of further effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated under this Indenture (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or
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(b) all Notes that have not been delivered to the Trustee for cancellation shall become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity;
(2) no Default or Event of Default has occurred and is continuing on the date of such deposit or shall occur as a result of such deposit and such deposit shall not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound;
(3) the Company has paid or caused to be paid all sums payable by it under this Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity date.
In addition, the Company must deliver an Officer's Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the provisions of Section 12.02 and Section 8.06 shall survive. In addition, nothing in this Section 11.01 shall be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture.
Section 11.02 Application of Trust Money.
Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01; provided that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent.
ARTICLE 12.
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls.
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If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties or provisions of the TIA shall control.
Section 12.02 Notices.
Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Telephone No.: (408) 995-5115
Attention: Ron Fischer
With a copy to:
Covington & Burling
1330 Avenue of the Americas
New York, NY 10019
Telecopier No.: (212) 841-1010
Attention: Bruce Bennett
If to the Trustee:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Telecopier No.: (302) 636-4145
Attention: Corporate Capital Markets
By notice to the others, the Company or the Trustee may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.
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If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.
Section 12.03 Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signer, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 12.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:
(1) a statement that the Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
Section 12.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders.
No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this
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Indenture, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Section 12.08 Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTATION OF GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 12.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 12.10 Successors.
All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors.
Section 12.11 Severability.
In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
Section 12.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of November 18, 2003
CALPINE CORPORATION

By: /s/ ERIC PRYOR
    ------------------------------------------
    Name: Eric Pryor
    Title: Senior Vice President, Finance	

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WILMINGTON TRUST COMPANY

By: /s/ JAMES D. NESCI
    ------------------------------------------
    Name: James D. Nesci
    Title: Authorized Signer	

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EXHIBIT A
[Face of Note]
CUSIP [ ]
9.875% Second Priority Senior Secured Notes due 2011
No. ___ $____________
CALPINE CORPORATION
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of ___________________________________________________________
Dollars on December 1, 2011.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
CALPINE CORPORATION
By: _____________________________
Name:
Title:
Dated: November 18, 2003
This is one of the Notes referred to
in the within-mentioned Indenture:
WILMINGTON TRUST COMPANY,
as Trustee
By: ______________________________
Authorized Signatory
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[Back of Note]
9.875% Second Priority Senior Secured Notes due 2011
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
(5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
Capitalized terms used herein have the meanings assigned to them in this Indenture referred to below unless otherwise indicated.
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(1) INTEREST. Calpine Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 9.875% per annum from November 18, 2003 until maturity. The Company shall pay interest semi-annually in arrears on June 1 and December 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 1, 2004. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months.
(2) METHOD OF PAYMENT. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the May 15 or November 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes shall be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds shall be required with respect to principal of and interest, premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company, the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity.
(4) INDENTURE. The Company issued the Notes under an Indenture dated as of November 18, 2003 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company, as evidenced by the Security Documents referred to in the Indenture.
(5) MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(6) REPURCHASE AT OPTION OF HOLDER. (a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described
A-3
below (the "Change of Control Offer") on the terms set forth in the Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, and when the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase with the proceeds of sales of assets, including the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Holders of Notes that are the subject of an offer to purchase shall receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes.
(7) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for repurchase, except for the unpurchased portion of any Note being repurchased in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be repurchased or during the period between a record date and the corresponding Interest Payment Date.
(8) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
(9) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption
A-4
of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture, to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Guarantee with respect to the Notes, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture or any of the Security Documents, to conform the text of the Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Memorandum to the extent that such provision of the Description of the Notes section of the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Notes or the Security Documents, or to reflect any waiver or termination of any right arising under the provisions of the Indenture that otherwise would be enforceable by any holder of the Term Loan Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes.
(10) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the Notes, (iii) failure by the Company to purchase the Notes when required pursuant to Section 4.10 or 4.15 of the Indenture or otherwise as required pursuant to the Indenture or Notes; (iv) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes to comply with any of the other agreements in the Indenture, the Notes or the Security Documents; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 30 days;
(vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that would constitute a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; (viii) the repudiation by the Company or any of its Restricted Subsidiaries or the unenforceability of the Security Documents if such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more and (ix) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding Notes is in their interest, except a Default or Event of Default relating to the payment of principal or interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment
A-5
of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default under clauses (3) through (8) of the
Section 6.01(a) of the Indenture, to deliver to the Trustee a statement specifying such Default or Event of Default.
(11) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(12) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes.
(13) AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(14) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(15) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee or the Company may use CUSIP numbers in notices of repurchase as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of repurchase and reliance may be placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to:
Calpine Corporation
50 West San Fernando Street San Jose, California 95113 Attention: Ron Fischer
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date: _______________
Your Signature: __________________________________ (Sign exactly as your name appears on the face of this Note)
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$______________
Date: _______________
Your Signature: __________________________________ (Sign exactly as your name appears on the face of this Note)
Tax Identification No.: __________________________
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
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SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

                                                                       Principal Amount
                       Amount of decrease    Amount of increase in    of this Global Note       Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                               of                      of                  decrease             of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------        ----------------        ----------------         -------------            ---------	

* This schedule should be included only if the Note is issued in global form.
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EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022
Re: 9.875% Second Priority Senior Secured Notes due 2011
Reference is hereby made to the Indenture, dated as of November 18, 2003 (the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than the Placement Agent). Upon consummation of the proposed transfer in accordance with the terms of
B-1
the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]
By:________________________________________
B-2
Name:

Title:
Dated: ___________________
B-3
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP ________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee shall hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP ________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022
Re: 9.875% Second Priority Senior Secured Notes due 2011
(CUSIP ____________)
Reference is hereby made to the Indenture, dated as of November 18, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that:
EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued shall continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ]144A Global Note, [ ]Regulation S Global Note, [ ]IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.
C-1
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]
By:___________________________________________ Name:

Title:
Dated: _________________
C-2
EXHIBIT D
FORM OF CERTIFICATE OF
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Wilmington Trust
520 Madison Avenue, 33rd Floor
New York, NY 10022
Re: 9.875% Second Priority Senior Secured Notes due 2011
Reference is hereby made to the Indenture, dated as of November 18, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we shall do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we shall be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us shall bear a legend to the foregoing effect.
D-1
EXHIBIT D
4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

[Insert Name of Accredited Investor]
By:___________________________________________ Name:

Title:
Dated: __________________
D-2
 
EXHIBIT 4.17.1

CALPINE CORPORATION
4.75% CONTINGENT CONVERTIBLE NOTES DUE 2023

AMENDED AND RESTATED
INDENTURE
Dated as of March 12, 2004

WILMINGTON TRUST COMPANY
Trustee

 
CROSS-REFERENCE TABLE*

Trust Indenture
Act Section                                                   Indenture Section
310(a)(1)................................................           7.10
   (a)(2)................................................           7.10
   (a)(3)................................................           N.A.
   (a)(4)................................................           N.A.
   (a)(5)................................................           7.10
   (b)...................................................           7.10
   (c)...................................................           N.A.
311(a)                                                              7.11
   (b)...................................................           7.11
   (c)...................................................           N.A.
312(a)                                                              2.05
   (b)...................................................           12.03
   (c)...................................................           12.03
313(a)                                                              7.06
   (b)(1)................................................           10.03
   (b)(2)................................................        7.06; 7.07
   (c)...................................................        7.06;12.03
   (d)...................................................           7.06
314(a)                                                              4.03
   (a)(4)................................................           12.05
   (b)...................................................           N.A.
   (c)(3)................................................           N.A.
   (e)...................................................           12.05
   (f)...................................................           N.A.
315(a)                                                              7.01
   (b)...................................................           7.05
   (c)...................................................           7.01
   (d)...................................................           7.01
   (e)...................................................           6.11
316(a) (last sentence)...................................           2.09
   (a)(1)(A).............................................           6.05
   (a)(1)(B).............................................           6.04
   (a)(2)................................................           N.A.
   (b)...................................................           6.07
   (c)...................................................           2.12
317(a)(1)................................................           6.08
   (a)(2)................................................           6.09
   (b)...................................................           2.04
318(a)                                                              N.A.
   (b)...................................................           12.03
   (c)...................................................    12.01; 12.02; 12.03	

N.A. means not applicable.
* This Cross Reference Table is not part of this Indenture.
TABLE OF CONTENTS

                                                                                                                        Page
                                   ARTICLE 1.
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

Section 1.01   Definitions..........................................................................................      1
Section 1.02   Other Definitions....................................................................................     11
Section 1.03   Incorporation by Reference of Trust Indenture Act....................................................     12
Section 1.04   Rules of Construction................................................................................     12

                                   ARTICLE 2.
                                    THE NOTES

Section 2.01   Form and Dating......................................................................................     12
Section 2.02   Execution and Authentication.........................................................................     13
Section 2.03   Registrar, Paying Agent and Conversion Agent.........................................................     13
Section 2.04   Paying Agent to Hold Money in Trust..................................................................     14
Section 2.05   Holder Lists.........................................................................................     14
Section 2.06   Transfer and Exchange................................................................................     14
Section 2.07   Replacement Notes....................................................................................     20
Section 2.08   Outstanding Notes....................................................................................     20
Section 2.09   Treasury Notes.......................................................................................     21
Section 2.10   Temporary Notes......................................................................................     21
Section 2.11   Cancellation.........................................................................................     21
Section 2.12   Defaulted Interest...................................................................................     21

                                   ARTICLE 3.
                            REDEMPTION AND PREPAYMENT

Section 3.01   Notices to Trustee...................................................................................     22
Section 3.02   Selection of Notes to Be Redeemed or Purchased.......................................................     22
Section 3.03   Notice of Optional Redemption........................................................................     22
Section 3.04   Effect of Notice of Optional Redemption..............................................................     23
Section 3.05   Deposit of Redemption or Purchase Price..............................................................     23
Section 3.06   Notes Redeemed or Purchased in Part..................................................................     24
Section 3.07   Optional Redemption..................................................................................     24
Section 3.08   Mandatory Redemption.................................................................................     24
Section 3.09   Purchase of Notes at Option of the Holder............................................................     24
Section 3.10   Purchase of Notes at Option of the Holder upon Change in Control.....................................     29
Section 3.11   Effect of Purchase Notice or Change in Control Purchase Notice.......................................     34
Section 3.12   Deposit of Purchase Price or Change in Control Purchase Price........................................     35
Section 3.13   Notes Purchased in Part..............................................................................     35
Section 3.14   Covenant to Comply With Securities Laws Upon Purchase of Notes.......................................     35
Section 3.15   Repayment to the Company.............................................................................     36

                                   ARTICLE 4.
                                    COVENANTS

Section 4.01   Payment of Notes.....................................................................................     36
Section 4.02   Maintenance of Office or Agency......................................................................     36
Section 4.03   Reports..............................................................................................     37
Section 4.04   Compliance Certificate...............................................................................     37	

i

Section 4.05   Taxes................................................................................................     38
Section 4.06   Stay, Extension and Usury Laws.......................................................................     38
Section 4.07   [Reserved.]..........................................................................................     38
Section 4.08   [Reserved.]..........................................................................................     38
Section 4.09   [Reserved.]..........................................................................................     38
Section 4.10   [Reserved.]..........................................................................................     38
Section 4.11   [Reserved.]..........................................................................................     38
Section 4.12   Liens................................................................................................     39
Section 4.13   [Reserved.]..........................................................................................     40
Section 4.14   Corporate Existence..................................................................................     40
Section 4.15   [Reserved.]..........................................................................................     41
Section 4.16   Limitation on Sale and Leaseback Transactions........................................................     41
Section 4.17   [Reserved.]..........................................................................................     41
Section 4.18   [Reserved.]..........................................................................................     41
Section 4.19   [Reserved.]..........................................................................................     41
Section 4.20   [Reserved.]..........................................................................................     42
Section 4.21   Issuance of Additional Notes.........................................................................     42

                                   ARTICLE 5.
                                   SUCCESSORS

Section 5.01   Merger, Consolidation, or Sale of Assets.............................................................     42
Section 5.02   Successor Corporation Substituted....................................................................     42

                                   ARTICLE 6.
                              DEFAULTS AND REMEDIES

Section 6.01   Events of Default....................................................................................     43
Section 6.02   Acceleration.........................................................................................     44
Section 6.03   Other Remedies.......................................................................................     45
Section 6.04   Waiver of Past Defaults..............................................................................     45
Section 6.05   Control by Majority..................................................................................     45
Section 6.06   Limitation on Suits..................................................................................     45
Section 6.07   Rights of Holders of Notes to Receive Payment........................................................     46
Section 6.08   Collection Suit by Trustee...........................................................................     46
Section 6.09   Trustee May File Proofs of Claim.....................................................................     46
Section 6.10   Priorities...........................................................................................     47
Section 6.11   Undertaking for Costs................................................................................     47

                                   ARTICLE 7.
                                     TRUSTEE

Section 7.01   Duties of Trustee....................................................................................     47
Section 7.02   Rights of Trustee....................................................................................     48
Section 7.03   Individual Rights of Trustee.........................................................................     49
Section 7.04   Trustee's Disclaimer.................................................................................     49
Section 7.05   Notice of Defaults...................................................................................     49
Section 7.06   Reports by Trustee to Holders of the Notes...........................................................     49
Section 7.07   Compensation and Indemnity...........................................................................     50
Section 7.08   Replacement of Trustee...............................................................................     50
Section 7.09   Successor Trustee by Merger, etc.....................................................................     51
Section 7.10   Eligibility; Disqualification........................................................................     51
Section 7.11   Preferential Collection of Claims Against Company....................................................     52	

ii

                                                            ARTICLE 8.
                                             LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01   Option to Effect Legal Defeasance or Covenant Defeasance.............................................     52
Section 8.02   Legal Defeasance and Discharge.......................................................................     52
Section 8.03   Covenant Defeasance..................................................................................     52
Section 8.04   Conditions to Legal or Covenant Defeasance...........................................................     53
Section 8.05   Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions........     54
Section 8.06   Repayment to the Company.............................................................................     54
Section 8.07   Reinstatement........................................................................................     55

                                                            ARTICLE 9.
                                                 AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01   Without Consent of Holders of Notes..................................................................     55
Section 9.02   With Consent of Holders of Notes.....................................................................     56
Section 9.03   Compliance with Trust Indenture Act..................................................................     57
Section 9.04   Revocation and Effect of Consents....................................................................     57
Section 9.05   Notation on or Exchange of Notes.....................................................................     57
Section 9.06   Trustee to Sign Amendments, etc......................................................................     57

                                                            ARTICLE 10.
                                                            CONVERSION

Section 10.01  Conversion Privilege.................................................................................     58
Section 10.02  Conversion Procedure.................................................................................     60
Section 10.03  Taxes on Conversion..................................................................................     61
Section 10.04  Company to Provide Stock.............................................................................     61
Section 10.05  Adjustment of Conversion Price.......................................................................     61
Section 10.06  When No Adjustment Required..........................................................................     64
Section 10.07  When Adjustment May Be Deferred......................................................................     65
Section 10.08  Successive Adjustments...............................................................................     65
Section 10.09  Notice of Adjustment.................................................................................     65
Section 10.10  Notice of Certain Transactions.......................................................................     65
Section 10.11  Effect of Reclassification, Consolidation, Merger, Share Exchange or Sale on Conversion Privilege....     65
Section 10.12  Trustee's Disclaimer.................................................................................     66
Section 10.13  Voluntary Reduction..................................................................................     67
Section 10.14  Conversion Value of Notes Tendered...................................................................     67

                                                            ARTICLE 11.
                                                    SATISFACTION AND DISCHARGE

Section 11.01  Satisfaction and Discharge...........................................................................     68
Section 11.02  Application of Trust Money...........................................................................     69

                                                            ARTICLE 12.
                                                           MISCELLANEOUS

Section 12.01  Trust Indenture Act Controls.........................................................................     69
Section 12.02  Notices..............................................................................................     70
Section 12.03  Communication by Holders of Notes with Other Holders of Notes........................................     71
Section 12.04  Certificate and Opinion as to Conditions Precedent...................................................     71
Section 12.05  Statements Required in Certificate or Opinion........................................................     71	

iii

Section 12.06  Rules by Trustee and Agents..........................................................................     71
Section 12.07  No Personal Liability of Directors, Officers, Employees and Stockholders.............................     71
Section 12.08  Governing Law........................................................................................     72
Section 12.09  No Adverse Interpretation of Other Agreements........................................................     72
Section 12.10  Successors...........................................................................................     72
Section 12.11  Severability.........................................................................................     72
Section 12.12  Counterpart Originals................................................................................     72
Section 12.13  Table of Contents, Headings, etc.....................................................................     72	

EXHIBITS

Exhibit A  FORM OF NOTE
Exhibit B  FORM OF CERTIFICATE OF TRANSFER
Exhibit C  FORM OF CERTIFICATE OF EXCHANGE
Exhibit D  FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

                                       iv	

         AMENDED AND RESTATED INDENTURE (as so amended and restated, the	

"Indenture") dated as of March 1, 2004 between Calpine Corporation (the "Company"), a Delaware corporation, and Wilmington Trust Company (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company and the Trustee entered into an Indenture, dated as of November 14, 2003 (the "Original Indenture"), governing the 4.75% Contingent Convertible Notes due 2023 (the "Notes") for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the Notes;
WHEREAS, pursuant to Section 9.01 of the Original Indenture, the Company has requested that the Trustee amend and restate the Original Indenture in its entirety, without the consent of the Holders, to cure certain ambiguities, omissions, defects and inconsistencies;
WHEREAS, the Trustee, upon satisfaction of the conditions set forth in Sections 9.01 and 9.06 of the Indenture (including, without limitation, the receipt of an Officer's Certificate and an Opinion of Counsel), is willing to amend and restate the Original Indenture as hereinafter set forth; and
WHEREAS, (i) the Original Indenture is being amended and restated pursuant to this Indenture; (ii) the Notes under the Original Indenture, as amended and restated in connection with this Indenture, will be continued under this Indenture and (iii) all obligations of the Company under the Notes and the Original Indenture will be continued, amended and restated as provided herein and will not be cancelled or discharged;
NOW THEREFORE, the Company and the Trustee agree, for the benefit of each other and for the equal and ratable benefit of the Holders of the Notes, that the Original Indenture be, and it hereby is, amended and restated in its entirety as follows:
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions.
"144A Global Note" means a Global Note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A.
"Additional Notes" means Notes (other than the Initial Notes) issued under the Original Indenture in accordance with Sections 2.02 and 4.21 hereof, as part of the same series as the Initial Notes.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
1
"Agent" means any Registrar, co-registrar, Paying Agent, additional paying agent, Conversion Agent or additional conversion agent.
"Applicable Procedures" means, with respect to any transfer or transaction involving a Global Note or beneficial interests therein, the rules and procedures of the Depositary, for such Global Note, in each case to the extent applicable to such transaction and as in effect from time to time.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, as of the date 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 rate of interest borne by the Notes), compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.
"Bid Solicitation Agent" means The Bank of New York until the Company selects another bank, trust company or similar fiduciary agent, if any, to serve as Bid Solicitation Agent.
"Board of Directors" means:
(1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership;
(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
"Business Day" means any day other than a Legal Holiday.
"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 GAAP, 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.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
2
(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Change in Control" means the occurrence of any of the following:
(1) any Person, including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act, acquires beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of the Company's Capital Stock entitling the Person to exercise 50% or more of the total voting power of all shares of the Company's Capital Stock that is entitled to vote generally in elections of directors, other than an acquisition by the Company, any of its Subsidiaries or any of its employee benefit plans; or
(2) the Company merges or consolidates with or into any other Person, any merger of another Person into the Company, or the Company conveys, sells, transfers or leases all or substantially all of its assets to another Person, other than any transaction:
(a) that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of the Company's Capital Stock,
(b) pursuant to which the holders of the Company's Common Stock immediately prior to the transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of Capital Stock entitled to vote generally in the election of directors of the continuing or surviving corporation immediately after the transaction, or
(c) which is effected solely to change the Company's jurisdiction of incorporation and results in a reclassification, conversion or exchange or outstanding shares of the Company's Common Stock solely into shares of Common Stock of the surviving entity.
"Common Stock" means shares of the Company's Common Stock, $0.001 par value per share, as they exist on the date of this Indenture or any other shares of Capital Stock of the Company into which the Common Stock shall be reclassified or changed.
"Common Stock Price" on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date for the Company's Common Stock as reported in composite transactions on the principal United States securities exchange on which the Company's Common Stock is traded or, if its Common Stock is not listed on a United States national or regional securities exchange, as reported by NASDAQ.
"Company" means Calpine Corporation, a Delaware Corporation and any and all successors thereto.
"Consolidated Current Liabilities," means, as of the date of determination, the aggregate amount of consolidated liabilities of the Company and its consolidated Restricted Subsidiaries, which may
3
properly be classified as current liabilities (including taxes accrued as estimated), after eliminating (i) all inter-company items between the Company and its Subsidiaries and (ii) all current maturities of long-term Indebtedness, all as determined in accordance with GAAP.
"Consolidated Net Tangible Assets" means, as of the date of determination, the total amount of consolidated assets (less accumulated depreciation or amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) under GAAP which would appear on the consolidated balance sheet of the Company and its Subsidiaries, determined in accordance with GAAP, 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 the Company's consolidated Restricted Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(c) excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Company'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 GAAP;
(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 fund 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.
"Conversion Date" shall have the meaning as specified in Section 10.02 hereof.
"Conversion Price" means $6.50 per share of Common Stock as of the date of the Original Indenture, subject to the adjustments described in Section 10.05 hereof.
"Conversion Rate" means an amount of shares equal to $1,000 principal amount of Notes divided by the Conversion Price, which shall be 153.8462 as of the date of the Original Indenture, subject to the adjustments described in
Section 10.05 hereof.
"Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give written notice to the Company.
"Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
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"Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Period" means the period that is 30 calendar days from the date of the Original Indenture (or such other date as set forth in the Purchase Agreement) during which the Initial Purchasers have the right to exercise the Initial Purchaser Option.
"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive evidence of such determination (unless otherwise provided in this Indenture).
"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect and, to the extent optional, adopted by the Company, on the applicable date of determination.
"Global Notes" means, individually and collectively, each of the Restricted Global Notes, substantially in the form of Exhibit A hereto issued in accordance with Section 2.01 or 2.06(b)(3) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(e)(2), which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means a Global Note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors.
"Incur" means, as applied to any obligation, to create, incur, issue, assume, guarantee or in any other manner become liable with respect to, contingently or otherwise, such obligation, and "Incurred," "Incurrence" and "Incurring" shall each have a correlative meaning; provided, however, that any amendment, modification or waiver of any provision of any document pursuant to which Indebtedness was previously Incurred shall not be deemed to be an Incurrence of Indebtedness as long as such amendment, modification or waiver does not (A) increase the principal or premium thereof or interest rate thereon, (B) change to an earlier date the Stated Maturity thereof or the date of any schedule or required principal payment thereon or the time or circumstances under which such Indebtedness may or shall be redeemed, (C) if such Indebtedness is contractually subordinated in right of payment to the Notes, modify
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or affect, in any manner adverse to the Holders, such subordination or (D) if the Company is the obligor thereon, provide that a Restricted Subsidiary shall be an obligor and (ii) such Indebtedness would, after giving effect to such amendment, modification or waiver as if it were an Incurrence, be refinancing Indebtedness that is contractually subordinated in right of payment to the Notes to at least the same extent as the Indebtedness being refinanced.
"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 such person for money borrowed;
(b) all Capitalized Lease Obligations of such person;
(c) all Obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, other than Obligations with respect to letters of credit securing Obligations (other than Obligations described in clauses (a) and (b) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit;
(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 such Person's Board of Directors, in good faith, in light of the facts and circumstances existing at the time, as reasonably likely to be Incurred upon the occurrence of the contingency giving rise to such Obligation.
"Indenture" means this indenture, as amended or supplemented from time to time.
"Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant.
"Initial Notes" means the first $600,000,000 aggregate principal amount of Notes issued under the Original Indenture on the date thereof. "Initial Purchasers" means Deutsche Bank Securities Inc., Credit Lyonnais Securities (USA) Inc., Harris Nesbitt Corp. and Williams Capital Group LP.
"Initial Purchaser Option" means the right given to Deutsche Bank Securities Inc. pursuant to the Purchase Agreement to purchase, at its election, up to $300,000,000 in aggregate principal amount of Notes.
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"Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.
"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).
"Liquidated Damages" has the meaning set forth in the Registration Rights Agreement.
"Market Price" means the average determined by the Company of the Common Stock Price of the shares for the five Trading Date period immediately preceding and including the third Trading Date prior to (a) in the case of a redemption pursuant to Section 3.09 or 3.10, the applicable Purchase Date or Change in Control Purchase Date, as the case may be, appropriately adjusted to take into account the occurrence, during the period commencing on the first of the Trading Days during such five Trading Day period and ending on such Purchase Date or Change in Control Purchase Date, as the case may be, of any event described in Section 10.05 and (b) in the case of an adjustment to the Conversion Price or Conversion Rate pursuant to Section 10.05, the applicable date fixed for the determination of stockholders entitled to receive any distribution described in Section 10.05, appropriately adjusted to take into account the occurrence, during the period commencing on the first of the Trading Days during such five Trading Day period and ending on such determination date, of any event described in Section 10.05; subject, however, in the case of both
(a) and (b), to the conditions set forth in Section 10.06 and 10.07 hereof. If the shares of Common Stock are not listed on The New York Stock Exchange, then the Market Price shall be determined by the Company by reference to the Common Stock Price as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). In the absence of such quotations, the Company shall be entitled to determine in good faith the Market Price by reference to the Common Stock Price on any date on the basis of such quotations as it considers appropriate.
"Note Documents" means this Indenture and the Notes (including any Additional Notes issued under the Original Indenture).
"Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes.
"Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness (including the Notes and this Indenture).
"Offering Circular" means that certain Confidential Offering Circular dated November 7, 2003, as amended by the Supplement to the Confidential Offering Circular, dated January 6, 2004, with respect to offerings of the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
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"Officer's Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, a Person who has an account with the Depositary.
"Permitted Investments" means the following investments:
(i) any direct obligations of, or obligations fully and unconditionally guaranteed by, the United States of America, or any agency or instrumentality of the United States of America, the obligations of which are fully and unconditionally backed by the full faith and credit of the United States of America;
(ii) demand and time deposits in, certificates of deposit of, bankers' acceptances issued by, or federal funds sold by any depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal and/or state authorities, or incorporated under the laws of any other jurisdiction, so long as at the time of such investment or contractual commitment providing for such investment the unsecured commercial paper or other unsecured short-term debt obligations of such depository institution or trust company have credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P
(iii) repurchase obligations with respect to any security described in clauses (i) or (ii) above, in each case entered into with either (A) a depository institution or trust company (acting as principal) which in respect of its short-term unsecured debt has credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P or (B) a money market fund maintained by a broker which, in respect of its short-term unsecured debt, has credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P
(iv) unsecured debt securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof which have, at the time of such investment, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P
(v) unsecured commercial paper which has, at the time of such investment, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P and
(vi) investments in money market funds or money market mutual funds which have, at the time of such investment, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P (including such funds for which the Trustee or any of its Affiliates is investment manager or advisor and for which the Trustee or any of its Affiliates may receive a fee).
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"Private Placement Legend" means the legend set forth in Section 2.06(e)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture.
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"Purchase Agreement" means the Purchase Agreement by and between the Company and Deutsche Bank Securities Inc. as representative of the several Initial Purchasers, dated as of November 6, 2003, as may be amended from time to time.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of November 14, 2003, among the Company and the Initial Purchasers.
"Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement Legend.
"Restricted Subsidiary" means any Subsidiary of a Person that is not designated an Unrestricted Subsidiary by that Person's Board of Directors.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate the Notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency).
"Sale and 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 such 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.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of this Indenture, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, as applied to any Person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of at least 50% of the outstanding Voting Stock, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as provided in Section 9.03 of this Indenture.
"Trading Day" means any regular or abbreviated trading day of The New York Stock Exchange.
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"Trading Price" of the Notes on any date of determination means the average of the secondary market bid quotations per $1,000 principal amount of Notes obtained by the Bid Solicitation Agent for $5,000,000 principal amount of the Notes at approximately 3:30 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers the Company selects, which may include any of the Initial Purchasers; provided that if at least three such bids cannot reasonably be obtained by the Bid Solicitation Agent, but two such bids are obtained, then the average of the two bids shall be used, and if only one such bid can reasonably be obtained by the Bid Solicitation Agent, this one bid shall be used. If the Bid Solicitation Agent cannot reasonably obtain at least one such bid or, in the Company's reasonable judgment, the bid quotations are not indicative of the secondary market value of the Notes, then the Trading Price of the Notes will be determined in good faith by the Bid Solicitation Agent, taking into account in such determination such factors as it, in its sole discretion after consultation with the Company, deems appropriate. The Bid Solicitation Agent shall have no obligation to determine the Trading Price of the Notes unless the Company has requested such determination in writing, and the Company shall have no obligation to make such request unless a Holder of the Notes provides the Company with reasonable evidence that the Trading Price of the Notes would be less than 95% of the product of the Common Stock Price and the Conversion Rate. At such time, the Company shall instruct the Bid Solicitation Agent in writing to determine the trading price beginning on the next Trading Day and on each successive Trading Day until the Trading Price of the Notes is greater than or equal to 95% of the product of the Common Stock Price and the Conversion Rate. The Company will notify the Trustee of the results of any Trading Price determination within a reasonable time (and, in any event, no later than three Business Days prior to the Conversion Date).
"Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
"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, such Person or any other Subsidiary of such 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 the Company's Consolidated Net Tangible Assets as determined based on the consolidated balance sheet of such Person 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 this Indenture shall have occurred and be continuing.
Any such designation by a Person's Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to the designation and a certificate signed by two of that Person's Officers certifying that the designation complied with these provisions. However, the failure to file the resolution and/or certificate with the Trustee shall not impair or affect the validity of the designation.
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"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary (other than an Unrestricted Subsidiary) of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person.
Section 1.02 Other Definitions.

                                                                     Defined in
Term                                                                   Section
------                                                               ----------
"Authentication Order"...........................................        2.02
"Change in Control Notice".......................................        3.10
"Change in Control Notice Date"..................................        3.10
"Change in Control Purchase Date"................................        3.10
"Change in Control Purchase Notice"..............................        3.10
"Change in Control Purchase Price"...............................        3.10
"Company Notice".................................................        3.09
"Company Notice Date"............................................        3.09
"Conversion Agent"...............................................        2.03
"Conversion Date"................................................       10.02
"Conversion Price"...............................................       10.05
"Conversion Value"...............................................       10.14
"Covenant Defeasance"............................................        8.03
"DTC"............................................................        2.03
"Determination Date".............................................       10.14
"Event of Default"...............................................        6.01
"Ex-Dividend Date"...............................................       10.01
"Expiration Time"................................................       10.05
"Five Day Average Closing Stock Price"...........................       10.14
"Legal Defeasance"...............................................        8.02
"Net Shares".....................................................       10.14
"Net Share Amount"...............................................       10.14
"Paying Agent"...................................................        2.03
"Pre-Dividend Sale Price"........................................       10.05
"Principal Return"...............................................       10.14
"Principal Value Conversion".....................................       10.01
"Purchase Date"..................................................        3.09
"Purchase Notice"................................................        3.09
"Purchase Price".................................................        3.09
"Purchased Shares"...............................................       10.05
"Quarter"........................................................       10.01
"Reference Date".................................................       10.05
"Registrar"......................................................        2.03	

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Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"obligor" on the Notes means the Company and any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include the singular;
(5) "shall" shall be interpreted to express a command;
(6) provisions apply to successive events and transactions; and
(7) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
Section 2.01 Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in
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the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.
Section 2.02 Execution and Authentication.
One Officer must sign the Notes for the Company by manual or facsimile signature.
If the Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee will, upon receipt of a written order of the Company signed by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an aggregate principal amount up to $600 million on the date of the Original Indenture and (ii) Additional Notes from time to time as permitted under this Indenture.
The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company.
Section 2.03 Registrar, Paying Agent and Conversion Agent.
The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar, the term "Paying Agent" includes any additional paying agent and the term "Conversion Agent" includes any additional conversion agent. The Company may change any Conversion Agent, Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Conversion Agent, Registrar, Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Conversion Agent, Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Conversion Agent, Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
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Section 2.04 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes.
Section 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a).
Section 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes shall be exchanged by the Company for Definitive Notes if:
(1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or
(2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee.
Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated by the Trustee pursuant to an Authentication Order and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in
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accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this
Section 2.06(b)(1).
(2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar both:
(A) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and
(B) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase.
(3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following:
(A) if the transferee shall take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and
(B) if the transferee shall take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (2)(d) thereof, if applicable.
(4) Transfer and Exchange of Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (a) thereof;
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(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2)(a) thereof;
(D) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (C) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (2) thereof, if applicable;
(E) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2)(b) thereof; or
(F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the Company shall execute and the Trustee shall authenticate, upon receipt of an Authentication Order, and deliver to the Person designated in such Authentication Order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(c) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof;
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(C) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2)(a) thereof;
(D) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (C) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (2)(d) thereof, if applicable;
(E) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2)(b) thereof; or
(F) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, and in all other cases, the IAI Global Note.
(d) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(d), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(d).
(1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer shall be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and
(B) if the transfer shall be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (2) thereof, if applicable.
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(e) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.
(1) Private Placement Legend.
(A) Each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS."
(2) Global Note Legend. Each Global Note shall bear a legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
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(AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
(g) General Provisions Relating to Transfers and Exchanges.
(1) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request.
(2) No service charge shall be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 3.10 and 9.05 hereof).
(3) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.
(4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(5) The Company shall not be required:
(A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection;
(B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or
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(C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
(6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary.
(7) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof.
(8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.
Section 2.07 Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge the applicable Holder for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.
If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest.
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Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded.
Section 2.10 Temporary Notes.
Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall, upon receipt of an Authentication Order, authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this Indenture.
Section 2.11 Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes in accordance with its customary practices (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
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ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01 Notices to Trustee.
If the Company elects to redeem the Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officer's Certificate setting forth:
(1) the clause of this Indenture pursuant to which the redemption shall occur;
(2) the redemption date;
(3) the principal amount of Notes to be redeemed; and
(4) the redemption price.
Section 3.02 Selection of Notes to Be Redeemed or Purchased.
If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select Notes for redemption or purchase as follows:
(1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate.
In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase.
The Trustee shall promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase.
Section 3.03 Notice of Optional Redemption.
At least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 11, respectively, of this Indenture.
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The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 days prior to the redemption date, an Officer's Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.
Section 3.04 Effect of Notice of Optional Redemption.
Once notice of redemption is mailed by the Company in accordance with
Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional.
Section 3.05 Deposit of Redemption or Purchase Price.
Not less than one Business Day prior to the redemption or purchase price date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest on, all Notes to be redeemed or purchased.
If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest (and Liquidated Damages, if any) shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for
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redemption or purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.06 Notes Redeemed or Purchased in Part.
Upon surrender of a Note that is redeemed or purchased in part, the Company shall issue and, upon receipt of an Authentication Order, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered.
Section 3.07 Optional Redemption.
At any time on or after November 22, 2009, the Company may redeem the Notes, in whole at any time, or in part from time to time, at a price equal to 100% of the aggregate principal amount of the Notes being redeemed plus accrued and unpaid interest (and Liquidated Damages, if any) up to but not including the date of redemption, payable to the Holders in cash. Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08 Mandatory Redemption.
The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
Section 3.09 Purchase of Notes at Option of the Holder.
(a) General. All or any portion of the Notes held by any Holder shall be purchased by the Company at the option of the Holder on November 15, 2009, November 15, 2013 and November 15, 2018 (each a "Purchase Date"), at a price equal to 100% of the aggregate principal amount of the Notes being purchased plus accrued and unpaid interest (and Liquidated Damages, if any) to the applicable Purchase Date (the "Purchase Price"). Purchases of Notes hereunder shall be made, at the option of the Holder thereof, upon:
(1) delivery to the Paying Agent by the Holder of a written notice of purchase (a "Purchase Notice") at any time from the opening of business on the date that is 20 Business Days prior to a Purchase Date until the close of business on the last Business Day prior to such Purchase Date stating:
(a) if certificated Notes have been issued, the certificate number of the Note which the Holder will deliver to be purchased, or if not certificated, the notice must comply with the Applicable Procedures,
(b) the portion of the principal amount of the Note which the Holder will deliver to be purchased, which portion must be in principal amounts of $1,000 or an integral multiple thereof,
(c) that such Note shall be purchased as of the Purchase Date pursuant to the terms and conditions specified in this Section 3.09, and
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(d) in the event the Company elects, pursuant to
Section 3.09(b), to pay the Purchase Price, in whole or in part, in shares of Common Stock but such portion of the Purchase Price shall ultimately be payable to such Holder entirely in cash because any of the conditions to payment of the Purchase Price in shares of Common Stock is not satisfied prior to the close of business on the Purchase Date, as set forth below, whether such Holder elects (x) to withdraw such Purchase Notice as to some or all of the Notes to which such Purchase Notice relates (stating the principal amount and certificate numbers, if any, of the Notes as to which such withdrawal shall relate), or (y) to receive cash in respect of the entire Purchase Price for all Notes (or portions thereof) to which such Purchase Notice relates; and
(2) delivery of such Note to the Paying Agent prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 3.09 only if the Note so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice, as determined by the Company. If Global Notes are outstanding, such notice and tender of such Notes must comply with Applicable Procedures.
If a Holder, in such Holder's Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 3.11, fails to indicate such Holder's choice with respect to the election set forth in clause (d) of Section 3.09(a)(1), such Holder shall be deemed to have elected to receive cash in respect of the entire Purchase Price for all Notes subject to such Purchase Notice in the circumstances set forth in such clause (d).
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.09, a portion of a Note if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note.
Any purchase by the Company contemplated pursuant to the provisions of this Section 3.09 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of (x) the Purchase Date and (y) the time of delivery of the Note.
Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice contemplated by this Section 3.09(a) shall have the right to withdraw such Purchase Notice at any time prior to the close of business on the Business Day preceding the Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.11.
The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or written notice of withdrawal thereof.
(b) Company's Right to Elect Manner of Payment of Purchase Price for Payment. The Notes to be purchased on any Purchase Date pursuant to Section 3.09(a) may be paid for, at the election of the Company, in cash or shares of Common Stock, or in any combination of cash and shares of Common Stock, subject to the conditions set forth in Section 3.09(c). The Company shall designate, in the Company Notice delivered pursuant to Section 3.09(d), which shall be sent to Holders (and to beneficial owners as required by applicable law) not less than 20 Business Days prior to the Purchase Date (the "Company Notice Date"), whether the Company will purchase the Notes for cash or shares of Common Stock, or, if a combination thereof, the percentages of the Purchase Price of Notes in respect of which it will pay in cash and shares of Common Stock; provided, however, that the Company will pay cash for fractional shares of Common Stock. For purposes of determining the existence of potential
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fractional shares, all Notes subject to purchase by the Company held by a Holder shall be considered together (no matter how many separate certificates are to be presented). Each Holder whose Notes are purchased pursuant to this Section 3.09 shall receive the same percentage of cash or shares of Common Stock in payment of the Purchase Price for such Notes, except (i) as provided in Section 3.09(c) with regard to the payment of cash in lieu of fractional shares of Common Stock and (ii) in the event that the Company is unable to purchase the Notes of a Holder or Holders for shares of Common Stock because any necessary qualifications or registrations of the shares of Common Stock under applicable state securities laws cannot be obtained, the Company may purchase the Notes of such Holder or Holders for cash. The Company may not change its election with respect to the consideration (or components or percentages of components thereof) to be paid once the Company has given its Company Notice to Holders of Notes except pursuant to this Section 3.09(b) or pursuant to Section 3.09(c) in the event of a failure to satisfy, prior to the close of business on the Purchase Date, any condition to the payment of the Purchase Price, in whole or in part, in Common Stock.
At least three Business Days before the Company Notice Date, the Company shall deliver an Officer's Certificate to the Trustee specifying:
(1) the manner of payment selected by the Company;
(2) the information required by Section 3.09(d);
(3) if the Company elects to pay the Purchase Price, or a specified percentage thereof, in Common Stock, that the conditions to such manner of payment set forth in Section 3.09(c) have been or will be complied with; and
(4) whether the Company desires the Trustee to give the Company Notice required by Section 3.09(d).
Simultaneously with the delivery of the Company Notice to Holders, the Company shall, or, if the Company has requested that Trustee deliver the Company Notice to Holders pursuant to this Section 3.09(b), shall cause the Trustee to, at the Company's expense and in the Company's name, disseminate a press release through any of Dow Jones & Company, Inc., Business Wire, Bloomberg Business News or Reuters (or if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public) containing this information, and the Company shall publish the information on the Company's Web site on the World Wide Web or through such other public medium as the Company may use at that time.
(c) Payment by Issuance of Shares of Common Stock. At the option of the Company, the Purchase Price of Notes in respect of which a Purchase Notice pursuant to Section 3.09(a) has been given, or a specified percentage thereof, may be paid by the Company by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of cash to which the Holders of Notes would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price of such Notes in cash by (ii) the Market Price of one share of Common Stock, subject to the next succeeding paragraph.
The Company will not issue a fractional shares of Common Stock in payment of the Purchase Price. Instead the Company will pay cash for the current Market Price of the fractional share. The current Market Price of a fraction of a share shall be determined by the Company by multiplying the Market Price by such fraction and rounding the product to the nearest whole cent with one-half cent being rounded
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upward. It is understood that if a Holder elects to have more than one Note purchased, the number of shares of Common Stock shall be based on the aggregate amount of Notes to be purchased.
If the Company elects to purchase the Notes by the issuance of shares of Common Stock, the Company Notice, as provided in Section 3.09(d), shall be sent to the Holders (and to beneficial owners as required by applicable law) not later than the Company Notice Date.
The Company's right to exercise its election to purchase Notes through the issuance of shares of Common Stock shall be conditioned upon:
(1) the Company's not having given its Company Notice of an election to pay entirely in cash and its giving of timely Company Notice of election to purchase all or a specified percentage of the Notes with shares of Common Stock as provided herein;
(2) the registration of such shares of Common Stock under the Securities Act, or the Exchange Act, in each case, if required;
(3) such shares of Common Stock having been listed on the principal national securities exchange (currently The New York Stock Exchange) on which the Common Stock is listed;
(4) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and
(5) the receipt by the Trustee of an Officer's Certificate stating that (A) the terms of the issuance of the shares of Common Stock are in conformity with this Indenture and (B) the shares of Common Stock to be issued by the Company in payment of the Purchase Price in respect of Notes have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the Purchase Price in respect of the Notes, will be validly issued, fully paid and non-assessable and free from preemptive rights, and stating that the conditions above and the condition set forth in the second succeeding sentence have been satisfied.
Such Officer's Certificate shall also set forth (i) the number of shares of Common Stock to be issued for each $1,000 principal amount of Notes,
(ii) the Common Stock Price on each Trading Day during the period commencing on the first Trading Day of the period during which the Market Price is calculated and ending on the third Business Day prior to the applicable Purchase Date and
(iii) the Market Price of the Common Stock. The Company may pay the Purchase Price (or any portion thereof) in shares of Common Stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation or is otherwise publicly available (e.g., by dissemination on the World Wide Web or by other public means). If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the Purchase Date and the Company has elected to purchase the Notes pursuant to this Section 3.09 through the issuance of shares of Common Stock, the Company shall pay the entire Purchase Price of the Notes of such Holder or Holders in cash.
Upon determination of the actual number of shares of Common Stock to be issued for each $1,000 principal amount of Notes, not later than the second Business Day prior to the relevant Purchase Date, the Company will disseminate a press release through any of Dow Jones & Company, Inc., Business Wire, Bloomberg Business News or Reuters (or if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public) containing this information and publish the
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information on the Company's Web site on the World Wide Web or through such other public medium as the Company may use at that time.
(d) Notice of Election. In connection with any purchase of Notes pursuant to this Section 3.09, the Company shall give notice to Holders setting forth information specified in this Section 3.09(d) (the "Company Notice").
In the event the Company has elected to pay the Purchase Price (or a specified percentage thereof) with shares of Common Stock, the Company Notice shall:
(1) state that each Holder will receive shares of Common Stock with a Market Price determined as of a specified date prior to the Purchase Date equal to such specified percentage of the Purchase Price of the Notes held by such Holder (except any cash amount to be paid in lieu of fractional shares);
(2) set forth the method of calculating the Market Price of the shares of Common Stock; and
(3) state that because the Market Price of shares of Common Stock will be determined prior to the Purchase Date, Holders will bear the market risk with respect to the value of the shares of Common Stock to be received from the date such Market Price is determined to the Purchase Date.
In any case, each Company Notice shall include a form of Purchase Notice to be completed by a Holder of Notes and shall state:
(1) the Purchase Price and the Conversion Price;
(2) the name and address of the Paying Agent and the Conversion Agent;
(3) that Notes as to which a Purchase Notice has been given may be converted if they are otherwise convertible only in accordance with Article 10 hereof and Paragraph 9 of the Notes if the applicable Purchase Notice has been withdrawn in accordance with the terms of this Indenture;
(4) that Notes must be surrendered to the Paying Agent to collect payment;
(5) that the Purchase Price for any security as to which a Purchase Notice has been given and not withdrawn will be paid promptly following the later of (x) the Purchase Date and (y) the time of surrender of such Note as described in (4);
(6) the procedures the Holder must follow to exercise its rights under Section 3.09 and a brief description of those rights;
(7) briefly, the conversion rights of the Notes;
(8) the procedures for withdrawing a Purchase Notice (including, without limitation, for a conditional withdrawal pursuant to the terms of Section 3.09(a)(1)(d) or Section 3.11);
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(9) that, unless the Company defaults in making payment on Notes for which a Purchase Notice has been submitted, interest on such Notes will cease to accrue on the Purchase Date; and
(10) the CUSIP number of the Notes.
At the Company's request, the Trustee shall give such Company Notice in the Company's name and at the Company's expense; provided, however, that, in all cases, the text of such Company Notice shall be prepared by the Company.
(e) Covenants of the Company. All shares of Common Stock delivered upon purchase of the Notes shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim.
(f) Procedure upon Purchase. The Company shall deposit cash (in respect of cash purchases under this Section 3.09 or for fractional shares, as applicable) or shares of Common Stock in respect of payment by issuance of shares of Common Stock under Section 3.09(c), except for fractional shares, or a combination thereof, as applicable, at the time and in the manner as provided in
Section 3.12, sufficient to pay the aggregate Purchase Price of all Notes to be purchased pursuant to this Section 3.09. As soon as practicable after the Purchase Date, the Company shall deliver to each Holder entitled to receive shares of Common Stock through the Paying Agent a certificate for the number of full shares of Common Stock issuable in payment of the Purchase Price and cash in lieu of any fractional shares. The person in whose name the certificate for shares of Common Stock is registered shall be treated as a holder of record of Common Stock on the Business Day following the Purchase Date. No payment or adjustment will be made for dividends on the shares of Common Stock the record date for which occurred on or prior to the Purchase Date.
(g) Taxes. If a Holder of a purchased Note (pursuant to this
Section 3.09 or Section 3.10) is paid in shares of Common Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of Common Stock. However, the Holder shall pay any such tax which is due because the Holder requests the Common Stock to be issued in a name other than the Holder's name. The Paying Agent may refuse to deliver the certificates representing the shares of Common Stock being issued in a name other than the Holder's name until the Paying Agent receives a sum sufficient to pay any tax which will be due because the shares of Common Stock are to be issued in a name other than the Holder's name. Nothing herein shall preclude any income tax withholding required by law or regulations.
Section 3.10 Purchase of Notes at Option of the Holder upon Change in Control.
(a) If a Change in Control occurs, a Holder of Notes will have the right, at its option, to require the Company to repurchase all of its Notes, or any portion of the principal amount thereof at a purchase price equal to (1) the issue price plus any accrued and unpaid interest (and Liquidated Damages, if any) or (2) at the option of the Company, a number of shares of Common Stock as calculated below (the "Change in Control Purchase Price"), as of the date that is 45 days after the date of the Change in Control Notice (as defined below) delivered by the Company (the "Change in Control Purchase Date"), subject to satisfaction by or on behalf of the Holder of the requirements set forth in
Section 3.10(c).
Notwithstanding the foregoing provisions of this Section 3.10, a Change in Control shall not be deemed to have occurred if:
(1) the Common Stock Price on The New York Stock Exchange for any five Trading Days within the period of 10 consecutive Trading Days ending immediately after the later of the
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event, that, but for this provision, would constitute a Change in Control or the public announcement of such event, in the case of a Change in Control relating to an acquisition of Capital Stock, or the period of 10 consecutive Trading Days ending immediately before such event, in the case of Change in Control relating to a merger, consolidation or asset sale, equals or exceeds 105% of the Conversion Price of the Notes in effect on each of those Trading Days; or
(2) all of the consideration (excluding cash payments for fractional shares and cash payments made pursuant to dissenters' appraisal rights) in a merger or consolidation otherwise constituting a Change in Control above consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market (or will be so traded or quoted immediately following the merger or consolidation) and as a result of the merger or consolidation the Notes become convertible into such common stock.
For purposes of this Section 3.10,
(x) the Conversion Price is equal to $1,000 divided by the Conversion Rate,
(y) whether a person is a "beneficial owner" shall be determined in accordance with Rule 13d-3 under the Exchange Act; and
(z) "person" includes any syndicate or group that would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act.
If the shares of Common Stock are not listed on The New York Stock Exchange at the relevant time, closing prices and Trading Days shall be calculated as reported by the NASDAQ.
At the option of the Company, the Change in Control Purchase Price of Notes in respect of which a Change in Control Purchase Notice pursuant to
Section 3.10(c) has been given may be paid by the Company by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the product of (A) the amount of cash to which the Holders of Notes would have been entitled had the Company elected to pay all of the Change in Control Purchase Price of such Notes in cash and (B) 0.95, by (ii) the Market Price of shares of Common Stock, subject to the next succeeding paragraph.
The Company will not issue fractional shares of Common Stock in payment of the Change in Control Purchase Price. Instead the Company will pay cash for the current Market Price of the fractional share. The current Market Price of a fraction of a share shall be determined by multiplying the Market Price by such fraction and rounding the product to the nearest whole cent, with one-half cent being rounded upward. It is understood that if a Holder elects to have more than one Note purchased, the number of shares of Common Stock shall be based on the aggregate amount of Notes to be purchased.
In the event that the Company is unable to purchase the Notes of a Holder or Holders for shares of Common Stock because any necessary qualifications or registrations of the shares of Common Stock under applicable state securities laws cannot be obtained, the Company may purchase the Notes of such Holder or Holders for cash.
The Company may not change its election with respect to the consideration to be paid once the Company has given its Change in Control Notice to Holders of Notes except pursuant to this Section 3.10(a) or pursuant to
Section 3.10(b) in the event of a failure to satisfy, prior to the close of business on the Change in Control Purchase Date, any condition to the payment of the Change in Control Purchase Price in Common Stock.
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At least three Business Days before the Change in Control Notice Date (as defined below), the Company shall deliver an Officer's Certificate to the Trustee specifying:
(i) the manner of payment selected by the Company;
(ii) the information required by Section 3.10(b);
(iii) if the Company elects to pay the Change in Control Purchase Price in Common Stock, that the conditions to such manner of payment set forth in this Section 3.10(a) have been or will be complied with; and
(iv) whether the Company desires the Trustee to give the Change in Control Notice required by Section 3.10(b).
The Company's right to exercise its election to purchase Notes through the issuance of shares of Common Stock shall be conditioned upon:
(i) the Company's giving of timely Change in Control Notice to purchase all of the Notes with shares of Common Stock as provided herein;
(ii) the registration of such shares of Common Stock under the Securities Act or the Exchange Act, in each case, if required;
(iii) such shares of Common Stock having been listed on the principal national securities exchange (currently The New York Stock Exchange) on which the Common Stock is listed;
(iv) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and
(v) the receipt by the Trustee of an Officer's Certificate stating that (A) the terms of the issuance of the shares of Common Stock are in conformity with this Indenture and (B) the shares of Common Stock to be issued by the Company in payment of the Change in Control Purchase Price in respect of Notes have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the Change in Control Purchase Price in respect of the Notes, will be validly issued, fully paid and non-assessable and free from preemptive rights, and stating that the conditions above and the condition set forth in the second succeeding sentence have been satisfied.
Such Officer's Certificate shall also set forth (i) the number of shares of Common Stock to be issued for each $1,000 principal amount of Notes,
(ii) the Common Stock Price on each Trading Day during the period commencing on the first Trading Day of the period during which the Market Price is calculated and ending on the third Business Day prior to the Change in Control Purchase Date and (iii) the Market Price of the Common Stock.
The Company may pay the Change in Control Purchase Price in shares of Common Stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation or is otherwise publicly available (e.g., by dissemination on the World Wide Web or by other public means). If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the
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close of business on the Change in Control Purchase Date and the Company has elected to purchase the Notes pursuant to this Section 3.10 through the issuance of shares of Common Stock, the Company shall pay the entire Purchase Price of the Notes of such Holder or Holders in cash.
(b) No later than 30 days after the occurrence of a Change in Control, the Company shall mail a written notice of the Change in Control (the "Change in Control Notice" the date of such mailing, the "Change in Control Notice Date") by first-class mail to the Trustee and to each Holder (and to beneficial owners to the extent required by applicable law). The notice shall include a form of Change in Control Purchase Notice to be completed by the Holder that wishes to exercise rights under this Section 3.10 and shall state:
(1) briefly, the events causing a Change in Control and the date of such Change in Control;
(2) the date by which the Change in Control Purchase Notice pursuant to this Section 3.10 must be given;
(3) the Change in Control Purchase Date;
(4) the Change in Control Purchase Price;
(5) the name and address of the Paying Agent and the Conversion Agent;
(6) the Conversion Rate and any adjustments thereto;
(7) that Notes must be surrendered to the Paying Agent to collect payment;
(8) that the Change in Control Purchase Price for any Note as to which a Change in Control Purchase Notice has been duly given will be paid promptly following the later of (x) the Change in Control Purchase Date and
(y) the time of surrender of such Note as described in (7);
(9) briefly, the procedures the Holder must follow to exercise rights under this Section 3.10;
(10) briefly, the conversion rights, if any, of the Notes;
(11) that, unless the Company defaults in making payment of such Change in Control Purchase Price, interest on Notes surrendered for purchase by the Company will cease to accrue on and after the Change in Control Purchase Date; and
(12) the CUSIP numbers of the Notes.
In the event the Company has elected to pay the Change in Control Purchase Price with shares of Common Stock, the Change in Control Notice shall:
(1) state that the Company will pay the Change in Control Purchase Price with shares of Common Stock;
(2) set forth the method of calculating the number of shares of Common Stock to be paid; and
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(3) state that because the Market Price of shares of Common Stock will be determined prior to the Change in Control Purchase Date, Holders will bear the market risk with respect to the value of the shares of Common Stock to be received from the date such Market Price is determined to the Change in Control Purchase Date.
Simultaneously with the delivery of the Change in Control Notice to Holders, the Company shall, or, if the Company has requested that Trustee deliver the Company Notice to Holders pursuant to Section 3.10(a), shall cause the Trustee to, at the Company's expense and in the Company's name, disseminate a press release through any of Dow Jones & Company, Inc., Business Wire, Bloomberg Business News or Reuters (or if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public) containing this information, and the Company shall publish the information on the Company's Web site on the World Wide Web or through such other public medium as the Company may use at that time.
(c) A Holder may exercise its rights specified in Section 3.10(a) upon delivery of an irrevocable written notice of purchase (a "Change in Control Purchase Notice") to the Paying Agent at any time on or prior to the 30th day after the Company delivers its Change in Control Notice, stating:
(1) the certificate number of the Note which the Holder will deliver to be purchased;
(2) the portion of the principal amount of the Note which the Holder will deliver to be purchased, which portion must be $1,000 or an integral multiple thereof; and
(3) that such Note shall be purchased pursuant to the terms and conditions specified in this Section 3.10.
The delivery of such Note to the Paying Agent with the Change in Control Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Change in Control Purchase Price therefor; provided, however, that such Change in Control Purchase Price shall be so paid pursuant to this Section 3.10 only if the Note so delivered to the Paying Agent shall conform in all respects to the description thereof set forth in the related Change in Control Purchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.10, a portion of a Note if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note. Any purchase by the Company contemplated pursuant to the provisions of this Section 3.10 shall be consummated by the delivery of the consideration to be received by the Holder on the Change in Control Purchase Date.
(d) All shares of Common Stock delivered upon purchase of the Notes shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim.
(e) The Company shall deposit cash (in respect of a cash purchases under Section 3.10 or for fractional shares of Common Stock, as applicable) or shares of Common Stock, or a combination thereof, as applicable, at the time and in the manner as provided in Section 3.12, sufficient to pay the aggregate Change in Control Purchase Price of all Notes to be purchased pursuant to this
Section 3.10. As soon as practicable after the Change in Control Purchase Date, the Company shall deliver to each Holder entitled
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to receive shares of Common Stock through the Paying Agent a certificate for the number of full shares of Common Stock issuable in payment of the Change in Control Purchase Price and cash in lieu of any fractional shares. The person in whose name the certificate for shares of Common Stock is registered shall be treated as a holder of record of Common Stock on the Business Day following the Change in Control Purchase Date. No payment or adjustment will be made for dividends on the shares of Common Stock the record date for which occurred on or prior to the Change in Control Purchase Date.
Section 3.11 Effect of Purchase Notice or Change in Control Purchase Notice.
Upon receipt by the Paying Agent of the Purchase Notice specified in
Section 3.09(a) or Change in Control Purchase Notice specified in Section 3.10(c), as applicable, the Holder of the Note in respect of which such Purchase Notice or Change in Control Purchase Notice, as the case may be, was given shall (unless, in the case of the Purchase Notice, such Purchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Purchase Price or Change in Control Purchase Price, as the case may be, with respect to such Note. Such Purchase Price or Change in Control Purchase Price shall be paid to such Holder, subject to receipts of funds and/or securities by the Paying Agent, promptly following the later of (x) the Purchase Date or the Change in Control Purchase Date, as the case may be, with respect to such Note (provided the conditions in Section 3.09(a) or Section 3.10(c), as applicable, have been satisfied) and (y) the time of delivery of such Note to the Paying Agent by the Holder thereof in the manner required by Section 3.09(a) or Section 3.10(c), as applicable. If the Paying Agent holds money or securities sufficient to pay the Purchase Price or Change in Control Purchase Price of the Notes on the Business Day following the Purchase Date or Change in Control Purchase Date, then:
(1) the Notes will cease to be outstanding;
(2) interest (and Liquidated Damages, if any) will cease to accrue; and
(3) all other rights of the Holder of the Notes will terminate.
This will be the case whether or not book-entry transfer of the Notes is made or whether or not the Notes are delivered to the Paying Agent.
Notes in respect of which a Purchase Notice or Change in Control Purchase Notice has been given by the Holder thereof may not be converted pursuant to the provisions hereof on or after the date of the delivery of such Purchase Notice or Change in Control Purchase Notice, unless, in the case of the Purchase Notice, such Purchase Notice has first been validly withdrawn as specified in the following two paragraphs.
A Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Purchase Notice at any time prior to the close of business on the last Business Day prior to the Purchase Date, specifying:
(1) the certificate number, if any, of the Note in respect of which such notice of withdrawal is being submitted,
(2) the principal amount of the Note with respect to which such notice of withdrawal is being submitted, and
(3) the principal amount, if any, of such Note which remains subject to the original Purchase Notice, and which has been or will be delivered for purchase by the Company.
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A written notice of withdrawal of a Purchase Notice may be in the form set forth in the preceding paragraph or may be in the form of (i) a conditional withdrawal contained in a Purchase Notice pursuant to the terms of Section 3.09(a)(1)(d) or (ii) a conditional withdrawal containing the information set forth in Section 3.09(a)(1)(d) and the preceding paragraph and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph.
There shall be no purchase of any Notes pursuant to Section 3.09 or 3.10 if there has occurred (prior to, on or after, as the case may be, the giving, by the Holders of such Notes, of the required Purchase Notice or Change in Control Purchase Notice, as the case may be) and is continuing an Event of Default (other than a default in the payment of the Purchase Price or Change in Control Purchase Price, as the case may be, with respect to such Notes). The Paying Agent will promptly return to the respective Holders thereof any Notes
(x) with respect to which a Purchase Notice has been withdrawn in compliance with this Indenture, or (y) held by it during the continuance of an Event of Default (other than a default in the payment of the Purchase Price or Change in Control Purchase Price, as the case may be, with respect to such Notes) in which case, upon such return, the Purchase Notice or Change in Control Purchase Notice with respect thereto shall be deemed to have been withdrawn.
Section 3.12 Deposit of Purchase Price or Change in Control Purchase Price.
Prior to 10:00 a.m. (local time in the City of New York) on the Purchase Date or the Change in Control Purchase Date, as the case may be, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in the Indenture) an amount of cash (in immediately available funds if deposited on such Business Day) or Common Stock, if permitted hereunder, sufficient to pay the aggregate Purchase Price or Change in Control Purchase Price, as the case may be, of all the Notes or portions thereof which are to be purchased as of the Purchase Date or Change in Control Purchase Date, as the case may be.
Section 3.13 Notes Purchased in Part.
Any certificated Note which is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Note, without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Note so surrendered which is not purchased.
Section 3.14 Covenant to Comply With Securities Laws Upon Purchase of Notes.
When complying with the provisions of Section 3.09 or 3.10 hereof (provided that such offer or purchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), the Company shall (i) comply with Rule 13e-4 and Rule 14e-1 (or any successor provision) under the Exchange Act, (ii) file the related Schedule TO
(or any successor schedule, form or report) under the Exchange Act, and (iii)
otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Sections 3.09 and 3.10 to be exercised in the time and in the manner specified in Sections 3.09 and 3.10.
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Section 3.15 Repayment to the Company.
The Trustee and the Paying Agent shall return to the Company any cash or shares of Common Stock that remain unclaimed, together with interest or dividends, if any, thereon held by them for the payment of the Purchase Price or Change in Control Purchase Price, as the case may be; provided, however, that to the extent that the aggregate amount of cash or shares of Common Stock deposited by the Company pursuant to Section 3.12 exceeds the aggregate Purchase Price or Change in Control Purchase Price, as the case may be, of the Notes or portions thereof which the Company is obligated to purchase as of the Purchase Date or Change in Control Purchase Date, as the case may be, then, unless otherwise agreed in writing with the Company, promptly after the Business Day following the Purchase Date or Change in Control Purchase Date, as the case may be, the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon. Prior to such return, any such excess funds held by the Paying Agent shall be invested in cash or Permitted Investments as may be directed by the Company from time to time.
ARTICLE 4.
COVENANTS
Section 4.01 Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
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The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof.
Section 4.03 Reports.
(a) Whether or not required by the SEC's rules and regulations, so long as any Notes are outstanding, the Company shall furnish to the Trustee and the Holders of Notes, within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the Company were required to file such reports; and
(2) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports.
(b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, the Company shall file a copy of each of the reports referred to in clauses (1) and (2) in Section 4.03(a) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request.
(c) If, at any time, the Company is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Company shall nevertheless continue filing the reports specified in Section 4.03(a) with the SEC within the time periods specified above unless the SEC shall not accept such a filing. The Company agrees that it shall not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC shall not accept the Company's filings for any reason, the Company shall post the reports referred to in Section 4.03(a) on its website within the time periods that would apply if the Company were required to file those reports with the SEC.
(d) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by Section 4.03(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
(e) In addition, the Company agrees that, for so long as any Notes remain outstanding, at any time it is not required to file the reports required by Section 4.03(a) with the SEC, it shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officer's Certificate prescribed by the TIA stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and
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every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.
Section 4.05 Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.
Section 4.06 Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.07 [Reserved.]
Section 4.08 [Reserved.]
Section 4.09 [Reserved.]
Section 4.10 [Reserved.]
Section 4.11 [Reserved.]
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Section 4.12 Liens.
The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Lien upon any of its properties or assets (including Capital Stock), whether owned at the date of issuance of the Notes or thereafter acquired, in each case to secure Indebtedness of the Company or any Restricted Subsidiary, without effectively providing that the Notes shall be secured equally and ratably with (or prior to) that Indebtedness, so long as that Indebtedness shall be so secured.
This restriction on Liens will not, however, apply to:
(1) Liens:
(a) on assets or property incurred by the Company or any of its Restricted Subsidiaries to secure Indebtedness Incurred by the Company or such Restricted Subsidiary to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or such Restricted Subsidiary, as the case may be, which Liens may include Liens on the Capital Stock of such Restricted Subsidiary or
(b) 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 (1)(b) any operating properties or assets securing Indebtedness Incurred to finance the exploration, drilling, development, construction or purchase of or by or repairs, improvements or additions to, property or assets of any Restricted Subsidiary that does not, directly or indirectly, own any operating properties or assets at the time of such original incurrence of such Lien, which Liens contemplated by this clause (1)(b) 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;
(2) Liens existing on the date of issuance of the Notes, other than Liens relating to Indebtedness or other obligations being repaid or Liens that are otherwise extinguished with the proceeds of the Notes;
(3) Liens on property, assets or shares of stock of a Person at the time that Person becomes a Subsidiary of the Company; provided, however, that any such Lien may not extend to any other property or assets owned by the Company or any of its Restricted Subsidiaries;
(4) Liens on property or assets existing at the time that the Company or one of its Subsidiaries acquires the property or asset, including any acquisition by means of a merger or consolidation with or into the Company 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 Company or any of its Restricted Subsidiaries;
(5) Liens securing Indebtedness or other obligations of one of the Company's Subsidiaries that is owing to the Company or any of its Restricted Subsidiaries, or Liens securing the Indebtedness or other Obligations of the Company that are owing to one of the Company's Subsidiaries;
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(6) Liens incurred on assets that are the subject of a Capitalized Lease Obligation to which the Company or any of its Subsidiaries is a party, which shall include Liens on the stock or other ownership interest in one or more of the Company's Restricted Subsidiaries leasing such assets;
(7) 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
(1), (2), (3), (4) or (6) above; provided, however, that (a) 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 such 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 (b) the amount of Indebtedness secured by such Lien at such time (or, if the amount that may be realized in respect of such Lien is limited, by contract or otherwise, such limited lesser amount) is not increased, other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal or replacement of such Indebtedness; and
(8) Liens by which the Notes are secured equally and ratably with other Indebtedness pursuant to this Section 4.12;
provided, however, the Company or any of its Restricted Subsidiaries may incur other Liens to secure Indebtedness as long as the sum of:
(x) the lesser of:
(a) the amount of outstanding Indebtedness secured by Liens Incurred pursuant to this proviso (or, if the amount that may be realized in respect of such Lien is limited, by contract or otherwise, such limited lesser amount) and
(b) the fair value (as determined by the Company's Board of Directors) of the property securing that item of Indebtedness, plus
(y) the Attributable Debt with respect to all Sale and Leaseback Transactions entered into pursuant to the proviso in
Section 4.16
does not exceed 15% of Consolidated Net Tangible Assets as determined based on the consolidated balance sheet of the Company as of the end of the most recent fiscal quarter for which financial statements are available.
Section 4.13 [Reserved.]
Section 4.14 Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect:
(1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and
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(2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.15 [Reserved.]
Section 4.16 Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction unless:
(1) the Company or such Restricted Subsidiary would be entitled to create a Lien on the property or asset subject to the Sale and Leaseback Transaction securing Indebtedness in an amount equal to the Attributable Debt with respect to such transaction without equally and ratably securing the Notes pursuant to Section 4.12 hereof; or
(2) the net proceeds of the sale are at least equal to the fair value (as determined by the Board of Directors) of the property or asset subject to the Sale and Leaseback Transaction and the Company, or the Restricted Subsidiary, applies or causes to be applied, within 180 days of the effective date of the Sale and Leaseback Transaction, an amount in cash equal to the net proceeds of the sale to the retirement of Indebtedness of the Company, or any Restricted Subsidiary;
provided, however, in addition to the transactions permitted pursuant to the clauses (1) and (2) above, the Company or any of its Restricted Subsidiaries may enter into a Sale and Leaseback Transaction as long as the sum of:
(x) the Attributable Debt with respect to such Sale and Leaseback Transaction and all other Sale and Leaseback Transactions entered into pursuant to this proviso, plus
(y) the amount of outstanding Indebtedness secured by Liens Incurred pursuant to the final proviso of Section 4.12 hereof,
does not exceed 15% of Consolidated Net Tangible Assets as determined based on the consolidated balance sheet of the Company as of the end of the most recent fiscal quarter for which financial statements are available. In addition, any Restricted Subsidiary may enter into a Sale and Leaseback Transaction with respect to property or assets owned by that Restricted Subsidiary so long as the proceeds of that Sale and Leaseback Transaction are used to explore, drill, develop, construct, purchase, repair, improve or add to property or assets of any Restricted Subsidiary, or to repay (within 365 days of the commencement of full commercial operation of any such property or assets) Indebtedness Incurred to explore, drill, develop, construct, purchase, repair, improve or add to property or assets of any Restricted Subsidiary.
Section 4.17 [Reserved.]
Section 4.18 [Reserved.]
Section 4.19 [Reserved.]
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Section 4.20 [Reserved.]
Section 4.21 Issuance of Additional Notes.
Upon each exercise of the Initial Purchaser Option, in whole or in part, during the Exercise Period in accordance with the Purchase Agreement, the Company shall cause to be issued and authenticated, in accordance with the terms of the Purchase Agreement and Section 2.02 hereof, Additional Notes in such principal amount as has been exercised under the Initial Purchaser Option; provided, however, that in no case shall the aggregate principal amount of Additional Notes issued upon all exercises of the Initial Purchaser Option exceed $300.0 million.
ARTICLE 5.
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of Assets.
The Company may not consolidate with or merge with or into any other Person or sell, assign, convey, transfer, or otherwise dispose of all or substantially all of its properties and assets as an entirety to any Person unless:
(1) the Company is the surviving corporation; or
(2) the Person formed by the consolidation or into which the Company is merged or the Person to which its properties and assets are so sold, assigned, conveyed, transferred, leased or otherwise disposed of, shall be a corporation organized and existing under the laws of the United States, any state within the United States or the District of Columbia and shall expressly assume, in a form reasonably satisfactory to the Trustee, all of the Company's obligations under this Indenture and the Notes; and
(3) immediately after giving effect to the transaction, no Event of Default with respect to the Notes will have occurred and be continuing;
In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person.
Notwithstanding the foregoing:
(1) the Company may merge with an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction; and
(2) the Company and its Restricted Subsidiaries may sell, assign, transfer, lease, convey or otherwise dispose of assets between or among each other (including by way of merger),
and, in each case, no violation of this Section shall be deemed to have occurred as a consequence thereof.
Section 5.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and
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that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
Each of the following is an "Event of Default":
(1) default for 30 days in payment of any interest installment due and payable on the Notes;
(2) default in payment of principal of the Notes and accrued interest at maturity;
(3) default in payment of the Purchase Price, when the same becomes due and payable
(4) default in payment of the Change in Control Purchase Price, when the same becomes due and payable;
(5) material default in the performance of any other covenants or agreements in the Notes or this Indenture which default continues for 30 days after the date on which written notice of such default is given to the Company by the Trustee or to the Company and Trustee by the Holders of at least 25% in principal amount of the then outstanding Notes;
(6) default by the Company under any instrument or instruments under which there is or may be secured or evidenced any of the Indebtedness of the Company (other than the Notes) having an outstanding principal amount of $50,000,000 (or its equivalent in any other currency or currencies) or more, individually or in the aggregate, that has caused the holders thereof to declare such indebtedness to be due and payable prior to its Stated Maturity, unless such declaration has been rescinded within 30 days;
(7) default by the Company in the payment of the principal of any bond, debenture, note or other evidence of the Company's Indebtedness, in each case for money borrowed, or in the payment of principal 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 Company for money borrowed, which default for payment of principal is individually or 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 days after the expiration of any grace period or extension of the time for payment applicable thereto; and
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(8) the Company, pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case;
(b) consents to the entry of an order for relief against it in an involuntary case;
(c) consents to the appointment of a custodian of it or for all or substantially all of its property;
(d) makes a general assignment for the benefit of its creditors; or
(e) admits in writing its inability to generally pay its debts as such debts become due; and
(9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(a) is for relief against the Company in an involuntary case;
(b) appoints a custodian of the Company or for all or substantially all of its property; or
(c) orders the winding up or liquidation of the Company;
and the order or decree remains unstayed and in effect for 60 consecutive days.
The Company shall give the Trustee, within 30 days after the occurrence thereof, written notice of any event which with the giving of notice or lapse of time or both would become an Event of Default described in clauses (5), (6) or
(7) of this Section 6.01.
Section 6.02 Acceleration.
(a) In the case of an Event of Default specified in clauses (8) or
(9) of Section 6.01 hereof, the issue price plus accrued and unpaid interest (and Liquidated Damages, if any) on the Notes will become immediately due and payable without any action on the part of the Trustee or any Holder.
(b) If any other Event of Default occurs and is continuing with respect to the Notes, either the Trustee, by Notice to the Company, or the registered Holders of at least 25% in aggregate principal amount of the Notes, by notice to the Company and the Trustee, may declare the issue price plus accrued and unpaid interest (and Liquidated Damages, if any) on the Notes 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 the Notes have been cured or waived (other than the nonpayment of the issue price or accrued and unpaid interest (and Liquidated Damages, if any) on the Notes which has become due solely by reason of the declaration of acceleration), then the declaration of acceleration shall be automatically annulled and rescinded.
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Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.05 Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability; provided that the Trustee may take any other lawful action deemed proper by the Trustee that is not inconsistent with such direction.
Section 6.06 Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if:
(1) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy;
(3) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and
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(5) during such 60-day period, the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.
Section 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
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Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture.
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However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02 Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company.
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(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
(g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder, except for Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and until the Trustee shall have received from a Holder of a Note or from the Company express written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Event of Default hereunder.
(h) If the Trustee is acting as Conversion Agent, Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Conversion Agent, Paying Agent and Registrar.
Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after ascertaining it has such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06 Reports by Trustee to Holders of the Notes.
(a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be
49
transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee shall also transmit by mail all reports as required by TIA Section 313(c).
(b) A copy of each report at the time of its mailing to the Holders of Notes shall be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07 Compensation and Indemnity.
(a) The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel.
(b) The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture (and any other Note Documents to which it is a party) against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld.
(c) The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture.
(d) To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture.
(e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(8) or (9) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
Section 7.08 Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then
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outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a custodian or public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements of TIA Section. 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b).
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Section 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officer's Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.02 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder:
(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof;
(2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof;
(3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith; and
(4) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof.
Section 8.03 Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company (to the extent applicable) shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.12 and 4.16 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be
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deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(7) hereof shall not constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether such Notes are being defeased to maturity or to a particular redemption date;
(2) in the case of an election under Section 8.02 hereof, the Company has delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that:
(A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or
(B) since the date of this Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
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(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(6) the Company must deliver to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and
(7) the Company must deliver to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.
Notwithstanding anything in this Article 8 to the contrary, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to the Company.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter be permitted to look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money,
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and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company.
Section 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption of the Company's Obligations under this Indenture by a successor upon any merger, consolidation or asset transfer permitted under this Indenture;
(3) to provide for uncertificated Notes in addition to or in place of certificated Notes or to provide for bearer Notes;
(4) to comply with any requirement to effect or maintain the qualification of the indenture under the TIA;
(5) to provide for the issuance of Additional Notes in accordance with the limitations set forth in Section 4.21;
(6) to conform the text of the Indenture or the Notes to any provisions of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of the Indenture or the Notes;
(7) to add covenants that would benefit the Holders of Notes or to surrender any rights the Company has under this Indenture; or
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(8) to make any change that does not adversely affect the rights of any Holder of the Notes, including, without limitation, changing any payment record dates as necessary to conform to the then current market practice.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes).
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver;
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(2) reduce the rate of interest or change the time for payment of interest on the Notes;
(3) reduce the issue price or change the stated maturity of the Notes;
(4) make any change in any repurchase right to the detriment of such Holder;
(5) make any change in any conversion right to the detriment of such Holder;
(6) make payments on the Notes payable in currency or consideration other than as originally stated in the Notes;
(7) make any change in Section 6.07 hereof;
(8) make any change in Section 6.04 hereof or in the foregoing amendment and waiver provisions; or
(9) waive a continuing default or Event of Default regarding any payment on the Notes.
Section 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
Section 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled
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to receive and (subject to Section 7.01 and 7.02 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture is authorized or permitted by this Indenture.
ARTICLE 10.
CONVERSION
Section 10.01 Conversion Privilege.
(a) Subject to the provisions of this Article 10, a Holder of a Note may convert such Note into cash and Common Stock equal to the Conversion Value (as defined below) in accordance with Section 10.14, if any of the following conditions are satisfied:
(1) during any calendar quarter (the "Quarter") commencing after the date of issuance of the Notes, if the Common Stock Price for at least 20 Trading Days in the period of 30 consecutive Trading Days ending on the last Trading Day of the Quarter immediately preceding the Quarter in which the conversion occurs (appropriately adjusted to take into account the occurrence, during such 30 consecutive Trading Day period, of any event requiring adjustment of the Conversion Price under this Indenture) is more than 120% of the Conversion Price on such 30th Trading Day;
(2) the Note has been called for redemption by the Company pursuant to Section 3.07 and the redemption has not yet occurred, so long as the Holder surrenders such Note prior to the close of business on the date that is two Business Days prior to the applicable redemption date, even if the Note is not otherwise exchangeable at such time;
(3) (A) the conversion of such Note occurs during the five Trading Day period immediately after a period of five consecutive Trading Days in which the Trading Price for each such Trading Day in such period was less than 95% of the product of (x) the Common Stock Price on such Trading Day multiplied by (y) the Conversion Rate on such Trading Day.
(B) Notwithstanding the foregoing, if on the date of any conversion pursuant to Section 10.01(a)(3)(A), the Common Stock Price on such date is greater than the Conversion Price on such date but less than 120% of the Conversion Price on such date, then the Conversion Value a Holder of Notes will be entitled to receive will be equal to the principal amount of the Notes held by such Holder plus accrued and unpaid interest (and Liquidated Damages, if any) as of the Conversion Date (such a conversion, a "Principal Value Conversion") and the number of Net Shares (and any cash in lieu of fractional shares) to be delivered upon a Principal Value Conversion will be determined in accordance with Section 10.14; and provided further that, in place of the Five Day Average Closing Stock Price, such number of Net Shares will be calculated using an amount equal to the greater of (i) the Conversion Price on the Conversion Date and (ii) the Common Stock Price on the Conversion Date;
(4) (i) a distribution to all or substantially all holders of Common Stock of rights, warrants or options to subscribe for or purchase, for a period expiring less than 60 days after such distribution, shares of Common Stock at a price less than the Common Stock Price on the Trading Day immediately preceding the date of declaration of such distribution or (ii) a distribution to all or substantially all holders of Common Stock evidences of Company indebtedness, rights or warrants to purchase or subscribe for Capital Stock or other securities of the Company, cash or assets, which distribution has a per share value that exceeds 12.5% of the Common Stock Price
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on the Trading Day immediately preceding the declaration date of such distribution provided that, the Holder shall have no right to convert any Note pursuant to Section 10.01(c) hereof if the Holder of a Note otherwise participates in the issuance or distribution described in this Section 10.01(a)(4) without conversion of such Holder's Notes; or
(5) (i) the Company is party to a consolidation, merger, share exchange, sale of all or substantially all of its assets or other similar transaction pursuant to which the Common Stock is subject to conversion into shares of stock (other than Common Stock), other securities or property (including cash) subject to Section 10.11 and
(ii) the conversion of such Note occurs at any time from and after the date that is 15 days prior to the date of the anticipated effective time of such transaction until and including the date that is 15 days after the actual effective date of such transaction; provided that if such conversion occurs after the effective date of such transaction, the Holder will receive on conversion the consideration determined in accordance with Section 10.11.
(b) In the case of Section 10.01(a)(3), the Bid Solicitation Agent shall have no obligation to determine the Trading Price of the Notes unless the Company has requested such determination in writing, and the Company shall have no obligation to make such request unless a Holder of the Notes provides the Company with reasonable evidence that the Trading Price of the Notes on any date would be less than 95% of the product of (x) the Common Stock Price on such date and (y) the Conversion Rate then in effect. Upon receipt of such reasonable evidence, the Company shall instruct the Bid Solicitation Agent in writing to determine the Trading Price beginning on the next Trading Day and on each successive Trading Day until the Trading Price of the Notes is greater than or equal to 95% of the product of the Common Stock Price and the Conversion Rate. Neither the Trustee nor the Conversion Agent shall be under any duty or obligation to make the calculations described in Section 10.01(a)(3) hereof or to determine whether the Notes are convertible pursuant to such section. The Company shall make the calculations described in Section 10.01(a)(3) hereof, using the Trading Price of the Notes provided by the Bid Solicitation Agent and will advise the Trustee (or Conversion Agent, as the case may be) within a commercially reasonable time prior to the Conversion Date (and, in any event, no later than three Business Days prior to the Conversion Date) of any determination of the Trading Price of the Notes.
(c) In the case of the foregoing Sections 10.01(a)(4)(i) and 10.01(a)(4)(ii), the Company shall cause a notice of such distribution to be filed with the Trustee and the Conversion Agent and to be mailed to each Holder of Notes no later than 20 days prior to the Ex-Dividend Date for such distribution. Once the Company has given such notice, Holders may surrender their Notes for conversion at any time thereafter until the earlier of the close of business on the Business Day prior to the Ex-Dividend Date or the Company's announcement that such distribution will not take place; provided that, the Holder shall have no right to convert any Note pursuant to this Section 10.01(c) if the Holder of a Note otherwise participates in the distribution described in either Section 10.01(a)(4)(i) or 10.01(a)(4)(ii) without conversion of such Holder's Notes. The "Ex-Dividend Date" for any such distribution means the date immediately prior to the commencement of "ex-dividend" trading for such distribution on The New York Stock Exchange or such other national securities exchange or The Nasdaq Stock Market or similar system of automated dissemination of quotations of securities prices on which the Common Stock is then listed or quoted.
(d) A Holder may convert a portion of a Note equal to $1,000 or any integral multiple thereof. Provisions of this Indenture that apply to conversion of all of a Note also apply to conversion of a portion of a Note. If a Note is called for redemption pursuant to Article 3, in order to convert such Note, the Holder must deliver the Note to the Conversion Agent (or, if the Note is held in book-entry form, complete and deliver to the Depositary appropriate instructions in accordance with the Applicable Procedures) at any time prior to the close of business on the day that is two Business Days prior to the
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applicable redemption date for such Note (unless the Company shall default in paying the Purchase Price when due, in which case the conversion right shall terminate on the date such Default is cured and such Note is redeemed). A Note in respect of which a Holder has delivered a Purchase Notice pursuant to Section 3.09 exercising the option of such Holder to require the Company to repurchase such Note may be converted only if such Purchase Notice is withdrawn by a written notice of withdrawal delivered to the Paying Agent prior to the close of business on the Purchase Date in accordance with Section 3.11. A Note in respect of which a Holder has delivered a Change in Control Purchase Notice pursuant to
Section 3.10 may not be converted unless such Change in Control Purchase Notice is deemed withdrawn pursuant to Section 3.11.
(e) A Holder of Notes is not entitled to any rights of a holder of Common Stock until, and to the extent that, such Holder has converted its Notes into Common Stock.
Section 10.02 Conversion Procedure.
(a) To convert a Note, a Holder must satisfy the requirements of this Article 10 and (i) complete and manually sign the irrevocable conversion notice on the back of the Note and deliver such notice to the Conversion Agent,
(ii) surrender the Note to the Conversion Agent, (iii) furnish appropriate endorsements and transfer documents if required by the Registrar or the Conversion Agent, (iv) pay any transfer or other tax, if required by Section 10.03 and/or (v) if the Note is held in book-entry form, complete and deliver to the Depositary appropriate instructions pursuant to the Applicable Procedures. The later of (x) the date on which the Holder satisfies all of the foregoing requirements and (y) the Determination Date is the "Conversion Date." As soon as practicable after the Conversion Date and in any event within four Business Days thereof, the Company shall deliver to the Holder through the Conversion Agent
(1) cash in the amount calculated in accordance with Section 10.14 and (2) either (A) a certificate for or (B) a book-entry notation of the number of whole shares of Common Stock issuable upon the conversion and cash in lieu of any fractional shares pursuant to Section 10.14.
(b) The Person in whose name the Note is registered shall be deemed to be a stockholder of record on the Conversion Date; provided that no surrender of a Note on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the Person or Persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open (subject to the provisions of the next paragraph of this Section 10.02); provided that such conversion shall be at the Conversion Price in effect on the date that such Note shall have been surrendered for conversion, as if the stock transfer books of the Company had not been closed. Upon conversion of a Note, such Person shall no longer be a Holder of such Note.
(c) No payment or adjustment will be made for accrued interest (including Liquidated Damages, if any), on a converted Note or for dividends or distributions on shares of Common Stock issued upon conversion of a Note (provided that the shares of Common Stock received upon conversion of Notes shall continue to accrue Liquidated Damages, as applicable, in accordance with the Registration Rights Agreement and shall be entitled to receive, at the next interest payment date, any accrued but unpaid Liquidated Damages with respect to the converted Notes), but if any Holder surrenders a Note for conversion between the record date for the payment of an installment of interest and the next interest payment date, then, notwithstanding such conversion, the interest (including Liquidated Damages, if any), payable on such interest payment date shall be paid to the Holder of such Note on such interest payment date. In such event, such Note, when surrendered for conversion, must be accompanied by delivery of a check payable to the Conversion Agent in an amount equal to the interest (including Liquidated Damages,
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if any), payable on such interest payment date on the portion so converted. If such payment does not accompany such Note, the Note shall not be converted; provided that no such check shall be required if such Note has been called for redemption on a redemption date within the period between and including such record date and such interest payment date, or if such Note is surrendered for conversion on the interest payment date. If the Company defaults in the payment of interest (including Liquidated Damages, if any), payable on the interest payment date, the Conversion Agent shall repay such funds to the Holder.
(d) Upon surrender of a Note that is converted in part, the Company shall execute, and the Trustee shall, upon receipt of an Authentication Order, authenticate and deliver to the Holder, a new Note equal in principal amount to the unconverted portion of the Note surrendered.
Section 10.03 Taxes on Conversion.
If a Holder submits a Note for conversion, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name. The Conversion Agent may refuse to deliver the certificates representing the shares of Common Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude any income tax withholding required by law or regulations.
Section 10.04 Company to Provide Stock.
The Company has reserved shares of Common Stock to permit delivery of shares of Common Stock upon conversion of the Notes up to an assumed Five Day Average Closing Stock Price, and from time to time as may be necessary shall reserve out of its authorized but unissued shares of Common Stock a sufficient number of additional shares of Common Stock to permit delivery of shares of Common Stock upon the conversion of the Notes in full.
All shares of Common Stock delivered upon conversion of the Notes shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim. The Company will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Notes, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or in the over-the-counter market or such other market on which the shares of Common Stock are then listed or quoted.
Section 10.05 Adjustment of Conversion Price.
The conversion price (the "Conversion Price") initially shall be that price set forth in paragraph 9 of the Notes, but shall be adjusted (without duplication) from time to time by the Company as follows:
(a) In case the Company shall pay a dividend or make a distribution on the Common Stock payable exclusively in Common Stock, the Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by multiplying such Conversion Rate by a fraction of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the numerator shall be the sum of (i) such number of shares and (ii)
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or distribution is not so paid or made, the Conversion Price shall be adjusted the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not occurred.
(b) In case the Company shall pay or make a dividend or other distribution on its Common Stock consisting exclusively of, or shall otherwise issue to all holders of its Common Stock, rights, warrants or options, in each case entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the Market Price per share of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, warrants or options, the Conversion Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by multiplying such Conversion Rate by a fraction of which the denominator shall be the sum of (i) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus (ii) the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such Market Price and the numerator shall be the sum of (i) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus (ii) the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination; provided, however, that no adjustment shall be made if Holders of the Notes may participate in the transaction on a basis and with notice that the Company's Board of Directors deems to be fair and appropriate. To the extent that rights are not so issued or shares of Common Stock are not so delivered after the expiration of such rights, warrants or options, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights, warrants or options, had not been fixed. For the purposes of this paragraph (b), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company.
(c) In case the Company shall declare a cash dividend or distribution to all or substantially all of the holders of Common Stock, the Conversion Price shall be decreased so that the Conversion Price shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the record date for such dividend or distribution by a fraction,
(i) the numerator of which shall be the average of the Common Stock Prices for the three consecutive Trading Days ending on the date immediately preceding the record date for such dividend or distribution (the "Pre-Dividend Sale Price"), minus the full amount of such cash dividend or distribution, to the extent payable in cash, applicable to one share of Common Stock, and
(ii) the denominator of which shall be the Pre-Dividend Sale Price,
such adjustment to become effective immediately after the record date for such dividend or distribution; provided, that no adjustment to the Conversion Price or the ability of a Holder of a Note to convert will be made pursuant to this
Section 10.05(c) if the Company provides that Holders of Notes will participate in such cash dividend or distribution on an as-converted basis without conversion; provided further, that if the numerator of the foregoing fraction is less than $1.00 (including a negative amount), then in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion, in addition to the Common Stock issuable upon such conversion (and any cash in lieu of fractional shares), the amount of cash such Holder would have received had such Holder converted its Note immediately prior to the record date for such dividend or distribution. If such dividend
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to the Conversion Price that would then be in effect if such dividend or distribution had not been declared.
(d) Subject to the last sentence of this paragraph (d), in case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of Capital Stock, cash or assets (including securities, but excluding any rights, warrants or options referred to in paragraph (b) of this Section 10.05, any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in paragraph (a) of this Section 10.05), the Conversion Rate shall be increased so that the same shall equal the price determined by multiplying the Conversion Rate in effect immediately prior to the effectiveness of the Conversion Rate increase contemplated by this paragraph (d) by a fraction of which the denominator shall be the Market Price per share of the Common Stock on the date fixed for the determination of stockholders entitled to receive such distribution (the "Reference Date") less the Fair Market Value, on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and/or assets so distributed applicable to one share of Common Stock and the numerator shall be such Market Price per share of the Common Stock, such increase to become effective immediately prior to the opening of business on the day following the Reference Date, provided that if the Fair Market Value of the portion of the evidences of indebtedness, shares of capital stock, cash and/or assets so distributed applicable to one share of Common Stock shall be less than the Market Price per share of Common Stock, no adjustment shall be made; and provided, further, that no adjustment shall be made if all Holders of Notes are entitled to participate in such transactions. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such dividend or distribution had not occurred. For purposes of this paragraph (d), any dividend or distribution that includes shares of Common Stock or rights, warrants or options to subscribe for or purchase shares of Common Stock shall be deemed instead to be (i) a dividend or distribution of the evidences of indebtedness, shares of Capital Stock, cash and/or assets other than such shares of Common Stock or such rights or warrants (making any Conversion Rate increase required by this paragraph (d)) immediately followed by (ii) a dividend or distribution of such shares of Common Stock or such rights, warrants or options (making any further Conversion Rate increase required by paragraph (a) or (b) of this
Section 10.05), except any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of paragraph (a) of this
Section 10.05.
(e) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the Business Day following the day upon which such subdivision becomes effective shall be proportionately increased and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the Business Day following the day upon which such subdivision or combination becomes effective.
(f) In case the Company pays to holders of Common Stock in respect of a tender or exchange offer, other than an odd-lot offer, by the Company or any of its Subsidiaries for Common Stock to the extent that the offer involves aggregate consideration that, together with (1) any cash and the Fair Market Value of any other consideration payable in respect of any tender offer by the Company or any of its Subsidiaries for shares of Common Stock consummated within the preceding 12 months not triggering a Conversion Rate adjustment and (2) all-cash distributions to all or substantially all holders of the Company's Common Stock made within the preceding 12 months not triggering a Conversion Rate adjustment, exceeds an amount equal to 12.5% of the market capitalization of Common Stock on the expiration date of the tender offer, the Conversion Rate shall be increased so that the same shall equal the
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price determined by multiplying the Conversion Rate in effect immediately prior to the effectiveness of the Conversion Rate increase contemplated by this
Section 10.05(f) by a fraction of which the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the last time tenders of exchanges may be made pursuant to such tender or exchange offer (the "Expiration Time") multiplied by the Market Price per share of the Common Stock on the Trading Day next succeeding the Expiration Time and the numerator shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Market Price per share of the Common Stock on the Trading Day next succeeding the Expiration Time, such increase to become effective immediately prior to the opening of business on the Business Day following the Expiration Time.
In any case in which this Section 10.05 shall require that an adjustment be made immediately following a record date established for purposes of this Section 10.05, the Company may elect to defer (but only until five Business Days following the filing by the Company with the Trustee of the certificate described in Section 10.09) issuing to the holder of any Note converted after such record date the shares of Common Stock issuable upon such conversion over and above the shares of Common Stock issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, the Company shall issue or cause its transfer agents to issue due bills or other appropriate evidence of the right to receive such shares.
Section 10.06 When No Adjustment Required.
No adjustment of the Conversion Price shall be made:
(a) upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any plan,
(b) upon the issuance of any shares of Common Stock or options or rights to purchase those shares pursuant to any present or future employee, director or consultant benefit plan or program of the Company,
(c) upon the issuance of any shares of Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date hereof,
(d) upon the issuance of any rights, any distribution of separate certificates representing the rights, any exercise or redemption of any rights or any termination or invalidation of the rights, pursuant to the Company's stockholders rights plan, or
(e) for a change in the par value or no par value of the shares of Common Stock.
There shall also be no adjustment of the Conversion Rate in case of the issuance of any Common Stock (or securities convertible into or exchangeable for Common Stock), except as specifically described above.
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Section 10.07 When Adjustment May Be Deferred.
No adjustment in the Conversion Price need be made unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price (other than an adjustment described in Section 10.05(f)). Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 10 shall be made to the nearest cent, with one-half cent rounded up, or to the nearest 1/1,000th of a share, with 1/500th of a share being rounded up, as the case may be.
Section 10.08 Successive Adjustments.
After an adjustment to the Conversion Price under this Article 10, any subsequent event requiring an adjustment under this Article 10 shall cause an adjustment to the Conversion Rate as so adjusted.
Section 10.09 Notice of Adjustment.
Whenever the Conversion Price is adjusted, the Company shall promptly mail to Holders of Notes a notice of the adjustment and concurrently file with the Trustee and the Conversion Agent such notice and a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing such adjustment. The certificate shall be conclusive evidence that such adjustment is correct. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such notice and certificate (or the receipt of such notice and certificate or with the knowledge of any adjustment absent such notice and certificate) except to exhibit the same to any Holder desiring inspection thereof.
Section 10.10 Notice of Certain Transactions.
The Company shall mail to Holders of Notes and file with the Trustee and/or the Conversion Agent a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, binding share exchange, transfer, liquidation or dissolution, if any of the following occur:
(a) the Company takes any action that would require an adjustment in the Conversion Rate pursuant to Section 10.05 (unless no adjustment is to occur pursuant to Section 10.06); or
(b) the Company takes any action that would require a supplemental indenture pursuant to Section 10.11; or
(c) there is a liquidation or dissolution of the Company.
The Company shall file and mail such notice at least 15 days before the applicable date of any such transaction. Failure to file or mail the notice or any defect in it shall not affect the validity of the transaction.
Section 10.11 Effect of Reclassification, Consolidation, Merger, Share Exchange or Sale on Conversion Privilege.
If any of the following shall occur: (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); (ii) any consolidation, combination, merger or share exchange to which the Company is a party other than a merger in which the Company is the
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continuing corporation and which does not result in any reclassification of, or change (other than a change in name, or par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; or (iii) any sale or conveyance of all or substantially all of the assets of the Company; then the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition precedent to such reclassification, change, consolidation, merger, share exchange, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Note then outstanding shall have the right to convert such Note into the kind and amount of shares of Capital Stock and other securities and property (including cash) receivable upon such reclassification, change, consolidation, merger, share exchange, sale or conveyance by a holder of the number of shares of Common Stock deliverable upon conversion of such Note immediately prior to such reclassification, change, consolidation, merger, share exchange, sale or conveyance. Such supplemental indenture shall provide for adjustments of the Conversion Price which shall be as nearly equivalent as may be practicable to the adjustments of the Conversion Price provided for in this Article 10. If, in the case of any such consolidation, merger, share exchange, sale or conveyance, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock includes shares of Capital Stock or other securities and property of a corporation other than the successor or purchasing corporation, as the case may be, in such consolidation, merger, share exchange, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Notes as the Board of Directors of the Company shall reasonably consider necessary by reason of the foregoing. The provision of this Section 10.11 shall similarly apply to successive consolidations, mergers, share exchanges, sales or conveyances. Notwithstanding the foregoing, a distribution by the Company to all or substantially all holders of its Common Stock for which an adjustment to the Conversion Price or provision for conversion of the Notes may be made pursuant to Section 10.05 shall not be deemed to be a sale or conveyance of all or substantially all of the assets of the Company for purposes of this Section 10.11.
In the event the Company shall execute a supplemental indenture pursuant to this Section 10.11, the Company shall promptly file with the Trustee an Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture and an Officer's Certificate briefly stating (a) the reasons therefor, (b) the kind or amount of shares of stock or securities or property (including cash) receivable by Holders of the Notes upon the conversion of their Notes after any such reclassification, change, consolidation, merger, share exchange, sale or conveyance, (c) any adjustment to be made with respect thereto and (d) that all conditions precedent have been complied with.
Section 10.12 Trustee's Disclaimer.
The Trustee has no duty to determine when an adjustment under this Article 10 should be made, how it should be made or what such adjustment should be made, but may accept as conclusive evidence of the correctness thereof, and shall be protected in relying upon, the Officer's Certificate with respect thereto, which the Company is obligated to file with the Trustee pursuant to
Section 10.09. The Trustee shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon conversion of Notes, and the Trustee shall not be responsible for the Company's failure to comply with any provisions of this Article 10. Each Conversion Agent (other than the Company or an Affiliate of the Company) shall have the same protection under this Section 10.12 as the Trustee.
The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture executed pursuant to Section 10.11, but may accept as conclusive evidence of the correctness thereof, and shall be protected in relying upon, the Officer's Certificate with respect thereto, which the Company is obligated to file with the Trustee pursuant to Section 10.11 of this Indenture.
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Section 10.13 Voluntary Reduction.
The Company from time to time may decrease the Conversion Price by any amount at any time for at least 20 days, so long as the decrease is irrevocable during such 20-day period. Whenever the Conversion Price is decreased, the Company shall mail to Holders of Notes and file with the Trustee and the Conversion Agent a notice of the decrease. The Company shall mail the notice at least 15 days before the date the decreased Conversion Price takes effect. The notice shall state the decreased Conversion Price and the period during which it will be in effect. A voluntary decrease of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for purposes of Section 10.14
Section 10.14 Conversion Value of Notes Tendered.
(a) Subject to certain exceptions described in Sections 10.01(a)(3) and 10.01(a)(4), Holders tendering the Notes for conversion shall be entitled to receive, upon conversion of such Notes, cash and shares of Common Stock, the value of which (the "Conversion Value") shall be equal to the product of:
(1) (A) the aggregate principal amount of Notes to be converted divided by 1,000 multiplied by (B) the Conversion Rate; and
(2) the average of the Common Stock Price for the five consecutive Trading Days (appropriately adjusted to take into account the occurrence during such period of stock splits and similar events) including and immediately following the second Trading Day following the day the Notes are tendered for conversion (the "Five Day Average Closing Stock Price"); provided that, if the shares of Common Stock are not listed on The New York Stock Exchange, then the Five Day Average Closing Stock Price shall be determined by the Company by reference to the Common Stock Price as reported by NASDAQ.
(b) Subject to certain exceptions described below and under Sections 10.01(a)(3) and 10.01(a)(4), the Company shall deliver the Conversion Value to converting holders as follows:
(1) an amount in cash (the "Principal Return") equal to the lesser of (a) the aggregate Conversion Value of the Notes to be converted and (b) the aggregate principal amount of the Notes to be converted;
(2) if the aggregate Conversion Value of the Notes to be converted is greater than the aggregate Principal Return of the Notes to be converted, an amount in shares (the "Net Shares"), determined as set forth below, equal to the difference between such aggregate Conversion Value and such aggregate Principal Return (the "Net Share Amount"); and
(3) an amount paid in cash, determined as set forth below, for any fractional shares of Common Stock.
The number of Net Shares to be paid shall be determined by dividing the Net Share Amount by the Five Day Average Closing Stock Price. Holders of Notes will not receive a fractional share upon conversion of a Note. Instead, the Holder will receive cash for the value of the fractional share. The cash payment for fractional shares shall be based on the Five Day Average Closing Stock Price.
The Conversion Value, Principal Return, number of Net Shares and Net Share Amount shall be determined by the Company at the end of the fifth consecutive Trading Day including and immediately
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following the second Trading Day after the day the Notes are tendered for conversion (the "Determination Date").
(c) The Company shall pay the Principal Return and cash for fractional shares and deliver the Net Shares, if any, as promptly as practicable after the Conversion Date, but in no event later than four Business Days thereafter. Delivery of the Principal Return, Net Shares and cash in lieu of fractional shares shall be deemed to satisfy the Company's obligation to pay the principal amount of the Notes, including accrued interest and Liquidated Damages, if any, payable on the Notes, except as described below. Accrued interest shall be deemed paid in full rather than canceled, extinguished or forfeited. The Company shall not adjust the Conversion Price to account for the accrued interest. Nonetheless, if Notes are converted after a regular record date and prior to the opening of business on the next interest payment date, including the date of maturity, Holders of such Notes, at the close of business on the next regular record date shall receive the interest (and Liquidated Damages, if any) payable on such Notes on the corresponding interest payment date notwithstanding the conversion.
(d) If an Event of Default, as described under Section 6.01 of this Indenture has occurred and is continuing (other than a Default in a cash payment upon conversion of the Notes), the Company may not pay cash upon conversion of any Notes (other than cash in lieu of fractional shares) and instead will make payment only through the delivery of shares of Common Stock. The number of shares of Common Stock to be delivered will be equal to (A) the aggregate principal amount of Notes to be converted divided by 1,000 multiplied by (B) the Conversion Rate.
(e) Neither the Trustee nor the Conversion Agent has any duty to determine or calculate the Conversion Value, Principal Return, number of Net Shares, the Net Share Amount of any other computation required under this Article 10, all of which shall be determined by the Company (or the Bid Solicitation Agent, as the case may be) in accordance with the provisions of this Indenture and the Trustee and Conversion Agent shall not be under any responsibility to determine the correctness of any such determinations and/or calculations and may conclusively rely on the correctness thereof.
ARTICLE 11.
SATISFACTION AND DISCHARGE
Section 11.01 Satisfaction and Discharge.
This Indenture shall be discharged and shall cease to be of further effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated under the Original Indenture and this Indenture (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or shall become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient without consideration of any reinvestment of interest, to pay and
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discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the date of such deposit or shall occur as a result of such deposit and such deposit shall not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound;
(3) the Company has paid or caused to be paid all sums payable by it under this Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officer's Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the provisions of Section 11.02 and Section 8.06 shall survive. In addition, nothing in this Section 11.01 shall be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture.
Section 11.02 Application of Trust Money.
Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01; provided that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent.
ARTICLE 12.
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties or provisions of the TIA shall control.
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Section 12.02 Notices.
Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Telephone No.: (408) 995-5115 Attention: Ron Fischer
With a copy to:
Covington & Burling
1330 Avenue of the Americas
New York, NY 10019
Telecopier No.: (212) 841-1010 Attention: Bruce Bennett
If to the Trustee:
Wilmington Trust Company
Rodney Square North
1100 North Market Street Wilmington, Delaware 19890 Telecopier No.: (302) 636-4145 Attention: Corporate Capital Markets
By notice to the others, the Company or the Trustee may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.
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Section 12.03 Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signer, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 12.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:
(1) a statement that the Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
Section 12.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders.
No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release
71
are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Section 12.08 Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 12.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 12.10 Successors.
All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors.
Section 12.11 Severability.
In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
Section 12.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of March 12, 2004
CALPINE CORPORATION

By: /s/ ERIC N. PRYOR
    ----------------------------
    Name: Eric N. Pryor
    Title: Senior Vice President	

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WILMINGTON TRUST COMPANY

By: /s/ KRISTIN LONG
    ---------------------------------
    Name: Kristin Long
    Title: Financial Services Officer	

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EXHIBIT A
[Face of Note]

CUSIP 131347BH8
4.75% Contingent Convertible Notes due 2023
No. ___ $____________
CALPINE CORPORATION
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of _________________________________________________________
Dollars on November 15, 2023.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
CALPINE CORPORATION
By: _____________________________________
Name:
Title:
Dated: November 14, 2003
This is one of the Notes referred to
in the within-mentioned Indenture:
WILMINGTON TRUST COMPANY,
as Trustee
By: ____________________________________ Authorized Signatory

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[Back of Note]
4.75% Contingent Convertible Notes due 2023
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
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(1) INTEREST. Calpine Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 4.75% per annum from November 14, 2003 until maturity. The Company shall pay interest semi-annually in arrears on May 15 and November 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be May 15, 2004. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months.
(2) METHOD OF PAYMENT. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes shall be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds shall be required with respect to principal of and interest, premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) PAYING AGENT, CONVERSION AGENT AND REGISTRAR. Initially,
Wilmington Trust Company, the Trustee under the Indenture, shall act as Paying Agent, Conversion Agent and Registrar. The Company may change any Paying Agent, Conversion Agent or Registrar without prior notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity.
(4) INDENTURE. The Company issued the Notes under an Indenture dated as of November 14, 2003, as amended and restated on February __, 2004 (as so amended and restated, the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Section 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.
(5) OPTIONAL REDEMPTION. At any time on or after November 22, 2009, the Company may redeem the Notes, in whole at any time, or in part from time to time, for cash at a price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest (and Liquidated Damages, if any) up to but not including the date of redemption. The Company will give not less than 30 days' nor more than 60 days' notice of redemption by mail to Holders of the Notes. If the Company opts to redeem less than all of the Notes at any time, the Trustee will
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select or cause to be selected the Notes to be redeemed by any method that it deems fair and appropriate. In the event of a partial redemption, the Trustee may provide for selection for redemption of portions of the principal amount of any Note of a denomination larger than $1,000.
(6) MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) REPURCHASE AT OPTION OF HOLDER. (a) If a Change in Control occurs, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder's Notes pursuant to the terms set forth in the Indenture. The Company shall deliver to each holder that has delivered to the Paying Agent an irrevocable written notice of purchase: (i) a payment in cash equal to the issue price of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest (and Liquidated Damages, if any) on the Notes repurchased (the "Change in Control Purchase Price"), to but excluding the date of purchase or
(ii) at the Company's option, the Change in Control Purchase Price in shares of Common Stock valued at 95% of the Market Price. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder as required by the Indenture. (b) Holders have the right to require the Company to repurchase all or a portion of their Notes on November 15, 2009, November 15, 2013 and November 15, 2018. The Company will be required to repurchase any outstanding Notes for which Holders deliver a written repurchase notice to the paying agent. This notice must be delivered during the period beginning at any time from the opening of business on the date that is 20 Business Days prior to the repurchase date until the close of business on the last Business Day prior to the repurchase date. If the repurchase notice is given and withdrawn during the period, the Company will not be obligated to repurchase the related Notes. The repurchase price payable will be equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest (and Liquidated Damages, if any) to such repurchase date. The Company may choose, in its sole discretion, to pay the repurchase price in cash or shares of its Common Stock, or a combination of cash and shares of its Common Stock.
(8) NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) CONVERSION. Upon satisfaction of the conditions set forth in
Section 10.01(a) of the Indenture, a Holder of a Note may convert any portion of the principal amount of any Note that is an integral multiple of $1,000 into cash and fully paid and non-assessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock in accordance with the provisions of Section 10.14 of the Indenture. Such conversion right shall commence on the initial issuance date of the Notes and expire at the close of business on the Business Day immediately preceding the date of Maturity, subject, in the case of conversion of any Global Note, to any Applicable Procedures. The Conversion Price shall, as of the date of the Indenture, initially be $6.50. The Conversion Rate shall, as of the date of the Indenture, initially be 153.8462. The Conversion Rate will be adjusted under the circumstances specified in the Indenture.
(10) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of
A-4
Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
(11) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
(12) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger, consolidation or asset transfer, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture, to conform the text of the Indenture or the Notes to any provision of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of the Indenture or the Notes and add covenants that would benefit the Holders of Notes or to surrender any rights the Company has under the Indenture, provided that no such waiver or amendment shall adversely affect the right of Holders of Notes.
(13) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in payment of any interest installment due and payable on the Notes;
(ii) default in payment of principal of the Notes and accrued interest at maturity, upon repurchase or following a Change of Control, when the same becomes due and payable; (iii) material default in the Company's performance of any other covenants or agreements in the Notes or this Indenture which default continues for 30 days after the date on which written notice of such default is given to the Company by the Trustee or to the Company and Trustee by the Holders of at least 25% in principal amount of the then outstanding Notes; (iv) default by the Company under any instrument or instruments under which there is or may be secured or evidenced any of the Company's indebtedness (other than the Notes) having an outstanding principal amount of $50,000,000 (or its equivalent in any other currency or currencies) or more, individually or in the aggregate, that has caused the Holders thereof to declare such indebtedness to be due and payable prior to its Stated Maturity, unless such declaration has been rescinded within 30 days; (v) default in the payment of the principal of any bond, debenture, note or other evidence of the Company's indebtedness, in each case for money borrowed, or in the payment of principal 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 ours for money borrowed, which default for
A-5
payment of principal is individually or 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 days after the expiration of any grace period or extension of the time for payment applicable thereto; and (vi) certain events of bankruptcy, insolvency and reorganization of the Company. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding Notes is in their interest, except a Default or Event of Default relating to the payment of principal or interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default under clauses (3) through (5) of Section 6.01 of the Indenture, to deliver to the Trustee a statement specifying such Default or Event of Default.
(14) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(15) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes.
(16) AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(17) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(18) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
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The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to:
Calpine Corporation
50 West San Fernando Street San Jose, California 95113 Attention: Ron Fischer
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date: _______________
Your Signature: _________________________________ (Sign exactly as your name appears on the face of this Note)
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 3.09 or 3.10 of the Indenture, check the appropriate box below:
- Section 3.09 - Section 3.10
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 3.09 or Section 3.10 of the Indenture, state the amount you elect to have purchased:
$__________________
Date: _______________
Your Signature: _________________________________ (Sign exactly as your name appears on the face of this Note)
Tax Identification No.: ________________________
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
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FORM OF CONVERSION NOTICE
TO: CALPINE CORPORATION
WILMINGTON TRUST COMPANY
THE UNDERSIGNED REGISTERED OWNER OF THIS NOTE HEREBY IRREVOCABLY EXERCISES THE OPTION TO CONVERT THIS NOTE, OR THE PORTION THEREOF BELOW DESIGNATED, INTO THE CONVERSION VALUE IN ACCORDANCE WITH THE TERMS OF THE INDENTURE REFERRED TO IN THIS NOTE. CAPITALIZED TERMS USED HEREIN BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN THE INDENTURE.
PLEASE NOTE: You may only convert this Note upon satisfaction of one of the conditions set forth in Section 10.01(a)(1) through (5) of the Indenture. If you are converting this Note upon satisfaction of the condition set forth in
Section 10.01(a)(3), please provide, with this Conversion Notice, reasonable evidence that the Trading Price of the Note is less than 95% of the product of
(x) the Common Stock Price and (y) the Conversion Rate in effect.
Upon conversion of your Note, you will receive the Conversion Value in cash and Common Stock of the Company in accordance with Article 10 of the Indenture.
To convert only part of this Note, state the Principal Amount to be converted (which must be $1,000 or an integral multiple of $1,000):
$___________________________
If you want the stock certificate (if any) made out in another person's name, fill in the form below:

(Insert other person's social security or tax ID no.)

(Print or type other person's name, address and zip code)
Date: _____________________________ Signed: ______________________
(Sign exactly as your name appears on the other side of this Security. The Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended)
Signature Guarantee:________________________________
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SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

                                                                    Principal Amount
                  Amount of decrease in   Amount of increase in   of this Global Note
                     Principal Amount        Principal Amount       following such      Signature of authorized
                            of                      of                 decrease           officer of Trustee
Date of Exchange     this Global Note        this Global Note        (or increase)            or Custodian
----------------  ---------------------   ---------------------   -------------------   -----------------------	

* This schedule should be included only if the Note is issued in global form.
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EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022
Re: 4.75% Contingent Convertible Notes due 2023
Reference is hereby made to the Indenture, dated as of November 14, 2003, as amended and restated on February __, 2004 (as so amended and restated, the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
2. [ ] CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a subsidiary thereof;
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or
(c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act;
or
(d) [ ]such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A or Rule 144, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.
[Insert Name of Transferor]
By: _______________________ Name:

Title:
Dated: _______________________
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ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] IAI Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee shall hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] IAI Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note,
in accordance with the terms of the Indenture.
B-3
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022
Re: 4.75% Contingent Convertible Notes due 2023
(CUSIP ____________)
Reference is hereby made to the Indenture, dated as of November 14, 2003, as amended and restated on February __, 2004 (as so amended and restated, the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that:
EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued shall continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ]144A Global Note, [ ]IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.
C-1
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]
By: ________________________________ Name:

Title:
Dated: ______________________
C-2
EXHIBIT D
FORM OF CERTIFICATE OF
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Wilmington Trust
520 Madison Avenue, 33rd Floor
New York, NY 10022
Re: 4.75% Contingent Convertible Notes due 2023
Reference is hereby made to the Indenture, dated as of November 14, 2003, as amended and restated on February __, 2004 (as so amended and restated, the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we shall do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) pursuant to the provisions of Rule 144(k) under the Securities Act or (E) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (D) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we shall be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us shall bear a legend to the foregoing effect.
D-1
EXHIBIT D
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

[Insert Name of Transferor]
By: ________________________________ Name:

Title:
Dated: ______________________
D-2
 
EXHIBIT 4.17.2
Calpine Corporation
4.75% Contingent Convertible Notes due 2023
REGISTRATION RIGHTS AGREEMENT
November 14, 2003
Each of the Several Purchasers listed below, in care of:
Deutsche Bank Securities Inc.
60 Wall Street
New York, New York 10005
Dear Sirs:
Calpine Corporation, a Delaware corporation (the "Company"), proposes to issue and sell (the "Initial Placement") to Deutsche Bank Securities Inc. ("Deutsche Bank"), Credit Lyonnais Securities (USA) Inc., Harris Nesbitt Corp. and Williams Capital Group (collectively, the "Purchasers") upon the terms set forth in the Purchase Agreement dated as of November 6, 2003 (the "Purchase Agreement"), between the representative of the Purchasers and the Company, $600.0 million of its 4.75% Contingent Convertible Notes due 2023 (the "Firm Securities"), which are convertible into cash and shares of the Company's common stock, par value $.001 per share (the "Stock"), upon the occurrence of certain circumstances under the terms of an indenture (the "Indenture") dated as of November 14, 2003, between the Company and Wilmington Trust Company, as trustee (the "Trustee"). The Company also proposes to issue and sell to Deutsche Bank, at the option of Deutsche Bank, an aggregate principal amount of up to $300.0 million additional 4.75% Contingent Convertible Notes due 2023 (the "Option Securities"). The Firm Securities and the Option Securities (to the extent the aforementioned option is exercised) are herein collectively called the "Securities." As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company agrees with the Purchasers for the benefit of the Holders (as defined herein), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Purchase Agreement or, if not defined therein, in the Offering Circular dated November 7, 2003. As used in this Agreement, the following capitalized defined terms shall have the following meanings:
"Act" or "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Rate" means the rate at which the Securities accrue interest.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law to close or (iii) a day on which the corporate trust office of the Trustee is closed for business.
"Closing Date" has the meaning given such term in the Purchase Agreement.
"Commission" means the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose.
"Common Stock" means the Company's common stock, par value $.001 per share.
"Company" has the meaning set forth in the first paragraph of this Agreement.
"Effective Date" means the date on which the Registration Statement filed pursuant to Section 2 is declared effective by the Commission.
"Effectiveness Deadline" means the 270th day following the Closing Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Filing Deadline" means the 210th day following the Closing Date.
"Holder" and "Holders" each mean any person that is the record owner of Registrable Securities (and includes any person that has a beneficial interest in any Registrable Security in book-entry form).
"Indenture" means the Indenture, dated as of November 14, 2003, between the Company and the Trustee, as amended and supplemented from time to time in accordance with its terms.
"Initial Placement" has the meaning set forth in the first paragraph to this Agreement.
"Managing Underwriters" means the investment banker or investment bankers and manager or managers that shall administer an underwritten offering, if any, as set forth in Section 6 hereof.
"Notice and Questionnaire" means a Notice of Registration Statement and Selling Securityholder Questionnaire in a form reasonably agreed to by the Company and the Purchasers.
"Person" means any individual, partnership, corporation, trust, or unincorporated organization, or a governmental agency or political subdivision thereof.
"Prospectus" means the prospectus included in any Shelf Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under
2
the Act), with respect to the terms of the offering of any portion of the Securities covered by such Shelf Registration Statement, as amended or supplemented by all amendments (including post-effective amendments) and supplements to the Prospectus.
"Purchase Agreement" has the meaning set forth in the first paragraph to this Agreement.
"Purchasers" has the meaning set forth in the first paragraph to this Agreement.
"Registrable Securities" means (i) any Securities and (ii) any Stock issuable upon conversion of the Securities that has not been registered under the Act.
"Registration" means a registration effected pursuant to
Section 2 hereof.
"Registration Default" has the meaning given to such term in
Section 7(a) hereof.
"Securities" has the meaning set forth in the first paragraph to this Agreement.
"Shelf Registration" means a registration effected pursuant to
Section 2 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement filed under the Securities Act on an appropriate form providing for the registration of, and the sale on a continuous or delayed basis by the Holders of, all of the Registrable Securities pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission, filed by the Company pursuant to the provisions of Section 2 of this Agreement, including the Prospectus contained therein, any amendments and supplements to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.
"Trust Indenture Act" means the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, as the same shall be amended from time to time.
"Trustee" means Wilmington Trust Company, in its capacity as trustee pursuant to the Indenture.
"Underwriter" means any underwriter of Registrable Securities in connection with an underwritten offering thereof under a Shelf Registration Statement.
2. SHELF REGISTRATION (a) The Company shall as promptly as practicable prepare and, not later than the Filing Deadline, shall file with the Commission a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement and, thereafter shall use all reasonable efforts to cause such Shelf Registration Statement to be declared effective under the Act as soon as practicable, but in no event later than the Effectiveness Deadline; provided, however, that the Company may, upon written notice to all Holders, postpone having the Shelf Registration Statement declared effective for a reasonable period not to exceed 90 days in any 365 day period if the Company possesses material non-public information, the disclosure of which would have a material adverse effect on
3
the Company and its subsidiaries taken as a whole; provided, further, however, that no Holder (other than the Purchasers) shall be entitled to have its Registrable Securities covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder.
(b) The Company shall each use all reasonable efforts:
(i) to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming a part thereof to be lawfully delivered to the Holders until the earliest of (a) the sale of all Registrable Securities registered under the Shelf Registration Statement; and (b) two years after the date the Securities are issued, in any such case such period being called the "Registration Period;" and
(ii) during the Shelf Registration Period, promptly upon the request of any Holder of Registrable Securities, to take any action reasonably necessary to enable such Holder to use the Prospectus forming a part thereof for resales of Registrable Securities, and to identify such Holder as a selling securityholder; provided, however, that nothing in this subparagraph shall relieve such Holder of the obligation to return a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(a) hereof.
The Company shall be deemed not to have used all reasonable efforts to keep the Shelf Registration Statement effective during the Shelf Registration Period if it voluntarily takes any action that would result in Holders of Registrable Securities covered thereby not being able to offer and sell such Registrable Securities during such period, unless such action is required by applicable law.
(c) The Company may suspend the use of the Prospectus for a period not to exceed 30 days in any 90-day period or an aggregate of 90 days in any 365-day period if the Board of Directors of the Company, or the executive committee thereof, shall have determined in good faith that because of valid business reasons (not including the avoidance of the Company's obligations hereunder), including the acquisition or divestiture of assets, pending corporate developments and similar events, it is in the best interests of the Company to suspend such use, and prior to suspending such use, the Company provides the Holders with written notice of such suspension, which notice need not specify the nature of the event giving rise to such suspension.
(d) Notwithstanding any provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.
3. REGISTRATION PROCEDURES. In connection with any Shelf Registration Statement, the following provisions shall apply:
(a) (i) Not less than 30 calendar days prior to the Effective Date of the Shelf Registration Statement, the Company shall mail the Notice and Questionnaire to the Holders of
4
Registrable Securities. No Holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or have its Registrable Securities included therein, and no Holder shall be entitled to use the Prospectus forming a part thereof for resales of Registrable Securities at any time, unless such Holder is an Electing Holder; provided, however, Holders of Registrable Securities shall have at least 28 calendar days from the date on which the Notice and Questionnaire is first mailed to such Holders to return a completed and signed Notice and Questionnaire to the Company.
(ii) After the Effective Date of the Shelf Registration Statement and during the Shelf Registration Period, the Company shall, upon the request of any Holder of Registrable Securities that is not then an Electing Holder, promptly send a Notice and Questionnaire to such Holder. The Company shall not be required to take any action to name such Holder as a selling securityholder in the Shelf Registration Statement or to enable such Holder to use the Prospectus forming a part thereof for resales of Registrable Securities until such Holder has returned a completed and signed Notice and Questionnaire to the Company.
(iii) The term "Electing Holder" shall mean any Holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(a)(i) or 3(a)(ii) hereof and has otherwise agreed to be bound by all the provisions of this Agreement applicable to such Holder.
(b) The Company shall furnish to (i) the Purchasers and
(ii) any other Holders who so request, and its counsel and accountants, prior to the filing thereof with the Commission, a copy of any Shelf Registration Statement, and each pre-effective amendment thereof and each amendment or supplement, if any, to the Prospectus included therein and shall each use all reasonable efforts to reflect in each such document, when so filed with the Commission, such comments as the Purchasers and such other Holders reasonably may propose.
(c) The Company shall give written notice to the Purchasers and the Holders:
(i) when the Shelf Registration Statement and any amendment thereto has been filed with the Commission and when the Shelf Registration Statement or any post-effective amendment thereto (other than post-effective amendments filed to name a Holder as a selling securityholder therein or to provide information with respect to selling securityholders, in which case the Company shall give written notice solely to such Holder or selling securityholders) has become effective;
(ii) of any written request by the Commission for amendments or supplements to the Shelf Registration Statement or the Prospectus included therein or for additional information;
(iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose;
5
(iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities included therein for sale in any state or the initiation or threatening of any proceeding for such purpose; and
(v) of the happening, during the Shelf Registration Period, of any event that requires the making of any changes in the Shelf Registration Statement or the Prospectus so that, as of such date, the Registration Statement and the Prospectus do not contain an untrue statement of a material fact and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading (which advice shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made).
(d) The Company shall use all reasonable efforts to prevent the issuance, and if issued to obtain the withdrawal, of any order suspending the effectiveness of any Shelf Registration Statement at the earliest possible time.
(e) The Company shall furnish to the Purchasers and each requesting Holder included within the coverage of any Shelf Registration Statement, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto (including, to the Purchasers or any such Holder who so requests, any reports or other documents incorporated therein by reference), including financial statements and schedules included therein, and, if such Holder so requests, all exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver to each Holder included within the coverage of any Shelf Registration Statement, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use, in accordance with the terms of this Agreement, of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto during the Shelf Registration Period.
(g) Prior to any offering of Registrable Securities pursuant to any Shelf Registration Statement, the Company shall register or qualify, or shall cooperate with the Holders of Registrable Securities included therein and their respective counsel in connection with the registration or qualification of, such Registrable Securities for offer and sale under the securities or blue sky laws of such states as any such Holders reasonably request in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such states of the Registrable Securities covered by such Shelf Registration Statement; provided, however, that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject.
(h) Unless the applicable Registrable Securities shall be in book-entry only form, the Company shall cooperate with the Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to any Shelf Registration Statement free of any restrictive legends and in such permitted
6
denominations and registered in such names as Holders may request in connection with the sale of Registrable Securities pursuant to such Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(c) above (other than a request by the Commission solely for additional information as referred to in Section 3(c)(ii) and unless directed otherwise by the Commission), the Company shall promptly prepare and file a post-effective amendment to any Shelf Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter delivered to Holders or purchasers of the Registrable Securities included therein, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Company notifies the Purchasers or the Holders of the Securities in accordance with paragraphs (ii) through (v) of Section 3(c) above to suspend the use of the Prospectus until the requisite changes to the Prospectus have been made, then the Purchasers and the Holders of the Registrable Securities shall suspend use of the Prospectus for such time.
(j) Not later than the effective date of any Shelf Registration Statement hereunder, the Company shall provide a CUSIP number for the Registrable Securities registered under such Shelf Registration Statement, and provide the applicable Trustee with certificates for such Registrable Securities, in a form eligible for deposit with The Depository Trust Company.
(k) The Company shall use all reasonable efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) as soon as practicable after the effective date of the applicable Shelf Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, but in no event later than 45 days after the end of a 365-day period (or 90 days, it such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 365-day period.
(l) The Company shall cause the Indenture to be qualified under the Trust Indenture Act in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of such agreement.
(m) The Company may require each Holder of Registrable Securities to be sold pursuant to any Shelf Registration Statement as a condition to the registration of such Holder's Registrable Securities thereunder to furnish to the Company such information regarding the Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement. Each Holder who offers and sells Registrable Securities by means of the Shelf Registration Statement shall do so in accordance with the terms thereof and the requirements of the Securities Act.
(n) The Company shall, if requested, as soon as practicable after receipt of notice from the Managing Underwriters, promptly incorporate in a Prospectus supplement or post-effective amendment to a Shelf Registration Statement, such information as the Managing Underwriters, if any, reasonably agree should be included therein and to which the Company does not reasonably object and shall make all required filings of such Prospectus supplement or post-
7
effective amendment as soon as practicable after they are notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment.
(o) The Company shall enter into such customary agreements (including underwriting agreements in customary form) to take all other appropriate actions in order to expedite or facilitate the registration or the disposition of the Registrable Securities and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures substantially identical to those set forth in Section 5 hereof (or such other customary provisions and procedures acceptable to the Managing Underwriters, if any) with respect to all parties to be indemnified pursuant to Section 5 hereof.
(p) The Company shall (1) make reasonably available for inspection by the Holders of Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by such Holders or any such underwriter, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries as shall be requested in connection with the discharge of their due diligence obligations; (ii) cause the Company's officers, directors, employees and independent public accountants and the Trustee to supply at the Company's expense all relevant information reasonably requested by such Holders or any such underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by the Company in good faith as confidential at the time of delivery of such information shall be kept confidential by such Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; and provided further that the foregoing inspection and information gathering shall be coordinated on behalf of the Holders and the other parties entitled thereto by one counsel, who shall be Latham & Watkins LLP unless another nationally-recognized law firm with specialization in securities laws shall be chosen by the Company; (iii) make such representations and warranties to the Holders of Securities registered thereunder and the underwriters, if any, in form, substance and scope as are customarily made by the issuers to underwriters in primary underwritten offerings and covering matters as are customarily covered in representations and warranties requested in primary underwritten offerings including, but not limited to, those set forth in the Purchase Agreement; (iv) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any) addressed to each selling Holder and the underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its Subsidiaries; the due authorization, execution and delivery of the relevant agreement of the type referred to in
Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities: the absence of material legal or governmental proceedings involving the Company and its Subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture, with the requirements of the Securities Act and the Trust Indenture Act; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, that such counsel do not believe that such Shelf Registration
8
Statement and the prospectus included therein, as then amended or supplemented, and any documents incorporated by reference therein contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (v) cause its officers to execute and deliver all customary documents and certificates and updates thereof requested by such Holders and any underwriters of the applicable Securities and (vi) cause its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this Section 3(p) shall be performed at (A) the effectiveness of such Shelf Registration Statement and each post-effective amendment thereto, other than post-effective amendments filed to name a Holder as a selling securityholder therein or to provide information with respect to selling securityholders, and (B) each closing under any underwritten offering of the Securities to the extent required under any related underwriting or similar agreement.
(q) The Company will use all reasonable efforts to cause the Common Stock issuable upon conversion of the Securities to be listed on each securities exchange, over-the-counter market, or respective counterpart if any, on which any shares of Common Stock are then listed.
(r) The Company shall, in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by (A) if such Rules or By-Laws, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Shelf Registration Statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Shelf Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Registrable Securities, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD.
(s) The Company shall use all reasonable efforts to take all other steps necessary to effect the registration, offering and sale of the Registrable Securities covered by the Shelf Registration Statement contemplated hereby.
4. REGISTRATION EXPENSES (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether a Shelf Registration Statement is ever filed or becomes effective, including without limitation:
9
(i) all registration and filing fees and expenses;
(ii) all fees and expenses of compliance with federal securities and state "blue sky" or securities laws;
(iii) all expenses of printing (including printing certificates for the Securities without the restrictive legend to be issued and printing of Prospectuses), messenger and delivery services and telephone;
(iv) all fees and disbursements of counsel for the Company;
(v) all application and filing fees in connection with listing the Securities on a national securities exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance).
The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company.
(b) In connection with any Shelf Registration Statement required by this Agreement, the Company will reimburse the Purchasers and the Holders who are selling or reselling Registrable Securities pursuant to the Shelf Registration Statement for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins LLP unless another nationally-recognized law firm with specialization in securities laws shall be chosen by the Company.
5. INDEMNIFICATION AND CONTRIBUTION (a) In connection with any Shelf Registration Statement, the Company agrees to indemnity and hold harmless the Purchasers, each Holder of Securities covered thereby (including the Purchasers), their respective partners, directors, and officers and each person, if any, who controls the Purchasers or any such Holder within the meaning of
Section 15 of the Securities Act (the Purchasers, Holder and such controlling persons are referred to collectively as the "Indemnified Parties") against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement as originally filed or in any amendment or supplement thereof, or in any preliminary Prospectus or Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and shall reimburse each such Indemnified Party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the Company will not be liable in any case to the extent that any such
10
loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Purchasers or any such Holder specifically for inclusion therein and (ii) the foregoing indemnity, with respect to any untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary Prospectus relating to a Shelf Registration Statement, shall not inure to the benefit of any Holder (or any person controlling such Holder) from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a Prospectus relating to such Securities was required to be delivered by such Holder under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the Final Prospectus if the Company had previously furnished copies thereof to such Holder at or prior to the written confirmation of the sale of such Securities to such person and the untrue statement or alleged untrue statement or omission or alleged omission contained in the preliminary prospectus was corrected in the final prospectus (or the final prospectus as supplemented). This indemnity agreement will be in addition to any liability which the Company may otherwise have.
The Company shall also indemnify underwriters, their officers, directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 3(n) and Section 6 hereof.
(b) Each Holder of Securities covered by a Shelf Registration Statement (including the Purchasers) severally, and not jointly, agrees to indemnify and hold harmless (i) the Company, (ii) each of the directors of the Company, (iii) each of its officers who signs such Shelf Registration Statement and (iv) each person who controls the Company within the meaning of either the Securities Act or the Exchange Act to the same extent as the foregoing indemnity from the Company, but only in respect of written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this
Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability it may have to any indemnified party otherwise than under paragraph (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of such indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any
11
indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the Initial Placement and the Shelf Registration Statement, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this
Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to the Shelf Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party.
6. UNDERWRITTEN OFFERING. If, pursuant to written notice delivered to the Company by the Holders of a majority of aggregate principal amount of Registrable Securities then registered pursuant to a Shelf Registration, such Holders so elect, the offer and sale of any Common Stock issued or issuable upon conversion of the Securities may be effected in the form of an underwritten offering. In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting
12
arrangements with respect thereto will be approved by, the Company; provided, however, that such investment bankers and managers and underwriting arrangements must be reasonably satisfactory to the Holders of a majority of the Registrable Securities to be included in such offering. No Holder may participate in any underwritten offering contemplated hereby unless such Holder (a) agrees to sell such Holder's Registrable Securities in accordance with any approved underwriting arrangements, and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such approved underwriting arrangements.
7. CHANGES TO THE APPLICABLE RATE UNDER CERTAIN CIRCUMSTANCES (a) Pursuant to Section 2(a) hereof, the Company, may, upon written notice to all the Holders, postpone having the Shelf Registration Statement declared effective for a reasonable period not to exceed 90 days in any 365 day period if the Company possesses material non-public information, the disclosure of which would have a material adverse effect on the Company and its subsidiaries taken as a whole. Notwithstanding any such postponement, the Applicable Rate shall be adjusted as follows, if any of the following events occur (each such event in clauses (i) through (iii) below, a "Registration Default"):
(i) if a Shelf Registration Statement has not been filed with the Commission on or prior to the Filing Deadline;
(ii) if the Shelf Registration Statement has not been declared effective by the Commission on or prior to the Effectiveness Deadline;
(iii) if (A) after the Shelf Registration Statement is declared effective, such Shelf Registration Statement ceases to be effective prior to the earlier of (1) the end of the Shelf Registration Period, (2) the sale of all Registrable Securities registered under the Shelf Registration Statement or (3) the expiration of the applicable period under Rule 144(k) of the Securities Act or (B) such Shelf Registration Statement or the related Prospectus ceases to be usable by Holders who are named as selling securityholders in a previously effective Registration Statement (including if the use of the Prospectus is suspended by the Company for more than 30 days in any 90-day period or an aggregate of 90 days in any 365-day period, as set forth in Section 2(c) hereof) in connection with resales of Securities covered by such Shelf Registration Statement prior to the end of the Shelf Registration Period because either (1) any event occurs as a result of which the related Prospectus forming part of such Shelf Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances in which they were made not misleading or (2) it shall be necessary to amend such Shelf Registration Statement, or supplement the related Prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder.
Each of the foregoing will constitute a Registration Default whatever the reason for any such event and whether it is voluntary or involuntary or is beyond the control of the Company or pursuant to operation of law or as a result of any action or inaction by the Commission; provided, however, that the Company's failure to register the shares of Common Stock issuable upon conversion of the Securities with the Commission shall not constitute a Registration Default so long as the Company used all reasonable efforts to register such shares.
13
Additional interest shall accrue on the Registrable Securities over and above the interest set forth in the title of the Registrable Securities, from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured or the increase in the Applicable Rate attributable to any Registration Default shall have ceased to be effective, at a rate of 0.50% per annum (the "Additional Interest Rate"). The increase in the Applicable Rate attributable to any Registration Default shall cease to be effective from the date such Registration Default is cured or ceases to be effective pursuant to the next sentence of this paragraph, and the Applicable Rate shall be reduced at such time to the Applicable Rate in effect immediately prior to such Registration Default. If any Registration Default has occurred and not earlier cured, the increase in the Applicable Rate attributable to any Registration Default shall cease to be effective as of the earliest of (i) the end of the Registration Period, (ii) the sale of all Registrable Securities registered under the Registration Statement and (iii) the expiration of the applicable period under Rule 144(k) of the Securities Act. If a Holder has converted some or all of its Securities into the cash and shares of our Common Stock, the Holder will be entitled to receive equivalent amounts of additional interest based on the principal amount of the Securities converted, provided that such additional interest shall not accrue with respect to the Common Stock if the Company uses all reasonable efforts to register such Common Stock.
(b) A Registration Default referred to in Section 7(a)(iii) shall be deemed not to have occurred and be continuing in relation to the Shelf Registration Statement or the related Prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related Prospectus or (y) the occurrence of other material events or developments with respect to the Company that would need to be described in such Registration Statement or the related Prospectus and (ii) in the case of clause (y) the Company is proceeding promptly and in good faith to amend or supplement such Registration Statement and related Prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days in any 90-day period or an aggregate of 90 days in any 365-day period, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurred until such Registration Default is cured.
(c) Except as otherwise provided in the Indenture, any amounts of Additional Interest due pursuant to Section 7(a) will be payable in cash on the regular interest payment dates (or such other time as provided in the Indenture for the payment of interest or distributions) with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest Rate by the principal amount of the Registrable Securities and further multiplied by a fraction, the numerator of which is the number of days such Additional Interest Rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360.
8. RULES 144 AND 144A. The Company shall use all reasonable efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A of the Securities Act, or any successor regulation or statute thereto. The Company covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the
14
limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Securities identified to the Company by the Purchasers upon request. Upon the request of any Holder of Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this
Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act.
9. MISCELLANEOUS.
(a) Remedies. The Company acknowledges and agrees that any failure by it to comply with its obligations under Section 2 hereof may result in material irreparable injury to the Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Section 2 hereof. The Company further agrees to waive the defense in any action for specific performance of Section 2 hereof that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it on or after the date hereof, enter into, any agreement with respect to its securities or otherwise that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof.
(c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of a majority in principal amount of the Registrable Securities affected by such amendment, qualification, modification, supplement, waiver or consent.
(d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing and shall be mailed, delivered, telegraphed and confirmed or faxed and confirmed:
(1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this
Section 9(d), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture; with a copy in a like manner to Deutsche Bank Securities Inc.;
(2) if to the Purchasers, initially at the address set forth in the Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the Purchase Agreement.
The Purchasers, any Holder or the Company by notice to the other may designate additional or different addresses for subsequent notices or communications.
(e) Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Purchasers, on
15
the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder.
(f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and the Holders, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Securities. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Registrable Securities and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto.
(g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be considered to be outstanding and shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
(k) Severability. In the event that any one of more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.
(Signature page follows.)
16
Please confirm that the foregoing correctly sets forth the agreement between the Company and the Purchasers.
Very truly yours,
CALPINE CORPORATION

By: /s/ ANN B. CURTIS
    -----------------------------
Name: Ann B. Curtis
Title: Executive Vice President,
       Secretary and Vice Chairman
       of the Board	

The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written.
DEUTSCHE BANK SECURITIES INC.

By: /s/ THOMAS P. LYNCH
    -----------------------------
Name:  Thomas P. Lynch
Title:  Managing Director

By: ______________________________
Name:
Title:	

EXHIBIT 4.19
EXECUTION VERSION

CALPINE GENERATING COMPANY, LLC
AND
CALGEN FINANCE CORP.
and each of the Guarantors named herein
FIRST PRIORITY SECURED FLOATING RATE NOTES DUE 2009
FIRST PRIORITY INDENTURE
Dated as of March 23, 2004

WILMINGTON TRUST FSB
Trustee

 
CROSS-REFERENCE TABLE*

Trust Indenture
Act Section                                               Indenture Section
310(a)(1)................................................           7.10
    (a)(2)...............................................           7.10
    (a)(3)...............................................           N.A.
    (a)(4)...............................................           N.A.
    (a)(5)...............................................           7.10
    (b)..................................................           7.10
    (c)..................................................           N.A.
311(a)...................................................           7.11
    (b)..................................................           7.11
    (c)..................................................           N.A.
312(a)...................................................           2.05
    (b)..................................................          12.03
    (c)..................................................          12.03
313(a)...................................................           7.06
    (b)(1)...............................................          10.03
    (b)(2)...............................................        7.06; 7.07
    (c)..................................................    7.06; 10.03; 12.02
    (d)..................................................           7.06
314(a)...................................................    4.03; 12.02; 12.05
    (b)..................................................          10.02
    (c)(1)...............................................          12.04
    (c)(2)...............................................          12.04
    (c)(3)...............................................           N.A.
    (d)..................................................   10.03, 10.04, 10.05
    (e)..................................................          12.05
    (f)..................................................           N.A.
315(a)...................................................           7.01
    (b)..................................................        7.05, 12.02
    (c)..................................................           7.01
    (d)..................................................           7.01
    (e)..................................................           6.11
316(a) (last sentence)...................................           2.09
    (a)(1)(A)............................................           6.05
    (a)(1)(B)............................................           6.04
    (a)(2)...............................................           N.A.
    (b)..................................................           6.07
    (c)..................................................           2.12
317(a)(1)................................................           6.08
    (a)(2)...............................................           6.09
    (b)..................................................           2.04
318(a)...................................................          12.01
    (b)..................................................           N.A.
    (c)..................................................          12.01	

N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
TABLE OF CONTENTS

                                                                                                     Page
                                                                                                     ----

                                                  ARTICLE 1.
                                          DEFINITIONS AND INCORPORATION
                                                 BY REFERENCE

Section 1.01   Definitions............................................................................  1
Section 1.02   Other Definitions...................................................................... 42
Section 1.03   Incorporation by Reference of Trust Indenture Act...................................... 42
Section 1.04   Rules of Construction.................................................................. 43

                                                  ARTICLE 2.
                                                  THE NOTES

Section 2.01   Form and Dating........................................................................ 43
Section 2.02   Execution and Authentication........................................................... 44
Section 2.03   Registrar and Paying Agent............................................................. 45
Section 2.04   Paying Agent to Hold Money in Trust.................................................... 45
Section 2.05   Holder Lists........................................................................... 45
Section 2.06   Transfer and Exchange.................................................................. 46
Section 2.07   Replacement Notes...................................................................... 58
Section 2.08   Outstanding Notes...................................................................... 58
Section 2.09   Treasury Notes......................................................................... 59
Section 2.10   Temporary Notes........................................................................ 59
Section 2.11   Cancellation........................................................................... 59
Section 2.12   Defaulted Interest..................................................................... 59
Section 2.13   Same Day Settlement and Payment........................................................ 59

                                                  ARTICLE 3.
                                           REDEMPTION AND PREPAYMENT

Section 3.01   Notices to Trustee..................................................................... 60
Section 3.02   Selection of Notes to Be Redeemed or Purchased......................................... 60
Section 3.03   Notice of Redemption................................................................... 61
Section 3.04   Effect of Notice of Redemption......................................................... 61
Section 3.05   Deposit of Redemption or Purchase Price................................................ 62
Section 3.06   Notes Redeemed or Purchased in Part.................................................... 62
Section 3.07   Optional Redemption.................................................................... 62
Section 3.08   Mandatory Redemption................................................................... 62
Section 3.09   Offer to Purchase by Application of Net Proceeds....................................... 63

                                                  ARTICLE 4.
                                                  COVENANTS

Section 4.01   Payment of Notes....................................................................... 64
Section 4.02   Maintenance of Office or Agency........................................................ 65
Section 4.03   Reports................................................................................ 65
Section 4.04   Compliance Certificate................................................................. 66
Section 4.05   Taxes.................................................................................. 67
Section 4.06   Stay, Extension and Usury Laws......................................................... 67
Section 4.07   Restricted Payments.................................................................... 67
Section 4.08   Dividend and Other Payment Restrictions Affecting Subsidiaries......................... 68
Section 4.09   Incurrence of Indebtedness and Issuance of Preferred Equity............................ 69	

i

                                                                                                     Page
                                                                                                     ----
Section 4.10   Asset Sales............................................................................ 72
Section 4.11   Transactions with Affiliates........................................................... 74
Section 4.12   Liens.................................................................................. 76
Section 4.13   Business Activities.................................................................... 76
Section 4.14   Corporate Existence.................................................................... 76
Section 4.15   Offer to Repurchase Upon Change of Control............................................. 77
Section 4.16   Limitation on Issuances and Sales of Equity Interests in Subsidiaries.................. 78
Section 4.17   Payments for Consent................................................................... 78
Section 4.18   Restrictions on Activities of CalGen Finance........................................... 79
Section 4.19   Deposit of Revenues.................................................................... 79
Section 4.20   Additional Subsidiaries................................................................ 79
Section 4.21   Maintenance of Insurance............................................................... 79
Section 4.22   Financial Covenants.................................................................... 79
Section 4.23   Changes in Covenants when Third Priority Notes Rated Investment Grade.................. 80

                                                  ARTICLE 5.
                                                  SUCCESSORS

Section 5.01   Merger, Consolidation, or Sale of Assets............................................... 80
Section 5.02   Successor Corporation Substituted...................................................... 81

                                                  ARTICLE 6.
                                             DEFAULTS AND REMEDIES

Section 6.01   Events of Default...................................................................... 81
Section 6.02   Acceleration........................................................................... 83
Section 6.03   Other Remedies......................................................................... 83
Section 6.04   Waiver of Past Defaults................................................................ 84
Section 6.05   Control by Majority.................................................................... 84
Section 6.06   Limitation on Suits.................................................................... 84
Section 6.07   Rights of Holders of Notes to Receive Payment.......................................... 85
Section 6.08   Collection Suit by Trustee............................................................. 85
Section 6.09   Trustee May File Proofs of Claim....................................................... 85
Section 6.10   Priorities............................................................................. 85
Section 6.11   Undertaking for Costs.................................................................. 86

                                                  ARTICLE 7.
                                                   TRUSTEE

Section 7.01   Duties of Trustee...................................................................... 86
Section 7.02   Rights of Trustee...................................................................... 87
Section 7.03   Individual Rights of Trustee........................................................... 88
Section 7.04   Trustee's Disclaimer................................................................... 88
Section 7.05   Notice of Defaults..................................................................... 88
Section 7.06   Reports by Trustee to Holders of the Notes............................................. 88
Section 7.07   Compensation and Indemnity............................................................. 88
Section 7.08   Replacement of Trustee................................................................. 89
Section 7.09   Successor Trustee by Merger, etc....................................................... 90
Section 7.10   Eligibility; Disqualification.......................................................... 90
Section 7.11   Preferential Collection of Claims Against Company...................................... 90

                                                  ARTICLE 8.
                                   LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01   Option to Effect Legal Defeasance or Covenant Defeasance............................... 91	

ii

                                                                                                     Page
                                                                                                     ----
Section 8.02   Legal Defeasance and Discharge......................................................... 91
Section 8.03   Covenant Defeasance.................................................................... 91
Section 8.04   Conditions to Legal or Covenant Defeasance............................................. 92
Section 8.05   Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous
               Provisions............................................................................. 93
Section 8.06   Repayment to Company................................................................... 93
Section 8.07   Reinstatement.......................................................................... 94

                                                  ARTICLE 9.
                                       AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01   Without Consent of Holders of Notes.................................................... 94
Section 9.02   With Consent of Holders of Notes....................................................... 95
Section 9.03   Compliance with Trust Indenture Act.................................................... 96
Section 9.04   Revocation and Effect of Consents...................................................... 96
Section 9.05   Notation on or Exchange of Notes....................................................... 96
Section 9.06   Trustee to Sign Amendments, etc........................................................ 97

                                                  ARTICLE 10.
                                            COLLATERAL AND SECURITY

Section 10.01  Equal and Ratable Sharing of Collateral by Holders of Secured Debt Within a Class...... 97
Section 10.02  Class Voting........................................................................... 98
Section 10.03  [Reserved]............................................................................. 98
Section 10.04  Relative Rights........................................................................ 98
Section 10.05  Release of Security Interest in Respect of Notes....................................... 98

                                                  ARTICLE 11.
                                             SUBSIDIARY GUARANTEES

Section 11.01  Guarantee.............................................................................. 99
Section 11.02  Limitation on Guarantor Liability......................................................100
Section 11.03  Execution and Delivery of Subsidiary Guarantee.........................................100
Section 11.04  Guarantors May Consolidate, etc., on Certain Terms.....................................101
Section 11.05  Releases Following Sale of Assets......................................................101

                                                  ARTICLE 12.
                                          SATISFACTION AND DISCHARGE

Section 12.01  Satisfaction and Discharge.............................................................102
Section 12.02  Application of Trust Money.............................................................102

                                                  ARTICLE 13.
                                                 MISCELLANEOUS

Section 13.01  Trust Indenture Act Controls...........................................................103
Section 13.02  Notices................................................................................103
Section 13.03  Communication by Holders of Notes with Other Holders of Notes..........................104
Section 13.04  Certificate and Opinion as to Conditions Precedent.....................................104
Section 13.05  Statements Required in Certificate or Opinion..........................................105
Section 13.06  Rules by Trustee and Agents............................................................105
Section 13.07  Non-Recourse; No Personal Liability of Directors, Officers, Employees and
               Stockholders...........................................................................105
Section 13.08  Governing Law..........................................................................105
Section 13.09  No Adverse Interpretation of Other Agreements..........................................106	

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Section 13.10  Successors.............................................................................106
Section 13.11  Severability...........................................................................106
Section 13.12  Counterpart Originals..................................................................106
Section 13.13  Table of Contents, Headings, etc.......................................................106

                                            EXHIBITS AND SCHEDULES

Schedule A     PERMITTED PRIOR LIENS EXISTING ON THE CLOSING DATE
Exhibit A      FORM OF NOTE
Exhibit B      FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit C      FORM OF CERTIFICATE OF TRANSFER
Exhibit D      FORM OF CERTIFICATE OF EXCHANGE
Exhibit E      FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit F      FORM OF NOTATION OF SUBSIDIARY GUARANTEE
Exhibit G      FORM OF SUPPLEMENTAL INDENTURE
Exhibit H      FORM OF SUBORDINATION TERMS
Exhibit I      FORM OF WORKING CAPITAL FACILITY	

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FIRST PRIORITY INDENTURE, dated as of March 23, 2004, among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation ("CalGen Finance"), the Guarantors (as defined below in Section 1.01) and Wilmington Trust FSB, as Trustee.
As set forth in Section 13.07 below and notwithstanding anything to the contrary set forth in this Indenture, the Notes, any Security Document or any other Note Document, the Notes and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The Company, CalGen Finance, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined below in Section 1.01) of the First Priority Secured Floating Rate Notes due 2009 (the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions.
"144A Global Note" means a Global Note substantially in the form of Exhibit A, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Administrative Services Agreement" means the Master Administrative Services Agreement, dated as of the Closing Date, among Calpine Administrative Services Company, Inc., the Company and the Facility Owners party thereto.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Affiliate Subordinated Indebtedness" means Indebtedness incurred by the Company pursuant to any arrangement with an Affiliate of the Company; provided, that such Indebtedness (1) is contractually subordinated in right of payment and in all other respects to the Notes and all other Secured Obligations in accordance with the Subordination Terms, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (2) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of
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the Notes, (3) provides for payment of interest thereon in the form of cash or additional Affiliate Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (4) is otherwise subordinated in accordance with the Subordination Terms.
"Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent.
"Applicable First Priority LIBOR Rate" means, for each interest period, 375 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of one, two, three or six months (as the Company may elect in an Officer's Certificate delivered to the Trustee as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable First Priority LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of one, two, three or six months (as applicable) as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
"Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights by the Company or any of its Subsidiaries; provided, that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of Section 5.01 and not by the provisions of Section 4.10; and
(2) the issuance of Equity Interests in any of the Company's Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $25.0 million (other than any transaction which involves the sale of an undivided interest, participation or Equity Interest in any Facility or Subsidiary of the Company, each of which will constitute an Asset Sale);
(2) a transfer of assets between or among the Company and the Guarantors;
(3) an issuance of Equity Interests by a Subsidiary of the Company to the Company or to a Guarantor;
(4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
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(6) a Restricted Payment that does not violate the covenant contained in Section 4.07 or a Permitted Investment;
(7) an issuance of Equity Interests in the Company in accordance with the terms of this Indenture; and
(8) the sale of the Columbia Facility pursuant to the Columbia FILOT Arrangement.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.
"Baytown Facility" means the facility described under "Business--Power Generation--ERCOT--Facility Descriptions--Baytown Facility" in the Offering Memorandum.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13 (d) (3) of the Exchange Act) , such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership or any committee duly authorized and empowered to take action on behalf of such partnership by the partnership agreement of such partnership;
(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
"Broker-Dealer" has the meaning set forth in the Registration Rights Agreement.
"Business Day" means any day other than a Legal Holiday.
"CalGen Expansion Company" means CalGen Expansion Company, LLC.
"CalGen Holdings" means Calpine CalGen Holdings, Inc.
"Calpine" means Calpine Corporation.
"Calpine Performance Guaranty" means the Affiliated Party Agreement Guaranty, dated as of the Closing Date, made by Calpine in favor of the Company and the Facility Owners party thereto.
"Calpine Project Undertaking" means the Project Undertaking and Agreement, dated as of the Closing Date, among Calpine, the Company and the Facility Owners party thereto.
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"Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Carville Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Carville Facility" in the Offering Memorandum.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the United States government (or any agency or instrumentality thereof), the Canadian government (or any agency or instrumentality thereof) or the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Facilities or any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch (or successor rating agency) Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5) overnight deposits with entities whose unsecured commercial paper or other unsecured short-term debt obligations, have, at the time of such deposit, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P; and
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(6) investments in money market funds or money market mutual funds which have, at the time of such investments, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P.
"Casualty Event" means any damage to or destruction of a Facility in excess of $20.0 million.
"Change of Control" means the occurrence of any of the following:
(1) the adoption of a plan relating to the liquidation or dissolution of the Company;
(2) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as that term is used in Section 13(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Calpine, measured by voting power rather than number of shares;
(3) the first day on which Calpine fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests (other than Perpetual Preferred Stock) of the Company (other than as a result of the issuance of Perpetual Preferred Stock by an indirect or direct parent of the Company); or
(4) the first day on which the Company fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests of CalGen Finance.
"Channel Facility" means the facility described under "Business--Power Generation--ERCOT--Facility Descriptions--Channel Facility" in the Offering Memorandum.
"Class" means (1) in the case of First Priority Lien Debt, every Series of First Priority Lien Debt, taken together, (2) in the case of Second Priority Lien Debt, every Series of Second Priority Lien Debt, taken together, and (3) in the case of Third Priority Lien Debt, every Series of Third Priority Lien Debt, taken together.
"Clearstream" means Clearstream Banking, S.A.
"Closing Date" means March 23, 2004.
"Closing Date Facilities" means the Baytown Facility, the Carville Facility, the Channel Facility, the Columbia Facility, the Corpus Facility, the Decatur Facility, the Delta Facility, the Freestone Facility, the Goldendale Facility, the Los Medanos Facility, the Morgan Facility, the Oneta Facility, the Pastoria Facility and the Zion Facility.
"Collateral" means all collateral in which a Lien is granted to the Collateral Agent in the Security Documents.
"Collateral Agent" means Wilmington Trust Company, in its capacity as collateral agent for the Secured Parties under the Security Documents, together with its successors in such capacity.
"Collateral Trust Agreement" means the Collateral Trust Agreement, dated as of the Closing Date, among CalGen Holdings, the Company, the Guarantors, each Secured Debt Representative party thereto and the Collateral Agent.
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"Columbia Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Columbia Facility" in the Offering Memorandum.
"Columbia FILOT Arrangement" means a fee-in-lieu-of-taxes arrangement pursuant to which the Columbia Facility will be sold to Calhoun County, South Carolina, or a Person acting on its behalf, and leased to Columbia Energy LLC for a nominal annual amount in lieu of certain ad valorem taxes that would otherwise be owed to Calhoun County in connection with the Columbia Facility, together with the payment of a fee to Calhoun County in lieu of such ad valorem taxes; provided, that (1) Columbia Energy LLC has the right under such arrangement to repurchase the Columbia Facility for nominal consideration upon completion or termination of the lease agreement, (2) the leasehold interest held by Columbia Energy LLC is part of the Collateral, (3) the arrangement is not reasonably expected to have a material adverse effect on the operation or financial condition of the Columbia Facility and (3) the arrangement does not impair the Columbia Facility's status as a QF.
"Condemnation Event" means any Facility (or any portion thereof in excess of $20.0 million) is condemned, confiscated, requisitioned, captured, seized or subjected to forfeiture, or title thereto is taken, by any Governmental Authority (or any Person acting under color of Governmental Authority).
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(3) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business;
in each case, on a consolidated basis and determined in accordance with 
GAAP.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period, plus:
(1) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of:
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(a) any and all interest expense for such period, including, without limitation, Consolidated Interest Expense and any interest expense attributable to Affiliate Subordinated Indebtedness,
(b) consolidated income tax expense for such period,
(c) all amounts attributable to depreciation and amortization for such period,
(d) any extraordinary or non-recurring non-cash charges (other than the write-down of current assets) for such period (including any such non-cash charges for such period relating to the application of fresh start accounting principals),
(e) any non-cash goodwill or other intangible asset impairment charges incurred after the Closing Date resulting from the application of Statement Number 142 of the Financial Accounting Standards Board,
(f) any non-recurring expenses incurred in connection with the transactions contemplated by the Secured Debt Documents, and
(g) any non-cash compensation charges, including any such charges arising from stock options, restricted stock grants and other equity incentive programs,
provided, that to the extent all or any portion of the income of any Subsidiary of the Company or other Person is excluded from Consolidated Net Income pursuant to the definition thereof for all or any portion of such period, any amounts set forth in the preceding clauses (a) through
(g) that are attributable to such Subsidiary or other Person will be not be included for purposes of this clause (1) for such period or portion thereof; plus
(2) without duplication, the cash amount of:
(a) prepayments received by the Company or any of its Subsidiaries under any Major Project Document during such period, and
(b) any distributions received by the Company or any of its Subsidiaries pursuant to the Index Hedge during such period; minus
(3) without duplication:
(a) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net Income pursuant to clause
(1) above in a previous period, and
(b) to the extent included in determining such Consolidated Net Income, any extraordinary gains and all non-cash items of income for such period, all determined on a consolidated basis in accordance with GAAP;
provided, that, if the Company has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated EBITDA will be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the sum of (i) the consolidated net income (loss) of such Subsidiary (to the extent included in Consolidated Net Income) and (ii) the amounts set forth in clause (1)(a)-(g) above attributable to such Subsidiary, multiplied by (B) the percentage of Equity Interests in such Subsidiary not directly or indirectly owned by
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the Company on the last day of such period. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated EBITDA will be calculated on a Pro Forma basis as if all transactions entered into by the Company on the Closing Date were entered into on the first day of the period for which Consolidated EBITDA is being measured.
"Consolidated Interest Expense" means, for any period:
(1) the sum of, without duplication:
(a) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations, but excluding any interest expense attributable to Affiliate Subordinated Indebtedness) of the Company and its Subsidiaries for such period (including all commissions, discounts and other fees and charges owed by the Company and its Subsidiaries with respect to letters of credit and bankers' acceptance financing), net of interest income, in each case determined on a consolidated basis in accordance with GAAP, plus
(b) any interest accrued (other than interest accrued with respect to Affiliate Subordinated Indebtedness) during such period in respect of Indebtedness of the Company or any of its Subsidiaries that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP; minus
(2) to the extent included in such consolidated interest expense for such period, amounts attributable to the amortization of financing costs and non-cash amounts attributable to the amortization of debt discounts.
For purposes of this definition, interest expense will be determined after giving effect to any net payments made or received by the Company or any of it is Subsidiaries with respect to interest rate Hedging Obligations. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated Interest Expense will be calculated on a Pro Forma basis as if all transactions entered into by the Company on the Closing Date were entered into on the first day of the period for which Consolidated Interest Expense is being measured.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that:
(1) the Net Income of any Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; and
(2) the cumulative effect of a change in accounting principles will be excluded.
"Control Agreement" means the Collateral Account Control Agreement, dated as of the Closing Date, between the Company and the Collateral Agent.
"Corporate Trust Office of the Trustee" will be at the address of the Trustee specified in Section 13.02 or such other address as to which the Trustee may give notice to the Company.
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"Corpus Christi Facility" means the facility described under "Business--Power Generation--ERCOT--Facility Descriptions--Corpus Christi Facility" in the Offering Memorandum.
"Credit Facilities" means one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.
"Decatur Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Decatur Facility" in the Offering Memorandum.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06, substantially in the form of Exhibit A, except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto.
"Delta Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Delta Facility" in the Offering Memorandum.
"Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
"Discharge of First Priority Lien Obligations" means the occurrence of all of the following:
(1) termination of all commitments to extend credit that would constitute First Priority Lien Debt;
(2) payment in full in cash of the principal of and interest and premium (if any) on all First Priority Lien Debt (other than any undrawn letters of credit) and/or defeasance of all First Priority Lien Debt in accordance with the applicable First Priority Lien Documents;
(3) discharge or cash collateralization (at 102.5% of the aggregate undrawn amount) of all outstanding letters of credit constituting First Priority Lien Debt; and
(4) payment in full in cash of all other First Priority Lien Obligations that are outstanding and unpaid at the time the First Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at such time).
"Discharge of Second Priority Lien Obligations" means the occurrence of all of the following:
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(1) termination of all commitments to extend credit that would constitute Second Priority Lien Debt;
(2) payment in full in cash of the principal of and interest and premium (if any) on all Second Priority Lien Debt (other than any undrawn letters of credit) and/or defeasance of all Second Priority Lien Debt in accordance with the applicable Second Priority Lien Documents;
(3) discharge or cash collateralization (at 102.5% of the aggregate undrawn amount) of all outstanding letters of credit constituting Second Priority Lien Debt; and
(4) payment in full in cash of all other Second Priority Lien Obligations that are outstanding and unpaid at the time the Second Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at such time).
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant contained in Section 4.07. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture will be the maximum amount that the Company and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Equally and Ratably" means, in reference to sharing of Liens or proceeds thereof as among Secured Parties of the same Class that such Liens or proceeds:
(1) will be allocated and distributed first to the Secured Debt Representative for each outstanding Series of Secured Debt within such Class, for account of the holders of such Series of Secured Debt, ratably in proportion to the principal of, and interest and premium (if any) and reimbursement obligations (contingent or otherwise) with respect to letters of credit, if any, outstanding (whether or not drawings have been made under such letters of credit) on, each outstanding Series of Secured Debt within such Class when the allocation or distribution is made, and thereafter
(2) will be allocated and distributed (if any remain after payment in full of all of the principal of, and interest and premium (if any) and reimbursement obligations (contingent or otherwise) with respect to letters of credit, if any, outstanding (whether or not drawings have been made under such letters of credit) on, all outstanding Secured Obligations within such Class) to the Secured Debt Representative for each outstanding Series of Secured Obligations within such Class, for account of the holders of any remaining Secured Obligations within such Class, ratably in proportion to the aggregate unpaid amount of such remaining Secured Obligations within such Class due and demanded (with written notice to the applicable Secured Debt Representative and the Collateral Agent) prior to the date such distribution is made.
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"Equity Contributions" means contributions of cash and Cash Equivalents to the common equity capital of the Company by Persons other than the Company and its Subsidiaries.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"Estimated Peak Capacity" means, with respect to a Facility, the nominal, as-tested new and clean capacity of such Facility, as corrected to average ambient conditions, plus all incremental peaking capability of such Facility derived from duct firing, power augmentation, steam injection or other means.
"Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system.
"Excess Cash Flow" means, for any period:
(1) the sum of:
(A) all revenues (excluding (i) non-cash revenues and
(ii) any payments received from contract monetizations, contract buy-outs and similar transactions) received by the Company and its Subsidiaries during such period,
(B) all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events, and all net proceeds from the sale, lease, conveyance or other disposition of any assets or rights not constituting "Asset Sales," in each case received by the Company and its Subsidiaries during such period and remaining after application of such proceeds to an offer to redeem Notes in accordance with the covenant contained in Section 4.10, and
(C) all Excess Expansion Asset Financing Proceeds received by the Company and its Subsidiaries during such period; less
(2) the sum of:
(A) all costs, expenses, fees and other charges
(including liquidated damages or other damages or penalties)
incurred by the Company and its Subsidiaries during such period in connection with the ownership, operation, maintenance and use of the Facilities, including all payments under Major Project Documents and other agreements relating to the Facilities (other than Major Maintenance Expenses),
(B) all trustee fees, collateral agent fees and other similar administrative fees and expenses paid by the Company and its Subsidiaries during such period,
(C) the Fixed Charges of the Company and its Subsidiaries during such period (other than Fixed Charges of the kind referred to in clause (4) of the definition of Fixed Charges and Fixed Charges relating to Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations),
(D) all payments of principal of Indebtedness of the Company and its Subsidiaries required to be made (whether or not actually made) during such period, other than payments of principal of Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations, and
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(E) all amounts paid by the Company and its Subsidiaries for capital expenditures to the Facilities during such period, other than Excluded CapEx Amounts.
"Excess Expansion Asset Financing Proceeds" means the excess of (1) the aggregate amount of net cash proceeds of Expansion Debt incurred to finance costs associated with Expansion Assets in accordance with clause (3) of the definition of Permitted Debt and Equity Contributions made in connection therewith, over (2) the amount of such proceeds and Equity Contributions required to finance costs associated with such Expansion Assets in compliance with the conditions set forth in clause (3) of the definition of Permitted Debt.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f).
"Exchange Offer" has the meaning set forth in the Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement.
"Excluded Assets" means:
(1) the fixtures and equipment relating to any Facility if, to the extent that and for so long as (A) the ownership or operation of such Facility is regulated by any federal or state regulatory authority and (B) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (i) such fixtures and equipment will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (A) and (B) in this clause (1) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (ii) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(2) with respect to personal property, any contract, agreement, lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (A) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such contract, agreement, lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such contract, agreement, lease, license, permit, franchise, power, authority or right is governed and (B) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (i) such contract, agreement, lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for so long as
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the conditions set forth in clauses (A) and (B) of this clause (2) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and
(ii) the proceeds of any sale, lease or other disposition of any such contract, agreement, lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(3) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for as long as the condition set forth above is and remains satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(4) any Excluded Subsidiary Securities;
(5) any property or assets owned by the Excluded Subsidiary;
(6) any Expansion Assets; provided, that any Expansion Assets will be Excluded Assets only if an for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on the ability to grant a Lien on such Expansion Assets to secure the Secured Obligations continue to be applicable, as determined in good faith by the Company; and
(7) the Company's rights under or with respect to the Working Capital Facility.
"Excluded CapEx Amounts" means amounts paid by the Company and its Subsidiaries for capital expenditures to the Facilities using funds derived from either of the following funding sources:
(1) Equity Contributions, other than Equity Contributions made to comply with clause (3) of the definition of Permitted Debt; and
(2) proceeds of Expansion Debt incurred in accordance with clause (3) of the definition of Permitted Debt.
"Excluded Subsidiary" means Goldendale Energy Center, LLC, only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on Goldendale Energy Center, LLC's ability to be a Guarantor and grant a Lien on its property and assets to secure the Secured Obligations continue to be applicable to Goldendale Energy Center, LLC, as determined in good faith by the Company.
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"Excluded Subsidiary Securities" means Capital Stock or other securities of any Subsidiary of the Company, other than the Equity Interests in CalGen Expansion Company.
"Existing Purchase Option" means an Asset Sale required in accordance with any of the following, without giving effect to any amendments or other modifications thereto after the Closing Date:
(1) the exercise by Eastman Chemical Company (or its successors and permitted assigns) of any of its purchase options under the Energy Services Agreement, dated as of August 15, 2000 and as amended to the Closing Date, between Columbia Energy LLC and Eastman Chemical Company;
(2) the exercise by Solutia, Inc. (or its successors and permitted assigns) of its purchase option upon an event of default under the Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001 and as amended to the Closing Date, between Decatur Energy Center, LLC and Solutia;
(3) the exercise by Bayer Corporation (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of January 12, 2000 and as amended to the Closing Date, between Baytown Energy Center LP and Bayer Corporation;
(4) the exercise by Lyondell-CITGO Refining L.P. (or its successors and permitted assigns) of any of its options to acquire certain property under the Amended and Restated Ground Lease and Easement Agreement, dated as of March 30, 2001 and as amended to the Closing Date, between Channel Energy Center, LP and Lyondell-CITGO Refining L.P.;
(5) the exercise by CITGO Refining and Chemicals Company L.P. (or its successors and permitted assigns) of its right of first offer under the Energy Services Agreement, dated as of March 23, 1999 and as amended to the Closing Date, between Corpus Christi Cogeneration LP and CITGO Refining and Chemicals Company L.P.; and
(6) the exercise by Flint Hills Resources, L.P. (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of July 24, 2003 and as amended to the Closing Date, between Corpus Christi Cogeneration LP and Flint Hills Resources, L.P.
"Expansion Assets" means the assets (including real property rights, contractual rights, rights under permits, other general intangibles and other ancillary rights) added to a Facility in connection with the addition of capacity to, or other expansion of, such Facility; provided, that such Expansion Assets are not necessary for the operation of such Facility or any other Facility (other than the Expansion Assets themselves), are readily distinguishable from such Facility and can be removed or separated from such Facility, dismantled or operated independently of the operation of such Facility without impairing such Facility or any other Facility in any material respect.
"Expansion Debt" means Indebtedness incurred for the purpose of financing the development, construction or purchase of, or repairs, improvements or additions to, Expansion Assets relating to one or more Facilities, including any Indebtedness existing at the time such Expansion Assets are acquired, whether or not such Indebtedness is incurred in connection with, or in contemplation of, the acquisition of such Expansion Assets; provided, that such Indebtedness was incurred to finance the development, construction or purchase of, or repairs, improvements or additions to, such Expansion Assets.
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"Facilities" means the Closing Date Facilities and any other electric generating facilities acquired or constructed after the Closing Date described in the definition of Permitted Business; provided, that any Facility disposed of in accordance with the terms of the Secured Debt Documents will be deemed not to be a Facility from and after the date of such disposition.
"Facility Owner" means, with respect to a Facility, the Subsidiary of the Company that directly owns such Facility.
"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by (1) an officer of the Company and evidenced by an Officer's Certificate delivered to the Trustee, if such value is less than or equal to $10.0 million, or (2) the Board of Directors of the Company and evidenced by a resolution delivered to the Trustee, if such value is greater than $10.0 million.
"FERC" means the Federal Energy Regulatory Commission or any successor agency.
"First Priority Debt Representative" means:
(1) in the case of the Notes, the Trustee;
(2) in the case of the Revolving Loans, the Revolving Loan Administrative Agent;
(3) in the case of the First Priority Term Loans, the First Priority Term Loan Administrative Agent; or
(4) in the case of any other Series of First Priority Lien Debt, the trustee, agent or representative of the holders of such Series of First Priority Lien Debt who maintains the transfer register for such Series of First Priority Lien Debt and (a) is appointed as a First Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of First Priority Lien Debt and
(b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"First Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure First Priority Lien Obligations.
"First Priority Lien Cap" means, as of any date:
(1) the principal amount of Notes issued on the Closing Date; plus
(2) the principal amount of all Indebtedness outstanding under the First Priority Term Loan Agreement on the Closing Date, plus any Indebtedness outstanding under any other Credit Facility (including the Revolving Loan Agreement), all in an aggregate principal amount not to exceed the amount provided by clause (1)(a) of the definition of Permitted Debt; less
(3) the amount of Second Priority Lien Debt or Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay any First Priority Lien Debt; plus
(4) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (1) and (2); plus
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(5) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500.0 million.
For purposes of this definition of First Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"First Priority Lien Debt" means:
(1) the Notes;
(2) Indebtedness under the First Priority Term Loan Agreement incurred on the Closing Date;
(3) Indebtedness under the Revolving Loan Agreement;
(4) Hedging Obligations incurred to hedge or manage interest rate risk with respect to First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500.0 million;
(5) Indebtedness under any other Credit Facility that is secured by a First Priority Lien; and
(6) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other First Priority Lien Debt;
provided, that in the case of any Indebtedness referred to in clause (3), (4),
(5) or (6) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each First Priority Debt Representative and the Collateral Agent, as "First Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other First Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable First Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "First Priority Lien Debt").
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"First Priority Lien Documents" means the Notes, the Subsidiary Guarantees, this Indenture, the First Priority Term Loan Agreement, the Revolving Loan Agreement, each agreement governing any other Series of First Priority Lien Debt and all other agreements governing, securing or relating to any First Priority Lien Obligations.
"First Priority Lien Obligations" means the First Priority Lien Debt and all other Obligations in respect of First Priority Lien Debt.
"First Priority Term Loan Administrative Agent" means Morgan Stanley Senior Funding, Inc., as administrative agent under the First Priority Term Loan Agreement, together with its successors in such capacity.
"First Priority Term Loan Agreement" means the Credit and Guaranty Agreement, dated as of the Closing Date, among the Company, the Guarantors, the First Priority Term Loan Administrative Agent and the agents and lenders thereunder, relating to $600.0 million in aggregate principal amount of term loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"First Priority Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the First Priority Term Loan Agreement.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred equity subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the Calculation Date, then the Fixed Charge Coverage Ratio will be calculated giving Pro Forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries acquired by the specified Person or any of its Subsidiaries, and including any related financing transactions and including increases in ownership of Subsidiaries, during the applicable reference period or subsequent to such reference period and on or prior to the Calculation Date will be given Pro Forma effect as if they had occurred on the first day of such reference period;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date;
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(4) any Person that is a Subsidiary on the Calculation Date will be deemed to have been a Subsidiary at all times during such reference period;
(5) any Person that is not a Subsidiary on the Calculation Date will be deemed not to have been a Subsidiary at any time during such reference period; and
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire reference period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases, but excluding the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, under any Affiliate Subordinated Indebtedness; plus
(2) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, but excluding the consolidated capitalized interest of such Person and its Subsidiaries for such period under any Affiliate Subordinated Indebtedness; plus
(3) any interest accruing on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred equity of such Person or any of its Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Subsidiary of the Company, multiplied by (b) a fraction, the numerator of which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal,
in each case, on a consolidated basis and determined in accordance with GAAP.
"FPA" means the Federal Power Act, as amended.
"Freestone Facility" means the facility described under "Business--Power Generation--ERCOT--Facility Descriptions--Freestone Facility" in the Offering Memorandum.
"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other
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entity as have been approved by a significant segment of the accounting profession, which are in effect on the applicable date of determination.
"Global Note Legend" means the legend set forth in Section 2.06(g)(2), which is required to be placed on all Global Notes issued under this Indenture.
"Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A or Exhibit B, as applicable, issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f).
"Goldendale Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Goldendale Facility" in the Offering Memorandum.
"Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.
"Governmental Authority" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantors" means each of:
(1) CalGen Expansion Company, CPN Freestone LLC, Calpine Freestone, LLC, Freestone Power Generation LP, Calpine Freestone Energy GP, LLC, Calpine Freestone Energy LP, Calpine Power Equipment LP, Calpine Channel Energy Center LP, LLC, Calpine Channel Energy Center GP, LLC, Channel Power GP LLC, Channel Power LP, Channel Energy Center, LP, CalGen Equipment Finance Holdings, LLC, CalGen Project Equipment Finance Company One, LLC, CalGen Project Equipment Finance Company Three LLC, CalGen Equipment Finance Company, LLC, Nueces Bay Energy LLC, Calpine Northbrook Southcoast Investors, LLC, Calpine Corpus Christi Energy GP, LLC, Calpine Corpus Christi Energy, LP, Corpus Christi Cogeneration LP, Zion Energy LLC, Los Medanos Energy Center, LLC, Morgan Energy Center, LLC, Carville Energy LLC, Decatur Energy Center, LLC, Calpine Oneta Power I, LLC, Calpine Oneta Power II, LLC, Calpine Oneta Power, L.P., Calpine Baytown Energy Center LP, LLC, Calpine Baytown Energy Center GP, LLC, Baytown Energy Center, LP, Baytown Power GP, LLC, Baytown Power, LP, Columbia Energy LLC, Delta Energy Center, LLC, CalGen Project Equipment Finance Company Two, LLC, Pastoria Energy Facility L.L.C. and Calpine Pastoria Holdings, LLC; and
(2) any other Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture;
and their respective successors and assigns.
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"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage interest rate risk; and
(3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means a Global Note substantially in the form of Exhibit A, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
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(A) the Fair Market Value of such asset at the date of determination, and
(B) the amount of the Indebtedness of the other Person.
Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation.
"Indenture" means this First Priority Indenture, as amended or supplemented from time to time.
"Indentures" means, collectively, this Indenture, the Second Priority Indenture and the Third Priority Indenture.
"Index Based Gas Sale and Power Purchase Agreement" means the Index Based Gas Sale and Power Purchase Agreement, dated as of the Closing Date, among Calpine Energy Services, L.P., the Company and the Facility Owners party thereto.
"Index Hedge" means, collectively, (1) the ISDA Master Agreement (MULTICURRENCY-CROSS BORDER), dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc., as supplemented by the Schedule to the Master Agreement, dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc. and by the Amended and Restated Confirmation, dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc., and (2) the Guaranty, dated as of March 12, 2004, by Morgan Stanley for the benefit of the Company.
"Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant.
"Initial Purchaser" means Morgan Stanley & Co. Incorporated.
"Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant contained in Section 4.07. Except as otherwise provided in this Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
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"Issuers" means, collectively, the Company and CalGen Finance.
"Junior Debt Representative" means the trustee, agent or representative of the holders of a Series of Junior Lien Debt who maintains the transfer register for such Series of Junior Lien Debt and is appointed as a Junior Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Junior Lien Debt.
"Junior Lien" means a Lien granted by a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Junior Lien Obligations.
"Junior Lien Debt" means:
(1) Expansion Debt that is secured by a Junior Lien that was permitted to be incurred under clause (7)(b) or (7)(c) of the definition of Permitted Liens; and
(2) Third Party Subordinated Indebtedness that is secured by a Junior Lien that was permitted to be incurred under clause (19) of the definition of Permitted Liens,
but only if on or before the day on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Junior Debt Representative and the Collateral Agent on or before such date, as "Junior Lien Debt" for the purposes of each of the Junior Lien Documents and the Collateral Trust Agreement.
"Junior Lien Documents" means all agreements governing, securing or relating to any Junior Lien Obligations.
"Junior Lien Obligations" means the Junior Lien Debt and all other Obligations in respect of Junior Lien Debt.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared by the Company, CalGen Finance and the Guarantors and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Lien Priority Confirmation" means:
(1) as to any Series of First Priority Lien Debt, the written agreement of the holders of such Series of First Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of First Priority Lien Debt, for the enforceable benefit of each existing and future
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holder of Permitted Prior Liens, to be bound by the provisions set forth in the Collateral Trust Agreement;
(2) as to any Series of Second Priority Lien Debt, the written agreement of the holders of such Series of Second Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of Second Priority Lien Debt, for the enforceable benefit of all holders of each existing and future Series of First Priority Lien Debt, each existing and future First Priority Debt Representative, the Collateral Agent and each existing and future holder of Prior Permitted Liens, to be bound by the provisions set forth in the Collateral Trust Agreement; and
(3) as to any Series of Third Priority Lien Debt, the written agreement of the holders of such Series of Third Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of Third Priority Lien Debt, for the enforceable benefit of all holders of each existing and future Series of First Priority Lien Debt and each existing and future Series of Second Priority Lien Debt, each existing and future First Priority Debt Representative and each existing and future Second Priority Debt Representative, the Collateral Agent, and each existing and future holder of Prior Permitted Liens, to be bound by the provisions set forth in the Collateral Trust Agreement.
"Los Medanos Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Los Medanos Facility" in the Offering Memorandum.
"Major Maintenance Expenses" means all costs, expenses, fees and other charges (including liquidated damages or other damages or penalties) incurred by the Company and its Subsidiaries during such period for major maintenance of the Facilities under the Master Maintenance Services Agreement or otherwise.
"Major Project Documents" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, the Index Based Gas Sale and Power Purchase Agreement, the Index Hedge, the Working Capital Facility, the Master Operation and Maintenance Agreement, the Master Maintenance Services Agreement, the Calpine Performance Guaranty, the Master Construction Management Agreement, the Calpine Project Undertaking and the Administrative Services Agreement.
"Master Construction Management Agreement" means the Master Construction Management Agreement, dated as of the Closing Date, among Calpine Construction Management Company, Inc., the Company and the Facility Owners party thereto.
"Master Maintenance Services Agreement" means the Master Maintenance Services Agreement, dated as of the Closing Date, among Calpine Operating Services Company, Inc., the Company and the Facility Owners party thereto.
"Master Operation and Maintenance Agreement" means the Master Operation and Maintenance Agreement, dated as of the Closing Date, among Calpine Operating Services Company, Inc., the Company and the Facility Owners party thereto.
"Material Adverse Effect" means a material adverse effect on (a) the current or reasonably anticipated business, property, results of operation or financial condition of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company and its Subsidiaries to perform their obligations under the Notes and the Subsidiary Guarantees or (c) the value of, or the validity or priority of the Collateral Agent's security interests in, the Collateral taken as a whole.
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"Materially Adverse" means, with respect to an event or circumstance, that such event or circumstance has had or is reasonably expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole; it being understood that an event or circumstance would have a material adverse effect on the Company and its Subsidiaries, taken as a whole, if the Excess Cash Flow for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event or circumstance occurred or commenced to exist, as applicable, would have decreased by more than 5.0%, determined on a Pro Forma basis.
"Moody's" means Moody's Investors Services, Inc., or any successor rating agency.
"Morgan Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Morgan Facility" in the Offering Memorandum.
"Mortgages" means the mortgages and deeds of trust, dated as of the Closing Date, entered into between the Guarantors and the Collateral Agent.
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means:
(1) the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, sales commissions, any relocation expenses incurred as a result of the Asset Sale, and any taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of the Asset Sale (other than Secured Obligations), and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP;
(2) all proceeds of any insurance, indemnity, warranty or guaranty payable from time to time with respect to any Casualty Event that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, other than business interruption insurance proceeds, net of the direct costs relating to the collection of such proceeds; and
(3) all payments (in any form whatsoever) made or due and payable from time to time in connection with any Condemnation Event by any Governmental Authority (or any Person acting under color of Governmental Authority) that are not applied to the repair, replacement or
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rebuilding of the applicable Facility to the extent commercially feasible, net of the direct costs relating to the collection of such proceeds.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Documents" means this Indenture, the Notes, the Subsidiary Guarantees, the Collateral Trust Agreement, each Sharing Confirmation, the other Security Documents and all other agreements related thereto.
"Notes" has the meaning assigned to it in the preamble to this Indenture.
"Obligations" means, with respect to any Indebtedness of any Person (collectively, without duplication):
(1) all debt, financial liabilities and obligations of such Person of whatsoever nature and howsoever evidenced (including principal, interest, fees, reimbursement obligations, cash cover obligations, penalties, indemnities and legal and other expenses, whether due after acceleration or otherwise) to the providers or holders of such Indebtedness or to any agent, trustee or other representative of such providers or holders of such Indebtedness under or pursuant to each agreement, document or instrument evidencing, securing, guaranteeing or relating to such Indebtedness, financial liabilities or obligations relating to such Indebtedness (including Secured Debt Documents applicable to such Indebtedness (if any)), in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such agreement, document or instrument;
(2) any and all sums paid or advanced by the Collateral Agent or any other Person in order to preserve the Collateral or any other collateral securing such Indebtedness or to preserve the Liens and security interests in the Collateral or any other collateral securing such Indebtedness; and
(3) the costs and expenses of collection and enforcement of the obligations referred to in clauses (1) and (2), including:
(a) the costs and expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on any Collateral or any other collateral;
(b) the costs and expenses of any exercise by the Collateral Agent or any other Person of its rights under the Security Documents or any other security documents; and
(c) reasonable attorneys' fees and expenses and court costs.
"Offering Memorandum" means the Offering Memorandum dated March 17, 2004 relating to the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
"Officer's Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 13.05.
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"Oneta Facility" means the facility described under "Business--Power Generation--Other--Facility Descriptions--Oneta Facility" in the Offering Memorandum.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section
13.05. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).
"Pastoria Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Pastoria Facility" in the Offering Memorandum.
"Permitted Business" means the ownership, construction, operation and maintenance of the Closing Date Facilities and any substantially similar electric generating facilities located in the United States, together with any related assets or facilities, including gas pipelines supplying natural gas to such generating facilities, electric transmission lines carrying energy generated from such generating facilities, and any related gas or electric interconnection facilities.
"Permitted Counterparty Lien" means a Lien in favor of a counterparty under a PPA; provided, that the following conditions are satisfied:
(1) the counterparty is not an Affiliate of the Company;
(2) the Lien does not secure any Indebtedness and (a) is granted solely to secure the performance obligations of the Company or the applicable Subsidiary under the PPA and/or any obligation of the Company or the applicable Subsidiary to make a termination payment under the PPA upon the occurrence of the event described in clause
(3)(c)(i) below or the termination by the counterparty upon the occurrence of any of the events described in clause (3)(c)(ii) below, or (b) creates rights designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise continue performance of the Company's or the applicable Subsidiary's obligations under the PPA;
(3) the counterparty can exercise its rights with respect to the Lien only:
(a) for so long as the counterparty remains current with respect to all of its payment obligations under the PPA and is not otherwise in a continuing default under the PPA,
(b) if the counterparty continues to acknowledge the existence of the Liens securing the Secured Obligations (unless and until Liens securing the Secured Obligations are eliminated in connection with a foreclosure of the Lien as contemplated by clause (4) of this definition), and
(c) if either (i) the Company or the applicable Subsidiary has terminated, rejected or repudiated the PPA (including, without limitation, any rejection or similar act by or on behalf of the Company or the applicable Subsidiary in connection with any proceeding under Bankruptcy Law) or (ii) the Company or the applicable Subsidiary has intentionally breached its obligations under the PPA; provided, that the following actions will be considered an intentional breach by the Company or the applicable Subsidiary
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under the PPA: (A) the Company or the applicable Subsidiary provides or delivers capacity or energy to a third party if the Company or the applicable Subsidiary is required under the PPA to provide or deliver such capacity or energy to the counterparty; (B) the Company or the applicable Subsidiary fails to operate or attempt to operate one or more of the relevant Facilities at a time when the Company or the applicable Subsidiary was required under the PPA to operate or attempt to operate such Facility or Facilities and such operation or attempted operation is not prevented by force majeure, forced outage or other events or circumstances outside the reasonable control of the Person responsible therefor; (C) any failure by the Company or the applicable Subsidiary to comply with any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise take actions necessary to continue performance of the Company's or the applicable Subsidiary's obligations under the PPA, in each case to the extent the Company or the applicable Subsidiary is then capable of complying with such provisions; or (D) any failure by the Company or the applicable Subsidiary to pay to the counterparty any amount due and payable in accordance with the terms and conditions of the PPA; and
(4) the counterparty's exercise of its rights with respect to the Lien is limited to (a) the taking of actions pursuant to any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise necessary to continue performance of the Company's or the applicable Subsidiary's obligations under the PPA or
(b) the recovery of any termination payment due under the PPA upon the occurrence of the event described in clause (3)(c)(i) above or the termination by the counterparty upon the occurrence of any of the events described in clause (3)(c)(ii) above.
"Permitted Investments" means:
(1) any Investment in the Company or in a Guarantor;
(2) (a) any Investment in the Goldendale Facility to finance the construction and completion of the Goldendale Facility and any other repairs, improvements or other capital expenditures necessary to operate and maintain such Facility in accordance with prudent industry practice, and (b) any other Investment in the Goldendale Facility made with the proceeds of Equity Contributions, Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(3) any Investment in Cash Equivalents;
(4) any Investment by the Company or any Guarantor in a Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Subsidiary of the Company and becomes a Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Guarantor;
(5) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant contained in Section 4.10;
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(6) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(7) any Investments received in compromise or resolution of
(a) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, or (b) litigation, arbitration or other disputes with Persons who are not Affiliates;
(8) Investments represented by Hedging Obligations;
(9) repurchases of the Notes and other Secured Obligations;
(10) negotiable instruments held for deposit or collection in the ordinary course of business; and
(11) other Investments in any Person other than an Affiliate of the Company having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) that are at the time outstanding, not to exceed $30.0 million.
"Permitted Liens" means:
(1) Liens in favor of the Collateral Agent Equally and Ratably securing the Notes, the First Priority Term Loans, the Revolving Loans and all other First Priority Lien Debt, all in an aggregate principal amount not exceeding the First Priority Lien Cap, and all related First Priority Lien Obligations;
(2) Liens in favor of the Collateral Agent Equally and Ratably securing the Second Priority Notes, the Second Priority Term Loans and all other Second Priority Lien Debt, all in an aggregate amount not exceeding the Second Priority Lien Cap, and all related Second Priority Lien Obligations;
(3) Liens in favor of the Collateral Agent Equally and Ratably securing the Third Priority Notes and all other Third Priority Lien Debt, and all related Third Priority Lien Obligations;
(4) Liens in favor of the Company or the Guarantors;
(5) pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or operating leases to which such Person is a party;
(6) Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
(7) (a) Liens to secure Expansion Debt that encumber the Expansion Assets financed with the proceeds of such Expansion Debt and other Expansion Assets owned by the Person incurring such Expansion Debt (including any rights of such Person under Shared Facilities Arrangements), (b) Liens to secure Expansion Debt that encumber the Capital Stock of CalGen Expansion Company; provided, that any such Capital Stock must be part of the Collateral and any such
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Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and (c) if such Expansion Assets are not Excluded Assets and are part of the Collateral, Liens to secure Expansion Debt on the other property and assets of such Person; provided, that any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(8) obligations under Shared Facilities Arrangements, to the extent such obligations constitute Liens, and Liens on Shared Facilities securing the Company's or the applicable Subsidiary's obligations under Shared Facility Arrangements;
(9) Liens which constitute bankers' liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract;
(10) Liens existing on the Closing Date;
(11) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(12) Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the ordinary course of business; or Liens arising out of judgments that do not constitute a Default or an Event of Default;
(13) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(14) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Indenture; provided, however, that:
(A) the new Lien shall be limited to all or part of the same property and assets that secured the original Lien (plus repairs, improvements and additions to such property or assets); and
(B) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such Indebtedness;
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(15) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to operating leases incurred in the ordinary course of business and not otherwise prohibited by this Indenture;
(16) Liens not in respect of Indebtedness consisting of the interest of the lessor under any operating lease entered into in the ordinary course of business and not otherwise prohibited by this Indenture;
(17) Permitted Counterparty Liens;
(18) to the extent constituting Liens, obligations of the Company or its Subsidiaries under or restrictions imposed by any PPA Recognition Agreement;
(19) Liens on property and assets of the Company to secure Third Party Subordinated Indebtedness; provided, that all such property and assets must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to the Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of any Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and
(20) unperfected security interests to secure (a) intercompany Indebtedness permitted to be incurred under clause (5) of the definition of Permitted Debt or (b) Affiliate Subordinated Indebtedness permitted to be incurred under clause (9) of the definition of Permitted Debt; and
(21) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $50.0 million at any one time outstanding.
"Permitted Prior Liens" means:
(1) Liens securing First Priority Lien Debt not exceeding the First Priority Lien Cap and all related First Priority Lien Obligations;
(2) Liens securing Second Priority Lien Debt not exceeding the Second Priority Lien Cap and all related Second Priority Lien Obligations;
(3) Liens directly on Expansion Assets of the kind described in clause (7)(a) of the definition of Permitted Liens;
(4) Liens described in clause (8), (10) (to the extent set forth on Schedule A), (17) or (18) of the definition of Permitted Liens; and
(5) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries (other than intercompany Indebtedness); provided, that:
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(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means, without duplication as to amounts and as long as the Company is a pass-through entity for U.S. federal income tax purposes, payments to Calpine in an amount equal to the federal, state, local and foreign taxes (including any penalties and interest) that the Company would owe if the Company were a corporation for U.S. federal income tax purposes filing a consolidated or combined return with its Subsidiaries.
"Perpetual Preferred Stock" means, with respect to any Person, any preferred Capital Stock of such Person that is not subject to mandatory redemption and is not Voting Stock.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"Pledge Agreements" means (1) the Membership Interest Pledge Agreement, dated as of the Closing Date, among CalGen Holdings, the Company and the Collateral Agent, and (2) the Membership Interest Pledge Agreement, dated as of the Closing Date, among the Company, CalGen Expansion Company and the Collateral Agent.
"PPA" means an agreement (including a tolling agreement, fuel conversion services agreement or other similar agreement) entered into by the Company or any of its Subsidiaries for the sale of capacity or energy (and services ancillary or related thereto) from one or more of the Facilities.
"PPA Recognition Agreement" means an agreement by the Collateral Agent, on behalf of the holders of Secured Obligations, (a) to assume, directly or indirectly (through any agent or Affiliate), the rights and obligations of the Company or any of its Subsidiaries under the WECC Fixed Price Gas Sale and Power Purchase Agreement in the event of a foreclosure under any Secured Debt Document, and (b) not to reject the WECC Fixed Price Gas Sale and Power Purchase Agreement in a proceeding under Bankruptcy Law (subject to applicable law and the discretion of the bankruptcy court), so long as Calpine Energy Services, L.P. is not then in default under the WECC Fixed Price Gas Sale and Power Purchase Agreement or the Index Based Gas Sale and Power Purchase Agreement, provided, that such PPA Recognition Agreement is substantially in the form of Exhibit B to the Collateral Trust Agreement.
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"Private Placement Legend" means the legend set forth in Section 2.06(g)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture.
"Pro Forma" means, with respect to a calculation, that such calculation is made in accordance with Regulation S-X under the Securities Act and gives effect to all relevant modifications to Major Project Documents and other contractual arrangements that have been made prior to, or are being made on, the calculation date; provided, that in the case of a calculation for any period occurring prior to the Closing Date, all Major Project Documents and other contractual arrangements in effect on the Closing Date shall be deemed to have been in effect for the entirety of such period.
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"QF" means a "qualifying cogeneration facility" as defined under the FPA, as amended by PURPA and Subpart B of Part 292 of the FERC's regulations.
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Closing Date, among the Initial Purchaser, the Company, CalGen Finance and the Guarantors.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent Global Note in the form of Exhibit A, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the applicable Regulation S Temporary Global Note upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary Global Note in the form of Exhibit B, deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of Notes initially sold in reliance on Rule 903 of Regulation S.
"Remedy Bar Lift Trigger Date" means, at any time after the occurrence and during the continuation of an event of default with respect to Second Priority Lien Debt, the earlier of (1) the date that is 180 days after the occurrence of such event of default and (2) the date of the commencement of any proceeding under Bankruptcy Law in respect of the Company or any Guarantor.
"Required First Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of First Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute First Priority Lien Debt,
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in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, First Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Required Second Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of Second Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute Second Priority Lien Debt,
in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, Second Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Required Third Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of Third Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute Third Priority Lien Debt,
in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, Third Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Period" means the 40-day distribution compliance period as defined in Regulation S.
"Revolving Loan Administrative Agent" means The Bank of Nova Scotia, as administrative agent under the Revolving Loan Agreement, together with its successors in such capacity.
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"Revolving Loan Agreement" means the Amended and Restated Credit Agreement, dated as of the Closing Date, among the Company, the Guarantors, the Revolving Loan Administrative Agent and the agents and lenders thereunder, relating to $200.0 million in aggregate principal amount of revolving credit facilities, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"Revolving Loans" means the principal of, and interest and premium (if any) on, Indebtedness of the Company incurred under the Revolving Loan Agreement.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"S&P" means Standard and Poor's Ratings Group, or any successor rating agency.
"SEC" means the Securities and Exchange Commission.
"Second Priority Debt Representative" means:
(1) in the case of the Second Priority Notes, the Second Priority Trustee;
(2) in the case of the Second Priority Term Loans, the Second Priority Term Loan Administrative Agent; or
(3) in the case of any other Series of Second Priority Lien Debt, the trustee, agent or representative of the holders of such Series of Priority Lien Debt who maintains the transfer register for such Series of Second Priority Lien Debt and (a) is appointed as a Second Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Second Priority Lien Debt and
(b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"Second Priority Indenture" means the Second Priority Indenture, dated as of the Closing Date, among the Company, CalGen Finance, the Guarantors and Wilmington Trust FSB, as trustee.
"Second Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Second Priority Lien Obligations.
"Second Priority Lien Cap" means, as of any date:
(1) the principal amount of Second Priority Notes issued on the Closing Date; plus
(2) the principal amount of all Indebtedness outstanding under the Second Priority Term Loan Agreement on the Closing Date, plus any Indebtedness outstanding under any other Credit Facility, all in an aggregate principal amount not to exceed the amount provided by clause
(1)(b) of the definition of Permitted Debt; less
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(3) the amount of Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay any Second Priority Lien Debt; plus
(4) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (1) and (2); plus
(5) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500.0 million.
For purposes of this definition of Second Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"Second Priority Lien Debt" means:
(1) the Second Priority Notes;
(2) Indebtedness under the Second Priority Term Loan Agreement incurred on the Closing Date;
(3) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500.0 million;
(4) Indebtedness under any other Credit Facility that is secured by a Second Priority Lien; and
(5) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Second Priority Lien Debt or any First Priority Lien Debt;
provided, that in the case of any Indebtedness referred to in clause (3), (4) or
(5) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Second Priority Debt Representative and the Collateral Agent, as "Second Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other Second Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable Second Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
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(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "Second Priority Lien Debt").
"Second Priority Lien Documents" means the Second Priority Notes, the related Subsidiary guarantees, the Second Priority Indenture, the Second Priority Term Loan Agreement, each agreement governing any other Series of Second Priority Lien Debt and all other agreements governing, securing or relating to any Second Priority Lien Obligations.
"Second Priority Lien Obligations" means the Second Priority Lien Debt and all other Obligations in respect of Second Priority Lien Debt.
"Second Priority Notes" means the Second Priority Secured Floating Rate Notes due 2010 issued by the Company and CalGen Finance on the Closing Date under the Second Priority Indenture.
"Second Priority Term Loan Administrative Agent" means Morgan Stanley Senior Funding, Inc., as administrative agent under the Second Priority Term Loan Agreement, together with its successors in such capacity.
"Second Priority Term Loan Agreement" means the Credit and Guaranty Agreement, dated as of the Closing Date, among the Company, the Guarantors and the Second Priority Term Loan Administrative Agent, relating to $100.0 million in aggregate principal amount of term loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"Second Priority Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Second Priority Term Loan Agreement.
"Second Priority Trustee" means the trustee under the Second Priority Indenture.
"Secured Debt" means First Priority Lien Debt, Second Priority Lien Debt and Third Priority Lien Debt.
"Secured Debt Documents" means the First Priority Lien Documents, the Second Priority Lien Documents and the Third Priority Lien Documents.
"Secured Debt Representatives" means each First Priority Debt Representative, each Second Priority Debt Representative and each Third Priority Debt Representative.
"Secured Obligations" means, collectively, all First Priority Lien Obligations, all Second Priority Lien Obligations and all Third Priority Lien Obligations.
"Secured Obligations Termination Date" means the date on which all Secured Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Secured Debt Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Secured Debt Documents), all commitments to extend credit under all Secured Debt Documents have terminated
36
or expired and all outstanding letters of credit issued pursuant to any Secured Debt Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Secured Parties" means the Collateral Agent and the holders of any Secured Obligations at any time outstanding.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated as of the Closing Date, among the Company, the Guarantors and the Collateral Agent.
"Security Documents" means the Security Agreement, the Pledge Agreements, the Mortgages, the Control Agreement, the Collateral Trust Agreement, each Sharing Confirmation and Lien Priority Confirmation, and all security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, control agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Agent, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms.
"Series of First Priority Lien Debt" means, severally, the Notes, the First Priority Term Loans, the Revolving Loans and each other issue or series of First Priority Lien Debt for which a single transfer register is maintained.
"Series of Junior Lien Debt" means, severally, each issue or series of Junior Lien Debt for which a single transfer register is maintained.
"Series of Second Priority Lien Debt" means, severally, the Second Priority Notes, the Second Priority Term Loans and each other issue or series of Second Priority Lien Debt for which a single transfer register is maintained.
"Series of Secured Debt" means, severally, each Series of First Priority Lien Debt, each Series of Second Priority Lien Debt and each Series of Third Priority Lien Debt.
"Series of Third Priority Lien Debt" means, severally, the Third Priority Notes and each other issue or series of Third Priority Lien Debt for which a single transfer register is maintained.
"Shared Facilities" means equipment, facilities, pipelines, permits, real estate rights, entitlements or other property that are shared or jointly used, owned or operated by the Company or any of its Subsidiaries and any owner of Expansion Assets.
"Shared Facilities Arrangement" means any arrangement that provides for the sharing, joint operation or use, common ownership, leasing or contingent use of Shared Facilities between the Company or any of its Subsidiaries and any owner of Expansion Assets or Toll Party (as defined below), and/or their respective lenders, including (1) agreements for the sharing or joint use or operation of Shared Facilities, (2) ownership of undivided interests in Shared Facilities as tenants in common or other similar forms of joint ownership, (3) leasing of Shared Facilities by the Company or any of its Subsidiaries to an owner of Expansion Assets, (4) ownership of Shared Facilities by a single purpose entity formed solely to own the Shared Facilities and owned by the Company or any of its Subsidiaries or jointly owned by the Company or any of its Subsidiaries and the owner of the Expansion Assets, (5) tolling agreements between the Company or any of its Subsidiaries and any other Person (the "Toll Party") with respect to a Facility's steam turbine, (6) granting of conditional or unconditional real estate rights for the construction,
37
installation or use of Shared Facilities, and (7) Liens on the Shared Facilities or interests therein to secure any such arrangement; provided, that the Company will deliver to the Collateral Agent an Officer's Certificate to the effect that, and, with respect to items (c) and (d) below, a nationally recognized independent engineer will deliver a report concluding that (subject to customary assumptions and qualifications):
(a) the ownership, operation, leasing or use of such Shared Facilities by the owner of Expansion Assets (including the use of the steam turbine by the Toll Party) cannot unreasonably interfere with or otherwise materially adversely affect the operation of the Facility;
(b) the owner of the Facility (or another entity on such owner's behalf) continues to operate and maintain the Facility and the Shared Facilities;
(c) the costs of operating and maintaining the Shared Facilities are shared by the owner of the Facility and the owner of the Expansion Assets or the Toll Party, as applicable, on an equitable basis;
(d) the Shared Facilities and the entitlements related thereto are sufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, or, to the extent the Shared Facilities or the entitlements related thereto are insufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, the Facility will have priority with respect to such Shared Facilities or entitlements, so long as the Facility is operated within the requirements, operating restrictions and other limitations associated with such Shared Facilities or entitlements;
(e) the holder of the Expansion Assets or the Toll Party, as applicable, will not have any rights with respect to the sale or other disposition of, or exercise of remedies with respect to, the Facility, so long as the Shared Facilities remain subject to the Shared Facilities Arrangements;
(f) each party waives the defense that an adequate remedy exists at law and affords the other party (and its lenders or agents on behalf of such lenders) the right to specifically enforce the agreement; and
(g) the owner of the Expansion Assets or the Toll Party, as applicable, cannot prevent a dismantling of the Facility and the receipt by the holders of the Secured Debt of the proceeds of the sale thereof, so long as (i) such owner or Toll Party, as applicable, is given an option to purchase the Shared Facilities at their Fair Market Value, as determined by appraisal, prior to dismantling of the Facility, (ii) such owner or Toll Party, as applicable, is given a right of first refusal to acquire the Shared Facilities in the event they are offered for sale in connection with the dismantling of the Facility, and (iii) the owner of the Facility cooperates with the owner of the Expansion Assets or the Toll Party, as applicable, in accommodating the continued use and operation of the Expansion Assets and the Shared Facilities to the maximum extent reasonably possible notwithstanding the dismantling of the Facility, including providing reasonable periods for and cooperating in the modification of the Shared Facilities.
"Sharing Confirmation" means, as to any Series of Secured Debt within a Class, the written agreement of the holders of such Series of Secured Debt, as set forth in the indenture or other agreement governing such Series of Secured Debt, for the enforceable benefit of all holders of each other existing and future Series of Secured Debt within such Class and each existing and future Secured Debt Representative therefor to be bound as set forth under Section 10.01.
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"Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Closing Date.
"Special Interest" means all liquidated damages then owing pursuant to the Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Affiliate Subordinated Indebtedness, Working Capital Facility Indebtedness or Third Party Subordinated Indebtedness.
"Subordination Terms" means the subordination terms set forth in Exhibit H.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
"Subsidiary Guarantee" or "Note Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and on the Notes, executed pursuant to the provisions of this Indenture.
"Synthetic Lease Obligations" means all monetary obligations of a Person under (1) a so-called synthetic, off-balance sheet or tax retention lease or (2) an agreement for the use or possession of any property (whether real, personal or mixed) creating obligations which do not appear on the balance sheet of such person, but which, upon the insolvency or bankruptcy of such Person, would be characterized as Indebtedness of such Person (without regard to accounting treatment).
"Third Party Subordinated Indebtedness" means Indebtedness loaned to the Company by a Person other than an Affiliate of the Company; provided, that such Indebtedness (1) is contractually subordinated in right of payment and in all other respects to the Notes and all other Secured Obligations in accordance with the Subordination Terms, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (2) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of
39
the Notes, (3) provides for payment of interest thereon in the form of cash or additional Third Party Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (4) is otherwise subordinated in accordance with the Subordination Terms.
"Third Priority Debt Representative" means:
(1) in the case of the Third Priority Notes, the Third Priority Trustee; or
(2) in the case of any other Series of Third Priority Lien Debt, the trustee, agent or representative of the holders of such Series of Third Priority Lien Debt who maintains the transfer register for such Series of Third Priority Lien Debt and (a) is appointed as a Third Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Third Priority Lien Debt and
(b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"Third Priority Indenture" means the Third Priority Indenture, dated as of the Closing Date, among the Company, CalGen Finance, the Guarantors and Wilmington Trust FSB, as trustee.
"Third Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Third Priority Lien Obligations.
"Third Priority Lien Debt" means:
(1) the Third Priority Notes;
(2) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Third Priority Lien Debt or any First Priority Lien Debt or Second Priority Lien Debt; and
(3) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Third Priority Lien Debt having a notional amount not to exceed the aggregate principal amount of outstanding Third Priority Lien Debt;
provided, that, in the case of any Indebtedness referred to in clause (2) or (3) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Third Priority Debt Representative and the Collateral Agent, as "Third Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other Third Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable Third Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
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(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "Third Priority Lien Debt").
"Third Priority Lien Documents" means, collectively, the Third Priority Notes, the related Subsidiary guarantees, the Third Priority Indenture, each agreement governing any other Series of Third Priority Lien Debt and all other agreements governing, securing or relating to any Third Priority Lien Obligations.
"Third Priority Lien Obligations" means the Third Priority Lien Debt and all other Obligations in respect of Third Priority Lien Debt.
"Third Priority Notes" means the Third Priority Secured Floating Rate Notes due 2011 and 11 1/2% Third Priority Secured Notes due 2011, each issued by the Company and CalGen Finance on the Closing Date under the Third Priority Indenture.
"Third Priority Trustee" means the trustee under the Third Priority Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note substantially in the form of Exhibit A attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing Notes that do not bear the Private Placement Legend.
"U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act.
"Voting Group" means a group of one or more Series of Secured Debt that casts its votes as a combined group in connection with decisions made by holders of Secured Debt under the Collateral Trust Agreement.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"WECC Fixed Price Gas Sale and Power Purchase Agreement" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, dated as of the Closing Date, among Calpine Energy Services, L.P., the Company and the Facility Owners party thereto.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
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(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) will at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means the Working Capital Facility Agreement, dated as of the Closing Date, among Calpine, CalGen Holdings and the Company.
"Working Capital Facility Indebtedness" means Indebtedness incurred by the Company or any of its Subsidiaries under the Working Capital Facility; provided, that such Indebtedness has the terms (including subordination terms) set forth in Exhibit I.
"Zion Facility" means the facility described under "Business--Power Generation--Other--Facility Descriptions--Zion Facility" in the Offering Memorandum.

Section 1.02      Other Definitions.

                                                                     Defined in
        Term                                                           Section
        ----                                                           -------
        "Affiliate Transaction"....................................     4.11
        "Asset Sale Offer".........................................     4.10
        "Authentication Order".....................................     2.02
        "Change of Control Offer"..................................     4.15
        "Change of Control Payment"................................     4.15
        "Change of Control Payment Date"...........................     4.15
        "Covenant Defeasance"......................................     8.03
        "DTC"......................................................     2.03
        "Event of Default".........................................     6.01
        "incur"....................................................     4.09
        "Legal Defeasance".........................................     8.02
        "Offer Amount".............................................     3.09
        "Paying Agent".............................................     2.03
        "Payment Default" .........................................     6.01
        "Permitted Debt"...........................................     4.09
        "Purchase Date"............................................     3.09
        "Registrar"................................................     2.03
        "Restricted Payments"......................................     4.07	

Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
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"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes and the Subsidiary Guarantees means the Issuers and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include the singular;
(5) "will" shall be interpreted to express a command;
(6) provisions apply to successive events and transactions;
(7) references to sections of or rules under the Securities Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time; and
(8) references in this Indenture to Sections, Exhibits and Schedules are to Sections of, and Exhibits and Schedules to, this Indenture.
ARTICLE 2.
THE NOTES
Section 2.01 Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication will be substantially in the form of Exhibit A or Exhibit B, as applicable. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Issuers and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any
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provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form will be substantially in the form of Exhibit A or Exhibit B, as applicable (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06.
(c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S will be issued initially in the form of the Regulation S Temporary Global Note, which will be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its corporate trust office, as Custodian, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided. The Restricted Period will be terminated upon the receipt by the Trustee of (1) a written certificate from the Depositary, together with copies of certificates from Euroclear and Clearstream, certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(b)), and (2) an Officer's Certificate from the Company stating that such Restricted Period has ended.
Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note will be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee will, upon receipt of written directions, cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided.
(d) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Clearstream.
Section 2.02 Execution and Authentication.
One Officer of each Issuer must sign the Notes for the Issuers by manual or facsimile signature.
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If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid.
A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee will, upon receipt of a written order of the Issuers signed by one Officer of each Issuer (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuers.
Section 2.03 Registrar and Paying Agent.
The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04 Paying Agent to Hold Money in Trust.
The Issuers will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of, or premium, if any, interest or Special Interest, if any, on, the Notes, and will notify the Trustee of any default by the Issuers in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) will have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee will serve as Paying Agent for the Notes.
Section 2.05 Holder Lists.
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The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company will furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders and the Company shall otherwise comply with TIA Section 312(a).
Section 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. A Global Note will be exchangeable by the Issuers for Definitive Notes if:
(1) the Issuers deliver to the Trustee written notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuers within 120 days after the date of such notice from the Depositary;
(2) the Issuers in their sole discretion determine that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and deliver a written notice to such effect to the Trustee; provided, that in no event shall the Regulation S Temporary Global Note be exchanged by the Issuers for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or
(3) there has occurred and is continuing a Default or Event of Default with respect to the Notes.
Upon the occurrence of any of the preceding events in (1), (2) or (3) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee in writing. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a); however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f).
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the
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expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than the Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1).
(2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either:
(A) both:
(i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and
(ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or
(B) both:
(i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and
(ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above;
provided, that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act.
Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the applicable exchange agent of (i) the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes or (ii) the instructions contained in the agent's message received by such exchange agent through DTC's Automated Tender Offer Procedures, as applicable. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof
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in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.
(4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(2) above and:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or
(iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit D, including the certifications in item (1)(a) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C, including the certifications in item (4) thereof;
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and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit D, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit C, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit C, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;
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(F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h), and the Issuers shall execute and the Trustee shall authenticate upon receipt of an Authentication Order and deliver to the Person designated in such order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes. Notwithstanding Sections 2.06(c)(1)(A) and (C), a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904.
(3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or
(iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
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(i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit D, including the certifications in item
(1)(b) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C, including the certifications in item
(4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2), the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h), and the Company will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(3) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit C, including the certifications in item (1) thereof;
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(C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit C, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C, including the certifications in item
(3)(c) thereof,
the Trustee will cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note.
(2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from
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such Holder in the form of Exhibit D, including the certifications in item (1)(c) thereof; or
(ii) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note.
(3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Unrestricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (2)(B),
(2)(D) or (3) above at a time when an Unrestricted Global Note has not yet been issued, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee will authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e).
(1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (1) thereof;
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(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item
(2) thereof; and
(C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.
(2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Restricted Definitive Note proposes to exchange such Note for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (1)(d) thereof; or
(ii) if the Holder of such Restricted Definitive Note proposes to transfer such Note to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of Unrestricted Definitive Notes. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.
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(f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate:
(1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company; and
(2) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company.
Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company will execute and the Trustee, upon receipt of an Authentication Order, will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.
(1) Private Placement Legend. Except as permitted by the paragraph immediately following the legend below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
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SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS 
NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS."
Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(3), (c)(4), (d)(2),
(d)(3), (e)(2) or (e)(3) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend.
(2) Global Note Legend. Each Global Note will bear a legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY AND CALGEN FINANCE.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
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REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(3) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note will bear a legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(1) To permit registrations of transfers and exchanges, the Issuers will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request.
(2) No service charge will be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05).
(3) The Registrar will not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.
(4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(5) The Issuers will not be required:
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(A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 and ending at the close of business on the day of selection;
(B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
(6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes, and none of the Trustee, any Agent, the Company or CalGen Finance shall be affected by notice to the contrary.
(7) The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02.
(8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.
Section 2.07 Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Issuers and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuers will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or either Issuer, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers may charge the applicable Holder for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuers and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.
If the principal amount of any Note is considered paid under Section 4.01, it ceases to be outstanding and interest on it ceases to accrue.
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If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest.
Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded.
Section 2.10 Temporary Notes.
Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Issuers will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes will be entitled to all of the benefits of this Indenture.
Section 2.11 Cancellation.
The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. Upon receipt of written directions, the Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes will be delivered to the Issuers. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01. The Company will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company will fix or cause to be fixed each such special record date and payment date, provided, that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
Section 2.13 Same Day Settlement and Payment.
The Issuers will make payments in respect of the Notes represented by the Global Notes
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(including principal, premium, if any, and interest and Special Interest, if any) by wire transfer of immediately available funds to the accounts specified by the Holder of the Global Note. The Issuers will make all payments of principal, interest and premium and Special Interest, if any, with respect to Definitive Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the Definitive Notes or, if no such account is specified, by mailing a check to each such Holder's registered address.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised the Issuers that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01 Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officer's Certificate setting forth:
(1) the clause of this Indenture pursuant to which the redemption shall occur;
(2) the redemption date;
(3) the principal amount of Notes to be redeemed; and
(4) the redemption price.
Section 3.02 Selection of Notes to Be Redeemed or Purchased.
If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes for redemption or purchase on a pro rata basis except:
(1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or
(2) if otherwise required by law.
In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase.
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The Trustee will promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase.
Section 3.03 Notice of Redemption.
Subject to the provisions of Section 3.09, at least 30 days but not more than 60 days before a redemption date, the Company will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Article 8 or 12 of this Indenture. Notices of redemption may not be conditional.
The notice will identify the Note(s) to be redeemed and will state:
(1) the redemption date;
(2) the redemption price;
(3) if any Note is to be redeemed in part only, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(6) that, unless the Issuers default in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee will give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 days prior to the redemption date, an Officer's Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.
Section 3.04 Effect of Notice of Redemption.
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Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional.
Section 3.05 Deposit of Redemption or Purchase Price.
Not less than one Business Day prior to the redemption or purchase price date, the Issuers will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Special Interest, if any, on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest and Special Interest, if any, on, all Notes to be redeemed or purchased.
If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01.
Section 3.06 Notes Redeemed or Purchased in Part.
Upon surrender of a Note that is redeemed or purchased in part, the Issuers will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder, at the expense of the Company, a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered.
Section 3.07 Optional Redemption.
The Issuers may not redeem all or any part of the Notes prior to April 1, 2007. On or after April 1, 2007, the Issuers may redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice, at the redemption prices (expressed at percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below, subject to the rights of the Holders on the relevant record date to receive interest on the relevant interest payment date:

Year                                                      Percentage
----                                                      ----------
2007.................................................        102.5%
2008, and thereafter.................................        100.0%	

Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06.
Section 3.08 Mandatory Redemption.
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The Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes.
Section 3.09 Offer to Purchase by Application of Net Proceeds.
In the event that, pursuant to Section 4.10, the Issuers are required or elect to commence an Asset Sale Offer, they will follow the procedures specified below.
Within 30 days following the receipt by the Company or any of its Subsidiaries of Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event, in the case of an Asset Sale Offer described in clause (1) of the second paragraph of Section 4.10, or upon completion of a prior required Asset Sale Offer (and any associated mandatory purchase, prepayment or redemption), in the case of an Asset Sale Offer described in clause (2) or (3) of the second paragraph of Section 4.10, the Issuers will mail a notice to the Trustee and each Holder regarding such Asset Sale Offer. The notice will contain all instructions and materials necessary to enable the Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state:
(1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10;
(2) the amount of Net Proceeds being offered to purchase Notes and other First Priority Lien Obligations (the "Offer Amount"), the purchase price and the date on which the purchase will be made (the "Purchase Date"), which date will be no earlier than 30 and no later than 60 days from the date the notice is mailed;
(3) that any Note not tendered or accepted for payment will continue to accrue interest;
(4) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only;
(6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, the Depositary or the Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date;
(7) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than two Business Days before the Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;
(8) that, if the aggregate principal amount of Notes and other First Priority Lien Obligations tendered in the Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the Offer Amount, the Company will select the Notes and other First Priority Lien Obligations to be purchased, prepaid or redeemed on a pro rata basis based on the principal amount of Notes and such other First Priority Lien Obligations tendered (or required to be
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purchased, prepaid or redeemed), with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased, prepaid or redeemed; and
(9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes and other First Priority Lien Obligations or portions thereof tendered pursuant to the Asset Sale Offer (or required to be purchased, prepaid or redeemed), or if less than the Offer Amount has been tendered (or is required to be purchased, prepaid or redeemed), all Notes and other First Priority Lien Obligations tendered (or required to be purchased, prepaid or redeemed), and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officer's Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this Section 3.09. Payment for any Notes so purchased will be made in the same manner as interest payments are made. The Issuers, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuers for purchase, and the Issuers will promptly issue a new Note, and the Trustee, upon written request from the Issuers, will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results of the Asset Sale Offer on the Purchase Date.
If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Special Interest, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 3.09 or Section 4.10, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under this Section 3.09 or Section 4.10 by virtue of such compliance.
Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06.
ARTICLE 4.
COVENANTS
Section 4.01 Payment of Notes.
The Company will pay or cause to be paid the principal of, and premium, if any, interest and Special Interest, if any, on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, interest and Special Interest, if any, will be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient
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to pay all principal, premium, if any, and interest and Special Interest, if any, then due. The Company will pay all Special Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement.
The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03.
Section 4.03 Reports.
Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company will furnish to the Holders or cause the Trustee to furnish to the Holders, within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the Company were required to file such reports; and
(2) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports.
All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K will include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, following consummation of the Exchange Offer contemplated by the Registration Rights Agreement, the Company will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing or the Company has elected to pay
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Special Interest in lieu of complying with the registration requirements of the Registration Rights Agreement) and will post the reports on its website within those time periods.
If the Company is not subject to the periodic reporting requirements of the Exchange Act for any reason, the Company will nevertheless file the reports specified in the preceding paragraphs of this covenant with the SEC within the time periods specified above unless the SEC will not accept such a filing or the Company has elected to pay Special Interest in lieu of complying with the registration requirements of the Registration Rights Agreement. However, if the Company does not file any such reports with the SEC, the Company will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if the Company were required to file those reports with the SEC.
In addition, the Company and the Guarantors agree that, for so long as any Notes remain outstanding, if at any time they are not required to file with the SEC the reports required by the preceding paragraphs, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04 Compliance Certificate.
(a) The Issuers and each Guarantor (to the extent that such Guarantor is so required under the TIA) will deliver to the Trustee, within 90 days after the end of each fiscal year, an Officer's Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the other Notes Documents, and further stating, as to the Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the other Notes Documents and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or any other Note Document (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest or Special Interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(1) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Notes are outstanding, the Company will deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.
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Section 4.05 Taxes.
The Company will pay, and will cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.
Section 4.06 Stay, Extension and Usury Laws.
The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.07 Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly:
(1) (a) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Equity Interests in their capacity as such, including Permitted Tax Payments (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Guarantor), or (b) pay any Major Maintenance Expenses;
(2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations (excluding any intercompany Indebtedness between or among the Company and any of the Guarantors); or
(4) make any Restricted Investment;
(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless:
(A) such Restricted Payment is made from Excess Cash Flow generated since the Closing Date;
(B) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and
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(C) at the time of making any such Restricted Payment that is not a payment on or with respect to, or a purchase, redemption, defeasance or other acquisition or retirement for value of, Subordinated Indebtedness, all amounts then due under all Subordinated Indebtedness have been paid in full; or
(5) use the proceeds of any Indebtedness under any revolving Credit Facility which is First Priority Lien Debt to prepay, repay or redeem the principal of any Second Priority Lien Debt or Third Priority Lien Debt.
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or the applicable Subsidiary, as the case may be, pursuant to the Restricted Payment.
Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Subsidiaries;
(2) make loans or advances to the Company or any of its Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) this Indenture, the Notes and the Subsidiary Guarantees, the Second Priority Notes and the related Subsidiary guarantees, the Second Priority Indenture, the Third Priority Notes and the related Subsidiary guarantees and the Third Priority Indenture;
(2) agreements governing Credit Facilities as in effect on the Closing Date (including the First Priority Term Loan Agreement, the Second Priority Term Loan Agreement and the Revolving Loan Agreement) and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Closing Date;
(3) any applicable law, rule, regulation or order;
(4) customary non-assignment provisions in contracts, agreements, leases, permits or licenses entered into or issued in the ordinary course of business and consistent with past practices;
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(5) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clauses (1) and (3) of the preceding paragraph;
(6) any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending the sale or other disposition;
(7) Permitted Refinancing Indebtedness; provided, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(8) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant contained in Section 4.12 that limit the right of the debtor to dispose of the assets subject to such Liens or to use the proceeds of any such disposition;
(9) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements;
(10) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and
(11) provisions restricting or encumbering the sale or other disposition of Expansion Assets or the payment of dividends, distributions or similar payments made from cash flow derived exclusively from Expansion Assets, in each case pursuant to the terms of any Expansion Debt incurred pursuant to clause (3) of the definition of Permitted Debt; provided, that such encumbrance or restriction will not materially adversely affect the Company's ability to meet its obligations on the Notes when due, and, in the written opinion of the president, chief operating officer or chief financial officer of the Company, is required in order to obtain such Expansion Debt and is customary for financings of such type.
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Equity.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred equity.
The preceding paragraph will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company (and the guarantee by its Subsidiaries) of:
(a) Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1)(a) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed $800.0 million, less the
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aggregate amount of all Net Proceeds of Asset Sales, Casualty Events or Condemnation Events applied by the Company or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder; and
(b) Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount outstanding under this clause (1)(b) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed $100.0 million, less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events applied by the Company or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder;
(2) the incurrence by the Issuers and the Guarantors of Indebtedness represented by the Notes, the Second Priority Notes and the Third Priority Notes to be issued on the Closing Date, the related Subsidiary guarantees and the other Obligations incurred under the Indentures on the Closing Date, and the Exchange Notes and the related Subsidiary guarantees to be issued pursuant to the Registration Rights Agreement;
(3) the incurrence by the Company or any of its Subsidiaries of Expansion Debt; provided, that:
(a) any Expansion Debt incurred by the Excluded Subsidiary is recourse only to the Expansion Assets financed with such Expansion Debt and to other Expansion Assets owned by the Excluded Subsidiary (including any rights of the Excluded Subsidiary under Shared Facilities Arrangements);
(b) if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved), at least 25% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(c) if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been less than 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved),
(i) at least 40% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness, and
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(ii) after giving effect to such incurrence, the amount of Expansion Debt incurred pursuant to this clause (3), together with the aggregate amount of all other Expansion Debt then outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Expansion Debt incurred pursuant to this clause (3), does not exceed $250.0 million;
(4) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under clauses (2), (3), (4) or (10) of this paragraph;
(5) the incurrence by the Company or any Guarantor of intercompany Indebtedness between or among the Company and any Guarantor that is subordinated in right of payment to all Secured Obligations pursuant to a customary subordination agreement delivered to the Collateral Agent (together with all other documents or instruments required to effect such subordination and any other documents reasonably requested by the Collateral Agent in connection therewith), and is not secured other than by unperfected security interests; provided, however, that (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Guarantor and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Guarantor will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Guarantor, as the case may be, that was not permitted by this clause
(5); and provided, further, that any such intercompany Indebtedness must be included in the Collateral;
(6) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations, in connection with Permitted Debt or otherwise, in the ordinary course of business and not for speculative purposes; provided, that (a) such Hedging Obligations have tenors that expire on or prior to the maturity date (or other expiration) of the underlying obligation being hedged, and (b) any such Hedging Obligations hedging or managing interest rate risk with respect to (i) First Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the Notes, (ii) Second Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the Second Priority Notes, or (iii) Third Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the Third Priority Notes;
(7) the incurrence by the Company or any of its Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, and performance and surety bonds in the ordinary course of business;
(8) the incurrence by the Company or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days;
(9) the incurrence by the Company of (a) Affiliate Subordinated Indebtedness in an aggregate principal amount not to exceed $250.0 million at any one time outstanding and (b) Working Capital Facility Indebtedness in an aggregate principal amount not to exceed $750.0 million at any one time outstanding;
(10) the incurrence by the Company of Third Party Subordinated Indebtedness; provided, that:
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(a) the net proceeds of the Third Party Subordinated Indebtedness are applied:
(i) to acquire all or substantially all of the assets of, or any Equity Interests in, a business that constitutes a Permitted Business; provided, that in the case of an acquisition of Equity Interests, the business is or becomes a Subsidiary of the Company and a Guarantor concurrently with such acquisition;
(ii) to make a capital expenditure;
(iii) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business; or
(iv) any combination of the foregoing; and
(b) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Third Party Subordinated Indebtedness is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Third Party Subordinated Indebtedness had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved).
The Company will not incur, and will not permit any Subsidiary to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Subsidiary unless such Indebtedness is also contractually subordinated in right of payment to the Secured Obligations on substantially identical terms or on terms that are more favorable to the holders of the Secured Obligations; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company or any of its Subsidiaries solely by virtue of being unsecured or by virtue of being secured on a junior basis.
For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (10) above, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.09. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
Section 4.10 Asset Sales.
The Company will not, and will not permit any of its Subsidiaries to, consummate any Asset Sale unless:
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(1) except with respect to an Asset Sale made pursuant to an Existing Purchase Option, the Company (or any of its Subsidiaries, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;
(2) at least 90% of the consideration received in the Asset Sale by the Company or such Subsidiary is in the form of cash. For purposes of this provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Subsidiary from further liability;
(b) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Subsidiary into cash, to the extent of the cash received in that conversion; and
(c) in connection with the exercise by a purchaser of an Existing Purchase Option, any amount owed by the Company or the applicable Subsidiary to the purchaser under the agreement containing such Existing Purchase Option that is set off by the purchaser against the purchase price;
(3) if the assets disposed of in such Asset Sale include any component of a Facility that is necessary for the operation of such Facility, the Asset Sale involves the disposition of such Facility as a whole; and
(4) if the Asset Sale involves the sale of a Facility or all or substantially all the assets of a Facility, (a) such Asset Sale is to a Person other than an Affiliate of the Company, and (b) all necessary amendments are made to those Major Project Documents applicable to such Facility to remove such Facility from the scope of such Major Project Documents.
The Company and its Subsidiaries will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event to make an offer (an "Asset Sale Offer"):
(1) first, to all holders of Notes and all holders of other First Priority Lien Obligations (to the extent required under the applicable First Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of Notes and such other First Priority Lien Obligations that may be purchased, prepaid or redeemed out of such Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of First Priority Lien Obligations required under any First Priority Lien Document);
(2) second, if any such Net Proceeds remain after the offer to holders of First Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations) in accordance with clause (1) above, to all holders of Second Priority Notes and all holders of other Second Priority Lien Obligations (to the extent required under the applicable Second Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of Second Priority Notes and such other Second
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Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations required under any Second Priority Lien Document); and
(3) third, if any such Net Proceeds remain after the offer to holders of First Priority Lien Obligations and Second Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations and Second Priority Lien Obligations) in accordance with clauses
(1) and (2) above, to all holders of Third Priority Notes and all holders of other Third Priority Lien Obligations (to the extent required under the applicable Third Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of Third Priority Notes and such other Third Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Third Priority Lien Obligations required under any Third Priority Lien Document).
The Issuers may, at their sole option, make an Asset Sale Offer in accordance with the priorities described above with the net proceeds from any sale, lease, conveyance or other disposition of any assets or rights not constituting an Asset Sale. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, and will be payable in cash. If any of such Net Proceeds remain after consummation of the Asset Sale Offer, the Company and its Subsidiaries may use those excess Net Proceeds for any purpose not otherwise prohibited by this Indenture, including the making of Restricted Payments in accordance with Section 4.07. If the aggregate principal amount of Notes and other First Priority Lien Obligations tendered into such Asset Sale Offer or required to be purchased, prepaid or redeemed exceeds the amount of Net Proceeds available therefor, the Issuers will purchase, prepay or redeem Notes and such other First Priority Lien Obligations on a pro rata basis based on the principal amount of Notes and such other First Priority Lien Obligations tendered (or required to be purchased, prepaid or redeemed), with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased, prepaid or redeemed. The Issuers will comply with the procedures set forth in
Section 3.09 with respect to any Asset Sale Offer.
Section 4.11 Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction, taken as a whole with all other related Affiliate Transactions, is on terms that are no less favorable to the Company and its Subsidiaries, taken as a whole, than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee (other than with respect to a Shared Facilities Arrangement between or among the Company and/or any of its Subsidiaries):
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million but less than or
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equal to $25.0 million, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, a positive opinion as to the Fair Market Value of such Affiliate Transaction issued by an accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement, employee benefit plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Subsidiaries in the ordinary course of business;
(2) transactions between or among the Company and/or any of the Guarantors (other than Shared Facility Arrangements);
(3) transactions with a Person that is an Affiliate of the Company (but not a Subsidiary of the Company) solely because the Company owns, directly or through a Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company;
(5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; provided, that such Equity Interests are included in the Collateral;
(6) Restricted Payments that do not violate Section 4.07;
(7) loans or advances to employees in the ordinary course of business not to exceed $1.0 million in the aggregate at any one time outstanding;
(8) Permitted Tax Payments;
(9) transactions under or pursuant to written agreements with Affiliates of the Company in place as of the Closing Date or any amendment or modification thereto, so long as any such amendment or modification meets the requirements of clause (10) or (11) of this paragraph;
(10) any amendments or modifications of, or waivers under, any written agreement described under clause (9) of this paragraph that is not a Major Project Document; provided, that no such amendment, modification or waiver alters any such agreement in a manner that is materially adverse to the Holders;
(11) any amendments or modifications of, or waivers under, any Major Project Document, which are permitted by Section 4.13 and are on terms that are no less favorable to the Company or its relevant Subsidiary (as certified to the Trustee in an Officer's Certificate) than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; and
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(12) any agreement to do any of the foregoing.
Section 4.12 Liens.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens.
Section 4.13 Business Activities.
The Company will not, and will not permit any of its Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole.
The Company will, and will cause its Subsidiaries to, perform all their obligations under the Major Project Documents, and the Company will not, and will not permit any of its Subsidiaries to, terminate, amend or otherwise modify, or consent to any termination, amendment or modification of, or grant any waiver under, any Major Project Document, unless any failure to so perform or any such termination, amendment, modification or waiver would not, when taken together with all other such failures to perform, terminations, amendments, modifications and waivers since the Closing Date, be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Company; provided, however, that the provisions of this paragraph will not apply to any amendment, modification or termination of any Major Project Document required under this Indenture in connection with an Asset Sale.
The Company will, and will cause its Subsidiaries to, obtain and maintain all permits and approvals necessary for the construction and operation of the Facilities, including applicable exemptions from PUHCA, unless the failure to do so would not reasonably be expected to have a Material Adverse Effect.
The Company will not, and will not permit any of its Subsidiaries to, use or dispose of any hazardous materials or allow any hazardous materials to be brought onto or stored or used on or transported to or released from the Facilities, other than in accordance with prudent industry practices and in compliance with all applicable environmental laws, except to the extent such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
Section 4.14 Corporate Existence.
Subject to Article 5, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect:
(1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and
(2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company will not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.
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Section 4.15 Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes repurchased, to, but excluding, the date of purchase (the "Change of Control Payment"), subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating:
(1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date");
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Issuers default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and
(7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change in Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Sections 4.15, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under this Section 4.15 by virtue of such compliance.
(b) On the Change of Control Payment Date, the Issuers will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer;
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(2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so properly accepted together with an Officer's Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuers.
The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee, at the written request of the Company, will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each new Note will be in a principal amount of $1,000 or an integral multiple thereof.
The Issuers will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Issuers to make a Change of Control Offer following a Change in Control will be applicable whether or not any other provisions of this Indenture are applicable. Except as described above with respect to a Change in Control, this Indenture does not contain provisions that permit the Holders to require that the Issuers repurchase or redeem the Notes in event of a takeover, recapitalization or similar transaction.
(c) Notwithstanding anything to the contrary in this Section 4.15, the Issuers will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this
Section 4.15 and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07, unless and until there is a default in payment of the applicable redemption price.
Section 4.16 Limitation on Issuances and Sales of Equity Interests in Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Subsidiary of the Company to any Person (other than the Company or a Guarantor), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Subsidiary; and
(2) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10.
In addition, the Company will not permit any Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Guarantor.
Section 4.17 Payments for Consent.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of any Note Document unless such
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consideration is offered to be paid and is paid to all Holders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Section 4.18 Restrictions on Activities of CalGen Finance.
CalGen Finance will not hold any material assets, become liable for any material obligations or engage in any significant business activities; provided, that CalGen Finance may be a co-obligor or guarantor with respect to Indebtedness if the Company is an obligor on such Indebtedness and the net proceeds of such Indebtedness are received by the Company, CalGen Finance or one or more of the Company's other Subsidiaries.
Section 4.19 Deposit of Revenues.
The Company will, and will cause its Subsidiaries to, deposit all revenues received by the Company and its Subsidiaries, within 10 Business Days of receipt thereof, in the "Revenue Account" established under the Control Agreement. Notwithstanding the foregoing, Excess Cash Flow may be distributed in accordance with Section 4.07.
Section 4.20 Additional Subsidiaries.
If the Company or any of its Subsidiaries acquires or creates another Subsidiary after the Closing Date, then (1) that newly acquired or created Subsidiary will become a Guarantor and execute a supplemental indenture in the form of Exhibit G and deliver an Opinion of Counsel reasonably satisfactory to the Trustee within 30 days of the date on which it was acquired or created, and
(2) all real and personal property of that Subsidiary will become part of the Collateral within 30 days of the date on which that Subsidiary was acquired or created pursuant to documentation (including Security Documents, financing statements, opinions and other documents) reasonably satisfactory to the Trustee and the Collateral Agent.
Section 4.21 Maintenance of Insurance.
The Company will, and will cause its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance on their property and assets (including the Collateral), in at least such amounts, with such deductibles and against at least such risks as is customary for companies of the same or similar size engaged in the same or similar businesses as those of the Company and its Subsidiaries and furnish to the Collateral Agent, upon written request, full information as to such Persons' property and liability insurance carriers. The Company will, and will cause the Guarantors to, cause all their insurance policies to name the Secured Parties, as a class, as additional insureds, with a waiver of subrogation, and shall cause all their property and casualty policies to name the Collateral Agent as loss payee (together with other lien holders as their interests may appear), with 30 days notice of cancellation or material change.
Section 4.22 Financial Covenants.
The Company will cause the ratio of (x) Consolidated EBITDA to (y) Consolidated Interest Expense, as of the end of each fiscal quarter of the Company, to be equal to or greater than 1.05 to 1.0.
The Company will cause the ratio of (x) the aggregate principal amount outstanding of Notes, First Priority Term Loans, Revolving Loans, Second Priority Notes and Second Priority Term Loans to (y) the combined Estimated Peak Capacity of all of the Facilities (including all Facilities in operation and
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under construction) owned by the Company and its Subsidiaries (expressed in kilowatts), as of the end of each fiscal quarter of the Company, to be equal to or less than $235 per kilowatt.
Section 4.23 Changes in Covenants when Third Priority Notes Rated Investment Grade.
If on any date following the Closing Date:
(1) after giving effect to the suspension of covenants (and the Event of Default) described below in the Third Priority Indenture, the Third Priority Notes are rated Baa3 or better by Moody's and BBB- or better by S&P; and &P
(2) no Default or Event of Default shall have occurred and then be continuing,
then, beginning on that day and subject to the provisions of the following paragraph, the covenants (and the Event of Default) of this Indenture specifically listed below will be suspended:
(a) Section 4.07 (Restricted Payments);
(b) Section 4.08 (Dividend and Other Payment Restrictions Affecting Subsidiaries);
(c) Section 4.09 (Incurrence of Indebtedness and Issuance of Preferred Equity);
(e) Section 4.10 (Deposit of Revenues);
(d) Section 4.13 (Business Activities); and
(f) clause (9) under Section 6.01 (Events of Default).
Notwithstanding the foregoing, if the rating assigned to the Third Priority Notes by either Moody's or S&P should subsequently decline to below Baa3 or BBB-, respectively, the foregoing covenants (and the Event of Default) will be reinstituted with respect to the Notes as of and from the date of such rating decline. Calculations under reinstated Section 4.07 will be made as if such covenant had been in effect since the Closing Date except that no Default will be deemed to have occurred solely by reason of a Restricted Payment made while such covenant was suspended.
ARTICLE 5.
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of Assets.
The Company will not, directly or indirectly:
(1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole, in one or more related transactions, to another Person; or
(3) lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person.
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This Section 5.01 will not apply to (A) a merger of the Company with an Affiliate solely for the purpose of reconstituting the Company in another jurisdiction or (B) any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Company and the Guarantors.
Notwithstanding the foregoing, the Company is permitted to reorganize as a corporation in accordance with the procedures established herein, provided, that the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that such reorganization is not adverse to Holders (it being recognized that such reorganization shall not be deemed adverse to the Holders solely because (i) of the accrual of deferred tax liabilities resulting from such reorganization or
(ii) the successor or surviving corporation (a) is subject to income tax as a corporate entity or (b) is considered to be an "includable corporation" of an affiliated group of corporations within the meaning of the Internal Revenue Code of 1986, as amended or any similar state or local law), and the Company delivers to the Trustee such other certificates and other documents reasonably requested by the Trustee in connection therewith.
Section 5.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole in a transaction that is subject to, and that complies with the provisions of, Section 5.01, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
Each of the following is an "Event of Default":
(1) default for 30 days in the payment when due of interest on, or Special Interest, if any, with respect to, any of the Notes;
(2) default in the payment when due of the principal of, or premium, if any, on any of the Notes ;
(3) failure by the Company or any of its Subsidiaries to comply with the covenants contained in Sections 3.09, 4.10, 4.15 and 4.19;
(4) failure by the Company or any of its Subsidiaries for 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes to comply with any of the agreements in this Indenture or the Security Documents;
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(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee existed on the Closing Date or is created after the Closing Date, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or the applicable Subsidiary becoming aware of such default;
(6) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $25.0 million (excluding those covered by insurance), which judgments are not paid, discharged or stayed for a period of 60 days;
(7) the repudiation by CalGen Holdings, the Company or any of its Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against CalGen Holdings, the Company or any of its Subsidiaries for any reason; provided, that such repudiation or unenforceability relates to Collateral with a Fair Market Value of $25.0 million or more;
(8) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee, and such condition shall not have been cured within 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes;
(9) breach by any Person (other than the Company or any of its Subsidiaries) of its obligations under, or termination or failure to be in full force and effect of, a Major Project Document (unless such breach, termination or failure to be in full force and effect would not, when taken together with all other such breaches, terminations or failures since the Closing Date (other than those that have been cured as contemplated below, including by entering into a replacement agreement), be Materially Adverse, as evidenced by an Officer's Certificate of the chief financial officer of the Company), unless with respect to any Major Project Document such breach is cured, or such Major Project Document is replaced with a substantially similar agreement (it being understood that (a) an agreement will be considered substantially similar if it would not be Materially Adverse and (b) the use of an Affiliate of the Company as the counterparty under an agreement replacing the Index Hedge will not by itself be considered Materially Adverse), within 60 days (or 120 days with respect to the Index Hedge) thereafter; and
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(10) the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, pursuant to or within the meaning of Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an involuntary case,
(c) consents to the appointment of a custodian of it or for all or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) generally is not paying its debts as they become due; or
(11) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(a) is for relief against the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, in an involuntary case;
(b) appoints a custodian of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary; or
(c) orders the liquidation of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days;
Section 6.02 Acceleration.
In the case of an Event of Default specified in clause (10) or (11) of
Section 6.01, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately.
The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of all of the Holders, rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium or Special Interest, if any, that has become due solely because of the acceleration) have been cured or waived.
Section 6.03 Other Remedies.
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If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest and Special Interest, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults.
Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of the Holders of all of the Notes, waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Special Interest, if any, or interest on, the Notes (including in connection with an offer to purchase). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.05 Control by Majority.
Subject to the provisions of the Collateral Trust Agreement, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability.
Section 6.06 Limitation on Suits.
Except to enforce the right to receive payment of principal, premium, if any, or interest or Special Interest, if any, when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of Default is continuing;
(2) Holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested that the Trustee pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and
(5) Holders of a majority in aggregate principal amount of the Notes then outstanding have not given the Trustee a direction inconsistent with such request within such 60-day period.
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A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.
Section 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Special Interest, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided, that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Special Interest, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10 Priorities.
Subject to the provisions of the Collateral Trust Agreement, if the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts due under Section 7.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Special Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Special Interest, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07, or a suit by Holders of more than 10% in aggregate principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
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(1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holder, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02 Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company will be sufficient if signed by an Officer of the Company.
(f) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
(g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder unless and until the Trustee shall have received from a Holder of a Note
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or from the Company written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Even of Default hereunder.
(h) If the Trustee is acting as Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Paying Agent and Registrar.
Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after determining such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.04 Trustee's Disclaimer.
The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium or Special Interest, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06 Reports by Trustee to Holders of the Notes.
(a) Within 60 days after each May 15 beginning with the May 15 following the Closing Date, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA ss.
313(b)(2). The Trustee will also transmit by mail all reports as required by TIA ss. 313(c).
(b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Company will promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07 Compensation and Indemnity.
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(a) The Company will pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation will not be limited by any law on compensation of a trustee of an express trust. The Company will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel.
(b) The Company and the Guarantors will indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture and any other Note Documents to which it is a party, including the costs and expenses of enforcing this Indenture and any other Note Documents to which it is a party against the Company and the Guarantors (including this
Section 7.07) and defending itself against any claim (whether asserted by the Company, the Guarantors, any Holder or any other Person) or liability, loss or expense incurred by it in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith as finally determined by a court of competent jurisdiction. The Trustee will notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company will not relieve the Company or any of the Guarantors of their obligations hereunder. The Company or such Guarantor will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Company will pay the reasonable fees and expenses of such counsel. Neither the Company nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld.
(c) The obligations of the Company and the Guarantors under this
Section 7.07 will survive the satisfaction and discharge of this Indenture.
(d) To secure the Company's payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture.
(e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(10) or (11) occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
(f) The Trustee will comply with the provisions of TIA ss. 313(b)(2) to the extent applicable.
Section 7.08 Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
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(2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a custodian or public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee, provided, that all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 will continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act will be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and (i) in the case of the initial Trustee, that also satisfies the eligibility requirements for a trustee under the TIA and (ii) in the case of any successor Trustee, that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition.
This Indenture will always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b).
Section 7.11 Preferential Collection of Claims Against Company.
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The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at their option at any time, elect to have either
Section 8.02 or 8.03 be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.02 Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.02, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04, be deemed to have been discharged from their obligations with respect to all outstanding Notes (including the Subsidiary Guarantees) on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Issuers and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (including the Subsidiary Guarantees), which will thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes, the Subsidiary Guarantees and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder:
(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium or Special Interest, if any, on such Notes when such payments are due from the trust referred to in Section 8.04;
(2) the Issuers' obligations with respect to such Notes under Article 2 and Section 4.02;
(3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers' and the Guarantors' obligations in connection therewith; and
(4) this Article 8.
Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of their option under Section 8.03.
Section 8.03 Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.03, the Issuers and the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21 and 4.22 with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in
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connection with such covenants, but will continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes may not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Subsidiary Guarantees, the Issuers and the Guarantors may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under
Section 6.01, but, except as specified above, the remainder of this Indenture and such Notes and Subsidiary Guarantees will be unaffected thereby. In addition, upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in
Section 8.04, Sections 6.01(3) through 6.01(5) will not constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03:
(1) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium and Special Interest, if any, on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Issuers must specify whether the Notes are being defeased to maturity or to a particular redemption date;
(2) in the case of an election under Section 8.02, the Issuers must have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that:
(A) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling; or
(B) since the Closing Date, there has been a change in the applicable federal income tax law;
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of an election under Section 8.03, the Issuers have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
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(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(6) the Issuers must deliver to the Trustee an Officer's Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders of Notes over the other creditors of the Issuers with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and
(7) the Issuers must deliver to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and Special Interest, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.
Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Issuers from time to time upon the request of the Issuers any money or non-callable Government Securities held by them as provided in Section 8.04 which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1)), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium and Special Interest, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium and Special Interest, if any, or interest has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to
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such trust money, and all liability of the Issuers as trustee thereof, will thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuers.
Section 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03, as the case may be, by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, then the Issuers' and the Guarantors' obligations under this Indenture, the Notes and the Subsidiary Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03, as the case may be; provided, however, that, if the Issuers make any payment of principal of, premium or Special Interest, if any, or interest on any Note following the reinstatement of their obligations, the Issuers will be subrogated to the rights of the Holder of such Note to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Notes.
Notwithstanding Section 9.02, the Issuers, the Guarantors and the Trustee may, without the consent of any Holder, amend or supplement this Indenture, the Subsidiary Guarantees or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to provide for the assumption of the Issuers' obligations to the Holders of the Notes by a successor to the Issuers pursuant to Article 5;
(4) to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights hereunder of any Holder;
(5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;
(6) to make, complete or confirm any grant of Collateral permitted or required by this Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Indenture or any of the Security Documents;
(7) to conform the text of this Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the "Description of Notes" section contained in the Offering Memorandum to the extent that such provision in such "Description of Notes" section was intended to be a verbatim recitation of a provision of this Indenture, the Subsidiary Guarantees, the Security Documents or the Notes; or
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(8) to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G and/or a Subsidiary Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee will join with the Company and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation,
Section 3.09, 4.10 and 4.15), the Subsidiary Guarantees and the Notes with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium or Special Interest, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee will join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental indenture.
It will not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder):
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(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than the provisions of Sections 3.09, 4.10 and 4.15);
(3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;
(4) waive a Default or Event of Default in the payment of principal of, or premium, interest or Special Interest, if any, on, the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of this Indenture relating to waivers of Defaults or Events of Default or the rights of Holders of Notes to receive payments of principal of, or interest, premium or Special Interest, if any, on the Notes;
(7) waive a redemption payment with respect to any Note (other than a payment required under Section 4.10 or Section 4.15);
(8) release any Guarantor from any of its payment obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture;
(9) release any portion of the Collateral from the Liens created by the Security Documents except as specifically provided for in this Indenture and the Security Documents; or
(10) make any change in the preceding amendment and waiver provisions.
Section 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes will be set forth in an amended or supplemental indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
Section 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee
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shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee will sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01) will be fully protected in relying upon, in addition to the documents required by Section 13.04, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10.
COLLATERAL AND SECURITY
Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Secured Debt Within a Class.
Notwithstanding:
(1) anything to the contrary contained in the Security Documents;
(2) the time of incurrence of any Series of Secured Debt within a Class;
(3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt within such Class;
(4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral;
(5) the time of taking possession or control over any Collateral; or
(6) the rules for determining priority under any law governing relative priorities of Liens:
(a) all Liens at any time granted by the Company or any Guarantor to secure any of the Secured Debt within such Class will secure, equally and ratably, all present and future Secured Obligations within such Class; and
(b) all proceeds of all Liens at any time granted by the Company or any Guarantor to secure any of the Secured Debt and other Secured Obligations within such Class will be allocated and distributed equally and ratably on account of the Secured Debt and other Secured Obligations within such Class; provided, that in the absence of an Event of Default, subject to the requirements set forth in Sections 3.09 and 4.10, the Company and the Guarantors shall be entitled to utilize cash proceeds of Collateral in the ordinary course of their business.
The foregoing provision is intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of Secured Obligations within the applicable Class, each
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present and future Secured Debt Representative therefor and the Collateral Agent as holder of Secured Obligations within such Class. The Secured Debt Representative of each future Series of Secured Debt within a Class will be required to deliver a Sharing Confirmation to the Collateral Agent and the Trustee at the time of incurrence of such Series of Secured Debt.
Section 10.02 Class Voting.
With respect to any vote to be cast by the Trustee on behalf of the Holders in accordance with Article 4 of the Collateral Trust Agreement, the Trustee will vote all of such Notes as directed by the Holders of a majority in aggregate principal amount of the outstanding principal amount of Notes. For purposes of such direction to the Trustee, Notes registered in the name of, or Beneficially Owned by, the Company or an Affiliate of the Company will be deemed not to be outstanding.
Section 10.03 [Reserved]
Section 10.04 Relative Rights.
Nothing in the Note Documents will:
(1) impair, as between the Company and the holders of the Notes, the obligation of the Company to pay principal of, premium and interest, if any, on the Notes in accordance with their terms or any other obligation of the Company or any other obligor under the Note Documents;
(2) affect the relative rights of holders of Notes as against any other creditors of the Company or any Guarantor (other than holders of other Secured Obligations);
(3) restrict the right of any holder of Notes to sue for payments that are then due and owing (but not enforce any judgment in respect thereof against any Collateral to the extent specifically prohibited by the provisions of the Collateral Trust Agreement);
(4) restrict or prevent any holder of Notes, the Trustee, the Collateral Agent or other Person on their behalf from exercising any of its rights or remedies upon a Default or Event of Default not specifically restricted or prohibited by the Collateral Trust Agreement; or
(5) restrict or prevent any Holder of Notes, the Trustee, the Collateral Agent or any other Person on their behalf from taking any lawful action in an insolvency or liquidation proceeding not specifically restricted or prohibited by the Collateral Trust Agreement.
Section 10.05 Release of Security Interest in Respect of Notes.
The Collateral Agent's Liens upon the Collateral shall no longer secure the Notes or any other Note Obligations, and the right of the holders of the Notes and such Note Obligations to the benefits and proceeds of the Collateral Agent's Liens on Collateral shall terminate and be discharged:
(1) upon satisfaction and discharge of this Indenture in accordance with Article 12;
(2) upon a Legal Defeasance or Covenant Defeasance of the Notes in accordance with Article 8; or
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(3) upon payment in full and discharge of all Notes and other Note Obligations that are outstanding under this Indenture, due and payable under this Indenture at the time those Notes are paid in full and discharged.
Upon the occurrence of any of the events described in clauses (1), (2) and (3) above, the Trustee will authorize the Collateral Agent to release the Liens on the Collateral securing the Notes.
ARTICLE 11.
SUBSIDIARY GUARANTEES
Section 11.01 Guarantee.
(a) Subject to this Article 11 and the limitations set forth in Section 13.07, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(1) the principal of, premium and Special Interest, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest and Special Interest, if any, on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and
(2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
(b) Subject to the limitations set forth in Section 13.07, the Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture.
(c) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect.
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(d) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee.
Section 11.02 Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance.
Section 11.03 Execution and Delivery of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form attached as Exhibit F will be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture will be executed on behalf of such Guarantor by one of its Officers.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 will remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee will be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any Subsidiary after the Closing Date, if required by Section 4.21, the Company will cause such Subsidiary to comply with the provisions of Section 4.21 and this Article 11, to the extent applicable.
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Section 11.04 Guarantors May Consolidate, etc., on Certain Terms.
Except as otherwise provided in Section 11.05, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, except as permitted by Section 4.10.
In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture in the form of Exhibit G, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or will prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor.
Section 11.05 Releases Following Sale of Assets.
In the event of any sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) the Company or a Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the Person acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided, that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section
4.10. Upon delivery by the Company to the Trustee of an Officer's Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee.
Any Guarantor not released from its obligations under its Subsidiary Guarantee will remain liable for the full amount of principal of and interest and premium and Special Interest, if any, on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11.
101
ARTICLE 12.
SATISFACTION AND DISCHARGE
Section 12.01 Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Issuers) have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Issuers have or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Special Interest, if any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the date of such deposit or will occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Issuers are or any Guarantor is a party or by which the Issuers are or any Guarantor is bound;
(3) the Issuers have or any Guarantor has paid or caused to be paid all sums payable by it under this Indenture; and
(4) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be.
In addition, the Issuers must deliver an Officer's Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section 12.01, the provisions of Section 12.02 and Section 8.06 will survive. In addition, nothing in this Section 12.01 will be deemed to discharge those provisions of Section 7.07, that, by their terms, survive the satisfaction and discharge of this Indenture.
Section 12.02 Application of Trust Money.
Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 12.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including either Issuer acting
102
as Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium and Special Interest, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 12.01 by reason of any legal proceeding or by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, the Company's and any Guarantor's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to
Section 12.01; provided, that if the Issuers have made any payment of principal of, premium or Special Interest, if any, or interest on any Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent.
ARTICLE 13.
MISCELLANEOUS
Section 13.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss.318(c), the imposed duties will control.
Section 13.02 Notices.
Any notice or communication by the Issuers, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), facsimile or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company, CalGen Finance and/or any Guarantor:
Calpine Generating Company, LLC CalGen Finance Corp.
50 West San Fernando Street, 5th Floor San Jose, California 95113 Facsimile No.: (408) 995-0505 Attention: Chief Financial Officer
With a copy to:
Covington & Burling
1330 Avenue of the Americas New York, New York 10019 Facsimile No.: (212) 841-1010 Attention: Bruce Bennett
If to the Trustee:
Wilmington Trust, FSB
c/o Wilmington Trust Company
103
1100 North Market Street Rodney Square North
Wilmington, Delaware 19890-1615 Facsimile No.: (302) 636-4145 Attention: Kristin Long
With a Copy to:
Nixon Peabody LLP
437 Madison Avenue
24th Floor
New York, New York 10022 Facsimile No.: (866) 947-2203 Attention: Bart Pisella
The Company, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if sent by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it will mail a copy to the Trustee and each Agent at the same time.
Section 13.03 Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c).
Section 13.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
104
(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 13.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) must comply with the provisions of TIA ss. 314(e) and must include:
(1) a statement that the Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
Section 13.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 13.07 Non-Recourse; No Personal Liability of Directors, Officers, Employees and Stockholders.
Notwithstanding anything to the contrary set forth in this Indenture, the Notes, any Security Document or any other Note Document, the Notes and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a Holder will have with respect to the payment of principal of, or interest or premium on, the Notes (whether under the Indenture or the Notes, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under this Indenture or against the Collateral pursuant to the Security Documents. The Holders will have no recourse to the equity or assets of the Excluded Subsidiary.
No director, officer, employee, incorporator, stockholder, or partner of the Company or any of its Subsidiaries, as such, will have any liability for any obligations of the Issuers or any of its Subsidiaries under the Notes, this Indenture, the Subsidiary Guarantees or the Security Documents, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Section 13.08 Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES
105
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 13.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 13.10 Successors.
All agreements of the Issuers in this Indenture and the Notes will bind their respective successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 11.05.
Section 13.11 Severability.
In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.
Section 13.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement.
Section 13.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
106
SIGNATURES
Dated as of March 23, 2004
CALPINE GENERATING COMPANY, LLC

By:         /s/ ZAMIR RAUF
         ---------------------------
         Name:  Zamir Rauf
         Title: Vice President	

CALGEN FINANCE CORP.

By:         /s/ ZAMIR RAUF
         ---------------------------
         Name:  Zamir Rauf
         Title: Vice President	

107
THE GUARANTORS:
CALGEN EXPANSION COMPANY, LLC
CPN FREESTONE, LLC
CALPINE FREESTONE, LLC
CALPINE FREESTONE ENERGY GP, LLC
CALPINE CHANNEL ENERGY CENTER LP, LLC
CALPINE CHANNEL ENERGY CENTER GP, LLC
CHANNEL POWER GP, LLC
 CALGEN EQUIPMENT FINANCE HOLDINGS, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY ONE, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY THREE LLC
CALGEN EQUIPMENT FINANCE COMPANY, LLC
NUECES BAY ENERGY LLC
CALPINE NORTHBROOK SOUTHCOAST INVESTORS, LLC
CALPINE CORPUS CHRISTI ENERGY GP, LLC
ZION ENERGY LLC
LOS MEDANOS ENERGY CENTER, LLC
MORGAN ENERGY CENTER, LLC
CARVILLE ENERGY LLC
DECATUR ENERGY CENTER, LLC
CALPINE ONETA POWER I, LLC
CALPINE ONETA POWER II, LLC
CALPINE BAYTOWN ENERGY CENTER LP, LLC
CALPINE BAYTOWN ENERGY CENTER GP, LLC
BAYTOWN POWER GP, LLC
COLUMBIA ENERGY LLC
DELTA ENERGY CENTER, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY TWO, LLC
PASTORIA ENERGY FACILITY L.L.C.
CALPINE PASTORIA HOLDINGS, LLC
Executing this First Priority Indenture on behalf of and so as to bind each of the limited liability companies named above under the caption "The Guarantors"

By:         /s/ ZAMIR RAUF
         --------------------------------------------
         Name:  Zamir Rauf
         Title: Vice President	

108
THE GUARANTORS:
FREESTONE POWER GENERATION LP
CALPINE FREESTONE ENERGY, LP
CALPINE POWER EQUIPMENT LP
CHANNEL POWER, LP
CHANNEL ENERGY CENTER, LP
CALPINE CORPUS CHRISTI ENERGY, LP
CORPUS CHRISTI COGENERATION LP
CALPINE ONETA POWER, L.P.
BAYTOWN ENERGY CENTER, LP
BAYTOWN POWER, LP
Executing this First Priority Indenture on behalf of and so as to bind each of the limited partnerships named above under the caption "The Guarantors"

By:         /s/ ZAMIR RAUF
         --------------------------------------------
         Name:  Zamir Rauf
         Title: Vice President	

109
WILMINGTON TRUST FSB

By:         /s/ JAMES J. MCGINLEY
         --------------------------------------------
         Name:  James J. McGinley
         Title: Vice President	

110
SCHEDULE A
PERMITTED PRIOR LIENS EXISTING ON THE CLOSING DATE
See attached.
SCHEDULE A-1
EXHIBIT A
 [Face of Note]

CUSIP [13135B AA 4--144A] [13135B AE 6--Exchange] ISIN [US13135BAA44--144A] [US13135BAE65--Exchange]
First Priority Secured Floating Rate Note due 2009
No. ___ $____________
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
promises to pay to ______________
or registered assigns,
the principal sum of ___________________________________________________________
Dollars on April 1, 2009.
Interest Payment Dates: January 1, April 1, July 1 and October 1

Record Dates:  December 15, March 15, June 15 and September 15

                                           CALPINE GENERATING COMPANY, LLC
                                           CALGEN FINANCE CORP.

                                           By: _______________________________
                                           Name:
                                           Title:

                                           By: _______________________________
                                           Name:
                                           Title:	

Dated: March 23, 2004
This is one of the Notes referred to
in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
By: __________________________________
Authorized Signatory
EXHBIT A-1
[Back of Note] First Priority Secured Floating Rate Note due 2009
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO
EXHBIT A-2
SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY AND FINANCE CORP.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) INTEREST. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at the Applicable First Priority LIBOR Rate (as defined below) per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on January 1, April 1, July 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be July 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
"Applicable First Priority LIBOR Rate" means, for each interest period, 375 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of one, two, three or six months (as the Company may elect in an Officer's Certificate delivered to
EXHBIT A-3
the Trustee as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable First Priority LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of one, two, three or six months (as applicable) as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
PRINCIPAL. The Issuers jointly and severally promise to pay principal of the Notes in quarterly installments, commencing July 1, 2007, as follows:

                                             Percentage of Original
Payment Date                                Principal Amount Payable
------------                                ------------------------
July 1, 2007.......................                  0.250%
October 1, 2007....................                  0.250%
January 1, 2008....................                  0.250%
April 1, 2008......................                  0.250%
July 1, 2008.......................                  0.250%
October 1, 2008....................                  0.250%
January 1, 2009....................                  0.250%	

The Issuers jointly and severally promise to pay all remaining principal of, interest and Special Interest, if any, on, and fees and costs in respect of the Notes on April 1, 2009.
(2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the December 15, March 15, June 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) PAYING AGENT AND REGISTRAR. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and
EXHIBIT A-4
address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(4) INDENTURE. The Company issued the Notes under a First Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $235.0 million in aggregate principal amount. The Notes are secured on a first-priority basis, Equally and Ratably with all other First Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to Permitted Prior Liens.
(5) OPTIONAL REDEMPTION. The Issuers may not redeem all or any part of the Notes prior to April 1, 2007. On or after April 1, 2007, the Issuers may redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice, at the redemption prices (expressed at percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below, subject to the rights of the Holders on the relevant record date to receive interest on the relevant interest payment date:

Year                                                   Percentage
----                                                   ----------
2007.........................................            102.5%
2008, and thereafter.........................            100.0%	

Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
(6) MANDATORY REDEMPTION. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) REPURCHASE AT OPTION OF HOLDER..
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and
EXHIBIT A-5
stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event to offer to prepay Notes and other First Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other First Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other First Priority Lien Obligations to be purchased on a pro rata basis.
(8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
(10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
(11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture
EXHIBIT A-6
or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with
Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
EXHIBIT A-7
(13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(15) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(17) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
(18) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(19) NON-RECOURSE. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
Attention: Chief Financial Officer
EXHIBIT A-8
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint
 to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-9
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$---------------
Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-10
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

                                                                       Principal Amount
                                                                      at maturity of this
                       Amount of decrease    Amount of increase in        Global Note           Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                         at maturity of          at maturity of            decrease             of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------        ----------------        ----------------         -------------            ---------	

* This schedule should be included only if the Note is issued in global form.
EXHIBIT A-11
EXHIBIT B
[Face of Regulation S Temporary Floating Rate Global Note]

CUSIP U1305Q AA 7
ISIN USU1305QAA77
First Priority Secured Floating Rate Note due 2009
No.

CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
promises to pay to or registered assigns,

the principal sum of
Dollars on April 1, 2009.
Interest Payment Dates: January 1, April 1, July 1 and October 1

Record Dates:  December 15, March 15, June 15 and September 15

                                                 CALPINE GENERATING COMPANY, LLC
                                                 CALGEN FINANCE CORP.

                                                 By:
                                                    ----------------------------
                                                 Name:
                                                 Title:

                                                 By:
                                                    ----------------------------
                                                 Name:
                                                 Title:	

Dated: March 23, 2004
This is one of the Notes referred to in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
By:

Authorized Signatory
EXHIBIT B-1
[Back of Regulation S Temporary Floating Rate Global Note] First Priority Secured Floating Rate Notes 2009
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
EXHIBIT B-2
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) INTEREST. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at the Applicable First Priority LIBOR Rate (as defined below) per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on January 1, April 1, July 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be July 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at
EXHIBIT B-3
the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
"Applicable First Priority LIBOR Rate" means, for each interest period, 375 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of one, two, three or six months (as the Company may elect in an Officer's Certificate delivered to the Trustee as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable First Priority LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of one, two, three or six months (as applicable) as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
PRINCIPAL. The Issuers jointly and severally promise to pay principal of the Notes in quarterly installments, commencing July 1, 2007, as follows:

                                              Percentage of Original
Payment Date                                 Principal Amount Payable
------------                                 ------------------------
July 1, 2007........................                  0.250%
October 1, 2007.....................                  0.250%
January 1, 2008.....................                  0.250%
April 1, 2008.......................                  0.250%
July 1, 2008........................                  0.250%
October 1, 2008.....................                  0.250%
January 1, 2009.....................                  0.250%	

The Issuers jointly and severally promise to pay all remaining principal of, interest and Special Interest, if any, on, and fees and costs in respect of the Notes on April 1, 2009.
Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture.
(2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the December 15, March 15, June 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium
EXHIBIT B-4
and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) PAYING AGENT AND REGISTRAR. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(4) INDENTURE. The Company issued the Notes under a First Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $235.0 million in aggregate principal amount. The Notes are secured on a first-priority basis, Equally and Ratably with all other First Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to Permitted Prior Liens.
(5) OPTIONAL REDEMPTION. The Issuers may not redeem all or any part of the Notes prior to April 1, 2007. On or after April 1, 2007, the Issuers may redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice, at the redemption prices (expressed at percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below, subject to the rights of the Holders on the relevant record date to receive interest on the relevant interest payment date:

Year                                              Percentage
----                                              ----------
2007.........................................       102.5%
2008, and thereafter.........................       100.0%	

Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
EXHIBIT B-5
(6) MANDATORY REDEMPTION. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) REPURCHASE AT OPTION OF HOLDER..
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event to offer to prepay Notes and other First Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other First Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other First Priority Lien Obligations to be purchased on a pro rata basis.
(8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note.
EXHIBIT B-6
(10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
(11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with
Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of
EXHIBIT B-7
Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
(13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(15) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(17) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
(18) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as
EXHIBIT B-8
printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(19) NON-RECOURSE. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
Attention: Chief Financial Officer
EXHIBIT B-9
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint
 to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT B-10
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
Section 4.10 Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$---------------
Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT B-11
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:

                                                                       Principal Amount
                                                                      at maturity of this
                       Amount of decrease    Amount of increase in        Global Note           Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                         at maturity of          at maturity of            decrease            of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------        ----------------        ----------------         -------------            ---------	

EXHIBIT B-12
EXHIBIT C
FORM OF CERTIFICATE OF TRANSFER
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB, as Trustee
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1615
Re: First Priority Secured Floating Rate Notes due 2009
Reference is hereby made to the First Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such
EXHIBIT C-1
Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed Transfer is being made prior to the expiration of the Restricted Period, the Transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
EXHIBIT C-2
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]

By:
 Name:

Title:
Dated:
EXHIBIT C-3
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(iv) [ ] Unrestricted Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
EXHIBIT C-4
EXHIBIT D
FORM OF CERTIFICATE OF EXCHANGE
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-16152
Re: First Priority Secured Floating Rate Notes due 2009
(CUSIP ____________)
Reference is hereby made to the First Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the
EXHIBIT D-1
Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ]144A Global Note, [ ]Regulation S Global Note, [ ]IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.
EXHIBIT D-2
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]

By:
 Name:

Title:
Dated:
EXHIBIT D-3
EXHIBIT E
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1615
Re: First Priority Secured Floating Rate Notes due 2009
Reference is hereby made to the First Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the
EXHIBIT E-1
requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

[Insert Name of Accredited Investor]

By:
 Name:
Title:
Dated:
EXHIBIT E-2
EXHIBIT F
FORM OF NOTATION OF SUBSIDIARY GUARANTEE
For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, on a non-recourse basis to the extent set forth in the First Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company, CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee (the "Trustee"), and subject to the provisions of the Indenture,
(a) the due and prompt payment of the principal of, premium, if any, and interest and Special Interest, if any, on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and prompt payment of interest on overdue principal of and interest and Special Interest, if any, on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee.
[NAME OF GUARANTOR(S)]
By:

Name:

Title:
EXHIBIT F-1
EXHIBIT G
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, 20__, among __________________, a ___________________ (the "Guaranteeing Subsidiary"), Calpine Generating Company, LLC (the "Company"), CalGen Finance Corp. ("CalGen Finance" and, together with the Company, the "Issuers"), the other Guarantors (as defined in the Indenture referred to herein) and Wilmington Trust FSB, as trustee under the Indenture referred to herein (the "Trustee").
WITNESSETH
WHEREAS, the Issuers have heretofore executed and delivered to the Trustee a First Priority Indenture, dated as of March 23, 2004 (the "Indenture"), providing for the issuance of an aggregate principal amount of $235.0 million of First Priority Secured Floating Rate Notes due 2009 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture, including but not limited to Article 11 thereof, and to become bound as a "Guarantor" under the Indenture.
3. NO RECOURSE AGAINST OTHERS. This Subsidiary Guarantee is a non-recourse secured obligation of the Subsidiary Guarantor. The only recourse a Holder of Notes will have under the Subsidiary Guarantee is enforcement of its rights against the Collateral securing the Subsidiary Guarantee pursuant to the Security Documents. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantee, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.
4. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
EXHIBIT G-1
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company.
EXHIBIT G-2
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

Dated:                 , 20
      -----------------    ---

                            [GUARANTEEING SUBSIDIARY]

                            By:
                                ------------------------------------
                            Name:
                            Title:

                            [COMPANY]

                            By:
                                ------------------------------------
                            Name:
                            Title:

                            [EXISTING GUARANTORS]

                            By:
                                ------------------------------------
                            Name:
                            Title:

                            [TRUSTEE],
                              as Trustee

                            By:
                                ------------------------------------
                                  Authorized Signatory	

EXHIBIT G-3
EXHIBIT H
SUBORDINATION TERMS
[TO BE INCLUDED AS AN ARTICLE IN THE INSTRUMENT EVIDENCING "AFFILIATE
SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO CLAUSE (9)(a) OF THE DEFINITION OF PERMITTED DEBT AND "THIRD PARTY SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO CLAUSE (10) OF THE DEFINITION OF PERMITTED INDEBTEDNESS]
[THE COLLATERAL AGENT SHALL EITHER BE A PARTY TO OR A THIRD PARTY BENEFICIARY OF THESE SUBORDINATION TERMS]
ARTICLE [__]
SUBORDINATION
Section [__].1. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Collateral Trust Agreement, dated as of March 23, 2004, among Calpine CalGen Holdings, Inc., Calpine Generating Company, LLC ("CalGen"), CalGen Finance Corp., the guarantors party thereto from time to time (the "Guarantors"), the Secured Debt Representatives party thereto and Wilmington Trust Company, as collateral agent (the "Collateral Agent"), as in effect on the date hereof. As used in this Article, the following terms shall have the following respective meanings:
"Junior Claimant" means [INSERT NAME OF LENDER UNDER 
SUBORDINATED DEBT].
"Proceeding" means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding of or against the Subordinated Debtor or its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of the Subordinated Debtor, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of the Subordinated Debtor, or (d) other marshalling of the assets of the Subordinated Debtor.
"Senior Claimants" means the holders of Senior Obligations.
"Senior Claim Documents" means the Secured Debt Documents other than the Other Junior Lien Debt Documents.
"Senior Claims" means, collectively, (a) the principal of, and premium, if any, and interest on, the Senior Obligations (in each case, including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of such Proceeding), and (b) all other Obligations of the Subordinated Debtor to the Senior Claimants, whether now existing or hereafter incurred or created, under or with respect to the Senior Claim Documents or any replacement, supplement to or refinancing of the Senior Obligations.
"Senior Obligations" means all Secured Obligations other than the Other Junior Lien Obligations.
EXHIBIT H-1
"Senior Obligations Termination Date" means the date on which all Senior Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Senior Claim Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Senior Claim Documents), all commitments to extend credit under all Senior Claim Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Senior Claim Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Subordinated Debt" means all indebtedness owing to Junior Claimant arising under or in respect of the Subordinated Debt Documents.
"Subordinated Debt Documents" means [DESCRIBE SUBORDINATED DEBT INSTRUMENT], any promissory note or other instrument relating thereto and any other documents or instruments directly relating to the foregoing (in each case, including any amendments, replacements or substitutions thereof).
"Subordinated Debtor" means [INSERT CALGEN OR GUARANTOR 
INCURRING THE SUBORDINATED DEBT].
Section [_].2. Certain Subordination Terms. Until the Senior Obligations Termination Date, and notwithstanding anything in the Subordinated Debt Documents to the contrary:
[__].2.1. Except as permitted under the Senior Claim Documents, the Subordinated Debtor shall not, directly or indirectly, make any payment of principal, interest or otherwise on or in respect of the Subordinated Debt.
[__].2..2. Except for the right to accept payments as provided in Section [__].2.1 or [__].2.5(b), Junior Claimant shall not demand, sue for or accept from the Subordinated Debtor or any other Person any such payment or collateral, nor take any other action to enforce or collect upon any such payment or to enforce its rights to receive any such payment, in either case in respect of the Subordinated Debt, provided, however, that nothing herein shall limit the right or ability of Junior Claimant (i) to receive payments from the Subordinated Debtor in respect of the Subordinated Debt as provided in
Section [__].2.1 so long as no default or event of default under any Secured Debt Document has occurred and is continuing, or (ii) to accelerate the maturity of the Subordinated Debt at any time after all of the Senior Claims have been accelerated; and provided further, that in the event that after an acceleration any of the Senior Claimants rescind the acceleration of the Senior Claims, and provide written notice to Junior Claimant thereof, or Junior Claimant otherwise becomes aware of such rescission, Junior Claimant shall rescind the acceleration of the Subordinated Debt.
[__].2.3. Neither the Subordinated Debtor nor Junior Claimant shall take any action prejudicial to or inconsistent with the Senior Claimants' priority position over Junior Claimant created by this Article, including, without limitation, any action which will hinder, delay or otherwise prevent the Senior Claimants from taking any action they deem necessary to enforce rights with respect to the Senior Claims or the Lien of the Senior Claim Documents. The Junior Claimant shall not take any action or otherwise act to contest on account of the Subordinated Debt (i) the validity or priority of any Liens or security interests granted to, or for the benefit of, the Senior Claimants, (ii) the relevant rights and duties of the Senior Claimants with respect to Junior Claimant on account of any Subordinated Debt as established in this Article or (iii) the Senior Claimants' exercise of remedies in accordance with the Senior Claim Documents.
EXHIBIT H-2
[__].2.4. Each document or instrument evidencing Subordinated Debt shall bear a legend providing that payment of the Subordinated Debt thereunder has been subordinated to prior payment of the Senior Claims in the manner and to the extent set forth in this Article.
[__].2.5. Junior Claimant shall not commence or join with any other creditor or creditors of the Subordinated Debtor in commencing any Proceeding against the Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor -- ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], but may join in any Proceeding after it has commenced. At any general meeting of creditors of Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor -- ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], or in the event of any Proceeding, if all Senior Claims have not been paid in full in cash at such time, the Collateral Agent on behalf of the Senior Claimants is hereby irrevocably authorized at any such meeting or in any such Proceeding:
(a) To enforce claims comprising Subordinated Debt in the name of Junior Claimant, by proof of debt, proof of claim, suit or otherwise;
(b) To collect any assets of the Subordinated Debtor distributed, divided or applied by way of dividend or payment as a result of a Proceeding, or such securities issued, on account of Subordinated Debt as a result thereof and apply the same, or the proceeds of any realization upon the same that the Senior Claimants in their discretion elect to effect, to Senior Claims until all Senior Claims shall have been paid in full in cash (the Senior Claimants hereby agreeing to render any surplus to Junior Claimant and/or other subordinated creditors, as their interests appear, or to interplead such surplus with a court of competent jurisdiction); and
(c) To take generally any action in connection with any such meeting or proceeding which Junior Claimant might otherwise take in respect of the Subordinated Debt and claims relating thereto.
After the commencement of any such Proceeding, Junior Claimant may inquire in writing of the Collateral Agent on behalf of the Senior Claimants whether the respective Senior Claimants intend to exercise the foregoing rights with respect to the Subordinated Debt. Should the Senior Claimants fail, at least 20 days before the deadline therefor, either to file a proof of claim with respect to the Subordinated Debt and to furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in writing that the Senior Claimants intend to exercise their rights to assert the Subordinated Debt in the manner hereinabove provided, Junior Claimant may, but shall not be required to, proceed to file a proof of claim with respect to the Subordinated Debt and take such further steps with respect thereto, not inconsistent with this Article, as Junior Claimant may deem proper.
[__].2.6. Upon the occurrence and during the continuation of an event of default under a Secured Debt Document, Junior Claimant may, but shall have no obligation to, upon not less than 10 days prior written notice to the Collateral Agent, purchase all of the outstanding Senior Obligations owing to the Senior Claimants by irrevocably tendering, in immediately available funds, full payment of the Purchase Price (as defined below) to the Senior Claimants:
(a) The Purchase Price shall be equal to the total amount of Senior Claims at the time of acceleration (assuming such obligations have been accelerated);
EXHIBIT H-3
(b) Any such purchase by Junior Claimant shall be without warranty by, or recourse to, the Senior Claimants, except with respect to the legal and beneficial ownership by the Senior Claimants of the Obligations so purchased, free and clear of all Liens and rights of others; and
(c) Concurrently with any such purchase, the Senior Claimants shall forthwith sell, assign, transfer and convey to Junior Claimant all of their right, title and interest in and to the Senior Obligations, and all Liens and other security interests in favor of the Senior Claimants securing the obligations of the Subordinated Debtor in connection therewith.
Section [__].3. Senior Claim Documents. The Junior Claimant acknowledges that it has been provided with a copy of the Senior Claim Documents and has read and is familiar with the provisions thereof.
Section [__].4. Time of Filing. Notwithstanding the time of filing, attachment or recording of any document or other instrument, it is agreed by Junior Claimant that any Liens arising under or pursuant to the Senior Claim Documents shall be senior to any Liens arising in favor of Junior Claimant as part of or relating to the Subordinated Debt Documents, if any; provided, however, that nothing herein shall be deemed to permit Junior Claimant to obtain any such Liens.
Section [__].5. Wrongful Collections. Should any payment on account of, or any collateral for any part of, the Subordinated Debt be received by Junior Claimant in violation of this Article, such payment or collateral shall be delivered forthwith to the Collateral Agent by the recipient for application to Senior Claims, in the form received. The Collateral Agent is irrevocably authorized to supply any required endorsement or assignment which may have been omitted. Until so delivered, any such payment or collateral shall be held by the recipient in trust for the Senior Claimants and shall not be commingled with other funds or property of the recipient.
Section [__].6. Ownership of Subordinated Debt; Amendment of Subordinated Debt Documents.
[__].6.1. The Junior Claimant represents and warrants that it is the lawful owner of the Subordinated Debt. Any security interest in the Junior Claimant's interest in the Subordinated Debt will at all times be subject to the rights of the Senior Claimants hereunder. The Junior Claimant agrees that it may not assign all or any portion of the Subordinated Debt or any of its rights or remedies under the Subordinated Debt Documents unless any assignee expressly agrees in writing for the benefit of the Collateral Agent that it takes such Subordinated Debt subject in all respects to the rights of the Senior Claimants hereunder.
[__].6.2. The Subordinated Debt Documents may not be amended so as to have an adverse effect upon the Senior Claims or the Subordinated Debtor's ability to pay the Senior Claims at any time.
Section [__].7. Waivers. The Collateral Agent and the Senior Claimants are hereby authorized to demand specific performance of this Article, whether or not the Subordinated Debtor shall have complied with the provisions hereof applicable to it, at any time when Junior Claimant shall have failed to comply with any provision hereof applicable to it. Junior Claimant hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance hereof in any action brought therefor by the Senior Claimants. Junior Claimant (a) further waives presentment, notice and protest in connection with all negotiable instruments
EXHIBIT H-4
evidencing Senior Claims or Subordinated Debt to which Junior Claimant may be a party, notice of the acceptance of this Article by the Senior Claimants, notice of any loan made, extension granted or other action taken in reliance hereon, and all demands and notices of every kind in connection with this Article, Senior Claims or time of payment of Senior Claims or Subordinated Debt and (b) hereby assents to any renewal, extension or postponement of the time of payment of Senior Claims or any other indulgence with respect thereto, to any increase in the amount of Senior Claims, to any substitution, exchange or release of collateral therefor and to the addition or release of any person primarily or secondarily liable thereon and assents to the provisions of any instrument, security or other writing evidencing Senior Claims.
Section [__].8. Subrogation; No Impairment of Subordinated Debtor's Obligations. Subject to and from and after the Senior Obligations Termination Date, Junior Claimant shall be subrogated to the rights of the Senior Claimants to receive payments or distributions of cash, property or securities of the Subordinated Debtor applicable to the Senior Claims until all amounts owing on the Subordinated Debt shall be paid in full. For purposes of such subrogation, no payments or distributions to the Senior Claimants to which Junior Claimant would be entitled but for the provisions of this Article, and no payments paid over by Junior Claimant to Senior Claimants pursuant to this Article shall, as among the Subordinated Debtor, its creditors other than the Senior Claimants, and Junior Claimant, be deemed to be a payment or distribution on account of the Subordinated Debt, it being understood that the provisions of this Article are intended solely for the purpose of defining the relative rights of Junior Claimant and the Senior Claimants. Nothing contained in this Article is intended to or shall impair, as between the Subordinated Debtor and Junior Claimant, the obligation of the Subordinated Debtor, which is absolute and unconditional, to pay to Junior Claimant the principal of and the premium, if any, and the interest on the Subordinated Debt, and all other amounts payable by the Subordinated Debtor under the Subordinated Debt Documents, as and when the same shall become due and payable, or to affect the relative rights of Junior Claimant and creditors of Subordinated Debtor other than the Senior Claimants.
Section [__].9. Reinstatement. The obligations of Junior Claimant under this Article shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Claim, or any other payment to any holder of any Senior Claim in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Claims upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Subordinated Debtor or any substantial part of its property, or otherwise, all as though such payment had not been made.
Section [__].10. Bankruptcy. This Article shall remain in full force and effect as between Junior Claimant and the Senior Claimants notwithstanding the occurrence of any Proceeding affecting the Subordinated Debtor.
Section [__].11. Further Assurances. The Subordinated Debtor and Junior Claimant shall execute and deliver to the Senior Claimants such further instruments and shall take such further action as the Senior Claimants may at any time or times reasonably request in order to carry out the provisions and intent of this Article.
Section [__].12. Successors and Assigns. The provisions of this Article shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Junior Claimant nor the Senior Claimants shall have a duty to preserve rights against prior parties in any property of any kind received hereunder. Nothing contained herein shall impose on the Senior Claimants any duties with respect to any property of the Subordinated Debtor or Junior Claimant received hereunder.
EXHIBIT H-5
Section [__].13. Governing Law. This Article is intended to take effect as a sealed instrument, shall be binding upon the parties hereto and their respective executors, administrators, other legal representatives, successors and assigns, and shall inure to the benefit of the Senior Claimants, their respective successors and assigns and shall be governed by the laws of the State of New York without reference to principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law). The parties hereto intend and agree that this Article shall remain binding on such parties (other than the Subordinated Debtor) notwithstanding the termination (except upon the payment in full of Senior Claims in cash) or unenforceability of this Article as against the Subordinated Debtor.
EXHIBIT H-6
EXHIBIT I
FORM OF WORKING CAPITAL FACILITY
See attached.
EXHIBIT I-1
 
EXHIBIT 4.20
EXECUTION VERSION

THE NOTES ISSUED UNDER THIS SECOND PRIORITY INDENTURE ARE ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND ARE SUBJECT TO TREASURY REGULATIONS REGARDING THE REPORTING OF ORIGINAL ISSUE DISCOUNT. HOLDERS MAY CONTACT THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 50 WEST SAN FERNANDO STREET, 5TH FLOOR, SAN JOSE, CALIFORNIA 95113, WHO WILL PROVIDE UPON REQUEST INFORMATION RELATING TO ORIGINAL ISSUE DISCOUNT, INCLUDING THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY.
CALPINE GENERATING COMPANY, LLC
AND
CALGEN FINANCE CORP.
and each of the Guarantors named herein
SECOND PRIORITY SECURED FLOATING RATE NOTES DUE 2010
SECOND PRIORITY INDENTURE
Dated as of March 23, 2004

Wilmington Trust FSB
Trustee

 
CROSS-REFERENCE TABLE*

Trust Indenture
Act Section                                              Indenture Section
310(a)(1).............................................             7.10
    (a)(2)............................................             7.10
    (a)(3)............................................             N.A.
    (a)(4)............................................             N.A.
    (a)(5)............................................             7.10
    (b)...............................................             7.10
    (c)...............................................             N.A.
311(a)................................................             7.11
    (b)...............................................             7.11
    (c)...............................................             N.A.
312(a)................................................             2.05
    (b)...............................................            12.03
    (c)...............................................            12.03
313(a)................................................             7.06
    (b)(1)............................................            10.03
    (b)(2)............................................          7.06; 7.07
    (c)...............................................      7.06; 10.03; 12.02
    (d)...............................................             7.06
314(a)................................................      4.03;12.02; 12.05
    (b)...............................................            10.02
    (c)(1)............................................            12.04
    (c)(2)............................................            12.04
    (c)(3)............................................             N.A.
    (d)...............................................     10.03, 10.04, 10.05
    (e)...............................................            12.05
    (f)...............................................             N.A.
315(a)................................................             7.01
    (b)...............................................          7.05,12.02
    (c)...............................................             7.01
    (d)...............................................             7.01
    (e)...............................................             6.11
316(a) (last sentence)................................             2.09
    (a)(1)(A).........................................             6.05
    (a)(1)(B).........................................             6.04
    (a)(2)............................................             N.A.
    (b)...............................................             6.07
    (c)...............................................             2.12
317(a)(1).............................................             6.08
    (a)(2)............................................             6.09
    (b)...............................................             2.04
318(a)................................................            12.01
    (b)...............................................             N.A.
    (c)...............................................            12.01	

N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
TABLE OF CONTENTS

                                                                                                 Page

                                   ARTICLE 1.
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

Section 1.01    Definitions.........................................................................1
Section 1.02    Other Definitions..................................................................42
Section 1.03    Incorporation by Reference of Trust Indenture Act..................................42
Section 1.04    Rules of Construction..............................................................43

                                   ARTICLE 2.
                                    THE NOTES

Section 2.01    Form and Dating....................................................................43
Section 2.02    Execution and Authentication.......................................................44
Section 2.03    Registrar and Paying Agent.........................................................45
Section 2.04    Paying Agent to Hold Money in Trust................................................45
Section 2.05    Holder Lists.......................................................................45
Section 2.06    Transfer and Exchange..............................................................46
Section 2.07    Replacement Notes..................................................................58
Section 2.08    Outstanding Notes..................................................................58
Section 2.09    Treasury Notes.....................................................................59
Section 2.10    Temporary Notes....................................................................59
Section 2.11    Cancellation.......................................................................59
Section 2.12    Defaulted Interest.................................................................59
Section 2.13    Same Day Settlement and Payment....................................................60

                                   ARTICLE 3.
                            REDEMPTION AND PREPAYMENT

Section 3.01    Notices to Trustee.................................................................60
Section 3.02    Selection of Notes to Be Redeemed or Purchased.....................................60
Section 3.03    Notice of Redemption...............................................................61
Section 3.04    Effect of Notice of Redemption.....................................................62
Section 3.05    Deposit of Redemption or Purchase Price............................................62
Section 3.06    Notes Redeemed or Purchased in Part................................................62
Section 3.07    Optional Redemption................................................................62
Section 3.08    Mandatory Redemption...............................................................63
Section 3.09    Offer to Purchase by Application of Net Proceeds...................................63

                                   ARTICLE 4.
                                    COVENANTS

Section 4.01    Payment of Notes...................................................................65
Section 4.02    Maintenance of Office or Agency....................................................65
Section 4.03    Reports............................................................................65
Section 4.04    Compliance Certificate.............................................................66
Section 4.05    Taxes..............................................................................67
Section 4.06    Stay, Extension and Usury Laws.....................................................67
Section 4.07    Restricted Payments................................................................67
Section 4.08    Dividend and Other Payment Restrictions Affecting Subsidiaries.....................68
Section 4.09    Incurrence of Indebtedness and Issuance of Preferred Equity........................69	

i

Section 4.10    Asset Sales........................................................................73
Section 4.11    Transactions with Affiliates.......................................................74
Section 4.12    Liens..............................................................................76
Section 4.13    Business Activities................................................................76
Section 4.14    Corporate Existence................................................................76
Section 4.15    Offer to Repurchase Upon Change of Control.........................................77
Section 4.16    Limitation on Issuances and Sales of Equity Interests in Subsidiaries..............78
Section 4.17    Payments for Consent...............................................................79
Section 4.18    Restrictions on Activities of CalGen Finance.......................................79
Section 4.19    Deposit of Revenues................................................................79
Section 4.20    Additional Subsidiaries............................................................79
Section 4.21    Maintenance of Insurance...........................................................79
Section 4.22    Financial Covenants................................................................80
Section 4.23    Changes in Covenants when Third Priority Notes Rated Investment Grade..............80

                                   ARTICLE 5.
                                   SUCCESSORS

Section 5.01    Merger, Consolidation, or Sale of Assets...........................................80
Section 5.02    Successor Corporation Substituted..................................................81

                                   ARTICLE 6.
                              DEFAULTS AND REMEDIES

Section 6.01    Events of Default..................................................................81
Section 6.02    Acceleration.......................................................................83
Section 6.03    Other Remedies.....................................................................84
Section 6.04    Waiver of Past Defaults............................................................84
Section 6.05    Control by Majority................................................................84
Section 6.06    Limitation on Suits................................................................84
Section 6.07    Rights of Holders of Notes to Receive Payment......................................85
Section 6.08    Collection Suit by Trustee.........................................................85
Section 6.09    Trustee May File Proofs of Claim...................................................85
Section 6.10    Priorities.........................................................................86
Section 6.11    Undertaking for Costs..............................................................86

                                   ARTICLE 7.
                                     TRUSTEE

Section 7.01    Duties of Trustee..................................................................86
Section 7.02    Rights of Trustee..................................................................87
Section 7.03    Individual Rights of Trustee.......................................................88
Section 7.04    Trustee's Disclaimer...............................................................88
Section 7.05    Notice of Defaults.................................................................88
Section 7.06    Reports by Trustee to Holders of the Notes.........................................88
Section 7.07    Compensation and Indemnity.........................................................89
Section 7.08    Replacement of Trustee.............................................................89
Section 7.09    Successor Trustee by Merger, etc...................................................90
Section 7.10    Eligibility; Disqualification......................................................90
Section 7.11    Preferential Collection of Claims Against Company..................................91

                                   ARTICLE 8.
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01    Option to Effect Legal Defeasance or Covenant Defeasance...........................91	

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Section 8.02    Legal Defeasance and Discharge.....................................................91
Section 8.03    Covenant Defeasance................................................................91
Section 8.04    Conditions to Legal or Covenant Defeasance.........................................92
Section 8.05    Deposited Money and Government Securities to be Held in
                 Trust; Other Miscellaneous Provisions.............................................93
Section 8.06    Repayment to Company...............................................................93
Section 8.07    Reinstatement......................................................................94

                                   ARTICLE 9.
                        AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01    Without Consent of Holders of Notes................................................94
Section 9.02    With Consent of Holders of Notes...................................................95
Section 9.03    Compliance with Trust Indenture Act................................................96
Section 9.04    Revocation and Effect of Consents..................................................96
Section 9.05    Notation on or Exchange of Notes...................................................96
Section 9.06    Trustee to Sign Amendments, etc....................................................97

                                   ARTICLE 10.
                             COLLATERAL AND SECURITY

Section 10.01   Equal and Ratable Sharing of Collateral by Holders of
                 Secured Debt Within a Class.......................................................97
Section 10.02   Class Voting.......................................................................98
Section 10.03   Ranking of Note Liens..............................................................98
Section 10.04   Relative Rights....................................................................99
Section 10.05   Release of Security Interest in Respect of Notes...................................99

                                   ARTICLE 11.
                              SUBSIDIARY GUARANTEES

Section 11.01   Guarantee..........................................................................99
Section 11.02   Limitation on Guarantor Liability.................................................100
Section 11.03   Execution and Delivery of Subsidiary Guarantee....................................101
Section 11.04   Guarantors May Consolidate, etc., on Certain Terms................................101
Section 11.05   Releases Following Sale of Assets.................................................102

                                   ARTICLE 12.
                           SATISFACTION AND DISCHARGE

Section 12.01   Satisfaction and Discharge........................................................102
Section 12.02   Application of Trust Money........................................................103

                                   ARTICLE 13.
                                  MISCELLANEOUS

Section 13.01   Trust Indenture Act Controls......................................................103
Section 13.02   Notices...........................................................................103
Section 13.03   Communication by Holders of Notes with Other Holders of Notes.....................105
Section 13.04   Certificate and Opinion as to Conditions Precedent................................105
Section 13.05   Statements Required in Certificate or Opinion.....................................105
Section 13.06   Rules by Trustee and Agents.......................................................106
Section 13.07   Non-Recourse; No Personal Liability of Directors, Officers,
                  Employees and Stockholders......................................................106
Section 13.08   Governing Law.....................................................................106
Section 13.09   No Adverse Interpretation of Other Agreements.....................................106	

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Section 13.10   Successors........................................................................106
Section 13.11   Severability......................................................................106
Section 13.12   Counterpart Originals.............................................................106
Section 13.13   Table of Contents, Headings, etc..................................................107

                       EXHIBITS AND SCHEDULES

Schedule A       PERMITTED PRIOR LIENS EXISTING ON THE CLOSING DATE
Exhibit A        FORM OF NOTE
Exhibit B        FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit C        FORM OF CERTIFICATE OF TRANSFER
Exhibit D        FORM OF CERTIFICATE OF EXCHANGE
Exhibit E        FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit F        FORM OF NOTATION OF SUBSIDIARY GUARANTEE
Exhibit G        FORM OF SUPPLEMENTAL INDENTURE
Exhibit H        FORM OF SUBORDINATION TERMS
Exhibit I        FORM OF WORKING CAPITAL FACILITY	

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SECOND PRIORITY INDENTURE, dated as of March 23, 2004, among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation ("CalGen Finance"), the Guarantors (as defined below in Section 1.01) and Wilmington Trust FSB, as Trustee.
As set forth in Section 13.07 below and notwithstanding anything to the contrary set forth in this Indenture, the Notes, any Security Document or any other Note Document, the Notes and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The Company, CalGen Finance, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined below in Section 1.01) of the Second Priority Secured Floating Rate Notes due 2010 (the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions.
"144A Global Note" means a Global Note substantially in the form of Exhibit A, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Administrative Services Agreement" means the Master Administrative Services Agreement, dated as of the Closing Date, among Calpine Administrative Services Company, Inc., the Company and the Facility Owners party thereto.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Affiliate Subordinated Indebtedness" means Indebtedness incurred by the Company pursuant to any arrangement with an Affiliate of the Company; provided, that such Indebtedness (1) is contractually subordinated in right of payment and in all other respects to the Notes and all other Secured Obligations in accordance with the Subordination Terms, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (2) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of
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the Notes, (3) provides for payment of interest thereon in the form of cash or additional Affiliate Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (4) is otherwise subordinated in accordance with the Subordination Terms.
"Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent.
"Applicable Second Priority LIBOR Rate" means, for each interest period, 575 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of one, two, three or six months (as the Company may elect in an Officer's Certificate delivered to the Trustee as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable Second Priority LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of one, two, three or six months (as applicable) as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
"Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights by the Company or any of its Subsidiaries; provided, that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of Section 5.01 and not by the provisions of Section 4.10; and
(2) the issuance of Equity Interests in any of the Company's Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $25.0 million (other than any transaction which involves the sale of an undivided interest, participation or Equity Interest in any Facility or Subsidiary of the Company, each of which will constitute an Asset Sale);
(2) a transfer of assets between or among the Company and the Guarantors;
(3) an issuance of Equity Interests by a Subsidiary of the Company to the Company or to a Guarantor;
(4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
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(6) a Restricted Payment that does not violate the covenant contained in Section 4.07 or a Permitted Investment;
(7) an issuance of Equity Interests in the Company in accordance with the terms of this Indenture; and
(8) the sale of the Columbia Facility pursuant to the Columbia FILOT Arrangement.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.
"Baytown Facility" means the facility described under "Business -- Power Generation -- ERCOT -- Facility Descriptions -- Baytown Facility" in the Offering Memorandum.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13 (d) (3) of the Exchange Act) , such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership or any committee duly authorized and empowered to take action on behalf of such partnership by the partnership agreement of such partnership;
(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
"Broker-Dealer" has the meaning set forth in the Registration Rights Agreement.
"Business Day" means any day other than a Legal Holiday.
"CalGen Expansion Company" means CalGen Expansion Company, LLC.
"CalGen Holdings" means Calpine CalGen Holdings, Inc.
"Calpine" means Calpine Corporation.
"Calpine Performance Guaranty" means the Affiliated Party Agreement Guaranty, dated as of the Closing Date, made by Calpine in favor of the Company and the Facility Owners party thereto.
"Calpine Project Undertaking" means the Project Undertaking and Agreement, dated as of the Closing Date, among Calpine, the Company and the Facility Owners party thereto.
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"Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Carville Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Carville Facility" in the Offering Memorandum.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the United States government (or any agency or instrumentality thereof), the Canadian government (or any agency or instrumentality thereof) or the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Facilities or any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch (or successor rating agency) Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5) overnight deposits with entities whose unsecured commercial paper or other unsecured short-term debt obligations, have, at the time of such deposit, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P; and
4
(6) investments in money market funds or money market mutual funds which have, at the time of such investments, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P.
"Casualty Event" means any damage to or destruction of a Facility in excess of $20.0 million.
"Change of Control" means the occurrence of any of the following:
(1) the adoption of a plan relating to the liquidation or dissolution of the Company;
(2) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as that term is used in Section 13(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Calpine, measured by voting power rather than number of shares;
(3) the first day on which Calpine fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests (other than Perpetual Preferred Stock) of the Company (other than as a result of the issuance of Perpetual Preferred Stock by an indirect or direct parent of the Company); or
(4) the first day on which the Company fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests of CalGen Finance.
"Channel Facility" means the facility described under "Business--Power Generation--ERCOT--Facility Descriptions--Channel Facility" in the Offering Memorandum.
"Class" means (1) in the case of First Priority Lien Debt, every Series of First Priority Lien Debt, taken together, (2) in the case of Second Priority Lien Debt, every Series of Second Priority Lien Debt, taken together, and (3) in the case of Third Priority Lien Debt, every Series of Third Priority Lien Debt, taken together.
"Clearstream" means Clearstream Banking, S.A.
"Closing Date" means March 23, 2004.
"Closing Date Facilities" means the Baytown Facility, the Carville Facility, the Channel Facility, the Columbia Facility, the Corpus Facility, the Decatur Facility, the Delta Facility, the Freestone Facility, the Goldendale Facility, the Los Medanos Facility, the Morgan Facility, the Oneta Facility, the Pastoria Facility and the Zion Facility.
"Collateral" means all collateral in which a Lien is granted to the Collateral Agent in the Security Documents.
"Collateral Agent" means Wilmington Trust Company, in its capacity as collateral agent for the Secured Parties under the Security Documents, together with its successors in such capacity.
"Collateral Trust Agreement" means the Collateral Trust Agreement, dated as of the Closing Date, among CalGen Holdings, the Company, the Guarantors, each Secured Debt Representative party thereto and the Collateral Agent.
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"Columbia Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Columbia Facility" in the Offering Memorandum.
"Columbia FILOT Arrangement" means a fee-in-lieu-of-taxes arrangement pursuant to which the Columbia Facility will be sold to Calhoun County, South Carolina, or a Person acting on its behalf, and leased to Columbia Energy LLC for a nominal annual amount in lieu of certain ad valorem taxes that would otherwise be owed to Calhoun County in connection with the Columbia Facility, together with the payment of a fee to Calhoun County in lieu of such ad valorem taxes; provided, that (1) Columbia Energy LLC has the right under such arrangement to repurchase the Columbia Facility for nominal consideration upon completion or termination of the lease agreement, (2) the leasehold interest held by Columbia Energy LLC is part of the Collateral, (3) the arrangement is not reasonably expected to have a material adverse effect on the operation or financial condition of the Columbia Facility and (3) the arrangement does not impair the Columbia Facility's status as a QF.
"Condemnation Event" means any Facility (or any portion thereof in excess of $20.0 million) is condemned, confiscated, requisitioned, captured, seized or subjected to forfeiture, or title thereto is taken, by any Governmental Authority (or any Person acting under color of Governmental Authority).
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(3) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business;
in each case, on a consolidated basis and determined in accordance with 
GAAP.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period, plus:
(1) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of:
6
(a) any and all interest expense for such period, including, without limitation, Consolidated Interest Expense and any interest expense attributable to Affiliate Subordinated Indebtedness,
(b) consolidated income tax expense for such period,
(c) all amounts attributable to depreciation and amortization for such period,
(d) any extraordinary or non-recurring non-cash charges (other than the write-down of current assets) for such period (including any such non-cash charges for such period relating to the application of fresh start accounting principals),
(e) any non-cash goodwill or other intangible asset impairment charges incurred after the Closing Date resulting from the application of Statement Number 142 of the Financial Accounting Standards Board,
(f) any non-recurring expenses incurred in connection with the transactions contemplated by the Secured Debt Documents, and
(g) any non-cash compensation charges, including any such charges arising from stock options, restricted stock grants and other equity incentive programs,
provided, that to the extent all or any portion of the income of any Subsidiary of the Company or other Person is excluded from Consolidated Net Income pursuant to the definition thereof for all or any portion of such period, any amounts set forth in the preceding clauses (a) through
(g) that are attributable to such Subsidiary or other Person will be not be included for purposes of this clause (1) for such period or portion thereof; plus
(2) without duplication, the cash amount of:
(a) prepayments received by the Company or any of its Subsidiaries under any Major Project Document during such period, and
(b) any distributions received by the Company or any of its Subsidiaries pursuant to the Index Hedge during such period; minus
(3) without duplication:
(a) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net Income pursuant to clause
(1) above in a previous period, and
(b) to the extent included in determining such Consolidated Net Income, any extraordinary gains and all non-cash items of income for such period, all determined on a consolidated basis in accordance with GAAP;
provided, that, if the Company has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated EBITDA will be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the sum of (i) the consolidated net income (loss) of such Subsidiary (to the extent included in Consolidated Net Income) and (ii) the amounts set forth in clause (1)(a)-(g) above attributable to such Subsidiary, multiplied by (B) the percentage of Equity Interests in such Subsidiary not directly or indirectly owned by
7
the Company on the last day of such period. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated EBITDA will be calculated on a Pro Forma basis as if all transactions entered into by the Company on the Closing Date were entered into on the first day of the period for which Consolidated EBITDA is being measured.
"Consolidated Interest Expense" means, for any period:
(1) the sum of, without duplication:
(a) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations, but excluding any interest expense attributable to Affiliate Subordinated Indebtedness) of the Company and its Subsidiaries for such period (including all commissions, discounts and other fees and charges owed by the Company and its Subsidiaries with respect to letters of credit and bankers' acceptance financing), net of interest income, in each case determined on a consolidated basis in accordance with GAAP, plus
(b) any interest accrued (other than interest accrued with respect to Affiliate Subordinated Indebtedness) during such period in respect of Indebtedness of the Company or any of its Subsidiaries that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP; minus
(2) to the extent included in such consolidated interest expense for such period, amounts attributable to the amortization of financing costs and non-cash amounts attributable to the amortization of debt discounts.
For purposes of this definition, interest expense will be determined after giving effect to any net payments made or received by the Company or any of it is Subsidiaries with respect to interest rate Hedging Obligations. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated Interest Expense will be calculated on a Pro Forma basis as if all transactions entered into by the Company on the Closing Date were entered into on the first day of the period for which Consolidated Interest Expense is being measured.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that:
(1) the Net Income of any Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; and
(2) the cumulative effect of a change in accounting principles will be excluded.
"Control Agreement" means the Collateral Account Control Agreement, dated as of the Closing Date, between the Company and the Collateral Agent.
"Corporate Trust Office of the Trustee" will be at the address of the Trustee specified in Section 13.02 or such other address as to which the Trustee may give notice to the Company.
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"Corpus Christi Facility" means the facility described under "Business--Power Generation--ERCOT--Facility Descriptions--Corpus Christi Facility" in the Offering Memorandum.
"Credit Facilities" means one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.
"Decatur Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Decatur Facility" in the Offering Memorandum.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06, substantially in the form of Exhibit A, except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto.
"Delta Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Delta Facility" in the Offering Memorandum.
"Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
"Discharge of First Priority Lien Obligations" means the occurrence of all of the following:
(1) termination of all commitments to extend credit that would constitute First Priority Lien Debt;
(2) payment in full in cash of the principal of and interest and premium (if any) on all First Priority Lien Debt (other than any undrawn letters of credit) and/or defeasance of all First Priority Lien Debt in accordance with the applicable First Priority Lien Documents;
(3) discharge or cash collateralization (at 102.5% of the aggregate undrawn amount) of all outstanding letters of credit constituting First Priority Lien Debt; and
(4) payment in full in cash of all other First Priority Lien Obligations that are outstanding and unpaid at the time the First Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at such time).
"Discharge of Second Priority Lien Obligations" means the occurrence of all of the following:
9
(1) termination of all commitments to extend credit that would constitute Second Priority Lien Debt;
(2) payment in full in cash of the principal of and interest and premium (if any) on all Second Priority Lien Debt (other than any undrawn letters of credit) and/or defeasance of all Second Priority Lien Debt in accordance with the applicable Second Priority Lien Documents;
(3) discharge or cash collateralization (at 102.5% of the aggregate undrawn amount) of all outstanding letters of credit constituting Second Priority Lien Debt; and
(4) payment in full in cash of all other Second Priority Lien Obligations that are outstanding and unpaid at the time the Second Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at such time).
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant contained in Section 4.07. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture will be the maximum amount that the Company and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Equally and Ratably" means, in reference to sharing of Liens or proceeds thereof as among Secured Parties of the same Class that such Liens or proceeds:
(1) will be allocated and distributed first to the Secured Debt Representative for each outstanding Series of Secured Debt within such Class, for account of the holders of such Series of Secured Debt, ratably in proportion to the principal of, and interest and premium (if any) and reimbursement obligations (contingent or otherwise) with respect to letters of credit, if any, outstanding (whether or not drawings have been made under such letters of credit) on, each outstanding Series of Secured Debt within such Class when the allocation or distribution is made, and thereafter
(2) will be allocated and distributed (if any remain after payment in full of all of the principal of, and interest and premium (if any) and reimbursement obligations (contingent or otherwise) with respect to letters of credit, if any, outstanding (whether or not drawings have been made under such letters of credit) on, all outstanding Secured Obligations within such Class) to the Secured Debt Representative for each outstanding Series of Secured Obligations within such Class, for account of the holders of any remaining Secured Obligations within such Class, ratably in proportion to the aggregate unpaid amount of such remaining Secured Obligations within such Class due and demanded (with written notice to the applicable Secured Debt Representative and the Collateral Agent) prior to the date such distribution is made.
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"Equity Contributions" means contributions of cash and Cash Equivalents to the common equity capital of the Company by Persons other than the Company and its Subsidiaries.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"Estimated Peak Capacity" means, with respect to a Facility, the nominal, as-tested new and clean capacity of such Facility, as corrected to average ambient conditions, plus all incremental peaking capability of such Facility derived from duct firing, power augmentation, steam injection or other means.
"Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system.
"Excess Cash Flow" means, for any period:
(1) the sum of:
(A) all revenues (excluding (i) non-cash revenues and
(ii) any payments received from contract monetizations, contract buy-outs and similar transactions) received by the Company and its Subsidiaries during such period,
(B) all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events, and all net proceeds from the sale, lease, conveyance or other disposition of any assets or rights not constituting "Asset Sales," in each case received by the Company and its Subsidiaries during such period and remaining after application of such proceeds to an offer to redeem Notes in accordance with the covenant contained in Section 4.10, and
(C) all Excess Expansion Asset Financing Proceeds received by the Company and its Subsidiaries during such period; less
(2) the sum of:
(A) all costs, expenses, fees and other charges
(including liquidated damages or other damages or penalties)
incurred by the Company and its Subsidiaries during such period in connection with the ownership, operation, maintenance and use of the Facilities, including all payments under Major Project Documents and other agreements relating to the Facilities (other than Major Maintenance Expenses),
(B) all trustee fees, collateral agent fees and other similar administrative fees and expenses paid by the Company and its Subsidiaries during such period,
(C) the Fixed Charges of the Company and its Subsidiaries during such period (other than Fixed Charges of the kind referred to in clause (4) of the definition of Fixed Charges and Fixed Charges relating to Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations),
(D) all payments of principal of Indebtedness of the Company and its Subsidiaries required to be made (whether or not actually made) during such period, other than payments of principal of Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations, and
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(E) all amounts paid by the Company and its Subsidiaries for capital expenditures to the Facilities during such period, other than Excluded CapEx Amounts.
"Excess Expansion Asset Financing Proceeds" means the excess of (1) the aggregate amount of net cash proceeds of Expansion Debt incurred to finance costs associated with Expansion Assets in accordance with clause (3) of the definition of Permitted Debt and Equity Contributions made in connection therewith, over (2) the amount of such proceeds and Equity Contributions required to finance costs associated with such Expansion Assets in compliance with the conditions set forth in clause (3) of the definition of Permitted Debt.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f).
"Exchange Offer" has the meaning set forth in the Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement.
"Excluded Assets" means:
(1) the fixtures and equipment relating to any Facility if, to the extent that and for so long as (A) the ownership or operation of such Facility is regulated by any federal or state regulatory authority and (B) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (i) such fixtures and equipment will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (A) and (B) in this clause (1) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (ii) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(2) with respect to personal property, any contract, agreement, lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (A) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such contract, agreement, lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such contract, agreement, lease, license, permit, franchise, power, authority or right is governed and (B) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (i) such contract, agreement, lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for so long as
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the conditions set forth in clauses (A) and (B) of this clause (2) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and
(ii) the proceeds of any sale, lease or other disposition of any such contract, agreement, lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(3) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for as long as the condition set forth above is and remains satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(4) any Excluded Subsidiary Securities;
(5) any property or assets owned by the Excluded Subsidiary;
(6) any Expansion Assets; provided, that any Expansion Assets will be Excluded Assets only if an for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on the ability to grant a Lien on such Expansion Assets to secure the Secured Obligations continue to be applicable, as determined in good faith by the Company; and
(7) the Company's rights under or with respect to the Working Capital Facility.
"Excluded CapEx Amounts" means amounts paid by the Company and its Subsidiaries for capital expenditures to the Facilities using funds derived from either of the following funding sources:
(1) Equity Contributions, other than Equity Contributions made to comply with clause (3) of the definition of Permitted Debt; and
(2) proceeds of Expansion Debt incurred in accordance with clause (3) of the definition of Permitted Debt.
"Excluded Subsidiary" means Goldendale Energy Center, LLC, only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on Goldendale Energy Center, LLC's ability to be a Guarantor and grant a Lien on its property and assets to secure the Secured Obligations continue to be applicable to Goldendale Energy Center, LLC, as determined in good faith by the Company.
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"Excluded Subsidiary Securities" means Capital Stock or other securities of any Subsidiary of the Company, other than the Equity Interests in CalGen Expansion Company.
"Existing Purchase Option" means an Asset Sale required in accordance with any of the following, without giving effect to any amendments or other modifications thereto after the Closing Date:
(1) the exercise by Eastman Chemical Company (or its successors and permitted assigns) of any of its purchase options under the Energy Services Agreement, dated as of August 15, 2000 and as amended to the Closing Date, between Columbia Energy LLC and Eastman Chemical Company;
(2) the exercise by Solutia, Inc. (or its successors and permitted assigns) of its purchase option upon an event of default under the Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001 and as amended to the Closing Date, between Decatur Energy Center, LLC and Solutia;
(3) the exercise by Bayer Corporation (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of January 12, 2000 and as amended to the Closing Date, between Baytown Energy Center LP and Bayer Corporation;
(4) the exercise by Lyondell-CITGO Refining L.P. (or its successors and permitted assigns) of any of its options to acquire certain property under the Amended and Restated Ground Lease and Easement Agreement, dated as of March 30, 2001 and as amended to the Closing Date, between Channel Energy Center, LP and Lyondell-CITGO Refining L.P.;
(5) the exercise by CITGO Refining and Chemicals Company L.P. (or its successors and permitted assigns) of its right of first offer under the Energy Services Agreement, dated as of March 23, 1999 and as amended to the Closing Date, between Corpus Christi Cogeneration LP and CITGO Refining and Chemicals Company L.P.; and
(6) the exercise by Flint Hills Resources, L.P. (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of July 24, 2003 and as amended to the Closing Date, between Corpus Christi Cogeneration LP and Flint Hills Resources, L.P.
"Expansion Assets" means the assets (including real property rights, contractual rights, rights under permits, other general intangibles and other ancillary rights) added to a Facility in connection with the addition of capacity to, or other expansion of, such Facility; provided, that such Expansion Assets are not necessary for the operation of such Facility or any other Facility (other than the Expansion Assets themselves), are readily distinguishable from such Facility and can be removed or separated from such Facility, dismantled or operated independently of the operation of such Facility without impairing such Facility or any other Facility in any material respect.
"Expansion Debt" means Indebtedness incurred for the purpose of financing the development, construction or purchase of, or repairs, improvements or additions to, Expansion Assets relating to one or more Facilities, including any Indebtedness existing at the time such Expansion Assets are acquired, whether or not such Indebtedness is incurred in connection with, or in contemplation of, the acquisition of such Expansion Assets; provided, that such Indebtedness was incurred to finance the development, construction or purchase of, or repairs, improvements or additions to, such Expansion Assets.
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"Facilities" means the Closing Date Facilities and any other electric generating facilities acquired or constructed after the Closing Date described in the definition of Permitted Business; provided, that any Facility disposed of in accordance with the terms of the Secured Debt Documents will be deemed not to be a Facility from and after the date of such disposition.
"Facility Owner" means, with respect to a Facility, the Subsidiary of the Company that directly owns such Facility.
"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by (1) an officer of the Company and evidenced by an Officer's Certificate delivered to the Trustee, if such value is less than or equal to $10.0 million, or (2) the Board of Directors of the Company and evidenced by a resolution delivered to the Trustee, if such value is greater than $10.0 million.
"FERC" means the Federal Energy Regulatory Commission or any successor agency.
"First Priority Debt Representative" means:
(1) in the case of the First Priority Notes, the First Priority Trustee;
(2) in the case of the Revolving Loans, the Revolving Loan Administrative Agent;
(3) in the case of the First Priority Term Loans, the First Priority Term Loan Administrative Agent; or
(4) in the case of any other Series of First Priority Lien Debt, the trustee, agent or representative of the holders of such Series of First Priority Lien Debt who maintains the transfer register for such Series of First Priority Lien Debt and (a) is appointed as a First Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of First Priority Lien Debt and
(b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"First Priority Indenture" means the First Priority Indenture, dated as of the Closing Date, among the Company, CalGen Finance, the Guarantors and Wilmington Trust FSB, as trustee.
"First Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure First Priority Lien Obligations.
"First Priority Lien Cap" means, as of any date:
(1) the principal amount of First Priority Notes issued on the Closing Date; plus
(2) the principal amount of all Indebtedness outstanding under the First Priority Term Loan Agreement on the Closing Date, plus any Indebtedness outstanding under any other Credit Facility (including the Revolving Loan Agreement), all in an aggregate principal amount not to exceed the amount provided by clause (1)(a) of the definition of Permitted Debt; less
(3) the amount of Second Priority Lien Debt or Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay any First Priority Lien Debt; plus
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(4) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (1) and (2); plus
(5) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500.0 million.
For purposes of this definition of First Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"First Priority Lien Debt" means:
(1) the First Priority Notes;
(2) Indebtedness under the First Priority Term Loan Agreement incurred on the Closing Date;
(3) Indebtedness under the Revolving Loan Agreement;
(4) Hedging Obligations incurred to hedge or manage interest rate risk with respect to First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500.0 million;
(5) Indebtedness under any other Credit Facility that is secured by a First Priority Lien; and
(6) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other First Priority Lien Debt;
provided, that in the case of any Indebtedness referred to in clause (3), (4),
(5) or (6) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each First Priority Debt Representative and the Collateral Agent, as "First Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other First Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable First Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
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(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "First Priority Lien Debt").
"First Priority Lien Documents" means the First Priority Notes, the related Subsidiary guarantees, the First Priority Indenture, the First Priority Term Loan Agreement, the Revolving Loan Agreement, each agreement governing any other Series of First Priority Lien Debt and all other agreements governing, securing or relating to any First Priority Lien Obligations.
"First Priority Lien Obligations" means the First Priority Lien Debt and all other Obligations in respect of First Priority Lien Debt.
"First Priority Notes" means the First Priority Secured Floating Rate Notes due 2009 issued by the Company and CalGen Finance on the Closing Date under the First Priority Indenture.
"First Priority Term Loan Administrative Agent" means Morgan Stanley Senior Funding, Inc., as administrative agent under the First Priority Term Loan Agreement, together with its successors in such capacity.
"First Priority Term Loan Agreement" means the Credit and Guaranty Agreement, dated as of the Closing Date, among the Company, the Guarantors, the First Priority Term Loan Administrative Agent and the agents and lenders thereunder, relating to $600.0 million in aggregate principal amount of term loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"First Priority Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the First Priority Term Loan Agreement.
"First Priority Trustee" means the trustee under the First Priority Indenture.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred equity subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the Calculation Date, then the Fixed Charge Coverage Ratio will be calculated giving Pro Forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries acquired by the specified Person or any of its Subsidiaries, and including any related financing transactions and including increases in ownership of Subsidiaries, during the applicable reference period or
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subsequent to such reference period and on or prior to the Calculation Date will be given Pro Forma effect as if they had occurred on the first day of such reference period;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date;
(4) any Person that is a Subsidiary on the Calculation Date will be deemed to have been a Subsidiary at all times during such reference period;
(5) any Person that is not a Subsidiary on the Calculation Date will be deemed not to have been a Subsidiary at any time during such reference period; and
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire reference period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases, but excluding the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, under any Affiliate Subordinated Indebtedness; plus
(2) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, but excluding the consolidated capitalized interest of such Person and its Subsidiaries for such period under any Affiliate Subordinated Indebtedness; plus
(3) any interest accruing on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred equity of such Person or any of its Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Subsidiary of the Company, multiplied by (b) a fraction, the numerator of
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which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal,
in each case, on a consolidated basis and determined in accordance with GAAP.
"FPA" means the Federal Power Act, as amended.
"Freestone Facility" means the facility described under "Business--Power Generation--ERCOT--Facility Descriptions--Freestone Facility" in the Offering Memorandum.
"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the applicable date of determination.
"Global Note Legend" means the legend set forth in Section 2.06(g)(2), which is required to be placed on all Global Notes issued under this Indenture.
"Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A or Exhibit B, as applicable, issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f).
"Goldendale Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Goldendale Facility" in the Offering Memorandum.
"Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.
"Governmental Authority" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantors" means each of:
(1) CalGen Expansion Company, CPN Freestone LLC, Calpine Freestone, LLC, Freestone Power Generation LP, Calpine Freestone Energy GP, LLC, Calpine Freestone Energy LP, Calpine Power Equipment LP, Calpine Channel Energy Center LP, LLC, Calpine Channel Energy Center GP, LLC, Channel Power GP LLC, Channel Power LP, Channel Energy Center, LP, CalGen Equipment Finance Holdings, LLC, CalGen Project Equipment Finance Company One, LLC, CalGen Project Equipment Finance Company Three LLC, CalGen Equipment Finance Company, LLC, Nueces Bay Energy LLC, Calpine Northbrook Southcoast Investors, LLC,
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Calpine Corpus Christi Energy GP, LLC, Calpine Corpus Christi Energy, LP, Corpus Christi Cogeneration LP, Zion Energy LLC, Los Medanos Energy Center, LLC, Morgan Energy Center, LLC, Carville Energy LLC, Decatur Energy Center, LLC, Calpine Oneta Power I, LLC, Calpine Oneta Power II, LLC, Calpine Oneta Power, L.P., Calpine Baytown Energy Center LP, LLC, Calpine Baytown Energy Center GP, LLC, Baytown Energy Center, LP, Baytown Power GP, LLC, Baytown Power, LP, Columbia Energy LLC, Delta Energy Center, LLC, CalGen Project Equipment Finance Company Two, LLC, Pastoria Energy Facility L.L.C. and Calpine Pastoria Holdings, LLC; and
(2) any other Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage interest rate risk; and
(3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means a Global Note substantially in the form of Exhibit A, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with
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GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(A) the Fair Market Value of such asset at the date of determination, and
(B) the amount of the Indebtedness of the other Person.
Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation.
"Indenture" means this Second Priority Indenture, as amended or supplemented from time to time.
"Indentures" means, collectively, the First Priority Indenture, this Indenture and the Third Priority Indenture.
"Index Based Gas Sale and Power Purchase Agreement" means the Index Based Gas Sale and Power Purchase Agreement, dated as of the Closing Date, among Calpine Energy Services, L.P., the Company and the Facility Owners party thereto.
"Index Hedge" means, collectively, (1) the ISDA Master Agreement (MULTICURRENCY-CROSS BORDER), dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc., as supplemented by the Schedule to the Master Agreement, dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc. and by the Amended and Restated Confirmation, dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc., and (2) the Guaranty, dated as of March 12, 2004, by Morgan Stanley for the benefit of the Company.
"Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant.
"Initial Purchaser" means Morgan Stanley & Co. Incorporated.
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"Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant contained in Section 4.07. Except as otherwise provided in this Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
"Issuers" means, collectively, the Company and CalGen Finance.
"Junior Debt Representative" means the trustee, agent or representative of the holders of a Series of Junior Lien Debt who maintains the transfer register for such Series of Junior Lien Debt and is appointed as a Junior Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Junior Lien Debt.
"Junior Lien" means a Lien granted by a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Junior Lien Obligations.
"Junior Lien Debt" means:
(1) Expansion Debt that is secured by a Junior Lien that was permitted to be incurred under clause (7)(b) or (7)(c) of the definition of Permitted Liens; and
(2) Third Party Subordinated Indebtedness that is secured by a Junior Lien that was permitted to be incurred under clause (19) of the definition of Permitted Liens,
but only if on or before the day on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Junior Debt Representative and the Collateral Agent on or before such date, as "Junior Lien Debt" for the purposes of each of the Junior Lien Documents and the Collateral Trust Agreement.
"Junior Lien Documents" means all agreements governing, securing or relating to any Junior Lien Obligations.
"Junior Lien Obligations" means the Junior Lien Debt and all other Obligations in respect of Junior Lien Debt.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the
22
next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared by the Company, CalGen Finance and the Guarantors and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Lien Priority Confirmation" means:
(1) as to any Series of First Priority Lien Debt, the written agreement of the holders of such Series of First Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of First Priority Lien Debt, for the enforceable benefit of each existing and future holder of Permitted Prior Liens, to be bound by the provisions set forth in the Collateral Trust Agreement;
(2) as to any Series of Second Priority Lien Debt, the written agreement of the holders of such Series of Second Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of Second Priority Lien Debt, for the enforceable benefit of all holders of each existing and future Series of First Priority Lien Debt, each existing and future First Priority Debt Representative, the Collateral Agent and each existing and future holder of Prior Permitted Liens, to be bound by the provisions set forth in the Collateral Trust Agreement; and
(3) as to any Series of Third Priority Lien Debt, the written agreement of the holders of such Series of Third Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of Third Priority Lien Debt, for the enforceable benefit of all holders of each existing and future Series of First Priority Lien Debt and each existing and future Series of Second Priority Lien Debt, each existing and future First Priority Debt Representative and each existing and future Second Priority Debt Representative, the Collateral Agent, and each existing and future holder of Prior Permitted Liens, to be bound by the provisions set forth in the Collateral Trust Agreement.
"Los Medanos Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Los Medanos Facility" in the Offering Memorandum.
"Major Maintenance Expenses" means all costs, expenses, fees and other charges (including liquidated damages or other damages or penalties) incurred by the Company and its Subsidiaries during such period for major maintenance of the Facilities under the Master Maintenance Services Agreement or otherwise.
"Major Project Documents" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, the Index Based Gas Sale and Power Purchase Agreement, the Index Hedge, the Working Capital Facility, the Master Operation and Maintenance Agreement, the Master Maintenance Services Agreement, the Calpine Performance Guaranty, the Master Construction Management Agreement, the Calpine Project Undertaking and the Administrative Services Agreement.
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"Master Construction Management Agreement" means the Master Construction Management Agreement, dated as of the Closing Date, among Calpine Construction Management Company, Inc., the Company and the Facility Owners party thereto.
"Master Maintenance Services Agreement" means the Master Maintenance Services Agreement, dated as of the Closing Date, among Calpine Operating Services Company, Inc., the Company and the Facility Owners party thereto.
"Master Operation and Maintenance Agreement" means the Master Operation and Maintenance Agreement, dated as of the Closing Date, among Calpine Operating Services Company, Inc., the Company and the Facility Owners party thereto.
"Material Adverse Effect" means a material adverse effect on (a) the current or reasonably anticipated business, property, results of operation or financial condition of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company and its Subsidiaries to perform their obligations under the Notes and the Subsidiary Guarantees or (c) the value of, or the validity or priority of the Collateral Agent's security interests in, the Collateral taken as a whole.
"Materially Adverse" means, with respect to an event or circumstance, that such event or circumstance has had or is reasonably expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole; it being understood that an event or circumstance would have a material adverse effect on the Company and its Subsidiaries, taken as a whole, if the Excess Cash Flow for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event or circumstance occurred or commenced to exist, as applicable, would have decreased by more than 5.0%, determined on a Pro Forma basis.
"Moody's" means Moody's Investors Services, Inc., or any successor rating agency.
"Morgan Facility" means the facility described under "Business--Power Generation--The Southeast--Facility Descriptions--Morgan Facility" in the Offering Memorandum.
"Mortgages" means the mortgages and deeds of trust, dated as of the Closing Date, entered into between the Guarantors and the Collateral Agent.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means:
(1) the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset
24
Sale, including legal, accounting and investment banking fees, sales commissions, any relocation expenses incurred as a result of the Asset Sale, and any taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of the Asset Sale (other than Secured Obligations), and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP;
(2) all proceeds of any insurance, indemnity, warranty or guaranty payable from time to time with respect to any Casualty Event that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, other than business interruption insurance proceeds, net of the direct costs relating to the collection of such proceeds; and
(3) all payments (in any form whatsoever) made or due and payable from time to time in connection with any Condemnation Event by any Governmental Authority (or any Person acting under color of Governmental Authority) that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, net of the direct costs relating to the collection of such proceeds.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Documents" means this Indenture, the Notes, the Subsidiary Guarantees, the Collateral Trust Agreement, each Sharing Confirmation, the other Security Documents and all other agreements related thereto.
"Notes" has the meaning assigned to it in the preamble to this Indenture.
"Obligations" means, with respect to any Indebtedness of any Person (collectively, without duplication):
(1) all debt, financial liabilities and obligations of such Person of whatsoever nature and howsoever evidenced (including principal, interest, fees, reimbursement obligations, cash cover obligations, penalties, indemnities and legal and other expenses, whether due after acceleration or otherwise) to the providers or holders of such Indebtedness or to any agent, trustee or other representative of such providers or holders of such Indebtedness under or pursuant to each agreement, document or instrument evidencing, securing, guaranteeing or relating to such Indebtedness, financial liabilities or obligations relating to such Indebtedness (including Secured Debt Documents applicable to such Indebtedness (if any)), in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such agreement, document or instrument;
(2) any and all sums paid or advanced by the Collateral Agent or any other Person in order to preserve the Collateral or any other collateral securing such Indebtedness or to preserve the Liens and security interests in the Collateral or any other collateral, securing such Indebtedness; and
(3) the costs and expenses of collection and enforcement of the obligations referred to in clauses (1) and (2), including:
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(a) the costs and expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on any Collateral or any other collateral;
(b) the costs and expenses of any exercise by the Collateral Agent or any other Person of its rights under the Security Documents or any other security documents; and
(c) reasonable attorneys' fees and expenses and court costs.
"Offering Memorandum" means the Offering Memorandum dated March 17, 2004 relating to the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
"Officer's Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 13.05.
"Oneta Facility" means the facility described under "Business--Power Generation--Other--Facility Descriptions--Oneta Facility" in the Offering Memorandum.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.05. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).
"Pastoria Facility" means the facility described under "Business--Power Generation--The West--Facility Descriptions--Pastoria Facility" in the Offering Memorandum.
"Permitted Business" means the ownership, construction, operation and maintenance of the Closing Date Facilities and any substantially similar electric generating facilities located in the United States, together with any related assets or facilities, including gas pipelines supplying natural gas to such generating facilities, electric transmission lines carrying energy generated from such generating facilities, and any related gas or electric interconnection facilities.
"Permitted Counterparty Lien" means a Lien in favor of a counterparty under a PPA; provided, that the following conditions are satisfied:
(1) the counterparty is not an Affiliate of the Company;
(2) the Lien does not secure any Indebtedness and (a) is granted solely to secure the performance obligations of the Company or the applicable Subsidiary under the PPA and/or any obligation of the Company or the applicable Subsidiary to make a termination payment under the PPA upon the occurrence of the event described in clause (3)(c)(i) below or the termination by the counterparty upon the occurrence of any of the events described in clause (3)(c)(ii) below, or (b) creates rights designed to enable the counterparty to assume operational control of the relevant
26
Facility or Facilities (e.g., step-in rights) or otherwise continue performance of the Company's or the applicable Subsidiary's obligations under the PPA;
(3) the counterparty can exercise its rights with respect to the Lien only:
(a) for so long as the counterparty remains current with respect to all of its payment obligations under the PPA and is not otherwise in a continuing default under the PPA,
(b) if the counterparty continues to acknowledge the existence of the Liens securing the Secured Obligations (unless and until Liens securing the Secured Obligations are eliminated in connection with a foreclosure of the Lien as contemplated by clause (4) of this definition), and
(c) if either (i) the Company or the applicable Subsidiary has terminated, rejected or repudiated the PPA (including, without limitation, any rejection or similar act by or on behalf of the Company or the applicable Subsidiary in connection with any proceeding under Bankruptcy Law) or (ii) the Company or the applicable Subsidiary has intentionally breached its obligations under the PPA; provided, that the following actions will be considered an intentional breach by the Company or the applicable Subsidiary under the PPA: (A) the Company or the applicable Subsidiary provides or delivers capacity or energy to a third party if the Company or the applicable Subsidiary is required under the PPA to provide or deliver such capacity or energy to the counterparty; (B) the Company or the applicable Subsidiary fails to operate or attempt to operate one or more of the relevant Facilities at a time when the Company or the applicable Subsidiary was required under the PPA to operate or attempt to operate such Facility or Facilities and such operation or attempted operation is not prevented by force majeure, forced outage or other events or circumstances outside the reasonable control of the Person responsible therefor; (C) any failure by the Company or the applicable Subsidiary to comply with any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise take actions necessary to continue performance of the Company's or the applicable Subsidiary's obligations under the PPA, in each case to the extent the Company or the applicable Subsidiary is then capable of complying with such provisions; or (D) any failure by the Company or the applicable Subsidiary to pay to the counterparty any amount due and payable in accordance with the terms and conditions of the PPA; and
(4) the counterparty's exercise of its rights with respect to the Lien is limited to (a) the taking of actions pursuant to any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise necessary to continue performance of the Company's or the applicable Subsidiary's obligations under the PPA or (b) the recovery of any termination payment due under the PPA upon the occurrence of the event described in clause (3)(c)(i) above or the termination by the counterparty upon the occurrence of any of the events described in clause (3)(c)(ii) above.
"Permitted Investments" means:
(1) any Investment in the Company or in a Guarantor;
(2) (a) any Investment in the Goldendale Facility to finance the construction and completion of the Goldendale Facility and any other repairs, improvements or other capital
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expenditures necessary to operate and maintain such Facility in accordance with prudent industry practice, and (b) any other Investment in the Goldendale Facility made with the proceeds of Equity Contributions, Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(3) any Investment in Cash Equivalents;
(4) any Investment by the Company or any Guarantor in a Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Subsidiary of the Company and becomes a Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Guarantor;
(5) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant contained in Section 4.10;
(6) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(7) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, or
(b) litigation, arbitration or other disputes with Persons who are not Affiliates;
(8) Investments represented by Hedging Obligations;
(9) repurchases of the Notes and other Secured Obligations;
(10) negotiable instruments held for deposit or collection in the ordinary course of business; and
(11) other Investments in any Person other than an Affiliate of the Company having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) that are at the time outstanding, not to exceed $30.0 million.
"Permitted Liens" means:
(1) Liens in favor of the Collateral Agent Equally and Ratably securing the First Priority Notes, the First Priority Term Loans, the Revolving Loans and all other First Priority Lien Debt, all in an aggregate principal amount not exceeding the First Priority Lien Cap, and all related First Priority Lien Obligations;
(2) Liens in favor of the Collateral Agent Equally and Ratably securing the Notes, the Second Priority Term Loans and all other Second Priority Lien Debt, all in an aggregate amount not exceeding the Second Priority Lien Cap, and all related Second Priority Lien Obligations;
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(3) Liens in favor of the Collateral Agent Equally and Ratably securing the Third Priority Notes and all other Third Priority Lien Debt, and all related Third Priority Lien Obligations;
(4) Liens in favor of the Company or the Guarantors;
(5) pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or operating leases to which such Person is a party;
(6) Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
(7) (a) Liens to secure Expansion Debt that encumber the Expansion Assets financed with the proceeds of such Expansion Debt and other Expansion Assets owned by the Person incurring such Expansion Debt (including any rights of such Person under Shared Facilities Arrangements), (b) Liens to secure Expansion Debt that encumber the Capital Stock of CalGen Expansion Company; provided, that any such Capital Stock must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and (c) if such Expansion Assets are not Excluded Assets and are part of the Collateral, Liens to secure Expansion Debt on the other property and assets of such Person; provided, that any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(8) obligations under Shared Facilities Arrangements, to the extent such obligations constitute Liens, and Liens on Shared Facilities securing the Company's or the applicable Subsidiary's obligations under Shared Facility Arrangements;
(9) Liens which constitute bankers' liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract;
(10) Liens existing on the Closing Date;
(11) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(12) Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the ordinary course of business; or Liens arising out of judgments that do not constitute a Default or an Event of Default;
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(13) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(14) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Indenture; provided, however, that:
(A) the new Lien shall be limited to all or part of the same property and assets that secured the original Lien (plus repairs, improvements and additions to such property or assets); and
(B) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such Indebtedness;
(15) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to operating leases incurred in the ordinary course of business and not otherwise prohibited by this Indenture;
(16) Liens not in respect of Indebtedness consisting of the interest of the lessor under any operating lease entered into in the ordinary course of business and not otherwise prohibited by this Indenture;
(17) Permitted Counterparty Liens;
(18) to the extent constituting Liens, obligations of the Company or its Subsidiaries under or restrictions imposed by any PPA Recognition Agreement;
(19) Liens on property and assets of the Company to secure Third Party Subordinated Indebtedness; provided, that all such property and assets must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to the Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of any Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and
(20) unperfected security interests to secure (a) intercompany Indebtedness permitted to be incurred under clause (5) of the definition of Permitted Debt or (b) Affiliate Subordinated Indebtedness permitted to be incurred under clause (9) of the definition of Permitted Debt; and
(21) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $50.0 million at any one time outstanding.
"Permitted Prior Liens" means:
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(1) Liens securing First Priority Lien Debt not exceeding the First Priority Lien Cap and all related First Priority Lien Obligations;
(2) Liens securing Second Priority Lien Debt not exceeding the Second Priority Lien Cap and all related Second Priority Lien Obligations;
(3) Liens directly on Expansion Assets of the kind described in clause (7)(a) of the definition of Permitted Liens;
(4) Liens described in clause (8), (10) (to the extent set forth on Schedule A), (17) or (18) of the definition of Permitted Liens; and
(5) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries (other than intercompany Indebtedness); provided, that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means, without duplication as to amounts and as long as the Company is a pass-through entity for U.S. federal income tax purposes, payments to Calpine in an amount equal to the federal, state, local and foreign taxes (including any penalties and interest) that the Company would owe if the Company were a corporation for U.S. federal income tax purposes filing a consolidated or combined return with its Subsidiaries.
"Perpetual Preferred Stock" means, with respect to any Person, any preferred Capital Stock of such Person that is not subject to mandatory redemption and is not Voting Stock.
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"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"Pledge Agreements" means (1) the Membership Interest Pledge Agreement, dated as of the Closing Date, among CalGen Holdings, the Company and the Collateral Agent, and (2) the Membership Interest Pledge Agreement, dated as of the Closing Date, among the Company, CalGen Expansion Company and the Collateral Agent.
"PPA" means an agreement (including a tolling agreement, fuel conversion services agreement or other similar agreement) entered into by the Company or any of its Subsidiaries for the sale of capacity or energy (and services ancillary or related thereto) from one or more of the Facilities.
"PPA Recognition Agreement" means an agreement by the Collateral Agent, on behalf of the holders of Secured Obligations, (a) to assume, directly or indirectly (through any agent or Affiliate), the rights and obligations of the Company or any of its Subsidiaries under the WECC Fixed Price Gas Sale and Power Purchase Agreement in the event of a foreclosure under any Secured Debt Document, and (b) not to reject the WECC Fixed Price Gas Sale and Power Purchase Agreement in a proceeding under Bankruptcy Law (subject to applicable law and the discretion of the bankruptcy court), so long as Calpine Energy Services, L.P. is not then in default under the WECC Fixed Price Gas Sale and Power Purchase Agreement or the Index Based Gas Sale and Power Purchase Agreement, provided, that such PPA Recognition Agreement is substantially in the form of Exhibit B to the Collateral Trust Agreement.
"Private Placement Legend" means the legend set forth in Section 2.06(g)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture.
"Pro Forma" means, with respect to a calculation, that such calculation is made in accordance with Regulation S-X under the Securities Act and gives effect to all relevant modifications to Major Project Documents and other contractual arrangements that have been made prior to, or are being made on, the calculation date; provided, that in the case of a calculation for any period occurring prior to the Closing Date, all Major Project Documents and other contractual arrangements in effect on the Closing Date shall be deemed to have been in effect for the entirety of such period.

      "PUHCA" means the Public Utility Holding Company Act of 1935, as amended.

      "PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended.

      "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

      "QF" means a "qualifying cogeneration facility" as defined under the FPA,	

as amended by PURPA and Subpart B of Part 292 of the FERC's regulations.
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Closing Date, among the Initial Purchaser, the Company, CalGen Finance and the Guarantors.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent Global Note in the form of Exhibit A, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of,
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and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the applicable Regulation S Temporary Global Note upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary Global Note in the form of Exhibit B, deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of Notes initially sold in reliance on Rule 903 of Regulation S.
"Remedy Bar Lift Trigger Date" means, at any time after the occurrence and during the continuation of an event of default with respect to Second Priority Lien Debt, the earlier of (1) the date that is 180 days after the occurrence of such event of default and (2) the date of the commencement of any proceeding under Bankruptcy Law in respect of the Company or any Guarantor.
"Required First Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of First Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute First Priority Lien Debt,
in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, First Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Required Second Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of Second Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute Second Priority Lien Debt,
in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, Second Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Required Third Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of Third Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute Third Priority Lien Debt,
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in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, Third Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Period" means the 40-day distribution compliance period as defined in Regulation S.
"Revolving Loan Administrative Agent" means The Bank of Nova Scotia, as administrative agent under the Revolving Loan Agreement, together with its successors in such capacity.
"Revolving Loan Agreement" means the Amended and Restated Credit Agreement, dated as of the Closing Date, among the Company, the Guarantors, the Revolving Loan Administrative Agent and the agents and lenders thereunder, relating to $200.0 million in aggregate principal amount of revolving credit facilities, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"Revolving Loans" means the principal of, and interest and premium (if any) on, Indebtedness of the Company incurred under the Revolving Loan Agreement.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.

      "S&P" means Standard and Poor's Ratings Group, or any successor rating
agency.

      "SEC" means the Securities and Exchange Commission.	

"Second Priority Debt Representative" means:
(1) in the case of the Notes, the Trustee;
(2) in the case of the Second Priority Term Loans, the Second Priority Term Loan Administrative Agent; or
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(3) in the case of any other Series of Second Priority Lien Debt, the trustee, agent or representative of the holders of such Series of Priority Lien Debt who maintains the transfer register for such Series of Second Priority Lien Debt and (a) is appointed as a Second Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Second Priority Lien Debt and (b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"Second Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Second Priority Lien Obligations.
"Second Priority Lien Cap" means, as of any date:
(1) the principal amount of Notes issued on the Closing Date; plus
(2) the principal amount of all Indebtedness outstanding under the Second Priority Term Loan Agreement on the Closing Date, plus any Indebtedness outstanding under any other Credit Facility, all in an aggregate principal amount not to exceed the amount provided by clause
(1)(b) of the definition of Permitted Debt; less
(3) the amount of Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay any Second Priority Lien Debt; plus
(4) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (1) and (2); plus
(5) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500.0 million.
For purposes of this definition of Second Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"Second Priority Lien Debt" means:
(1) the Notes;
(2) Indebtedness under the Second Priority Term Loan Agreement incurred on the Closing Date;
(3) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500.0 million;
(4) Indebtedness under any other Credit Facility that is secured by a Second Priority Lien; and
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(5) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Second Priority Lien Debt or any First Priority Lien Debt;
provided, that in the case of any Indebtedness referred to in clause (3), (4) or
(5) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Second Priority Debt Representative and the Collateral Agent, as "Second Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other Second Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable Second Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "Second Priority Lien Debt").
"Second Priority Lien Documents" means the Notes, the Subsidiary Guarantees, this Indenture, the Second Priority Term Loan Agreement, each agreement governing any other Series of Second Priority Lien Debt and all other agreements governing, securing or relating to any Second Priority Lien Obligations.
"Second Priority Lien Obligations" means the Second Priority Lien Debt and all other Obligations in respect of Second Priority Lien Debt.
"Second Priority Term Loan Administrative Agent" means Morgan Stanley Senior Funding, Inc., as administrative agent under the Second Priority Term Loan Agreement, together with its successors in such capacity.
"Second Priority Term Loan Agreement" means the Credit and Guaranty Agreement, dated as of the Closing Date, among the Company, the Guarantors and the Second Priority Term Loan Administrative Agent, relating to $100.0 million in aggregate principal amount of term loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"Second Priority Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Second Priority Term Loan Agreement.
"Secured Debt" means First Priority Lien Debt, Second Priority Lien Debt and Third Priority Lien Debt.
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"Secured Debt Documents" means the First Priority Lien Documents, the Second Priority Lien Documents and the Third Priority Lien Documents.
"Secured Debt Representatives" means each First Priority Debt Representative, each Second Priority Debt Representative and each Third Priority Debt Representative.
"Secured Obligations" means, collectively, all First Priority Lien Obligations, all Second Priority Lien Obligations and all Third Priority Lien Obligations.
"Secured Obligations Termination Date" means the date on which all Secured Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Secured Debt Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Secured Debt Documents), all commitments to extend credit under all Secured Debt Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Secured Debt Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Secured Parties" means the Collateral Agent and the holders of any Secured Obligations at any time outstanding.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated as of the Closing Date, among the Company, the Guarantors and the Collateral Agent.
"Security Documents" means the Security Agreement, the Pledge Agreements, the Mortgages, the Control Agreement, the Collateral Trust Agreement, each Sharing Confirmation and Lien Priority Confirmation, and all security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, control agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Agent, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms.
"Series of First Priority Lien Debt" means, severally, the First Priority Notes, the First Priority Term Loans, the Revolving Loans and each other issue or series of First Priority Lien Debt for which a single transfer register is maintained.
"Series of Junior Lien Debt" means, severally, each issue or series of Junior Lien Debt for which a single transfer register is maintained.
"Series of Second Priority Lien Debt" means, severally, the Notes, the Second Priority Term Loans and each other issue or series of Second Priority Lien Debt for which a single transfer register is maintained.
"Series of Secured Debt" means, severally, each Series of First Priority Lien Debt, each Series of Second Priority Lien Debt and each Series of Third Priority Lien Debt.
"Series of Third Priority Lien Debt" means, severally, the Third Priority Notes and each other issue or series of Third Priority Lien Debt for which a single transfer register is maintained.
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"Shared Facilities" means equipment, facilities, pipelines, permits, real estate rights, entitlements or other property that are shared or jointly used, owned or operated by the Company or any of its Subsidiaries and any owner of Expansion Assets.
"Shared Facilities Arrangement" means any arrangement that provides for the sharing, joint operation or use, common ownership, leasing or contingent use of Shared Facilities between the Company or any of its Subsidiaries and any owner of Expansion Assets or Toll Party (as defined below), and/or their respective lenders, including (1) agreements for the sharing or joint use or operation of Shared Facilities, (2) ownership of undivided interests in Shared Facilities as tenants in common or other similar forms of joint ownership, (3) leasing of Shared Facilities by the Company or any of its Subsidiaries to an owner of Expansion Assets, (4) ownership of Shared Facilities by a single purpose entity formed solely to own the Shared Facilities and owned by the Company or any of its Subsidiaries or jointly owned by the Company or any of its Subsidiaries and the owner of the Expansion Assets, (5) tolling agreements between the Company or any of its Subsidiaries and any other Person (the "Toll Party") with respect to a Facility's steam turbine, (6) granting of conditional or unconditional real estate rights for the construction, installation or use of Shared Facilities, and (7) Liens on the Shared Facilities or interests therein to secure any such arrangement; provided, that the Company will deliver to the Collateral Agent an Officer's Certificate to the effect that, and, with respect to items (c) and (d) below, a nationally recognized independent engineer will deliver a report concluding that (subject to customary assumptions and qualifications):
(a) the ownership, operation, leasing or use of such Shared Facilities by the owner of Expansion Assets (including the use of the steam turbine by the Toll Party) cannot unreasonably interfere with or otherwise materially adversely affect the operation of the Facility;
(b) the owner of the Facility (or another entity on such owner's behalf) continues to operate and maintain the Facility and the Shared Facilities;
(c) the costs of operating and maintaining the Shared Facilities are shared by the owner of the Facility and the owner of the Expansion Assets or the Toll Party, as applicable, on an equitable basis;
(d) the Shared Facilities and the entitlements related thereto are sufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, or, to the extent the Shared Facilities or the entitlements related thereto are insufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, the Facility will have priority with respect to such Shared Facilities or entitlements, so long as the Facility is operated within the requirements, operating restrictions and other limitations associated with such Shared Facilities or entitlements;
(e) the holder of the Expansion Assets or the Toll Party, as applicable, will not have any rights with respect to the sale or other disposition of, or exercise of remedies with respect to, the Facility, so long as the Shared Facilities remain subject to the Shared Facilities Arrangements;
(f) each party waives the defense that an adequate remedy exists at law and affords the other party (and its lenders or agents on behalf of such lenders) the right to specifically enforce the agreement; and
(g) the owner of the Expansion Assets or the Toll Party, as applicable, cannot prevent a dismantling of the Facility and the receipt by the holders of the Secured Debt of the proceeds of the sale thereof, so long as (i) such owner or Toll Party, as applicable, is given an option to
38
purchase the Shared Facilities at their Fair Market Value, as determined by appraisal, prior to dismantling of the Facility, (ii) such owner or Toll Party, as applicable, is given a right of first refusal to acquire the Shared Facilities in the event they are offered for sale in connection with the dismantling of the Facility, and (iii) the owner of the Facility cooperates with the owner of the Expansion Assets or the Toll Party, as applicable, in accommodating the continued use and operation of the Expansion Assets and the Shared Facilities to the maximum extent reasonably possible notwithstanding the dismantling of the Facility, including providing reasonable periods for and cooperating in the modification of the Shared Facilities.
"Sharing Confirmation" means, as to any Series of Secured Debt within a Class, the written agreement of the holders of such Series of Secured Debt, as set forth in the indenture or other agreement governing such Series of Secured Debt, for the enforceable benefit of all holders of each other existing and future Series of Secured Debt within such Class and each existing and future Secured Debt Representative therefor to be bound as set forth under Section 10.01.
"Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Closing Date.
"Special Interest" means all liquidated damages then owing pursuant to the Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Affiliate Subordinated Indebtedness, Working Capital Facility Indebtedness or Third Party Subordinated Indebtedness.
"Subordination Terms" means the subordination terms set forth in Exhibit H.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof) .
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"Subsidiary Guarantee" or "Note Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and on the Notes, executed pursuant to the provisions of this Indenture.
"Synthetic Lease Obligations" means all monetary obligations of a Person under (1) a so-called synthetic, off-balance sheet or tax retention lease or (2) an agreement for the use or possession of any property (whether real, personal or mixed) creating obligations which do not appear on the balance sheet of such person, but which, upon the insolvency or bankruptcy of such Person, would be characterized as Indebtedness of such Person (without regard to accounting treatment).
"Third Party Subordinated Indebtedness" means Indebtedness loaned to the Company by a Person other than an Affiliate of the Company; provided, that such Indebtedness (1) is contractually subordinated in right of payment and in all other respects to the Notes and all other Secured Obligations in accordance with the Subordination Terms, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (2) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the Notes, (3) provides for payment of interest thereon in the form of cash or additional Third Party Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (4) is otherwise subordinated in accordance with the Subordination Terms.
"Third Priority Debt Representative" means:
(1) in the case of the Third Priority Notes, the Third Priority Trustee; or
(2) in the case of any other Series of Third Priority Lien Debt, the trustee, agent or representative of the holders of such Series of Third Priority Lien Debt who maintains the transfer register for such Series of Third Priority Lien Debt and (a) is appointed as a Third Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Third Priority Lien Debt and (b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"Third Priority Indenture" means the Third Priority Indenture, dated as of the Closing Date, among the Company, CalGen Finance, the Guarantors and Wilmington Trust FSB, as trustee.
"Third Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Third Priority Lien Obligations.
"Third Priority Lien Debt" means:
(1) the Third Priority Notes;
(2) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Third Priority Lien Debt or any First Priority Lien Debt or Second Priority Lien Debt; and
(3) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Third Priority Lien Debt having a notional amount not to exceed the aggregate principal amount of outstanding Third Priority Lien Debt;
provided, that, in the case of any Indebtedness referred to in clause (2) or (3) of this definition:
40
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Third Priority Debt Representative and the Collateral Agent, as "Third Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other Third Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable Third Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "Third Priority Lien Debt").
"Third Priority Lien Documents" means, collectively, the Third Priority Notes, the related Subsidiary guarantees, the Third Priority Indenture, each agreement governing any other Series of Third Priority Lien Debt and all other agreements governing, securing or relating to any Third Priority Lien Obligations.
"Third Priority Lien Obligations" means the Third Priority Lien Debt and all other Obligations in respect of Third Priority Lien Debt.
"Third Priority Notes" means the Third Priority Secured Floating Rate Notes due 2011 and 11 1/2% Third Priority Secured Notes due 2011, each issued by the Company and CalGen Finance on the Closing Date under the Third Priority Indenture.
"Third Priority Trustee" means the trustee under the Third Priority Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note substantially in the form of Exhibit A attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing Notes that do not bear the Private Placement Legend.
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"U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act.
"Voting Group" means a group of one or more Series of Secured Debt that casts its votes as a combined group in connection with decisions made by holders of Secured Debt under the Collateral Trust Agreement.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"WECC Fixed Price Gas Sale and Power Purchase Agreement" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, dated as of the Closing Date, among Calpine Energy Services, L.P., the Company and the Facility Owners party thereto.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) will at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means the Working Capital Facility Agreement, dated as of the Closing Date, among Calpine, CalGen Holdings and the Company.
"Working Capital Facility Indebtedness" means Indebtedness incurred by the Company or any of its Subsidiaries under the Working Capital Facility; provided, that such Indebtedness has the terms (including subordination terms) set forth in Exhibit I.
"Zion Facility" means the facility described under "Business--Power Generation--Other--Facility Descriptions--Zion Facility" in the Offering Memorandum.
Section 1.02 Other Definitions.

                                                          Defined in
Term                                                       Section
----                                                       -------
"Affiliate Transaction"..................................    4.11
"Asset Sale Offer".......................................    4.10
"Authentication Order"...................................    2.02
"Change of Control Offer"................................    4.15
"Change of Control Payment"..............................    4.15
"Change of Control Payment Date".........................    4.15
"Covenant Defeasance"....................................    8.03
"DTC"....................................................    2.03
"Event of Default".......................................    6.01	

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                                                                Defined in
Term                                                             Section
----                                                             -------
      "incur"..................................................    4.09
      "Legal Defeasance".......................................    8.02
      "Offer Amount"...........................................    3.09
      "Paying Agent"...........................................    2.03
      "Payment Default" .......................................    6.01
      "Permitted Debt".........................................    4.09
      "Purchase Date"..........................................    3.09
      "Registrar"..............................................    2.03
      "Restricted Payments"....................................    4.07	

Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes and the Subsidiary Guarantees means the Issuers and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include the singular;
(5) "will" shall be interpreted to express a command;
(6) provisions apply to successive events and transactions;
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(7) references to sections of or rules under the Securities Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time; and
(8) references in this Indenture to Sections, Exhibits and Schedules are to Sections of, and Exhibits and Schedules to, this Indenture.
ARTICLE 2.
THE NOTES
Section 2.01 Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication will be substantially in the form of Exhibit A or Exhibit B, as applicable. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Issuers and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form will be substantially in the form of Exhibit A or Exhibit B, as applicable (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06.
(c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S will be issued initially in the form of the Regulation S Temporary Global Note, which will be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its corporate trust office, as Custodian, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided. The Restricted Period will be terminated upon the receipt by the Trustee of (1) a written certificate from the Depositary, together with copies of certificates from Euroclear and Clearstream, certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(b)), and (2) an Officer's Certificate from the Company stating that such Restricted Period has ended.
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Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note will be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee will, upon receipt of written directions, cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided.
(d) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Clearsteam.
Section 2.02 Execution and Authentication.
One Officer of each Issuer must sign the Notes for the Issuers by manual or facsimile signature.
If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid.
A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee will, upon receipt of a written order of the Issuers signed by one Officer of each Issuer (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuers.
Section 2.03 Registrar and Paying Agent.
The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes.
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The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04 Paying Agent to Hold Money in Trust.
The Issuers will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of, or premium, if any, interest or Special Interest, if any, on, the Notes, and will notify the Trustee of any default by the Issuers in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) will have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee will serve as Paying Agent for the Notes.
Section 2.05 Holder Lists.
The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company will furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders and the Company shall otherwise comply with TIA Section 312(a).
Section 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. A Global Note will be exchangeable by the Issuers for Definitive Notes if:
(1) the Issuers deliver to the Trustee written notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuers within 120 days after the date of such notice from the Depositary;
(2) the Issuers in their sole discretion determine that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and deliver a written notice to such effect to the Trustee; provided, that in no event shall the Regulation S Temporary Global Note be exchanged by the Issuers for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or
(3) there has occurred and is continuing a Default or Event of Default with respect to the Notes.
Upon the occurrence of any of the preceding events in (1), (2) or (3) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee in writing. Global Notes also may be
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exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a); however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f).
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than the Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1).
(2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either:
(A) both:
(i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and
(ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or
(B) both:
(i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and
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(ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above;
provided, that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act.
Upon consummation of an Exchange Offer by the Company in accordance with
Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the applicable exchange agent of (i) the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes or (ii) the instructions contained in the agent's message received by such exchange agent through DTC's Automated Tender Offer Procedures, as applicable. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.
(4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(2) above and:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
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(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit D, including the certifications in item
(1)(a) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C, including the certifications in item
(4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit D, including the certifications in item (2)(a) thereof;
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(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit C, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit C, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h), and the Issuers shall execute and the Trustee shall authenticate upon receipt of an Authentication Order and deliver to the Person designated in such order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes. Notwithstanding Sections 2.06(c)(1)(A) and (C), a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904.
(3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial
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interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit D, including the certifications in item (1)(b) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2), the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h), and the Company will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will not bear the Private Placement Legend.
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(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit C, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit C, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(c) thereof,
the Trustee will cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note.
(2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:
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(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (1)(c) thereof; or
(ii) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note.
(3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Unrestricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an Unrestricted Global Note has not yet been issued, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee will authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.
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(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e).
(1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.
(2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or
(iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Restricted Definitive Note proposes to exchange such Note for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (1)(d) thereof; or
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(ii) if the Holder of such Restricted Definitive Note proposes to transfer such Note to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of Unrestricted Definitive Notes. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate:
(1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company; and
(2) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company.
Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company will execute and the Trustee, upon receipt of an Authentication Order, will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.
(1) Private Placement Legend. Except as permitted by the paragraph immediately following the legend below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR
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THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS."
Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(3), (c)(4), (d)(2), (d)(3), (e)(2) or (e)(3) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend.
(2) Global Note Legend. Each Global Note will bear a legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS
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GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY AND CALGEN FINANCE.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(3) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note will bear a legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(4) Original Issue Discount Legend. Each Note will bear a legend in substantially the following form:
"THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND IS SUBJECT TO TREASURY REGULATIONS REGARDING THE REPORTING OF ORIGINAL ISSUE DISCOUNT. HOLDERS MAY CONTACT THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 50 WEST SAN FERNANDO STREET, 5TH FLOOR, SAN JOSE, CALIFORNIA 95113, WHO WILL PROVIDE UPON REQUEST INFORMATION RELATING TO ORIGINAL ISSUE DISCOUNT, INCLUDING THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a
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Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(1) To permit registrations of transfers and exchanges, the Issuers will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request.
(2) No service charge will be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05).
(3) The Registrar will not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.
(4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(5) The Issuers will not be required:
(A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under
Section 3.02 and ending at the close of business on the day of selection;
(B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
(6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes, and none of the Trustee, any Agent, the Company or CalGen Finance shall be affected by notice to the contrary.
(7) The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02.
(8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.
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Section 2.07 Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Issuers and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuers will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or either Issuer, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers may charge the applicable Holder for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuers and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.
If the principal amount of any Note is considered paid under Section 4.01, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest.
Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded.
Section 2.10 Temporary Notes.
Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Issuers will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes will be entitled to all of the benefits of this Indenture.
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Section 2.11 Cancellation.
The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. Upon receipt of written directions, the Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes will be delivered to the Issuers. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01. The Company will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company will fix or cause to be fixed each such special record date and payment date, provided, that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
Section 2.13 Same Day Settlement and Payment.
The Issuers will make payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, and interest and Special Interest, if any) by wire transfer of immediately available funds to the accounts specified by the Holder of the Global Note. The Issuers will make all payments of principal, interest and premium and Special Interest, if any, with respect to Definitive Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the Definitive Notes or, if no such account is specified, by mailing a check to each such Holder's registered address.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised the Issuers that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
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Section 3.01 Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officer's Certificate setting forth:
(1) the clause of this Indenture pursuant to which the redemption shall occur;
(2) the redemption date;
(3) the principal amount of Notes to be redeemed; and
(4) the redemption price.
Section 3.02 Selection of Notes to Be Redeemed or Purchased.
If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes for redemption or purchase on a pro rata basis except:
(1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or
(2) if otherwise required by law.
In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase.
The Trustee will promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase.
Section 3.03 Notice of Redemption.
Subject to the provisions of Section 3.09, at least 30 days but not more than 60 days before a redemption date, the Company will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Article 8 or 12 of this Indenture. Notices of redemption may not be conditional.
The notice will identify the Note(s) to be redeemed and will state:
(1) the redemption date;
(2) the redemption price;
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(3) if any Note is to be redeemed in part only, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(6) that, unless the Issuers default in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee will give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 days prior to the redemption date, an Officer's Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.
Section 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional.
Section 3.05 Deposit of Redemption or Purchase Price.
Not less than one Business Day prior to the redemption or purchase price date, the Issuers will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Special Interest, if any, on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest and Special Interest, if any, on, all Notes to be redeemed or purchased.
If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01.
Section 3.06 Notes Redeemed or Purchased in Part.
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Upon surrender of a Note that is redeemed or purchased in part, the Issuers will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder, at the expense of the Company, a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered.
Section 3.07 Optional Redemption.
The Issuers may not redeem all or any part of the Notes prior to April 1, 2008. On or after April 1, 2008, the Issuers may redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice, at the redemption prices (expressed at percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below, subject to the rights of the Holders on the relevant record date to receive interest on the relevant interest payment date:

Year                                                                              Percentage
----                                                                              ----------
2008.........................................................................        103.5%
2009, and thereafter.........................................................        100.0%	

Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06.
Section 3.08 Mandatory Redemption.
The Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes.
Section 3.09 Offer to Purchase by Application of Net Proceeds.
In the event that, pursuant to Section 4.10, the Issuers are required or elect to commence an Asset Sale Offer, they will follow the procedures specified below.
Within 30 days following the receipt by the Company or any of its Subsidiaries of Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event, in the case of an Asset Sale Offer described in clause (1) of the second paragraph of Section 4.10, or upon completion of a prior required Asset Sale Offer (and any associated mandatory purchase, prepayment or redemption), in the case of an Asset Sale Offer described in clause (2) or (3) of the second paragraph of Section 4.10, the Issuers will mail a notice to the Trustee and each Holder regarding such Asset Sale Offer. The notice will contain all instructions and materials necessary to enable the Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state:
(1) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10;
(2) the amount of Net Proceeds being offered to purchase Notes and other Second Priority Lien Obligations (the "Offer Amount"), the purchase price and the date on which the purchase will be made (the "Purchase Date"), which date will be no earlier than 30 and no later than 60 days from the date the notice is mailed;
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(3) that any Note not tendered or accepted for payment will continue to accrue interest;
(4) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only;
(6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, the Depositary or the Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date;
(7) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than two Business Days before the Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;
(8) that, if the aggregate principal amount of Notes and other Second Priority Lien Obligations tendered in the Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the Offer Amount, the Company will select the Notes and other Second Priority Lien Obligations to be purchased, prepaid or redeemed on a pro rata basis based on the principal amount of Notes and such other Second Priority Lien Obligations tendered (or required to be purchased, prepaid or redeemed), with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased, prepaid or redeemed; and
(9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes and other Second Priority Lien Obligations or portions thereof tendered pursuant to the Asset Sale Offer (or required to be purchased, prepaid or redeemed), or if less than the Offer Amount has been tendered (or is required to be purchased, prepaid or redeemed), all Notes and other Second Priority Lien Obligations tendered (or required to be purchased, prepaid or redeemed), and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officer's Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this Section 3.09. Payment for any Notes so purchased will be made in the same manner as interest payments are made. The Issuers, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuers for purchase, and the Issuers will promptly issue a new Note, and the Trustee, upon written request from the Issuers, will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results of the Asset Sale Offer on the Purchase Date.
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If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Special Interest, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 3.09 or Section 4.10, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under this Section 3.09 or Section 4.10 by virtue of such compliance.
Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06.
ARTICLE 4.
COVENANTS
Section 4.01 Payment of Notes.
The Company will pay or cause to be paid the principal of, and premium, if any, interest and Special Interest, if any, on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, interest and Special Interest, if any, will be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest and Special Interest, if any, then due. The Company will pay all Special Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement.
The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of
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New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03.
Section 4.03 Reports.
Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company will furnish to the Holders or cause the Trustee to furnish to the Holders, within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the Company were required to file such reports; and
(2) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports.
All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K will include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, following consummation of the Exchange Offer contemplated by the Registration Rights Agreement, the Company will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing or the Company has elected to pay Special Interest in lieu of complying with the registration requirements of the Registration Rights Agreement) and will post the reports on its website within those time periods.
If the Company is not subject to the periodic reporting requirements of the Exchange Act for any reason, the Company will nevertheless file the reports specified in the preceding paragraphs of this covenant with the SEC within the time periods specified above unless the SEC will not accept such a filing or the Company has elected to pay Special Interest in lieu of complying with the registration requirements of the Registration Rights Agreement. However, if the Company does not file any such reports with the SEC, the Company will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if the Company were required to file those reports with the SEC.
In addition, the Company and the Guarantors agree that, for so long as any Notes remain outstanding, if at any time they are not required to file with the SEC the reports required by the preceding paragraphs, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04 Compliance Certificate.
(a) The Issuers and each Guarantor (to the extent that such Guarantor is so required under the TIA) will deliver to the Trustee, within 90 days after the end of each fiscal year, an Officer's Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the other Notes Documents, and further stating, as to the Officer signing such certificate, that to the best of his or
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her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the other Notes Documents and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or any other Note Document (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest or Special Interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(1) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Notes are outstanding, the Company will deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.
Section 4.05 Taxes.
The Company will pay, and will cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.
Section 4.06 Stay, Extension and Usury Laws.
The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.07 Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly:
(1) (a) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Equity Interests in their capacity as such, including Permitted Tax Payments (other
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than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Guarantor), or (b) pay any Major Maintenance Expenses;
(2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations (excluding any intercompany Indebtedness between or among the Company and any of the Guarantors); or
(4) make any Restricted Investment;
(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless:
(A) such Restricted Payment is made from Excess Cash Flow generated since the Closing Date;
(B) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and
(C) at the time of making any such Restricted Payment that is not a payment on or with respect to, or a purchase, redemption, defeasance or other acquisition or retirement for value of, Subordinated Indebtedness, all amounts then due under all Subordinated Indebtedness have been paid in full; or
(5) use the proceeds of any Indebtedness under any revolving Credit Facility which is First Priority Lien Debt to prepay, repay or redeem the principal of any Second Priority Lien Debt or Third Priority Lien Debt.
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or the applicable Subsidiary, as the case may be, pursuant to the Restricted Payment.
Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Subsidiaries;
(2) make loans or advances to the Company or any of its Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its Subsidiaries.
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However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) this Indenture, the Notes and the Subsidiary Guarantees, the First Priority Notes and the related Subsidiary guarantees, the First Priority Indenture, the Third Priority Notes and the related Subsidiary guarantees and the Third Priority Indenture;
(2) agreements governing Credit Facilities as in effect on the Closing Date (including the First Priority Term Loan Agreement, the Second Priority Term Loan Agreement and the Revolving Loan Agreement) and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Closing Date;
(3) any applicable law, rule, regulation or order;
(4) customary non-assignment provisions in contracts, agreements, leases, permits or licenses entered into or issued in the ordinary course of business and consistent with past practices;
(5) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clauses (1) and (3) of the preceding paragraph;
(6) any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending the sale or other disposition;
(7) Permitted Refinancing Indebtedness; provided, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(8) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant contained in Section 4.12 that limit the right of the debtor to dispose of the assets subject to such Liens or to use the proceeds of any such disposition;
(9) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements;
(10) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and
(11) provisions restricting or encumbering the sale or other disposition of Expansion Assets or the payment of dividends, distributions or similar payments made from cash flow derived exclusively from Expansion Assets, in each case pursuant to the terms of any Expansion Debt incurred pursuant to clause (3) of the definition of Permitted Debt; provided, that such
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encumbrance or restriction will not materially adversely affect the Company's ability to meet its obligations on the Notes when due, and, in the written opinion of the president, chief operating officer or chief financial officer of the Company, is required in order to obtain such Expansion Debt and is customary for financings of such type.
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Equity.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred equity.
The preceding paragraph will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company (and the guarantee by its Subsidiaries) of:
(a) Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1)(a) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed $800.0 million, less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events or Condemnation Events applied by the Company or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder; and
(b) Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount outstanding under this clause (1)(b) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed $100.0 million, less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events applied by the Company or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder;
(2) the incurrence by the Issuers and the Guarantors of Indebtedness represented by the First Priority Notes, the Notes and the Third Priority Notes to be issued on the Closing Date, the related Subsidiary guarantees and the other Obligations incurred under the Indentures on the Closing Date, and the Exchange Notes and the related Subsidiary guarantees to be issued pursuant to the Registration Rights Agreement;
(3) the incurrence by the Company or any of its Subsidiaries of Expansion Debt; provided, that:
(a) any Expansion Debt incurred by the Excluded Subsidiary is recourse only to the Expansion Assets financed with such Expansion Debt and to other Expansion Assets owned by the Excluded Subsidiary (including any rights of the Excluded Subsidiary under Shared Facilities Arrangements);
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(b) if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved), at least 25% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(c) if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been less than 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved),
(i) at least 40% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness, and
(ii) after giving effect to such incurrence, the amount of Expansion Debt incurred pursuant to this clause (3), together with the aggregate amount of all other Expansion Debt then outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Expansion Debt incurred pursuant to this clause (3), does not exceed $250.0 million;
(4) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under clauses (2), (3), (4) or (10) of this paragraph;
(5) the incurrence by the Company or any Guarantor of intercompany Indebtedness between or among the Company and any Guarantor that is subordinated in right of payment to all Secured Obligations pursuant to a customary subordination agreement delivered to the Collateral Agent (together with all other documents or instruments required to effect such subordination and any other documents reasonably requested by the Collateral Agent in connection therewith), and is not secured other than by unperfected security interests; provided, however, that (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Guarantor and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Guarantor will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Guarantor, as the case may be, that was not permitted by this clause (5); and provided, further, that any such intercompany Indebtedness must be included in the Collateral;
(6) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations, in connection with Permitted Debt or otherwise, in the ordinary course of business and not for speculative purposes; provided, that (a) such Hedging Obligations have tenors that expire on or prior to the maturity date (or other expiration) of the underlying obligation being hedged, and (b)
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any such Hedging Obligations hedging or managing interest rate risk with respect to (i) First Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the First Priority Notes, (ii) Second Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the Notes, or (iii) Third Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the Third Priority Notes;
(7) the incurrence by the Company or any of its Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, and performance and surety bonds in the ordinary course of business;
(8) the incurrence by the Company or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days;
(9) the incurrence by the Company of (a) Affiliate Subordinated Indebtedness in an aggregate principal amount not to exceed $250.0 million at any one time outstanding and (b) Working Capital Facility Indebtedness in an aggregate principal amount not to exceed $750.0 million at any one time outstanding;
(10) the incurrence by the Company of Third Party Subordinated Indebtedness; provided, that:
(a) the net proceeds of the Third Party Subordinated Indebtedness are applied:
(i) to acquire all or substantially all of the assets of, or any Equity Interests in, a business that constitutes a Permitted Business; provided, that in the case of an acquisition of Equity Interests, the business is or becomes a Subsidiary of the Company and a Guarantor concurrently with such acquisition;
(ii) to make a capital expenditure;
(iii) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business; or
(iv) any combination of the foregoing; and
(b) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Third Party Subordinated Indebtedness is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Third Party Subordinated Indebtedness had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved).
The Company will not incur, and will not permit any Subsidiary to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Subsidiary unless such Indebtedness is also contractually subordinated in right of payment to the Secured Obligations on substantially identical terms or on terms
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that are more favorable to the holders of the Secured Obligations; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company or any of its Subsidiaries solely by virtue of being unsecured or by virtue of being secured on a junior basis.
For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (10) above, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.09. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
Section 4.10 Asset Sales.
The Company will not, and will not permit any of its Subsidiaries to, consummate any Asset Sale unless:
(1) except with respect to an Asset Sale made pursuant to an Existing Purchase Option, the Company (or any of its Subsidiaries, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;
(2) at least 90% of the consideration received in the Asset Sale by the Company or such Subsidiary is in the form of cash. For purposes of this provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Subsidiary from further liability;
(b) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Subsidiary into cash, to the extent of the cash received in that conversion; and
(c) in connection with the exercise by a purchaser of an Existing Purchase Option, any amount owed by the Company or the applicable Subsidiary to the purchaser under the agreement containing such Existing Purchase Option that is set off by the purchaser against the purchase price;
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(3) if the assets disposed of in such Asset Sale include any component of a Facility that is necessary for the operation of such Facility, the Asset Sale involves the disposition of such Facility as a whole; and
(4) if the Asset Sale involves the sale of a Facility or all or substantially all the assets of a Facility, (a) such Asset Sale is to a Person other than an Affiliate of the Company, and (b) all necessary amendments are made to those Major Project Documents applicable to such Facility to remove such Facility from the scope of such Major Project Documents.
The Company and its Subsidiaries will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event to make an offer (an "Asset Sale Offer"):
(1) first, to all holders of First Priority Notes and all holders of other First Priority Lien Obligations (to the extent required under the applicable First Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of First Priority Notes and such other First Priority Lien Obligations that may be purchased, prepaid or redeemed out of such Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of First Priority Lien Obligations required under any First Priority Lien Document);
(2) second, if any such Net Proceeds remain after the offer to holders of First Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations) in accordance with clause (1) above, to all holders of Notes and all holders of other Second Priority Lien Obligations (to the extent required under the applicable Second Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of Notes and such other Second Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations required under any Second Priority Lien Document); and
(3) third, if any such Net Proceeds remain after the offer to holders of First Priority Lien Obligations and Second Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations and Second Priority Lien Obligations) in accordance with clauses
(1) and (2) above, to all holders of Third Priority Notes and all holders of other Third Priority Lien Obligations (to the extent required under the applicable Third Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of Third Priority Notes and such other Third Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Third Priority Lien Obligations required under any Third Priority Lien Document).
The Issuers may, at their sole option, make an Asset Sale Offer in accordance with the priorities described above with the net proceeds from any sale, lease, conveyance or other disposition of any assets or rights not constituting an Asset Sale. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, and will be payable in cash. If any of such Net Proceeds remain after consummation of the Asset Sale Offer, the Company and its Subsidiaries may use those excess Net Proceeds for any purpose not otherwise prohibited by this Indenture, including the making of Restricted Payments in accordance with Section 4.07. If the aggregate principal amount of Notes and other Second Priority Lien Obligations tendered into such Asset Sale Offer or required to be purchased, prepaid or redeemed exceeds the amount
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of Net Proceeds available therefor, the Issuers will purchase, prepay or redeem Notes and such other Second Priority Lien Obligations on a pro rata basis based on the principal amount of Notes and such other Second Priority Lien Obligations tendered (or required to be purchased, prepaid or redeemed), with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased, prepaid or redeemed. The Issuers will comply with the procedures set forth in
Section 3.09 with respect to any Asset Sale Offer.
Section 4.11 Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction, taken as a whole with all other related Affiliate Transactions, is on terms that are no less favorable to the Company and its Subsidiaries, taken as a whole, than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee (other than with respect to a Shared Facilities Arrangement between or among the Company and/or any of its Subsidiaries):
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million but less than or equal to $25.0 million, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, a positive opinion as to the Fair Market Value of such Affiliate Transaction issued by an accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement, employee benefit plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Subsidiaries in the ordinary course of business;
(2) transactions between or among the Company and/or any of the Guarantors (other than Shared Facility Arrangements);
(3) transactions with a Person that is an Affiliate of the Company (but not a Subsidiary of the Company) solely because the Company owns, directly or through a Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company;
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(5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; provided, that such Equity Interests are included in the Collateral;
(6) Restricted Payments that do not violate Section 4.07;
(7) loans or advances to employees in the ordinary course of business not to exceed $1.0 million in the aggregate at any one time outstanding;
(8) Permitted Tax Payments;
(9) transactions under or pursuant to written agreements with Affiliates of the Company in place as of the Closing Date or any amendment or modification thereto, so long as any such amendment or modification meets the requirements of clause (10) or (11) of this paragraph;
(10) any amendments or modifications of, or waivers under, any written agreement described under clause (9) of this paragraph that is not a Major Project Document; provided, that no such amendment, modification or waiver alters any such agreement in a manner that is materially adverse to the Holders;
(11) any amendments or modifications of, or waivers under, any Major Project Document, which are permitted by Section 4.13 and are on terms that are no less favorable to the Company or its relevant Subsidiary (as certified to the Trustee in an Officer's Certificate) than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; and
(12) any agreement to do any of the foregoing.
Section 4.12 Liens.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens.
Section 4.13 Business Activities.
The Company will not, and will not permit any of its Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole.
The Company will, and will cause its Subsidiaries to, perform all their obligations under the Major Project Documents, and the Company will not, and will not permit any of its Subsidiaries to, terminate, amend or otherwise modify, or consent to any termination, amendment or modification of, or grant any waiver under, any Major Project Document, unless any failure to so perform or any such termination, amendment, modification or waiver would not, when taken together with all other such failures to perform, terminations, amendments, modifications and waivers since the Closing Date, be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Company; provided, however, that the provisions of this paragraph will not apply to any amendment, modification or termination of any Major Project Document required under this Indenture in connection with an Asset Sale.
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The Company will, and will cause its Subsidiaries to, obtain and maintain all permits and approvals necessary for the construction and operation of the Facilities, including applicable exemptions from PUHCA, unless the failure to do so would not reasonably be expected to have a Material Adverse Effect.
The Company will not, and will not permit any of its Subsidiaries to, use or dispose of any hazardous materials or allow any hazardous materials to be brought onto or stored or used on or transported to or released from the Facilities, other than in accordance with prudent industry practices and in compliance with all applicable environmental laws, except to the extent such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
Section 4.14 Corporate Existence.
Subject to Article 5, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect:
(1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and
(2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company will not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.15 Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes repurchased, to, but excluding, the date of purchase (the "Change of Control Payment"), subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating:
(1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date");
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Issuers default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date;
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(5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and
(7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change in Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Sections 4.15, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under this Section 4.15 by virtue of such compliance.
(b) On the Change of Control Payment Date, the Issuers will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so properly accepted together with an Officer's Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuers.
The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee, at the written request of the Company, will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each new Note will be in a principal amount of $1,000 or an integral multiple thereof.
The Issuers will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Issuers to make a Change of Control Offer following a Change in Control will be applicable whether or not any other provisions of this Indenture are applicable. Except as described above with respect to a Change in Control, this Indenture does not contain provisions that permit the Holders to require that the Issuers repurchase or redeem the Notes in event of a takeover, recapitalization or similar transaction.
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(c) Notwithstanding anything to the contrary in this Section 4.15, the Issuers will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this
Section 4.15 and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07, unless and until there is a default in payment of the applicable redemption price.
Section 4.16 Limitation on Issuances and Sales of Equity Interests in Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Subsidiary of the Company to any Person (other than the Company or a Guarantor), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Subsidiary; and
(2) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10.
In addition, the Company will not permit any Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Guarantor.
Section 4.17 Payments for Consent.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of any Note Document unless such consideration is offered to be paid and is paid to all Holders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Section 4.18 Restrictions on Activities of CalGen Finance.
CalGen Finance will not hold any material assets, become liable for any material obligations or engage in any significant business activities; provided, that CalGen Finance may be a co-obligor or guarantor with respect to Indebtedness if the Company is an obligor on such Indebtedness and the net proceeds of such Indebtedness are received by the Company, CalGen Finance or one or more of the Company's other Subsidiaries.
Section 4.19 Deposit of Revenues.
The Company will, and will cause its Subsidiaries to, deposit all revenues received by the Company and its Subsidiaries, within 10 Business Days of receipt thereof, in the "Revenue Account" established under the Control Agreement. Notwithstanding the foregoing, Excess Cash Flow may be distributed in accordance with Section 4.07.
Section 4.20 Additional Subsidiaries.
If the Company or any of its Subsidiaries acquires or creates another Subsidiary after the Closing Date, then (1) that newly acquired or created Subsidiary will become a Guarantor and execute a supplemental indenture in the form of Exhibit G and deliver an Opinion of Counsel reasonably
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satisfactory to the Trustee within 30 days of the date on which it was acquired or created, and (2) all real and personal property of that Subsidiary will become part of the Collateral within 30 days of the date on which that Subsidiary was acquired or created pursuant to documentation (including Security Documents, financing statements, opinions and other documents) reasonably satisfactory to the Trustee and the Collateral Agent.
Section 4.21 Maintenance of Insurance.
The Company will, and will cause its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance on their property and assets (including the Collateral), in at least such amounts, with such deductibles and against at least such risks as is customary for companies of the same or similar size engaged in the same or similar businesses as those of the Company and its Subsidiaries and furnish to the Collateral Agent, upon written request, full information as to such Persons' property and liability insurance carriers. The Company will, and will cause the Guarantors to, cause all their insurance policies to name the Secured Parties, as a class, as additional insureds, with a waiver of subrogation, and shall cause all their property and casualty policies to name the Collateral Agent as loss payee (together with other lien holders as their interests may appear), with 30 days notice of cancellation or material change.
Section 4.22 Financial Covenants.
The Company will cause the ratio of (x) Consolidated EBITDA to (y) Consolidated Interest Expense, as of the end of each fiscal quarter of the Company, to be equal to or greater than 1.05 to 1.0.
The Company will cause the ratio of (x) the aggregate principal amount outstanding of First Priority Notes, First Priority Term Loans, Revolving Loans, Notes and Second Priority Term Loans to (y) the combined Estimated Peak Capacity of all of the Facilities (including all Facilities in operation and under construction) owned by the Company and its Subsidiaries (expressed in kilowatts), as of the end of each fiscal quarter of the Company, to be equal to or less than $235 per kilowatt.
Section 4.23 Changes in Covenants when Third Priority Notes Rated Investment Grade.
If on any date following the Closing Date:
(1) after giving effect to the suspension of covenants (and the Event of Default) described below in the Third Priority Indenture, the Third Priority Notes are rated Baa3 or better by Moody's and BBB- or better by S&P; and
(2) no Default or Event of Default shall have occurred and then be continuing,
then, beginning on that day and subject to the provisions of the following paragraph, the covenants (and the Event of Default) of this Indenture specifically listed below will be suspended:
(a) Section 4.07 (Restricted Payments);
(b) Section 4.08 (Dividend and Other Payment Restrictions Affecting Subsidiaries);
(c) Section 4.09 (Incurrence of Indebtedness and Issuance of Preferred Equity);
(e) Section 4.10 (Deposit of Revenues);
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(d) Section 4.13 (Business Activities); and
(f) clause (9) under Section 6.01 (Events of Default).
Notwithstanding the foregoing, if the rating assigned to the Third Priority Notes by either Moody's or S&P should subsequently decline to below Baa3 or BBB-, respectively, the foregoing covenants (and the Event of Default) will be reinstituted with respect to the Notes as of and from the date of such rating decline. Calculations under reinstated Section 4.07 will be made as if such covenant had been in effect since the Closing Date except that no Default will be deemed to have occurred solely by reason of a Restricted Payment made while such covenant was suspended.
ARTICLE 5.
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of Assets.
The Company will not, directly or indirectly:
(1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole, in one or more related transactions, to another Person; or
(3) lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person.
This Section 5.01 will not apply to (A) a merger of the Company with an Affiliate solely for the purpose of reconstituting the Company in another jurisdiction or (B) any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Company and the Guarantors.
Notwithstanding the foregoing, the Company is permitted to reorganize as a corporation in accordance with the procedures established herein, provided, that the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that such reorganization is not adverse to Holders (it being recognized that such reorganization shall not be deemed adverse to the Holders solely because (i) of the accrual of deferred tax liabilities resulting from such reorganization or
(ii) the successor or surviving corporation (a) is subject to income tax as a corporate entity or (b) is considered to be an "includable corporation" of an affiliated group of corporations within the meaning of the Internal Revenue Code of 1986, as amended or any similar state or local law), and the Company delivers to the Trustee such other certificates and other documents reasonably requested by the Trustee in connection therewith.
Section 5.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole in a transaction that is subject to, and that complies with the provisions of, Section 5.01, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or
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other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
Each of the following is an "Event of Default":
(1) default for 30 days in the payment when due of interest on, or Special Interest, if any, with respect to, any of the Notes;
(2) default in the payment when due of the principal of, or premium, if any, on any of the Notes ;
(3) failure by the Company or any of its Subsidiaries to comply with the covenants contained in Sections 3.09, 4.10, 4.15 and 4.19;
(4) failure by the Company or any of its Subsidiaries for 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes to comply with any of the agreements in this Indenture or the Security Documents;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee existed on the Closing Date or is created after the Closing Date, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or the applicable Subsidiary becoming aware of such default;
(6) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $25.0 million (excluding those covered by insurance), which judgments are not paid, discharged or stayed for a period of 60 days;
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(7) the repudiation by CalGen Holdings, the Company or any of its Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against CalGen Holdings, the Company or any of its Subsidiaries for any reason; provided, that such repudiation or unenforceability relates to Collateral with a Fair Market Value of $25.0 million or more;
(8) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee, and such condition shall not have been cured within 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes;
(9) breach by any Person (other than the Company or any of its Subsidiaries) of its obligations under, or termination or failure to be in full force and effect of, a Major Project Document (unless such breach, termination or failure to be in full force and effect would not, when taken together with all other such breaches, terminations or failures since the Closing Date (other than those that have been cured as contemplated below, including by entering into a replacement agreement), be Materially Adverse, as evidenced by an Officer's Certificate of the chief financial officer of the Company), unless with respect to any Major Project Document such breach is cured, or such Major Project Document is replaced with a substantially similar agreement (it being understood that
(a) an agreement will be considered substantially similar if it would not be Materially Adverse and (b) the use of an Affiliate of the Company as the counterparty under an agreement replacing the Index Hedge will not by itself be considered Materially Adverse), within 60 days (or 120 days with respect to the Index Hedge) thereafter; and
(10) the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, pursuant to or within the meaning of Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an involuntary case,
(c) consents to the appointment of a custodian of it or for all or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) generally is not paying its debts as they become due; or
(11) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(a) is for relief against the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, in an involuntary case;
(b) appoints a custodian of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would
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constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary; or
(c) orders the liquidation of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days;
Section 6.02 Acceleration.
In the case of an Event of Default specified in clause (10) or (11) of
Section 6.01, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately.
The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of all of the Holders, rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium or Special Interest, if any, that has become due solely because of the acceleration) have been cured or waived.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest and Special Interest, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults.
Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of the Holders of all of the Notes, waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Special Interest, if any, or interest on, the Notes (including in connection with an offer to purchase). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.05 Control by Majority.
Subject to the provisions of the Collateral Trust Agreement, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any
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proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability.
Section 6.06 Limitation on Suits.
Except to enforce the right to receive payment of principal, premium, if any, or interest or Special Interest, if any, when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of Default is continuing;
(2) Holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested that the Trustee pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and
(5) Holders of a majority in aggregate principal amount of the Notes then outstanding have not given the Trustee a direction inconsistent with such request within such 60-day period.
A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.
Section 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Special Interest, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided, that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Special Interest, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
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The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10 Priorities.
Subject to the provisions of the Collateral Trust Agreement, if the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under Section 7.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Special Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Special Interest, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07, or a suit by Holders of more than 10% in aggregate principal amount of the then outstanding Notes.
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ARTICLE 7.
TRUSTEE
Section 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section 7.01.
(e) No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holder, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02 Rights of Trustee.
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(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company will be sufficient if signed by an Officer of the Company.
(f) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
(g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder unless and until the Trustee shall have received from a Holder of a Note or from the Company written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Even of Default hereunder.
(h) If the Trustee is acting as Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Paying Agent and Registrar.
Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after determining such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.04 Trustee's Disclaimer.
The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in
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the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium or Special Interest, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06 Reports by Trustee to Holders of the Notes.
(a) Within 60 days after each May 15 beginning with the May 15 following the Closing Date, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA Section
313(b)(2). The Trustee will also transmit by mail all reports as required by TIA
Section 313(c).
(b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company will promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07 Compensation and Indemnity.
(a) The Company will pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation will not be limited by any law on compensation of a trustee of an express trust. The Company will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel.
(b) The Company and the Guarantors will indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture and any other Note Documents to which it is a party, including the costs and expenses of enforcing this Indenture and any other Note Documents to which it is a party against the Company and the Guarantors (including this
Section 7.07) and defending itself against any claim (whether asserted by the Company, the Guarantors, any Holder or any other Person) or liability, loss or expense incurred by it in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith as finally determined by a court of competent jurisdiction. The Trustee will notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company will not relieve the Company or any of the Guarantors of their obligations hereunder. The Company or such Guarantor will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Company will pay the reasonable fees and expenses of such counsel. Neither the Company nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld.
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(c) The obligations of the Company and the Guarantors under this Section 7.07 will survive the satisfaction and discharge of this Indenture.
(d) To secure the Company's payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture.
(e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(10) or (11) occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
(f) The Trustee will comply with the provisions of TIA Section 313(b)(2) to the extent applicable.
Section 7.08 Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a custodian or public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee will become
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effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee, provided, that all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 will continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act will be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and (i) in the case of the initial Trustee, that also satisfies the eligibility requirements for a trustee under the TIA and (ii) in the case of any successor Trustee, that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition.
This Indenture will always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b).
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at their option at any time, elect to have either Section 8.02 or 8.03 be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.02 Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.02, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04, be deemed to have been discharged from their obligations with respect to all outstanding Notes (including the Subsidiary Guarantees) on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Issuers and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (including the Subsidiary Guarantees), which will thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes, the Subsidiary Guarantees and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper
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instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder:
(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium or Special Interest, if any, on such Notes when such payments are due from the trust referred to in Section 8.04;
(2) the Issuers' obligations with respect to such Notes under Article 2 and Section 4.02;
(3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers' and the Guarantors' obligations in connection therewith; and
(4) this Article 8.
Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of their option under Section 8.03.
Section 8.03 Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.03, the Issuers and the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21 and 4.22 with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes may not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Subsidiary Guarantees, the Issuers and the Guarantors may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under Section 6.01, but, except as specified above, the remainder of this Indenture and such Notes and Subsidiary Guarantees will be unaffected thereby. In addition, upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04, Sections 6.01(3) through 6.01(5) will not constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03:
(1) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium and Special Interest, if any, on the outstanding Notes on the Stated
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Maturity or on the applicable redemption date, as the case may be, and the Issuers must specify whether the Notes are being defeased to maturity or to a particular redemption date;
(2) in the case of an election under Section 8.02, the Issuers must have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that:
(A) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling; or
(B) since the Closing Date, there has been a change in the applicable federal income tax law;
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of an election under Section 8.03, the Issuers have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(6) the Issuers must deliver to the Trustee an Officer's Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders of Notes over the other creditors of the Issuers with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and
(7) the Issuers must deliver to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the
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payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and Special Interest, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.
Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Issuers from time to time upon the request of the Issuers any money or non-callable Government Securities held by them as provided in Section 8.04 which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1)), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium and Special Interest, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium and Special Interest, if any, or interest has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuers as trustee thereof, will thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuers.
Section 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03, as the case may be, by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, then the Issuers' and the Guarantors' obligations under this Indenture, the Notes and the Subsidiary Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03, as the case may be; provided, however, that, if the Issuers make any payment of principal of, premium or Special Interest, if any, or interest on any Note following the reinstatement of their obligations, the Issuers will be subrogated to the rights of the Holder of such Note to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Notes.
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Notwithstanding Section 9.02, the Issuers, the Guarantors and the Trustee may, without the consent of any Holder, amend or supplement this Indenture, the Subsidiary Guarantees or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to provide for the assumption of the Issuers' obligations to the Holders of the Notes by a successor to the Issuers pursuant to Article 5;
(4) to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights hereunder of any Holder;
(5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;
(6) to make, complete or confirm any grant of Collateral permitted or required by this Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Indenture or any of the Security Documents;
(7) to conform the text of this Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the "Description of Notes" section contained in the Offering Memorandum to the extent that such provision in such "Description of Notes" section was intended to be a verbatim recitation of a provision of this Indenture, the Subsidiary Guarantees, the Security Documents or the Notes; or
(8) to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G and/or a Subsidiary Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee will join with the Company and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Section 3.09, 4.10 and 4.15), the Subsidiary Guarantees and the Notes with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium or Special Interest, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the
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Notes). Section 2.08 shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee will join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental indenture.
It will not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than the provisions of Sections 3.09, 4.10 and 4.15);
(3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;
(4) waive a Default or Event of Default in the payment of principal of, or premium, interest or Special Interest, if any, on, the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of this Indenture relating to waivers of Defaults or Events of Default or the rights of Holders of Notes to receive payments of principal of, or interest, premium or Special Interest, if any, on the Notes;
(7) waive a redemption payment with respect to any Note (other than a payment required under Section 4.10 or Section 4.15);
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(8) release any Guarantor from any of its payment obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture;
(9) release any portion of the Collateral from the Liens created by the Security Documents except as specifically provided for in this Indenture and the Security Documents; or
(10) make any change in the preceding amendment and waiver provisions.
Section 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes will be set forth in an amended or supplemental indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
Section 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee will sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01) will be fully protected in relying upon, in addition to the documents required by Section 13.04, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10.
COLLATERAL AND SECURITY
Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Secured Debt Within a Class.
Notwithstanding:
(1) anything to the contrary contained in the Security Documents;
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(2) the time of incurrence of any Series of Secured Debt within a Class;
(3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt within such Class;
(4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral;
(5) the time of taking possession or control over any Collateral; or
(6) the rules for determining priority under any law governing relative priorities of Liens:
(a) all Liens at any time granted by the Company or any Guarantor to secure any of the Secured Debt within such Class will secure, equally and ratably, all present and future Secured Obligations within such Class; and
(b) all proceeds of all Liens at any time granted by the Company or any Guarantor to secure any of the Secured Debt and other Secured Obligations within such Class will be allocated and distributed equally and ratably on account of the Secured Debt and other Secured Obligations within such Class; provided, that in the absence of an Event of Default, subject to the requirements set forth in Sections 3.09 and 4.10, the Company and the Guarantors shall be entitled to utilize cash proceeds of Collateral in the ordinary course of their business.
The foregoing provision is intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of Secured Obligations within the applicable Class, each present and future Secured Debt Representative therefor and the Collateral Agent as holder of Secured Obligations within such Class. The Secured Debt Representative of each future Series of Secured Debt within a Class will be required to deliver a Sharing Confirmation to the Collateral Agent and the Trustee at the time of incurrence of such Series of Secured Debt.
Section 10.02 Class Voting.
With respect to any vote to be cast by the Trustee on behalf of the Holders in accordance with Article 4 of the Collateral Trust Agreement, the Trustee will vote all of such Notes as directed by the Holders of a majority in aggregate principal amount of the outstanding principal amount of Notes. For purposes of such direction to the Trustee, Notes registered in the name of, or Beneficially Owned by, the Company or an Affiliate of the Company will be deemed not to be outstanding.
Section 10.03 Ranking of Note Liens.
Notwithstanding:
(1) anything to the contrary contained in the Security Documents;
(2) the time of incurrence of any Series of Secured Debt;
(3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt;
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(4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral;
(5) the time of taking possession or control over any Collateral; or
(6) the rules for determining priority under any law governing relative priorities of Liens,
all Liens at any time granted by the Company or any Guarantor to secure any of the Second Priority Lien Obligations will be subject and subordinate to all First Priority Liens securing First Priority Lien Debt up to the First Priority Lien Cap and all related First Priority Lien Obligations.
The foregoing provision is intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of First Priority Lien Obligations, each present and future First Priority Debt Representative and the Collateral Agent as holder of First Priority Liens. No other Person will be entitled to rely on, have the benefit of or enforce this provision. The Second Priority Debt Representative for each future Series of Second Priority Lien Debt will be required to deliver a Lien Priority Confirmation to the Collateral Agent and each First Priority Debt Representative at the time of incurrence of such Series of Second Priority Lien Debt.
In addition, the foregoing provision is intended solely to set forth the relative ranking, as Liens, of the Liens securing Second Priority Lien Debt as against the First Priority Liens. Neither the Notes nor any other Second Priority Lien Obligations nor the exercise or enforcement of any right or remedy for the payment or collection thereof are intended to be, or will ever be by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced.
Section 10.04 Relative Rights.
Nothing in the Note Documents will:
(1) impair, as between the Company and the holders of the Notes, the obligation of the Company to pay principal of, premium and interest, if any, on the Notes in accordance with their terms or any other obligation of the Company or any other obligor under the Note Documents;
(2) affect the relative rights of holders of Notes as against any other creditors of the Company or any Guarantor (other than holders of other Secured Obligations);
(3) restrict the right of any holder of Notes to sue for payments that are then due and owing (but not enforce any judgment in respect thereof against any Collateral to the extent specifically prohibited by the provisions of the Collateral Trust Agreement);
(4) restrict or prevent any holder of Notes, the Trustee, the Collateral Agent or other Person on their behalf from exercising any of its rights or remedies upon a Default or Event of Default not specifically restricted or prohibited by the Collateral Trust Agreement; or
(5) restrict or prevent any Holder of Notes, the Trustee, the Collateral Agent or any other Person on their behalf from taking any lawful action in an insolvency or liquidation proceeding not specifically restricted or prohibited by the Collateral Trust Agreement.
Section 10.05 Release of Security Interest in Respect of Notes.
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The Collateral Agent's Liens upon the Collateral shall no longer secure the Notes or any other Note Obligations, and the right of the holders of the Notes and such Note Obligations to the benefits and proceeds of the Collateral Agent's Liens on Collateral shall terminate and be discharged:
(1) upon satisfaction and discharge of this Indenture in accordance with Article 12;
(2) upon a Legal Defeasance or Covenant Defeasance of the Notes in accordance with Article 8; or
(3) upon payment in full and discharge of all Notes and other Note Obligations that are outstanding under this Indenture, due and payable under this Indenture at the time those Notes are paid in full and discharged.
Upon the occurrence of any of the events described in clauses (1), (2) and (3) above, the Trustee will authorize the Collateral Agent to release the Liens on the Collateral securing the Notes.
ARTICLE 11.
SUBSIDIARY GUARANTEES
Section 11.01 Guarantee.
(a) Subject to this Article 11 and the limitations set forth in Section 13.07, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(1) the principal of, premium and Special Interest, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest and Special Interest, if any, on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and
(2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
(b) Subject to the limitations set forth in Section 13.07, the Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands
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whatsoever and covenant that this Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture.
(c) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect.
(d) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee.
Section 11.02 Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance.
Section 11.03 Execution and Delivery of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form attached as Exhibit F will be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture will be executed on behalf of such Guarantor by one of its Officers.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 will remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee will be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors.
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In the event that the Company creates or acquires any Subsidiary after the Closing Date, if required by Section 4.21, the Company will cause such Subsidiary to comply with the provisions of Section 4.21 and this Article 11, to the extent applicable.
Section 11.04 Guarantors May Consolidate, etc., on Certain Terms.
Except as otherwise provided in Section 11.05, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, except as permitted by Section 4.10.
In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture in the form of Exhibit G, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or will prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor.
Section 11.05 Releases Following Sale of Assets.
In the event of any sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) the Company or a Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the Person acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided, that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10. Upon delivery by the Company to the Trustee of an Officer's Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation
Section 4.10, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee.
Any Guarantor not released from its obligations under its Subsidiary Guarantee will remain liable for the full amount of principal of and interest and premium and Special Interest, if any, on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11.
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ARTICLE 12.
SATISFACTION AND DISCHARGE
Section 12.01 Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Issuers) have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Issuers have or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Special Interest, if any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the date of such deposit or will occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Issuers are or any Guarantor is a party or by which the Issuers are or any Guarantor is bound;
(3) the Issuers have or any Guarantor has paid or caused to be paid all sums payable by it under this Indenture; and
(4) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be.
In addition, the Issuers must deliver an Officer's Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section 12.01, the provisions of Section 12.02 and Section 8.06 will survive. In addition, nothing in this Section 12.01 will be deemed to discharge those provisions of Section 7.07, that, by their terms, survive the satisfaction and discharge of this Indenture.
Section 12.02 Application of Trust Money.
Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 12.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including either Issuer acting
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as Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium and Special Interest, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 12.01 by reason of any legal proceeding or by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, the Company's and any Guarantor's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.01; provided, that if the Issuers have made any payment of principal of, premium or Special Interest, if any, or interest on any Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent.
ARTICLE 13.
MISCELLANEOUS
Section 13.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section318(c), the imposed duties will control.
Section 13.02 Notices.
Any notice or communication by the Issuers, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), facsimile or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company, CalGen Finance and/or any Guarantor:
Calpine Generating Company, LLC CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505 Attention: Chief Financial Officer
With a copy to:
Covington & Burling
1330 Avenue of the Americas
New York, New York 10019
Facsimile No.: (212) 841-1010 Attention: Bruce Bennett
If to the Trustee:
Wilmington Trust, FSB
c/o Wilmington Trust Company
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1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1615 Facsimile No.: (302) 636-4145 Attention: Kristin Long
With a Copy to:
Nixon Peabody LLP
437 Madison Avenue
24th Floor
New York, New York 10022
Facsimile No.: (866) 947-2203 Attention: Bart Pisella
The Company, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if sent by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it will mail a copy to the Trustee and each Agent at the same time.
Section 13.03 Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 13.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
105
(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 13.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:
(1) a statement that the Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
Section 13.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 13.07 Non-Recourse; No Personal Liability of Directors, Officers, Employees and Stockholders.
Notwithstanding anything to the contrary set forth in this Indenture, the Notes, any Security Document or any other Note Document, the Notes and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a Holder will have with respect to the payment of principal of, or interest or premium on, the Notes (whether under the Indenture or the Notes, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under this Indenture or against the Collateral pursuant to the Security Documents. The Holders will have no recourse to the equity or assets of the Excluded Subsidiary.
No director, officer, employee, incorporator, stockholder, or partner of the Company or any of its Subsidiaries, as such, will have any liability for any obligations of the Issuers or any of its Subsidiaries under the Notes, this Indenture, the Subsidiary Guarantees or the Security Documents, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Section 13.08 Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES
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WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 13.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 13.10 Successors.
All agreements of the Issuers in this Indenture and the Notes will bind their respective successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 11.05.
Section 13.11 Severability.
In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.
Section 13.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement.
Section 13.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
107
SIGNATURES
Dated as of March 23, 2004
CALPINE GENERATING COMPANY, LLC

By:    /s/ ZAMIR RAUF
    ------------------------------
    Name:  Zamir Rauf
    Title: Vice President	

CALGEN FINANCE CORP.

By:    /s/ ZAMIR RAUF
    ------------------------------
    Name:  Zamir Rauf
    Title: Vice President	

108
THE GUARANTORS:
CALGEN EXPANSION COMPANY, LLC
CPN FREESTONE, LLC
CALPINE FREESTONE, LLC
CALPINE FREESTONE ENERGY GP, LLC
CALPINE CHANNEL ENERGY CENTER LP, LLC
CALPINE CHANNEL ENERGY CENTER GP, LLC
CHANNEL POWER GP, LLC
CALGEN EQUIPMENT FINANCE HOLDINGS, LLC
CALGEN PROJECT EQUIPMENT FINANCE
COMPANY ONE, LLC
CALGEN PROJECT EQUIPMENT FINANCE
COMPANY THREE LLC
CALGEN EQUIPMENT FINANCE COMPANY, LLC
NUECES BAY ENERGY LLC
CALPINE NORTHBROOK SOUTHCOAST
INVESTORS, LLC
CALPINE CORPUS CHRISTI ENERGY GP, LLC
ZION ENERGY LLC
LOS MEDANOS ENERGY CENTER, LLC
MORGAN ENERGY CENTER, LLC
CARVILLE ENERGY LLC
DECATUR ENERGY CENTER, LLC
CALPINE ONETA POWER I, LLC
CALPINE ONETA POWER II, LLC
CALPINE BAYTOWN ENERGY CENTER LP, LLC
CALPINE BAYTOWN ENERGY CENTER GP, LLC
BAYTOWN POWER GP, LLC
COLUMBIA ENERGY LLC
DELTA ENERGY CENTER, LLC
CALGEN PROJECT EQUIPMENT FINANCE
COMPANY TWO, LLC
PASTORIA ENERGY FACILITY L.L.C.
CALPINE PASTORIA HOLDINGS, LLC
Executing this Second Priority Indenture on
behalf of and so as to bind each of the
limited liability companies named above
under the caption "The Guarantors"

By:   /s/ ZAMIR RAUF
      ------------------------------
      Name:  Zamir Rauf
      Title: Vice President	

109
THE GUARANTORS:
FREESTONE POWER GENERATION LP
CALPINE FREESTONE ENERGY, LP
CALPINE POWER EQUIPMENT LP
CHANNEL POWER, LP
CHANNEL ENERGY CENTER, LP
CALPINE CORPUS CHRISTI ENERGY, LP
CORPUS CHRISTI COGENERATION LP
CALPINE ONETA POWER, L.P.
BAYTOWN ENERGY CENTER, LP
BAYTOWN POWER, LP
Executing this Second Priority Indenture on
behalf of and so as to bind each of the
limited partnerships named above under the
caption "The Guarantors"

By:   /s/ ZAMIR RAUF
      ------------------------------
      Name:  Zamir Rauf
      Title: Vice President	

110
WILMINGTON TRUST FSB

By:   /s/ JAMES J. MCGINLEY
      ------------------------------
      Name:  James J. McGinley
      Title: Vice President	

111
SCHEDULE A
PERMITTED PRIOR LIENS EXISTING ON THE CLOSING DATE
See attached.
SCHEDULE A-1
EXHIBIT A
[Face of Note]
THE NOTES ISSUED UNDER THIS SECOND PRIORITY INDENTURE ARE ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND ARE SUBJECT TO TREASURY REGULATIONS REGARDING THE REPORTING OF ORIGINAL ISSUE DISCOUNT. HOLDERS MAY CONTACT THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 50 WEST SAN FERNANDO STREET, 5TH FLOOR, SAN JOSE, CALIFORNIA 95113, WHO WILL PROVIDE UPON REQUEST INFORMATION RELATING TO ORIGINAL ISSUE DISCOUNT, INCLUDING THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY.
CUSIP[13135BAB 2--144A][13135B AF 3--Exchange] ISIN [US13135BAB27--144A][US13135BAF31--Exchange]
Second Priority Secured Floating Rate Note due 2010
No. ___ $____________
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
promises to pay to ______________
or registered assigns,
the principal sum of
Dollars on April 1, 2010.
Interest Payment Dates: January 1, April 1, July 1 and October 1
Record Dates: December 15, March 15, June 15 and September 15
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
By:

Name:
Title:
By:

Name:
Title:
Dated: March 23, 2004
This is one of the Notes referred to in the within-mentioned Indenture:
EXHIBIT A-1
WILMINGTON TRUST FSB,
as Trustee
By:

Authorized Signatory
EXHIBIT A-2
[Back of Note] Second Priority Secured Floating Rate Note due 2010
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO
EXHIBIT A-3
SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY AND FINANCE CORP.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) Interest. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at the Applicable Second Priority LIBOR Rate (as defined below) per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on January 1, April 1, July 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be July 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
"Applicable Second Priority LIBOR Rate" means, for each interest period, 575 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of one, two, three or six months (as the Company may elect in an Officer's Certificate delivered to
EXHIBIT A-4
the Trustee as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable Second Priority LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of one, two, three or six months (as applicable) as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
Principal. The Issuers jointly and severally promise to pay principal of the Notes in quarterly installments, commencing July 1, 2008, as follows:

                                                              Percentage of Original
Payment Date                                                 Principal Amount Payable
------------                                                 ------------------------
July 1, 2008........................................                  0.250%
October 1, 2008.....................................                  0.250%
January 1, 2009.....................................                  0.250%
April 1, 2009.......................................                  0.250%
July 1, 2009........................................                  0.250%
October 1, 2009.....................................                  0.250%
January 1, 2010.....................................                  0.250%	

The Issuers jointly and severally promise to pay all remaining principal of, interest and Special Interest, if any, on, and fees and costs in respect of the Notes on April 1, 2010.
(2) Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the December 15, March 15, June 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) Paying Agent and Registrar. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and
EXHIBIT A-5
address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(4) Indenture. The Company issued the Notes under a Second Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $640.0 million in aggregate principal amount. The Notes are secured on a second-priority basis, Equally and Ratably with all other Second Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to liens securing First Priority Lien Obligations and other Permitted Prior Liens.
(5) Optional Redemption. The Issuers may not redeem all or any part of the Notes prior to April 1, 2008. On or after April 1, 2008, the Issuers may redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice, at the redemption prices (expressed at percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below, subject to the rights of the Holders on the relevant record date to receive interest on the relevant interest payment date:

Year                                                                  Percentage
----                                                                  ----------
2008........................................................            103.5%
2009, and thereafter........................................            100.0%	

Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
(6) Mandatory Redemption. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) Repurchase at Option of Holder..
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and
EXHIBIT A-6
stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event remaining after all required purchases, prepayments and and/or redemptions of First Priority Lien Obligations to offer to prepay Notes and other Second Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other Second Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other Second Priority Lien Obligations to be purchased on a pro rata basis.
(8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
(10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.
(11) Amendment, Supplement and Waiver. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture
EXHIBIT A-7
Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with
Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
EXHIBIT A-8
(13) Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(14) No Recourse Against Others. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(15) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(16) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(17) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
(18) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(19) Non-Recourse. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
EXHIBIT A-9
Attention: Chief Financial Officer
EXHIBIT A-10
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint
 to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-11
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-12
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

                                                                       Principal Amount
                                                                      at maturity of this
                       Amount of decrease    Amount of increase in        Global Note           Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                         at maturity of          at maturity of            decrease             of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------       -----------------     ---------------------    --------------------   -------------------	

* This schedule should be included only if the Note is issued in global form.
EXHIBIT A-13
EXHIBIT B
[Face of Regulation S Temporary Floating Rate Global Note]
THE NOTES ISSUED UNDER THIS SECOND PRIORITY INDENTURE ARE ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND ARE SUBJECT TO TREASURY REGULATIONS REGARDING THE REPORTING OF ORIGINAL ISSUE DISCOUNT. HOLDERS MAY CONTACT THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 50 WEST SAN FERNANDO STREET, 5TH FLOOR, SAN JOSE, CALIFORNIA 95113, WHO WILL PROVIDE UPON REQUEST INFORMATION RELATING TO ORIGINAL ISSUE DISCOUNT, INCLUDING THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY.
CUSIP U1305Q AB 5
ISIN USU1305QAB50
Second Priority Secured Floating Rate Note due 2010
No. $

CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
promises to pay to
or registered assigns,
the principal sum of
Dollars on April 1, 2010.
Interest Payment Dates: January 1, April 1, July 1 and October 1
Record Dates: December 15, March 15, June 15 and September 15
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
By:

Name:
Title:
By:

Name:
Title:
Dated: March 23, 2004
This is one of the Notes referred to in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
EXHIBIT B-1
as Trustee
By:

Authorized Signatory
EXHIBIT B-2
[Back of Regulation S Temporary Floating Rate Global Note] Second Priority Secured Floating Rate Notes 2010
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
EXHIBIT B-3
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) Interest. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at the Applicable Second Priority LIBOR Rate (as defined below) per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on January 1, April 1, July 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be July 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at
EXHIBIT B-4
the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
"Applicable Second Priority LIBOR Rate" means, for each interest period, 575 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of one, two, three or six months (as the Company may elect in an Officer's Certificate delivered to the Trustee as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable Second Priority LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of one, two, three or six months (as applicable) as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
Principal. The Issuers jointly and severally promise to pay principal of the Notes in quarterly installments, commencing July 1, 2008, as follows:

                                                              Percentage of Original
Payment Date                                                 Principal Amount Payable
------------                                                 ------------------------
July 1, 2008........................................                  0.250%
October 1, 2008.....................................                  0.250%
January 1, 2009.....................................                  0.250%
April 1, 2009.......................................                  0.250%
July 1, 2009........................................                  0.250%
October 1, 2009.....................................                  0.250%
January 1, 2010.....................................                  0.250%	

The Issuers jointly and severally promise to pay all remaining principal of, interest and Special Interest, if any, on, and fees and costs in respect of the Notes on April 1, 2010.
Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture.
(2) Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the December 15, March 15, June 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium
EXHIBIT B-5
and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) Paying Agent and Registrar. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(4) Indenture. The Company issued the Notes under a Second Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $640.0 million in aggregate principal amount. The Notes are secured on a second-priority basis, Equally and Ratably with all other Second Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to liens securing First Priority Lien Obligations and other Permitted Prior Liens.
(5) Optional Redemption. The Issuers may not redeem all or any part of the Notes prior to April 1, 2008. On or after April 1, 2008, the Issuers may redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice, at the redemption prices (expressed at percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below, subject to the rights of the Holders on the relevant record date to receive interest on the relevant interest payment date:

Year                                                                  Percentage
----                                                                  ----------
2008........................................................            103.5%
2009, and thereafter........................................            100.0%	

Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
EXHIBIT B-6
(6) Mandatory Redemption. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) Repurchase at Option of Holder..
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event remaining after all required purchases, prepayments and and/or redemptions of First Priority Lien Obligations to offer to prepay Notes and other Second Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other Second Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other Second Priority Lien Obligations to be purchased on a pro rata basis.
(8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note.
EXHIBIT B-7
(10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.
(11) Amendment, Supplement and Waiver. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with
Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of
EXHIBIT B-8
Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
(13) Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(14) No Recourse Against Others. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(15) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(16) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(17) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
(18) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as
EXHIBIT B-9
printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(19) Non-Recourse. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
Attention: Chief Financial Officer
EXHIBIT B-10
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint
 to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:
 * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT B-11
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT B-12
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:

                                                                       Principal Amount
                                                                      at maturity of this
                       Amount of decrease    Amount of increase in        Global Note           Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                         at maturity of          at maturity of            decrease            of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------       -------------------   ----------------------   --------------------   ------------------	

EXHIBIT B-13
EXHIBIT C
FORM OF CERTIFICATE OF TRANSFER
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB, as Trustee
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1615
Re: Second Priority Secured Floating Rate Notes due 2010
Reference is hereby made to the Second Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such
EXHIBIT C-1
Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed Transfer is being made prior to the expiration of the Restricted Period, the Transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
EXHIBIT C-2
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.
[Insert Name of Transferor]
By:
 Name:

Title:
Dated:
EXHIBIT C-3
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a)[ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(iv) [ ] Unrestricted Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
EXHIBIT C-4
EXHIBIT D
FORM OF CERTIFICATE OF EXCHANGE
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-16152
Re: Second Priority Secured Floating Rate Notes due 2010
(CUSIP ____________)
Reference is hereby made to the Second Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the
EXHIBIT D-1
Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.
EXHIBIT D-2
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]

By:
 Name:

Title:
Dated:
EXHIBIT D-3
EXHIBIT E
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1615
Re: Second Priority Secured Floating Rate Notes due 2010
Reference is hereby made to the Second Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the
EXHIBIT E-1
requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

[Insert Name of Transferor]

By:
 Name:

Title:
Dated:
EXHIBIT E-2
EXHIBIT F
FORM OF NOTATION OF SUBSIDIARY GUARANTEE
For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, on a non-recourse basis to the extent set forth in the Second Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company, CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee (the "Trustee"), and subject to the provisions of the Indenture,
(a) the due and prompt payment of the principal of, premium, if any, and interest and Special Interest, if any, on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and prompt payment of interest on overdue principal of and interest and Special Interest, if any, on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee.
[Name of Guarantor(s)]
By:
 Name:

Title:
EXHIBIT F-1
EXHIBIT G
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, 20__, among __________________, a ___________________ (the "Guaranteeing Subsidiary"), Calpine Generating Company, LLC (the "Company"), CalGen Finance Corp. ("CalGen Finance" and, together with the Company, the "Issuers"), the other Guarantors (as defined in the Indenture referred to herein) and Wilmington Trust FSB, as trustee under the Indenture referred to herein (the "Trustee").
W I T N E S S E T H
WHEREAS, the Issuers have heretofore executed and delivered to the Trustee a Second Priority Indenture, dated as of March 23, 2004 (the "Indenture"), providing for the issuance of an aggregate principal amount of $640.0 million of Second Priority Secured Floating Rate Notes due 2010 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture, including but not limited to Article 11 thereof, and to become bound as a "Guarantor" under the Indenture.
3. No Recourse Against Others. This Subsidiary Guarantee is a non-recourse secured obligation of the Subsidiary Guarantor. The only recourse a Holder of Notes will have under the Subsidiary Guarantee is enforcement of its rights against the Collateral securing the Subsidiary Guarantee pursuant to the Security Documents. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantee, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.
4. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
EXHIBIT G-1
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company.
EXHIBIT G-2
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
Dated: _______________, 20___
[Guaranteeing Subsidiary]
By:
 Name:

Title:
[Company]
By:

Name:

Title:
[Existing Guarantors]
By:

Name:

Title:
[Trustee],
as Trustee
By:
 Authorized Signatory
EXHIBIT G-3
EXHIBIT H
SUBORDINATION TERMS
[TO BE INCLUDED AS AN ARTICLE IN THE INSTRUMENT EVIDENCING "AFFILIATE
SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO CLAUSE (9)(a) OF THE DEFINITION OF PERMITTED DEBT AND "THIRD PARTY SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO CLAUSE (10) OF THE DEFINITION OF PERMITTED INDEBTEDNESS]
[THE COLLATERAL AGENT SHALL EITHER BE A PARTY TO OR A THIRD PARTY BENEFICIARY OF THESE SUBORDINATION TERMS]
ARTICLE [__]
SUBORDINATION
Section [__].1. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Collateral Trust Agreement, dated as of March 23, 2004, among Calpine CalGen Holdings, Inc., Calpine Generating Company, LLC ("CalGen"), CalGen Finance Corp., the guarantors party thereto from time to time (the "Guarantors"), the Secured Debt Representatives party thereto and Wilmington Trust Company, as collateral agent (the "Collateral Agent"), as in effect on the date hereof. As used in this Article, the following terms shall have the following respective meanings:
"Junior Claimant" means [INSERT NAME OF LENDER UNDER 
SUBORDINATED DEBT].
"Proceeding" means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding of or against the Subordinated Debtor or its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of the Subordinated Debtor, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of the Subordinated Debtor, or (d) other marshalling of the assets of the Subordinated Debtor.
"Senior Claimants" means the holders of Senior Obligations.
"Senior Claim Documents" means the Secured Debt Documents other than the Other Junior Lien Debt Documents.
"Senior Claims" means, collectively, (a) the principal of, and premium, if any, and interest on, the Senior Obligations (in each case, including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of such Proceeding), and (b) all other Obligations of the Subordinated Debtor to the Senior Claimants, whether now existing or hereafter incurred or created, under or with respect to the Senior Claim Documents or any replacement, supplement to or refinancing of the Senior Obligations.
"Senior Obligations" means all Secured Obligations other than the Other Junior Lien Obligations.
EXHIBIT H-1
"Senior Obligations Termination Date" means the date on which all Senior Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Senior Claim Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Senior Claim Documents), all commitments to extend credit under all Senior Claim Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Senior Claim Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Subordinated Debt" means all indebtedness owing to Junior Claimant arising under or in respect of the Subordinated Debt Documents.
"Subordinated Debt Documents" means [DESCRIBE SUBORDINATED DEBT INSTRUMENT], any promissory note or other instrument relating thereto and any other documents or instruments directly relating to the foregoing (in each case, including any amendments, replacements or substitutions thereof).
"Subordinated Debtor" means [INSERT CALGEN OR GUARANTOR 
INCURRING THE SUBORDINATED DEBT].
Section [_].2. Certain Subordination Terms. Until the Senior Obligations Termination Date, and notwithstanding anything in the Subordinated Debt Documents to the contrary:
[__].2.1. Except as permitted under the Senior Claim Documents, the Subordinated Debtor shall not, directly or indirectly, make any payment of principal, interest or otherwise on or in respect of the Subordinated Debt.
[__].2..2. Except for the right to accept payments as provided in Section [__].2.1 or [__].2.5(b), Junior Claimant shall not demand, sue for or accept from the Subordinated Debtor or any other Person any such payment or collateral, nor take any other action to enforce or collect upon any such payment or to enforce its rights to receive any such payment, in either case in respect of the Subordinated Debt, provided, however, that nothing herein shall limit the right or ability of Junior Claimant (i) to receive payments from the Subordinated Debtor in respect of the Subordinated Debt as provided in Section
[__].2.1 so long as no default or event of default under any Secured Debt Document has occurred and is continuing, or (ii) to accelerate the maturity of the Subordinated Debt at any time after all of the Senior Claims have been accelerated; and provided further, that in the event that after an acceleration any of the Senior Claimants rescind the acceleration of the Senior Claims, and provide written notice to Junior Claimant thereof, or Junior Claimant otherwise becomes aware of such rescission, Junior Claimant shall rescind the acceleration of the Subordinated Debt.
[__].2.3. Neither the Subordinated Debtor nor Junior Claimant shall take any action prejudicial to or inconsistent with the Senior Claimants' priority position over Junior Claimant created by this Article, including, without limitation, any action which will hinder, delay or otherwise prevent the Senior Claimants from taking any action they deem necessary to enforce rights with respect to the Senior Claims or the Lien of the Senior Claim Documents. The Junior Claimant shall not take any action or otherwise act to contest on account of the Subordinated Debt (i) the validity or priority of any Liens or security interests granted to, or for the benefit of, the Senior Claimants, (ii) the relevant rights and duties of the Senior Claimants with respect to Junior Claimant on account of any Subordinated Debt as established in this Article or
(iii) the Senior Claimants' exercise of remedies in accordance with the Senior Claim Documents.
EXHIBIT H-2
[__].2.4. Each document or instrument evidencing Subordinated Debt shall bear a legend providing that payment of the Subordinated Debt thereunder has been subordinated to prior payment of the Senior Claims in the manner and to the extent set forth in this Article.
[__].2.5. Junior Claimant shall not commence or join with any other creditor or creditors of the Subordinated Debtor in commencing any Proceeding against the Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor -- ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], but may join in any Proceeding after it has commenced. At any general meeting of creditors of Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor -- ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], or in the event of any Proceeding, if all Senior Claims have not been paid in full in cash at such time, the Collateral Agent on behalf of the Senior Claimants is hereby irrevocably authorized at any such meeting or in any such Proceeding:
(a) To enforce claims comprising Subordinated Debt in the name of Junior Claimant, by proof of debt, proof of claim, suit or otherwise;
(b) To collect any assets of the Subordinated Debtor distributed, divided or applied by way of dividend or payment as a result of a Proceeding, or such securities issued, on account of Subordinated Debt as a result thereof and apply the same, or the proceeds of any realization upon the same that the Senior Claimants in their discretion elect to effect, to Senior Claims until all Senior Claims shall have been paid in full in cash (the Senior Claimants hereby agreeing to render any surplus to Junior Claimant and/or other subordinated creditors, as their interests appear, or to interplead such surplus with a court of competent jurisdiction); and
(c) To take generally any action in connection with any such meeting or proceeding which Junior Claimant might otherwise take in respect of the Subordinated Debt and claims relating thereto.
After the commencement of any such Proceeding, Junior Claimant may inquire in writing of the Collateral Agent on behalf of the Senior Claimants whether the respective Senior Claimants intend to exercise the foregoing rights with respect to the Subordinated Debt. Should the Senior Claimants fail, at least 20 days before the deadline therefor, either to file a proof of claim with respect to the Subordinated Debt and to furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in writing that the Senior Claimants intend to exercise their rights to assert the Subordinated Debt in the manner hereinabove provided, Junior Claimant may, but shall not be required to, proceed to file a proof of claim with respect to the Subordinated Debt and take such further steps with respect thereto, not inconsistent with this Article, as Junior Claimant may deem proper.
[__].2.6. Upon the occurrence and during the continuation of an event of default under a Secured Debt Document, Junior Claimant may, but shall have no obligation to, upon not less than 10 days prior written notice to the Collateral Agent, purchase all of the outstanding Senior Obligations owing to the Senior Claimants by irrevocably tendering, in immediately available funds, full payment of the Purchase Price (as defined below) to the Senior Claimants:
(a) The Purchase Price shall be equal to the total amount of Senior Claims at the time of acceleration (assuming such obligations have been accelerated);
EXHIBIT H-3
(b) Any such purchase by Junior Claimant shall be without warranty by, or recourse to, the Senior Claimants, except with respect to the legal and beneficial ownership by the Senior Claimants of the Obligations so purchased, free and clear of all Liens and rights of others; and
(c) Concurrently with any such purchase, the Senior Claimants shall forthwith sell, assign, transfer and convey to Junior Claimant all of their right, title and interest in and to the Senior Obligations, and all Liens and other security interests in favor of the Senior Claimants securing the obligations of the Subordinated Debtor in connection therewith.
Section [__].3. Senior Claim Documents. The Junior Claimant acknowledges that it has been provided with a copy of the Senior Claim Documents and has read and is familiar with the provisions thereof.
Section [__].4. Time of Filing. Notwithstanding the time of filing, attachment or recording of any document or other instrument, it is agreed by Junior Claimant that any Liens arising under or pursuant to the Senior Claim Documents shall be senior to any Liens arising in favor of Junior Claimant as part of or relating to the Subordinated Debt Documents, if any; provided, however, that nothing herein shall be deemed to permit Junior Claimant to obtain any such Liens.
Section [__].5. Wrongful Collections. Should any payment on account of, or any collateral for any part of, the Subordinated Debt be received by Junior Claimant in violation of this Article, such payment or collateral shall be delivered forthwith to the Collateral Agent by the recipient for application to Senior Claims, in the form received. The Collateral Agent is irrevocably authorized to supply any required endorsement or assignment which may have been omitted. Until so delivered, any such payment or collateral shall be held by the recipient in trust for the Senior Claimants and shall not be commingled with other funds or property of the recipient.
Section [__].6. Ownership of Subordinated Debt; Amendment of Subordinated Debt Documents.
[__].6.1. The Junior Claimant represents and warrants that it is the lawful owner of the Subordinated Debt. Any security interest in the Junior Claimant's interest in the Subordinated Debt will at all times be subject to the rights of the Senior Claimants hereunder. The Junior Claimant agrees that it may not assign all or any portion of the Subordinated Debt or any of its rights or remedies under the Subordinated Debt Documents unless any assignee expressly agrees in writing for the benefit of the Collateral Agent that it takes such Subordinated Debt subject in all respects to the rights of the Senior Claimants hereunder.
[__].6.2. The Subordinated Debt Documents may not be amended so as to have an adverse effect upon the Senior Claims or the Subordinated Debtor's ability to pay the Senior Claims at any time.
Section [__].7. Waivers. The Collateral Agent and the Senior Claimants are hereby authorized to demand specific performance of this Article, whether or not the Subordinated Debtor shall have complied with the provisions hereof applicable to it, at any time when Junior Claimant shall have failed to comply with any provision hereof applicable to it. Junior Claimant hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance hereof in any action brought therefor by the Senior Claimants. Junior Claimant (a) further waives presentment, notice and protest in connection with all negotiable instruments
EXHIBIT H-4
evidencing Senior Claims or Subordinated Debt to which Junior Claimant may be a party, notice of the acceptance of this Article by the Senior Claimants, notice of any loan made, extension granted or other action taken in reliance hereon, and all demands and notices of every kind in connection with this Article, Senior Claims or time of payment of Senior Claims or Subordinated Debt and (b) hereby assents to any renewal, extension or postponement of the time of payment of Senior Claims or any other indulgence with respect thereto, to any increase in the amount of Senior Claims, to any substitution, exchange or release of collateral therefor and to the addition or release of any person primarily or secondarily liable thereon and assents to the provisions of any instrument, security or other writing evidencing Senior Claims.
Section [__].8. Subrogation; No Impairment of Subordinated Debtor's Obligations. Subject to and from and after the Senior Obligations Termination Date, Junior Claimant shall be subrogated to the rights of the Senior Claimants to receive payments or distributions of cash, property or securities of the Subordinated Debtor applicable to the Senior Claims until all amounts owing on the Subordinated Debt shall be paid in full. For purposes of such subrogation, no payments or distributions to the Senior Claimants to which Junior Claimant would be entitled but for the provisions of this Article, and no payments paid over by Junior Claimant to Senior Claimants pursuant to this Article shall, as among the Subordinated Debtor, its creditors other than the Senior Claimants, and Junior Claimant, be deemed to be a payment or distribution on account of the Subordinated Debt, it being understood that the provisions of this Article are intended solely for the purpose of defining the relative rights of Junior Claimant and the Senior Claimants. Nothing contained in this Article is intended to or shall impair, as between the Subordinated Debtor and Junior Claimant, the obligation of the Subordinated Debtor, which is absolute and unconditional, to pay to Junior Claimant the principal of and the premium, if any, and the interest on the Subordinated Debt, and all other amounts payable by the Subordinated Debtor under the Subordinated Debt Documents, as and when the same shall become due and payable, or to affect the relative rights of Junior Claimant and creditors of Subordinated Debtor other than the Senior Claimants.
Section [__].9. Reinstatement. The obligations of Junior Claimant under this Article shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Claim, or any other payment to any holder of any Senior Claim in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Claims upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Subordinated Debtor or any substantial part of its property, or otherwise, all as though such payment had not been made.
Section [__].10. Bankruptcy. This Article shall remain in full force and effect as between Junior Claimant and the Senior Claimants notwithstanding the occurrence of any Proceeding affecting the Subordinated Debtor.
Section [__].11. Further Assurances. The Subordinated Debtor and Junior Claimant shall execute and deliver to the Senior Claimants such further instruments and shall take such further action as the Senior Claimants may at any time or times reasonably request in order to carry out the provisions and intent of this Article.
Section [__].12. Successors and Assigns. The provisions of this Article shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Junior Claimant nor the Senior Claimants shall have a duty to preserve rights against prior parties in any property of any kind received hereunder. Nothing contained herein shall impose on the Senior Claimants any duties with respect to any property of the Subordinated Debtor or Junior Claimant received hereunder.
EXHIBIT H-5
Section [__].13. Governing Law. This Article is intended to take effect as a sealed instrument, shall be binding upon the parties hereto and their respective executors, administrators, other legal representatives, successors and assigns, and shall inure to the benefit of the Senior Claimants, their respective successors and assigns and shall be governed by the laws of the State of New York without reference to principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law). The parties hereto intend and agree that this Article shall remain binding on such parties (other than the Subordinated Debtor) notwithstanding the termination (except upon the payment in full of Senior Claims in cash) or unenforceability of this Article as against the Subordinated Debtor.
EXHIBIT H-6
EXHIBIT I
FORM OF WORKING CAPITAL FACILITY
See attached.
EXHIBIT I-1
 
EXHIBIT 4.21
EXECUTION VERSION

CALPINE GENERATING COMPANY, LLC
AND
CALGEN FINANCE CORP.
and each of the Guarantors named herein
THIRD PRIORITY SECURED FLOATING RATE NOTES DUE 2011
11-1/2% THIRD PRIORITY SECURED NOTES DUE 2011
THIRD PRIORITY INDENTURE
Dated as of March 23, 2004

WILMINGTON TRUST FSB
Trustee

CROSS-REFERENCE TABLE*

Trust Indenture
Act Section                                                                     Indenture Section
-----------                                                                     -----------------
310(a)(1)...................................................................             7.10
    (a)(2)..................................................................             7.10
    (a)(3)..................................................................             N.A.
    (a)(4)..................................................................             N.A.
    (a)(5)..................................................................             7.10
    (b).....................................................................             7.10
    (c).....................................................................             N.A.
311(a)......................................................................             7.11
    (b).....................................................................             7.11
    (c).....................................................................             N.A.
312(a)......................................................................             2.05
    (b).....................................................................            12.03
    (c).....................................................................            12.03
313(a)......................................................................             7.06
    (b)(1)..................................................................            10.03
    (b)(2)..................................................................          7.06; 7.07
    (c).....................................................................      7.06; 10.03; 12.02
    (d).....................................................................             7.06
314(a)......................................................................      4.03; 12.02; 12.05
    (b).....................................................................            10.02
    (c)(1)..................................................................            12.04
    (c)(2)..................................................................            12.04
    (c)(3)..................................................................             N.A.
    (d).....................................................................     10.03, 10.04, 10.05
    (e).....................................................................            12.05
    (f).....................................................................             N.A.
315(a)......................................................................             7.01
    (b).....................................................................          7.05, 12.02
    (c).....................................................................             7.01
    (d).....................................................................             7.01
    (e).....................................................................             6.11
316(a) (last sentence)......................................................             2.09
    (a)(1)(A)...............................................................             6.05
    (a)(1)(B)...............................................................             6.04
    (a)(2)..................................................................             N.A.
    (b).....................................................................             6.07
    (c).....................................................................             2.12
317(a)(1)...................................................................             6.08
    (a)(2)..................................................................             6.09
    (b).....................................................................             2.04
318(a)......................................................................            12.01
    (b).....................................................................             N.A.
    (c).....................................................................            12.01	

N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
TABLE OF CONTENTS

                                                                                                            Page
                                ARTICLE 1.
                       DEFINITIONS AND INCORPORATION
                               BY REFERENCE

Section 1.01       Definitions.................................................................................1
Section 1.02       Other Definitions..........................................................................42
Section 1.03       Incorporation by Reference of Trust Indenture Act..........................................43
Section 1.04       Rules of Construction......................................................................43

                                ARTICLE 2.
                                 THE NOTES

Section 2.01       Form and Dating............................................................................44
Section 2.02       Execution and Authentication...............................................................45
Section 2.03       Registrar and Paying Agent.................................................................45
Section 2.04       Paying Agent to Hold Money in Trust........................................................45
Section 2.05       Holder Lists...............................................................................46
Section 2.06       Transfer and Exchange......................................................................46
Section 2.07       Replacement Notes..........................................................................58
Section 2.08       Outstanding Notes..........................................................................59
Section 2.09       Treasury Notes.............................................................................59
Section 2.10       Temporary Notes............................................................................59
Section 2.11       Cancellation...............................................................................59
Section 2.12       Defaulted Interest.........................................................................59
Section 2.13       Same Day Settlement and Payment............................................................60

                                ARTICLE 3.
                         REDEMPTION AND PREPAYMENT

Section 3.01       [Reserved].................................................................................60
Section 3.02       Selection of Notes to Be Redeemed or Purchased.............................................60
Section 3.03       Notice of Redemption.......................................................................61
Section 3.04       Effect of Notice of Redemption.............................................................61
Section 3.05       Deposit of Redemption or Purchase Price....................................................62
Section 3.06       Notes Redeemed or Purchased in Part........................................................62
Section 3.07       Optional Redemption........................................................................62
Section 3.08       Mandatory Redemption.......................................................................62
Section 3.09       Offer to Purchase by Application of Net Proceeds...........................................62

                                ARTICLE 4.
                                 COVENANTS

Section 4.01       Payment of Notes...........................................................................64
Section 4.02       Maintenance of Office or Agency............................................................64
Section 4.03       Reports....................................................................................65
Section 4.04       Compliance Certificate.....................................................................66
Section 4.05       Taxes......................................................................................66
Section 4.06       Stay, Extension and Usury Laws.............................................................66
Section 4.07       Restricted Payments........................................................................67
Section 4.08       Dividend and Other Payment Restrictions Affecting Subsidiaries.............................67
Section 4.09       Incurrence of Indebtedness and Issuance of Preferred Equity................................69	

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                                                                                                            Page
Section 4.10       Asset Sales................................................................................72
Section 4.11       Transactions with Affiliates...............................................................74
Section 4.12       Liens......................................................................................75
Section 4.13       Business Activities........................................................................75
Section 4.14       Corporate Existence........................................................................76
Section 4.15       Offer to Repurchase Upon Change of Control.................................................76
Section 4.16       Limitation on Issuances and Sales of Equity Interests in Subsidiaries......................78
Section 4.17       Payments for Consent.......................................................................78
Section 4.18       Restrictions on Activities of CalGen Finance...............................................78
Section 4.19       Deposit of Revenues........................................................................78
Section 4.20       Additional Subsidiaries....................................................................79
Section 4.21       Maintenance of Insurance...................................................................79
Section 4.22       Changes in Covenants when Notes Rated Investment Grade.....................................79

                                ARTICLE 5.
                                SUCCESSORS

Section 5.01       Merger, Consolidation, or Sale of Assets...................................................80
Section 5.02       Successor Corporation Substituted..........................................................80

                                ARTICLE 6.
                           DEFAULTS AND REMEDIES

Section 6.01       Events of Default..........................................................................81
Section 6.02       Acceleration...............................................................................83
Section 6.03       Other Remedies.............................................................................83
Section 6.04       Waiver of Past Defaults....................................................................83
Section 6.05       Control by Majority........................................................................83
Section 6.06       Limitation on Suits........................................................................84
Section 6.07       Rights of Holders of Notes to Receive Payment..............................................84
Section 6.08       Collection Suit by Trustee.................................................................84
Section 6.09       Trustee May File Proofs of Claim...........................................................84
Section 6.10       Priorities.................................................................................85
Section 6.11       Undertaking for Costs......................................................................85

                                ARTICLE 7.
                                  TRUSTEE

Section 7.01       Duties of Trustee..........................................................................85
Section 7.02       Rights of Trustee..........................................................................86
Section 7.03       Individual Rights of Trustee...............................................................87
Section 7.04       Trustee's Disclaimer.......................................................................87
Section 7.05       Notice of Defaults.........................................................................87
Section 7.06       Reports by Trustee to Holders of the Notes.................................................88
Section 7.07       Compensation and Indemnity.................................................................88
Section 7.08       Replacement of Trustee.....................................................................89
Section 7.09       Successor Trustee by Merger, etc...........................................................90
Section 7.10       Eligibility; Disqualification..............................................................90
Section 7.11       Preferential Collection of Claims Against Company..........................................90

                                ARTICLE 8.
                   LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01       Option to Effect Legal Defeasance or Covenant Defeasance...................................90
Section 8.02       Legal Defeasance and Discharge.............................................................90	

ii

                                                                                                            Page
Section 8.03       Covenant Defeasance........................................................................91
Section 8.04       Conditions to Legal or Covenant Defeasance.................................................91
Section 8.05       Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous
                   Provisions.................................................................................92
Section 8.06       Repayment to Company.......................................................................93
Section 8.07       Reinstatement..............................................................................93

                                ARTICLE 9.
                     AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01       Without Consent of Holders of Notes........................................................93
Section 9.02       With Consent of Holders of Notes...........................................................94
Section 9.03       Compliance with Trust Indenture Act........................................................96
Section 9.04       Revocation and Effect of Consents..........................................................96
Section 9.05       Notation on or Exchange of Notes...........................................................96
Section 9.06       Trustee to Sign Amendments, etc............................................................96

                                ARTICLE 10.
                          COLLATERAL AND SECURITY

Section 10.01      Equal and Ratable Sharing of Collateral by Holders of Secured Debt Within a Class..........96
Section 10.02      Class Voting...............................................................................97
Section 10.03      Ranking of Note Liens......................................................................97
Section 10.04      Relative Rights............................................................................98
Section 10.05      Release of Security Interest in Respect of Notes...........................................98

                                ARTICLE 11.
                           SUBSIDIARY GUARANTEES

Section 11.01      Guarantee..................................................................................99
Section 11.02      Limitation on Guarantor Liability.........................................................100
Section 11.03      Execution and Delivery of Subsidiary Guarantee............................................100
Section 11.04      Guarantors May Consolidate, etc., on Certain Terms........................................101
Section 11.05      Releases Following Sale of Assets.........................................................101

                                ARTICLE 12.
                        SATISFACTION AND DISCHARGE

Section 12.01      Satisfaction and Discharge................................................................102
Section 12.02      Application of Trust Money................................................................102

                                ARTICLE 13.
                               MISCELLANEOUS

Section 13.01      Trust Indenture Act Controls..............................................................103
Section 13.02      Notices...................................................................................103
Section 13.03      Communication by Holders of Notes with Other Holders of Notes.............................104
Section 13.04      Certificate and Opinion as to Conditions Precedent........................................104
Section 13.05      Statements Required in Certificate or Opinion.............................................105
Section 13.06      Rules by Trustee and Agents...............................................................105
Section 13.07      Non-Recourse; No Personal Liability of Directors, Officers, Employees and Stockholders....105
Section 13.08      Governing Law.............................................................................105
Section 13.09      No Adverse Interpretation of Other Agreements.............................................106
Section 13.10      Successors................................................................................106	

iii

                                                                                                            Page
Section 13.11      Severability..............................................................................106
Section 13.12      Counterpart Originals.....................................................................106
Section 13.13      Table of Contents, Headings, etc..........................................................106

                             EXHIBITS AND SCHEDULES

Schedule A         PERMITTED PRIOR LIENS EXISTING ON THE CLOSING DATE
Exhibit A-1        FORM OF FLOATING RATE NOTE
Exhibit A-2        FORM OF FIXED RATE NOTE
Exhibit B-1        FORM OF REGULATION S TEMPORARY FLOATING RATE GLOBAL NOTE
Exhibit B-2        FORM OF REGULATION S TEMPORARY FIXED RATE GLOBAL NOTE
Exhibit C          FORM OF CERTIFICATE OF TRANSFER
Exhibit D          FORM OF CERTIFICATE OF EXCHANGE
Exhibit E          FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit F          FORM OF NOTATION OF SUBSIDIARY GUARANTEE
Exhibit G          FORM OF SUPPLEMENTAL INDENTURE
Exhibit H          FORM OF SUBORDINATION TERMS
Exhibit I          FORM OF WORKING CAPITAL FACILITY	

iv
THIRD PRIORITY INDENTURE, dated as of March 23, 2004, among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation ("CalGen Finance"), the Guarantors (as defined below in Section 1.01) and Wilmington Trust FSB, as Trustee.
As set forth in Section 13.07 below and notwithstanding anything to the contrary set forth in this Indenture, the Notes, any Security Document or any other Note Document, the Notes and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The Company, CalGen Finance, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined below in Section 1.01) of the Third Priority Secured Floating Rate Notes due 2011 (the "Floating Rate Notes") and the 11-1/2% Third Priority Secured Notes due 2011 (the "Fixed Rate Notes" and, together with the Floating Rate Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions.
"144A Global Note" means a Global Note substantially in the form of Exhibit A-1, for the Floating Rate Notes, or Exhibit A-2, for the Fixed Rate Notes, each bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of Floating Rate Notes or Fixed Rate Notes, as applicable, sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Administrative Services Agreement" means the Master Administrative Services Agreement, dated as of the Closing Date, among Calpine Administrative Services Company, Inc., the Company and the Facility Owners party thereto.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Affiliate Subordinated Indebtedness" means Indebtedness incurred by the Company pursuant to any arrangement with an Affiliate of the Company; provided, that such Indebtedness (1) is contractually subordinated in right of payment and in all other respects to the Notes and all other Secured Obligations in accordance with the Subordination Terms, including an agreement by the holders of such Indebtedness
1
not to exercise any remedies until the Secured Obligations Termination Date, (2) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the Notes, (3) provides for payment of interest thereon in the form of cash or additional Affiliate Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (4) is otherwise subordinated in accordance with the Subordination Terms.
"Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent.
"Applicable Third Priority LIBOR Rate" means, for each six month interest period, 900 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of six months as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable Third Party LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of six months as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
"Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights by the Company or any of its Subsidiaries; provided, that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of Section 5.01 and not by the provisions of
Section 4.10; and
(2) the issuance of Equity Interests in any of the Company's Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $50.0 million (other than any transaction which involves the sale of an undivided interest, participation or Equity Interest in any Facility or Subsidiary of the Company, each of which will constitute an Asset Sale);
(2) a transfer of assets between or among the Company and the Guarantors;
(3) an issuance of Equity Interests by a Subsidiary of the Company to the Company or to a Guarantor;
(4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
2
(6) a Restricted Payment that does not violate the covenant contained in Section 4.07 or a Permitted Investment;
(7) an issuance of Equity Interests in the Company in accordance with the terms of this Indenture; and
(8) the sale of the Columbia Facility pursuant to the Columbia FILOT Arrangement.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.
"Baytown Facility" means the facility described under "Business -- Power Generation -- ERCOT -- Facility Descriptions -- Baytown Facility" in the Offering Memorandum.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13 (d) (3) of the Exchange Act) , such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership or any committee duly authorized and empowered to take action on behalf of such partnership by the partnership agreement of such partnership;
(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
"Broker-Dealer" has the meaning set forth in the Registration Rights Agreement.
"Business Day" means any day other than a Legal Holiday.
"CalGen Expansion Company" means CalGen Expansion Company, LLC.
"CalGen Holdings" means Calpine CalGen Holdings, Inc.
"Calpine" means Calpine Corporation.
"Calpine Performance Guaranty" means the Affiliated Party Agreement Guaranty, dated as of the Closing Date, made by Calpine in favor of the Company and the Facility Owners party thereto.
"Calpine Project Undertaking" means the Project Undertaking and Agreement, dated as of the Closing Date, among Calpine, the Company and the Facility Owners party thereto.
3
"Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Carville Facility" means the facility described under "Business -- Power Generation -- The Southeast -- Facility Descriptions -- Carville Facility" in the Offering Memorandum.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the United States government (or any agency or instrumentality thereof), the Canadian government (or any agency or instrumentality thereof) or the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Facilities or any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch (or successor rating agency) Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5) overnight deposits with entities whose unsecured commercial paper or other unsecured short-term debt obligations, have, at the time of such deposit, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P; and
4
(6) investments in money market funds or money market mutual funds which have, at the time of such investments, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P.
"Casualty Event" means any damage to or destruction of a Facility in excess of $20.0 million.
"Change of Control" means the occurrence of any of the following:
(1) the adoption of a plan relating to the liquidation or dissolution of the Company;
(2) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as that term is used in Section 13(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Calpine, measured by voting power rather than number of shares;
(3) the first day on which Calpine fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests (other than Perpetual Preferred Stock) of the Company (other than as a result of the issuance of Perpetual Preferred Stock by an indirect or direct parent of the Company); or
(4) the first day on which the Company fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests of CalGen Finance.
"Channel Facility" means the facility described under "Business -- Power Generation -- ERCOT -- Facility Descriptions -- Channel Facility" in the Offering Memorandum.
"Class" means (1) in the case of First Priority Lien Debt, every Series of First Priority Lien Debt, taken together, (2) in the case of Second Priority Lien Debt, every Series of Second Priority Lien Debt, taken together, and (3) in the case of Third Priority Lien Debt, every Series of Third Priority Lien Debt, taken together.
"Clearstream" means Clearstream Banking, S.A.
"Closing Date" means March 23, 2004.
"Closing Date Facilities" means the Baytown Facility, the Carville Facility, the Channel Facility, the Columbia Facility, the Corpus Facility, the Decatur Facility, the Delta Facility, the Freestone Facility, the Goldendale Facility, the Los Medanos Facility, the Morgan Facility, the Oneta Facility, the Pastoria Facility and the Zion Facility.
"Collateral" means all collateral in which a Lien is granted to the Collateral Agent in the Security Documents.
"Collateral Agent" means Wilmington Trust Company, in its capacity as collateral agent for the Secured Parties under the Security Documents, together with its successors in such capacity.
"Collateral Trust Agreement" means the Collateral Trust Agreement, dated as of the Closing Date, among CalGen Holdings, the Company, the Guarantors, each Secured Debt Representative party thereto and the Collateral Agent.
5
"Columbia Facility" means the facility described under "Business -- Power Generation -- The Southeast -- Facility Descriptions -- Columbia Facility" in the Offering Memorandum.
"Columbia FILOT Arrangement" means a fee-in-lieu-of-taxes arrangement pursuant to which the Columbia Facility will be sold to Calhoun County, South Carolina, or a Person acting on its behalf, and leased to Columbia Energy LLC for a nominal annual amount in lieu of certain ad valorem taxes that would otherwise be owed to Calhoun County in connection with the Columbia Facility, together with the payment of a fee to Calhoun County in lieu of such ad valorem taxes; provided, that (1) Columbia Energy LLC has the right under such arrangement to repurchase the Columbia Facility for nominal consideration upon completion or termination of the lease agreement, (2) the leasehold interest held by Columbia Energy LLC is part of the Collateral, (3) the arrangement is not reasonably expected to have a material adverse effect on the operation or financial condition of the Columbia Facility and (3) the arrangement does not impair the Columbia Facility's status as a QF.
"Condemnation Event" means any Facility (or any portion thereof in excess of $20.0 million) is condemned, confiscated, requisitioned, captured, seized or subjected to forfeiture, or title thereto is taken, by any Governmental Authority (or any Person acting under color of Governmental Authority).
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(3) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business;
in each case, on a consolidated basis and determined in accordance with 
GAAP.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period, plus:
(1) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of:
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(a) any and all interest expense for such period, including, without limitation, Consolidated Interest Expense and any interest expense attributable to Affiliate Subordinated Indebtedness,
(b) consolidated income tax expense for such period,
(c) all amounts attributable to depreciation and amortization for such period,
(d) any extraordinary or non-recurring non-cash charges (other than the write-down of current assets) for such period (including any such non-cash charges for such period relating to the application of fresh start accounting principals),
(e) any non-cash goodwill or other intangible asset impairment charges incurred after the Closing Date resulting from the application of Statement Number 142 of the Financial Accounting Standards Board,
(f) any non-recurring expenses incurred in connection with the transactions contemplated by the Secured Debt Documents, and
(g) any non-cash compensation charges, including any such charges arising from stock options, restricted stock grants and other equity incentive programs,
provided, that to the extent all or any portion of the income of any Subsidiary of the Company or other Person is excluded from Consolidated Net Income pursuant to the definition thereof for all or any portion of such period, any amounts set forth in the preceding clauses (a) through
(g) that are attributable to such Subsidiary or other Person will be not be included for purposes of this clause (1) for such period or portion thereof; plus
(2) without duplication, the cash amount of:
(a) prepayments received by the Company or any of its Subsidiaries under any Major Project Document during such period, and
(b) any distributions received by the Company or any of its Subsidiaries pursuant to the Index Hedge during such period; minus
(3) without duplication:
(a) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net Income pursuant to clause (1) above in a previous period, and
(b) to the extent included in determining such Consolidated Net Income, any extraordinary gains and all non-cash items of income for such period, all determined on a consolidated basis in accordance with GAAP;
provided, that, if the Company has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated EBITDA will be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the sum of (i) the consolidated net income (loss) of such Subsidiary (to the extent included in Consolidated Net Income) and (ii) the amounts set forth in clause (1)(a)-(g) above attributable to such Subsidiary, multiplied by (B) the percentage of Equity Interests in such Subsidiary not directly or indirectly owned by
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the Company on the last day of such period. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated EBITDA will be calculated on a Pro Forma basis as if all transactions entered into by the Company on the Closing Date were entered into on the first day of the period for which Consolidated EBITDA is being measured.
"Consolidated Interest Expense" means, for any period:
(1) the sum of, without duplication:
(a) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations, but excluding any interest expense attributable to Affiliate Subordinated Indebtedness) of the Company and its Subsidiaries for such period (including all commissions, discounts and other fees and charges owed by the Company and its Subsidiaries with respect to letters of credit and bankers' acceptance financing), net of interest income, in each case determined on a consolidated basis in accordance with GAAP, plus
(b) any interest accrued (other than interest accrued with respect to Affiliate Subordinated Indebtedness) during such period in respect of Indebtedness of the Company or any of its Subsidiaries that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP; minus
(2) to the extent included in such consolidated interest expense for such period, amounts attributable to the amortization of financing costs and non-cash amounts attributable to the amortization of debt discounts.
For purposes of this definition, interest expense will be determined after giving effect to any net payments made or received by the Company or any of it is Subsidiaries with respect to interest rate Hedging Obligations. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated Interest Expense will be calculated on a Pro Forma basis as if all transactions entered into by the Company on the Closing Date were entered into on the first day of the period for which Consolidated Interest Expense is being measured.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that:
(1) the Net Income of any Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; and
(2) the cumulative effect of a change in accounting principles will be excluded.
"Control Agreement" means the Collateral Account Control Agreement, dated as of the Closing Date, between the Company and the Collateral Agent.
"Corporate Trust Office of the Trustee" will be at the address of the Trustee specified in Section 13.02 or such other address as to which the Trustee may give notice to the Company.
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"Corpus Christi Facility" means the facility described under "Business -- Power Generation -- ERCOT -- Facility Descriptions -- Corpus Christi Facility" in the Offering Memorandum.
"Credit Facilities" means one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.
"Decatur Facility" means the facility described under "Business -- Power Generation -- The Southeast -- Facility Descriptions -- Decatur Facility" in the Offering Memorandum.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06, substantially in the form of Exhibit A-1 or Exhibit A-2, as applicable, except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto.
"Delta Facility" means the facility described under "Business -- Power Generation -- The West -- Facility Descriptions -- Delta Facility" in the Offering Memorandum.
"Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
"Discharge of First Priority Lien Obligations" means the occurrence of all of the following:
(1) termination of all commitments to extend credit that would constitute First Priority Lien Debt;
(2) payment in full in cash of the principal of and interest and premium (if any) on all First Priority Lien Debt (other than any undrawn letters of credit) and/or defeasance of all First Priority Lien Debt in accordance with the applicable First Priority Lien Documents;
(3) discharge or cash collateralization (at 102.5% of the aggregate undrawn amount) of all outstanding letters of credit constituting First Priority Lien Debt; and
(4) payment in full in cash of all other First Priority Lien Obligations that are outstanding and unpaid at the time the First Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at such time).
"Discharge of Second Priority Lien Obligations" means the occurrence of all of the following:
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(1) termination of all commitments to extend credit that would constitute Second Priority Lien Debt;
(2) payment in full in cash of the principal of and interest and premium (if any) on all Second Priority Lien Debt (other than any undrawn letters of credit) and/or defeasance of all Second Priority Lien Debt in accordance with the applicable Second Priority Lien Documents;
(3) discharge or cash collateralization (at 102.5% of the aggregate undrawn amount) of all outstanding letters of credit constituting Second Priority Lien Debt; and
(4) payment in full in cash of all other Second Priority Lien Obligations that are outstanding and unpaid at the time the Second Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at such time).
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant contained in Section 4.07. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture will be the maximum amount that the Company and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Equally and Ratably" means, in reference to sharing of Liens or proceeds thereof as among Secured Parties of the same Class that such Liens or proceeds:
(1) will be allocated and distributed first to the Secured Debt Representative for each outstanding Series of Secured Debt within such Class, for account of the holders of such Series of Secured Debt, ratably in proportion to the principal of, and interest and premium (if any) and reimbursement obligations (contingent or otherwise) with respect to letters of credit, if any, outstanding (whether or not drawings have been made under such letters of credit) on, each outstanding Series of Secured Debt within such Class when the allocation or distribution is made, and thereafter
(2) will be allocated and distributed (if any remain after payment in full of all of the principal of, and interest and premium (if any) and reimbursement obligations (contingent or otherwise) with respect to letters of credit, if any, outstanding (whether or not drawings have been made under such letters of credit) on, all outstanding Secured Obligations within such Class) to the Secured Debt Representative for each outstanding Series of Secured Obligations within such Class, for account of the holders of any remaining Secured Obligations within such Class, ratably in proportion to the aggregate unpaid amount of such remaining Secured Obligations within such Class due and demanded (with written notice to the applicable Secured Debt Representative and the Collateral Agent) prior to the date such distribution is made.
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"Equity Contributions" means contributions of cash and Cash Equivalents to the common equity capital of the Company by Persons other than the Company and its Subsidiaries.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"Estimated Peak Capacity" means, with respect to a Facility, the nominal, as-tested new and clean capacity of such Facility, as corrected to average ambient conditions, plus all incremental peaking capability of such Facility derived from duct firing, power augmentation, steam injection or other means.
"Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system.
"Excess Cash Flow" means, for any period:
(1) the sum of:
(A) all revenues (excluding (i) non-cash revenues and (ii) any payments received from contract monetizations, contract buy-outs and similar transactions) received by the Company and its Subsidiaries during such period,
(B) all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events, and all net proceeds from the sale, lease, conveyance or other disposition of any assets or rights not constituting "Asset Sales," in each case received by the Company and its Subsidiaries during such period and remaining after application of such proceeds to an offer to redeem Notes in accordance with the covenant contained in Section 4.10, and
(C) all Excess Expansion Asset Financing Proceeds received by the Company and its Subsidiaries during such period; less
(2) the sum of:
(A) all costs, expenses, fees and other charges (including liquidated damages or other damages or penalties) incurred by the Company and its Subsidiaries during such period in connection with the ownership, operation, maintenance and use of the Facilities, including all payments under Major Project Documents and other agreements relating to the Facilities (other than Major Maintenance Expenses),
(B) all trustee fees, collateral agent fees and other similar administrative fees and expenses paid by the Company and its Subsidiaries during such period,
(C) the Fixed Charges of the Company and its Subsidiaries during such period (other than Fixed Charges of the kind referred to in clause (4) of the definition of Fixed Charges and Fixed Charges relating to Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations),
(D) all payments of principal of Indebtedness of the Company and its Subsidiaries required to be made (whether or not actually made) during such period, other than payments of principal of Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations, and
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(E) all amounts paid by the Company and its Subsidiaries for capital expenditures to the Facilities during such period, other than Excluded CapEx Amounts.
"Excess Expansion Asset Financing Proceeds" means the excess of (1) the aggregate amount of net cash proceeds of Expansion Debt incurred to finance costs associated with Expansion Assets in accordance with clause (3) of the definition of Permitted Debt and Equity Contributions made in connection therewith, over (2) the amount of such proceeds and Equity Contributions required to finance costs associated with such Expansion Assets in compliance with the conditions set forth in clause (3) of the definition of Permitted Debt.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to
Section 2.06(f).
"Exchange Offer" has the meaning set forth in the Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement.
"Excluded Assets" means:
(1) the fixtures and equipment relating to any Facility if, to the extent that and for so long as (A) the ownership or operation of such Facility is regulated by any federal or state regulatory authority and (B) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (i) such fixtures and equipment will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (A) and (B) in this clause (1) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (ii) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(2) with respect to personal property, any contract, agreement, lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (A) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such contract, agreement, lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such contract, agreement, lease, license, permit, franchise, power, authority or right is governed and (B) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (i) such contract, agreement, lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for so long as
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the conditions set forth in clauses (A) and (B) of this clause (2) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (ii) the proceeds of any sale, lease or other disposition of any such contract, agreement, lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in Section 4.10.
(3) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for as long as the condition set forth above is and remains satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Company or its Subsidiaries in the ordinary course of business and applied in accordance with the covenant contained in
Section 4.10.
(4) any Excluded Subsidiary Securities;
(5) any property or assets owned by the Excluded Subsidiary;
(6) any Expansion Assets; provided, that any Expansion Assets will be Excluded Assets only if an for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on the ability to grant a Lien on such Expansion Assets to secure the Secured Obligations continue to be applicable, as determined in good faith by the Company; and
(7) the Company's rights under or with respect to the Working Capital Facility.
"Excluded CapEx Amounts" means amounts paid by the Company and its Subsidiaries for capital expenditures to the Facilities using funds derived from either of the following funding sources:
(1) Equity Contributions, other than Equity Contributions made to comply with clause (3) of the definition of Permitted Debt; and
(2) proceeds of Expansion Debt incurred in accordance with clause
(3) of the definition of Permitted Debt.
"Excluded Subsidiary" means Goldendale Energy Center, LLC, only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on Goldendale Energy Center, LLC's ability to be a Guarantor and grant a Lien on its property and assets to secure the Secured Obligations continue to be applicable to Goldendale Energy Center, LLC, as determined in good faith by the Company.
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"Excluded Subsidiary Securities" means Capital Stock or other securities of any Subsidiary of the Company, other than the Equity Interests in CalGen Expansion Company.
"Existing Purchase Option" means an Asset Sale required in accordance with any of the following, without giving effect to any amendments or other modifications thereto after the Closing Date:
(1) the exercise by Eastman Chemical Company (or its successors and permitted assigns) of any of its purchase options under the Energy Services Agreement, dated as of August 15, 2000 and as amended to the Closing Date, between Columbia Energy LLC and Eastman Chemical Company;
(2) the exercise by Solutia, Inc. (or its successors and permitted assigns) of its purchase option upon an event of default under the Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001 and as amended to the Closing Date, between Decatur Energy Center, LLC and Solutia;
(3) the exercise by Bayer Corporation (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of January 12, 2000 and as amended to the Closing Date, between Baytown Energy Center LP and Bayer Corporation;
(4) the exercise by Lyondell-CITGO Refining L.P. (or its successors and permitted assigns) of any of its options to acquire certain property under the Amended and Restated Ground Lease and Easement Agreement, dated as of March 30, 2001 and as amended to the Closing Date, between Channel Energy Center, LP and Lyondell-CITGO Refining L.P.;
(5) the exercise by CITGO Refining and Chemicals Company L.P. (or its successors and permitted assigns) of its right of first offer under the Energy Services Agreement, dated as of March 23, 1999 and as amended to the Closing Date, between Corpus Christi Cogeneration LP and CITGO Refining and Chemicals Company L.P.; and
(6) the exercise by Flint Hills Resources, L.P. (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of July 24, 2003 and as amended to the Closing Date, between Corpus Christi Cogeneration LP and Flint Hills Resources, L.P.
"Expansion Assets" means the assets (including real property rights, contractual rights, rights under permits, other general intangibles and other ancillary rights) added to a Facility in connection with the addition of capacity to, or other expansion of, such Facility; provided, that such Expansion Assets are not necessary for the operation of such Facility or any other Facility (other than the Expansion Assets themselves), are readily distinguishable from such Facility and can be removed or separated from such Facility, dismantled or operated independently of the operation of such Facility without impairing such Facility or any other Facility in any material respect.
"Expansion Debt" means Indebtedness incurred for the purpose of financing the development, construction or purchase of, or repairs, improvements or additions to, Expansion Assets relating to one or more Facilities, including any Indebtedness existing at the time such Expansion Assets are acquired, whether or not such Indebtedness is incurred in connection with, or in contemplation of, the acquisition of such Expansion Assets; provided, that such Indebtedness was incurred to finance the development, construction or purchase of, or repairs, improvements or additions to, such Expansion Assets.
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"Facilities" means the Closing Date Facilities and any other electric generating facilities acquired or constructed after the Closing Date described in the definition of Permitted Business; provided, that any Facility disposed of in accordance with the terms of the Secured Debt Documents will be deemed not to be a Facility from and after the date of such disposition.
"Facility Owner" means, with respect to a Facility, the Subsidiary of the Company that directly owns such Facility.
"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by (1) an officer of the Company and evidenced by an Officer's Certificate delivered to the Trustee, if such value is less than or equal to $10.0 million, or (2) the Board of Directors of the Company and evidenced by a resolution delivered to the Trustee, if such value is greater than $10.0 million.
"FERC" means the Federal Energy Regulatory Commission or any successor agency.
"First Priority Debt Representative" means:
(1) in the case of the First Priority Notes, the First Priority Trustee;
(2) in the case of the Revolving Loans, the Revolving Loan Administrative Agent;
(3) in the case of the First Priority Term Loans, the First Priority Term Loan Administrative Agent; or
(4) in the case of any other Series of First Priority Lien Debt, the trustee, agent or representative of the holders of such Series of First Priority Lien Debt who maintains the transfer register for such Series of First Priority Lien Debt and (a) is appointed as a First Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of First Priority Lien Debt and (b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"First Priority Indenture" means the First Priority Indenture, dated as of the Closing Date, among the Company, CalGen Finance, the Guarantors and Wilmington Trust FSB, as trustee.
"First Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure First Priority Lien Obligations.
"First Priority Lien Cap" means, as of any date:
(1) the principal amount of First Priority Notes issued on the Closing Date; plus
(2) the principal amount of all Indebtedness outstanding under the First Priority Term Loan Agreement on the Closing Date, plus any Indebtedness outstanding under any other Credit Facility (including the Revolving Loan Agreement), all in an aggregate principal amount not to exceed the amount provided by clause (1)(a) of the definition of Permitted Debt; less
(3) the amount of Second Priority Lien Debt or Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay any First Priority Lien Debt; plus
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(4) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (1) and (2); plus
(5) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500.0 million.
For purposes of this definition of First Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"First Priority Lien Debt" means:
(1) the First Priority Notes;
(2) Indebtedness under the First Priority Term Loan Agreement incurred on the Closing Date;
(3) Indebtedness under the Revolving Loan Agreement;
(4) Hedging Obligations incurred to hedge or manage interest rate risk with respect to First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500.0 million;
(5) Indebtedness under any other Credit Facility that is secured by a First Priority Lien; and
(6) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other First Priority Lien Debt;
provided, that in the case of any Indebtedness referred to in clause (3), (4),
(5) or (6) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each First Priority Debt Representative and the Collateral Agent, as "First Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other First Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable First Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
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(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "First Priority Lien Debt").
"First Priority Lien Documents" means the First Priority Notes, the related Subsidiary guarantees, the First Priority Indenture, the First Priority Term Loan Agreement, the Revolving Loan Agreement, each agreement governing any other Series of First Priority Lien Debt and all other agreements governing, securing or relating to any First Priority Lien Obligations.
"First Priority Lien Obligations" means the First Priority Lien Debt and all other Obligations in respect of First Priority Lien Debt.
"First Priority Notes" means the First Priority Secured Floating Rate Notes due 2009 issued by the Company and CalGen Finance on the Closing Date under the First Priority Indenture.
"First Priority Term Loan Administrative Agent" means Morgan Stanley Senior Funding, Inc., as administrative agent under the First Priority Term Loan Agreement, together with its successors in such capacity.
"First Priority Term Loan Agreement" means the Credit and Guaranty Agreement, dated as of the Closing Date, among the Company, the Guarantors, the First Priority Term Loan Administrative Agent and the agents and lenders thereunder, relating to $600.0 million in aggregate principal amount of term loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"First Priority Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the First Priority Term Loan Agreement.
"First Priority Trustee" means the trustee under the First Priority Indenture.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred equity subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the Calculation Date, then the Fixed Charge Coverage Ratio will be calculated giving Pro Forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries acquired by the specified Person or any of its Subsidiaries, and including any related financing transactions and including increases in ownership of Subsidiaries, during the applicable reference period or
17
subsequent to such reference period and on or prior to the Calculation Date will be given Pro Forma effect as if they had occurred on the first day of such reference period;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date;
(4) any Person that is a Subsidiary on the Calculation Date will be deemed to have been a Subsidiary at all times during such reference period;
(5) any Person that is not a Subsidiary on the Calculation Date will be deemed not to have been a Subsidiary at any time during such reference period; and
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire reference period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases, but excluding the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, under any Affiliate Subordinated Indebtedness; plus
(2) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, but excluding the consolidated capitalized interest of such Person and its Subsidiaries for such period under any Affiliate Subordinated Indebtedness; plus
(3) any interest accruing on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred equity of such Person or any of its Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Subsidiary of the Company, multiplied by (b) a fraction, the numerator of
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which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal,
in each case, on a consolidated basis and determined in accordance with GAAP.
"FPA" means the Federal Power Act, as amended.
"Freestone Facility" means the facility described under "Business -- Power Generation -- ERCOT -- Facility Descriptions -- Freestone Facility" in the Offering Memorandum.
"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the applicable date of determination.
"Global Note Legend" means the legend set forth in Section 2.06(g)(2), which is required to be placed on all Global Notes issued under this Indenture.
"Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A or Exhibit B, as applicable, issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f).
"Goldendale Facility" means the facility described under "Business -- Power Generation -- The West -- Facility Descriptions -- Goldendale Facility" in the Offering Memorandum.
"Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.
"Governmental Authority" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantors" means each of:
(1) CalGen Expansion Company, CPN Freestone LLC, Calpine Freestone, LLC, Freestone Power Generation LP, Calpine Freestone Energy GP, LLC, Calpine Freestone Energy LP, Calpine Power Equipment LP, Calpine Channel Energy Center LP, LLC, Calpine Channel Energy Center GP, LLC, Channel Power GP LLC, Channel Power LP, Channel Energy Center, LP, CalGen Equipment Finance Holdings, LLC, CalGen Project Equipment Finance Company One, LLC, CalGen Project Equipment Finance Company Three LLC, CalGen Equipment Finance Company, LLC, Nueces Bay Energy LLC, Calpine Northbrook Southcoast Investors, LLC,
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Calpine Corpus Christi Energy GP, LLC, Calpine Corpus Christi Energy, LP, Corpus Christi Cogeneration LP, Zion Energy LLC, Los Medanos Energy Center, LLC, Morgan Energy Center, LLC, Carville Energy LLC, Decatur Energy Center, LLC, Calpine Oneta Power I, LLC, Calpine Oneta Power II, LLC, Calpine Oneta Power, L.P., Calpine Baytown Energy Center LP, LLC, Calpine Baytown Energy Center GP, LLC, Baytown Energy Center, LP, Baytown Power GP, LLC, Baytown Power, LP, Columbia Energy LLC, Delta Energy Center, LLC, CalGen Project Equipment Finance Company Two, LLC, Pastoria Energy Facility L.L.C. and Calpine Pastoria Holdings, LLC; and
(2) any other Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage interest rate risk; and
(3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means a Global Note substantially in the form of Exhibit A-1, for the Floating Rate Notes, or Exhibit A-2, for the Fixed Rate Notes, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Floating Rate Notes or Fixed Rate Notes, as applicable, sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
(6) representing any Hedging Obligations,
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if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(A) the Fair Market Value of such asset at the date of determination, and
(B) the amount of the Indebtedness of the other Person.
Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation.
"Indenture" means this Third Priority Indenture, as amended or supplemented from time to time.
"Indentures" means, collectively, the First Priority Indenture, the Second Priority Indenture and this Indenture.
"Index Based Gas Sale and Power Purchase Agreement" means the Index Based Gas Sale and Power Purchase Agreement, dated as of the Closing Date, among Calpine Energy Services, L.P., the Company and the Facility Owners party thereto.
"Index Hedge" means, collectively, (1) the ISDA Master Agreement (MULTICURRENCY-CROSS BORDER), dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc., as supplemented by the Schedule to the Master Agreement, dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc. and by the Amended and Restated Confirmation, dated as of March 12, 2004, between the Company and Morgan Stanley Capital Group Inc., and (2) the Guaranty, dated as of March 12, 2004, by Morgan Stanley for the benefit of the Company.
"Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant.
"Initial Purchaser" means Morgan Stanley & Co. Incorporated.
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"Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant contained in Section 4.07. Except as otherwise provided in this Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
"Issuers" means, collectively, the Company and CalGen Finance.
"Junior Debt Representative" means the trustee, agent or representative of the holders of a Series of Junior Lien Debt who maintains the transfer register for such Series of Junior Lien Debt and is appointed as a Junior Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Junior Lien Debt.
"Junior Lien" means a Lien granted by a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Junior Lien Obligations.
"Junior Lien Debt" means:
(1) Expansion Debt that is secured by a Junior Lien that was permitted to be incurred under clause (7)(b) or (7)(c) of the definition of Permitted Liens; and
(2) Third Party Subordinated Indebtedness that is secured by a Junior Lien that was permitted to be incurred under clause (19) of the definition of Permitted Liens,
but only if on or before the day on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Junior Debt Representative and the Collateral Agent on or before such date, as "Junior Lien Debt" for the purposes of each of the Junior Lien Documents and the Collateral Trust Agreement.
"Junior Lien Documents" means all agreements governing, securing or relating to any Junior Lien Obligations.
"Junior Lien Obligations" means the Junior Lien Debt and all other Obligations in respect of Junior Lien Debt.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the
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next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared by the Company, CalGen Finance and the Guarantors and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Lien Priority Confirmation" means:
(1) as to any Series of First Priority Lien Debt, the written agreement of the holders of such Series of First Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of First Priority Lien Debt, for the enforceable benefit of each existing and future holder of Permitted Prior Liens, to be bound by the provisions set forth in the Collateral Trust Agreement;
(2) as to any Series of Second Priority Lien Debt, the written agreement of the holders of such Series of Second Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of Second Priority Lien Debt, for the enforceable benefit of all holders of each existing and future Series of First Priority Lien Debt, each existing and future First Priority Debt Representative, the Collateral Agent and each existing and future holder of Prior Permitted Liens, to be bound by the provisions set forth in the Collateral Trust Agreement; and
(3) as to any Series of Third Priority Lien Debt, the written agreement of the holders of such Series of Third Priority Lien Debt, as set forth in the indenture or other agreement governing such Series of Third Priority Lien Debt, for the enforceable benefit of all holders of each existing and future Series of First Priority Lien Debt and each existing and future Series of Second Priority Lien Debt, each existing and future First Priority Debt Representative and each existing and future Second Priority Debt Representative, the Collateral Agent, and each existing and future holder of Prior Permitted Liens, to be bound by the provisions set forth in the Collateral Trust Agreement.
"Los Medanos Facility" means the facility described under "Business -- Power Generation -- The West -- Facility Descriptions -- Los Medanos Facility" in the Offering Memorandum.
"Major Maintenance Expenses" means all costs, expenses, fees and other charges (including liquidated damages or other damages or penalties) incurred by the Company and its Subsidiaries during such period for major maintenance of the Facilities under the Master Maintenance Services Agreement or otherwise.
"Major Project Documents" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, the Index Based Gas Sale and Power Purchase Agreement, the Index Hedge, the Working Capital Facility, the Master Operation and Maintenance Agreement, the Master Maintenance Services Agreement, the Calpine Performance Guaranty, the Master Construction Management Agreement, the Calpine Project Undertaking and the Administrative Services Agreement.
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"Master Construction Management Agreement" means the Master Construction Management Agreement, dated as of the Closing Date, among Calpine Construction Management Company, Inc., the Company and the Facility Owners party thereto.
"Master Maintenance Services Agreement" means the Master Maintenance Services Agreement, dated as of the Closing Date, among Calpine Operating Services Company, Inc., the Company and the Facility Owners party thereto.
"Master Operation and Maintenance Agreement" means the Master Operation and Maintenance Agreement, dated as of the Closing Date, among Calpine Operating Services Company, Inc., the Company and the Facility Owners party thereto.
"Material Adverse Effect" means a material adverse effect on (a) the current or reasonably anticipated business, property, results of operation or financial condition of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company and its Subsidiaries to perform their obligations under the Notes and the Subsidiary Guarantees or (c) the value of, or the validity or priority of the Collateral Agent's security interests in, the Collateral taken as a whole.
"Materially Adverse" means, with respect to an event or circumstance, that such event or circumstance has had or is reasonably expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole; it being understood that an event or circumstance would have a material adverse effect on the Company and its Subsidiaries, taken as a whole, if the Excess Cash Flow for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event or circumstance occurred or commenced to exist, as applicable, would have decreased by more than 5.0%, determined on a Pro Forma basis.
"Moody's" means Moody's Investors Services, Inc., or any successor rating agency.
"Morgan Facility" means the facility described under "Business -- Power Generation -- The Southeast -- Facility Descriptions -- Morgan Facility" in the Offering Memorandum.
"Mortgages" means the mortgages and deeds of trust, dated as of the Closing Date, entered into between the Guarantors and the Collateral Agent.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means:
(1) the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset
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Sale, including legal, accounting and investment banking fees, sales commissions, any relocation expenses incurred as a result of the Asset Sale, and any taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of the Asset Sale (other than Secured Obligations), and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP;
(2) all proceeds of any insurance, indemnity, warranty or guaranty payable from time to time with respect to any Casualty Event that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, other than business interruption insurance proceeds, net of the direct costs relating to the collection of such proceeds; and
(3) all payments (in any form whatsoever) made or due and payable from time to time in connection with any Condemnation Event by any Governmental Authority (or any Person acting under color of Governmental Authority) that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, net of the direct costs relating to the collection of such proceeds.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Documents" means this Indenture, the Notes, the Subsidiary Guarantees, the Collateral Trust Agreement, each Sharing Confirmation, the other Security Documents and all other agreements related thereto.
"Notes" has the meaning assigned to it in the preamble to this Indenture. The Floating Rate Notes and the Fixed Rate Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Floating Rate Notes and the Fixed Rate Notes.
"Obligations" means, with respect to any Indebtedness of any Person (collectively, without duplication):
(1) all debt, financial liabilities and obligations of such Person of whatsoever nature and howsoever evidenced (including principal, interest, fees, reimbursement obligations, cash cover obligations, penalties, indemnities and legal and other expenses, whether due after acceleration or otherwise) to the providers or holders of such Indebtedness or to any agent, trustee or other representative of such providers or holders of such Indebtedness under or pursuant to each agreement, document or instrument evidencing, securing, guaranteeing or relating to such Indebtedness, financial liabilities or obligations relating to such Indebtedness (including Secured Debt Documents applicable to such Indebtedness (if any)), in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such agreement, document or instrument;
(2) any and all sums paid or advanced by the Collateral Agent or any other Person in order to preserve the Collateral or any other collateral securing such Indebtedness or to preserve the Liens and security interests in the Collateral or any other collateral securing such Indebtedness; and
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(3) the costs and expenses of collection and enforcement of the obligations referred to in clauses (1) and (2), including:
(a) the costs and expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on any Collateral or any other collateral;
(b) the costs and expenses of any exercise by the Collateral Agent or any other Person of its rights under the Security Documents or any other security documents; and
(c) reasonable attorneys' fees and expenses and court costs.
"Offering Memorandum" means the Offering Memorandum dated March 17, 2004 relating to the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
"Officer's Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 13.05.
"Oneta Facility" means the facility described under "Business -- Power Generation -- Other -- Facility Descriptions -- Oneta Facility" in the Offering Memorandum.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.05. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).
"Pastoria Facility" means the facility described under "Business -- Power Generation -- The West -- Facility Descriptions -- Pastoria Facility" in the Offering Memorandum.
"Permitted Business" means the ownership, construction, operation and maintenance of the Closing Date Facilities and any substantially similar electric generating facilities located in the United States, together with any related assets or facilities, including gas pipelines supplying natural gas to such generating facilities, electric transmission lines carrying energy generated from such generating facilities, and any related gas or electric interconnection facilities.
"Permitted Counterparty Lien" means a Lien in favor of a counterparty under a PPA; provided, that the following conditions are satisfied:
(1) the counterparty is not an Affiliate of the Company;
(2) the Lien does not secure any Indebtedness and (a) is granted solely to secure the performance obligations of the Company or the applicable Subsidiary under the PPA and/or any obligation of the Company or the applicable Subsidiary to make a termination payment under the PPA upon the occurrence of the event described in clause (3)(c)(i) below or the termination by
26
the counterparty upon the occurrence of any of the events described in clause (3)(c)(ii) below, or (b) creates rights designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise continue performance of the Company's or the applicable Subsidiary's obligations under the PPA;
(3) the counterparty can exercise its rights with respect to the Lien only:
(a) for so long as the counterparty remains current with respect to all of its payment obligations under the PPA and is not otherwise in a continuing default under the PPA,
(b) if the counterparty continues to acknowledge the existence of the Liens securing the Secured Obligations (unless and until Liens securing the Secured Obligations are eliminated in connection with a foreclosure of the Lien as contemplated by clause (4) of this definition), and
(c) if either (i) the Company or the applicable Subsidiary has terminated, rejected or repudiated the PPA (including, without limitation, any rejection or similar act by or on behalf of the Company or the applicable Subsidiary in connection with any proceeding under Bankruptcy Law) or (ii) the Company or the applicable Subsidiary has intentionally breached its obligations under the PPA; provided, that the following actions will be considered an intentional breach by the Company or the applicable Subsidiary under the PPA: (A) the Company or the applicable Subsidiary provides or delivers capacity or energy to a third party if the Company or the applicable Subsidiary is required under the PPA to provide or deliver such capacity or energy to the counterparty; (B) the Company or the applicable Subsidiary fails to operate or attempt to operate one or more of the relevant Facilities at a time when the Company or the applicable Subsidiary was required under the PPA to operate or attempt to operate such Facility or Facilities and such operation or attempted operation is not prevented by force majeure, forced outage or other events or circumstances outside the reasonable control of the Person responsible therefor; (C) any failure by the Company or the applicable Subsidiary to comply with any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise take actions necessary to continue performance of the Company's or the applicable Subsidiary's obligations under the PPA, in each case to the extent the Company or the applicable Subsidiary is then capable of complying with such provisions; or (D) any failure by the Company or the applicable Subsidiary to pay to the counterparty any amount due and payable in accordance with the terms and conditions of the PPA; and
(4) the counterparty's exercise of its rights with respect to the Lien is limited to (a) the taking of actions pursuant to any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise necessary to continue performance of the Company's or the applicable Subsidiary's obligations under the PPA or (b) the recovery of any termination payment due under the PPA upon the occurrence of the event described in clause (3)(c)(i) above or the termination by the counterparty upon the occurrence of any of the events described in clause (3)(c)(ii) above.
"Permitted Investments" means:
(1) any Investment in the Company or in a Guarantor;
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(2) (a) any Investment in the Goldendale Facility to finance the construction and completion of the Goldendale Facility and any other repairs, improvements or other capital expenditures necessary to operate and maintain such Facility in accordance with prudent industry practice, and (b) any other Investment in the Goldendale Facility made with the proceeds of Equity Contributions, Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(3) any Investment in Cash Equivalents;
(4) any Investment by the Company or any Guarantor in a Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Subsidiary of the Company and becomes a Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Guarantor;
(5) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant contained in Section 4.10;
(6) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(7) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, or
(b) litigation, arbitration or other disputes with Persons who are not Affiliates;
(8) Investments represented by Hedging Obligations;
(9) repurchases of the Notes and other Secured Obligations;
(10) negotiable instruments held for deposit or collection in the ordinary course of business; and
(11) other Investments in any Person other than an Affiliate of the Company having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) that are at the time outstanding, not to exceed $30.0 million.
"Permitted Liens" means:
(1) Liens in favor of the Collateral Agent Equally and Ratably securing the First Priority Notes, the First Priority Term Loans, the Revolving Loans and all other First Priority Lien Debt, all in an aggregate principal amount not exceeding the First Priority Lien Cap, and all related First Priority Lien Obligations;
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(2) Liens in favor of the Collateral Agent Equally and Ratably securing the Second Priority Notes, the Second Priority Term Loans and all other Second Priority Lien Debt, all in an aggregate amount not exceeding the Second Priority Lien Cap, and all related Second Priority Lien Obligations;
(3) Liens in favor of the Collateral Agent Equally and Ratably securing the Notes and all other Third Priority Lien Debt, and all related Third Priority Lien Obligations;
(4) Liens in favor of the Company or the Guarantors;
(5) pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or operating leases to which such Person is a party;
(6) Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
(7) (a) Liens to secure Expansion Debt that encumber the Expansion Assets financed with the proceeds of such Expansion Debt and other Expansion Assets owned by the Person incurring such Expansion Debt (including any rights of such Person under Shared Facilities Arrangements), (b) Liens to secure Expansion Debt that encumber the Capital Stock of CalGen Expansion Company; provided, that any such Capital Stock must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and (c) if such Expansion Assets are not Excluded Assets and are part of the Collateral, Liens to secure Expansion Debt on the other property and assets of such Person; provided, that any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(8) obligations under Shared Facilities Arrangements, to the extent such obligations constitute Liens, and Liens on Shared Facilities securing the Company's or the applicable Subsidiary's obligations under Shared Facility Arrangements;
(9) Liens which constitute bankers' liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract;
(10) Liens existing on the Closing Date;
(11) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
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(12) Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the ordinary course of business; or Liens arising out of judgments that do not constitute a Default or an Event of Default;
(13) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(14) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Indenture; provided, however, that:
(A) the new Lien shall be limited to all or part of the same property and assets that secured the original Lien (plus repairs, improvements and additions to such property or assets); and
(B) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such Indebtedness;
(15) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to operating leases incurred in the ordinary course of business and not otherwise prohibited by this Indenture;
(16) Liens not in respect of Indebtedness consisting of the interest of the lessor under any operating lease entered into in the ordinary course of business and not otherwise prohibited by this Indenture;
(17) Permitted Counterparty Liens;
(18) to the extent constituting Liens, obligations of the Company or its Subsidiaries under or restrictions imposed by any PPA Recognition Agreement;
(19) Liens on property and assets of the Company to secure Third Party Subordinated Indebtedness; provided, that all such property and assets must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to the Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of any Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and
(20) unperfected security interests to secure (a) intercompany Indebtedness permitted to be incurred under clause (5) of the definition of Permitted Debt or (b) Affiliate Subordinated Indebtedness permitted to be incurred under clause (9) of the definition of Permitted Debt; and
(21) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $50.0 million at any one time outstanding.
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"Permitted Prior Liens" means:
(1) Liens securing First Priority Lien Debt not exceeding the First Priority Lien Cap and all related First Priority Lien Obligations;
(2) Liens securing Second Priority Lien Debt not exceeding the Second Priority Lien Cap and all related Second Priority Lien Obligations;
(3) Liens directly on Expansion Assets of the kind described in clause (7)(a) of the definition of Permitted Liens;
(4) Liens described in clause (8), (10) (to the extent set forth on Schedule A), (17) or (18) of the definition of Permitted Liens; and
(5) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries (other than intercompany Indebtedness); provided, that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means, without duplication as to amounts and as long as the Company is a pass-through entity for U.S. federal income tax purposes, payments to Calpine in an amount equal to the federal, state, local and foreign taxes (including any penalties and interest) that the Company would owe if the Company were a corporation for U.S. federal income tax purposes filing a consolidated or combined return with its Subsidiaries.
"Perpetual Preferred Stock" means, with respect to any Person, any preferred Capital Stock of such Person that is not subject to mandatory redemption and is not Voting Stock.
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"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"Pledge Agreements" means (1) the Membership Interest Pledge Agreement, dated as of the Closing Date, among CalGen Holdings, the Company and the Collateral Agent, and (2) the Membership Interest Pledge Agreement, dated as of the Closing Date, among the Company, CalGen Expansion Company and the Collateral Agent.
"PPA" means an agreement (including a tolling agreement, fuel conversion services agreement or other similar agreement) entered into by the Company or any of its Subsidiaries for the sale of capacity or energy (and services ancillary or related thereto) from one or more of the Facilities.
"PPA Recognition Agreement" means an agreement by the Collateral Agent, on behalf of the holders of Secured Obligations, (a) to assume, directly or indirectly (through any agent or Affiliate), the rights and obligations of the Company or any of its Subsidiaries under the WECC Fixed Price Gas Sale and Power Purchase Agreement in the event of a foreclosure under any Secured Debt Document, and (b) not to reject the WECC Fixed Price Gas Sale and Power Purchase Agreement in a proceeding under Bankruptcy Law (subject to applicable law and the discretion of the bankruptcy court), so long as Calpine Energy Services, L.P. is not then in default under the WECC Fixed Price Gas Sale and Power Purchase Agreement or the Index Based Gas Sale and Power Purchase Agreement, provided, that such PPA Recognition Agreement is substantially in the form of Exhibit B to the Collateral Trust Agreement.
"Private Placement Legend" means the legend set forth in Section 2.06(g)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture.
"Pro Forma" means, with respect to a calculation, that such calculation is made in accordance with Regulation S-X under the Securities Act and gives effect to all relevant modifications to Major Project Documents and other contractual arrangements that have been made prior to, or are being made on, the calculation date; provided, that in the case of a calculation for any period occurring prior to the Closing Date, all Major Project Documents and other contractual arrangements in effect on the Closing Date shall be deemed to have been in effect for the entirety of such period.

      "PUHCA" means the Public Utility Holding Company Act of 1935, as amended.

      "PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended.

      "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

      "QF" means a "qualifying cogeneration facility" as defined under the FPA,	

as amended by PURPA and Subpart B of Part 292 of the FERC's regulations.
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Closing Date, among the Initial Purchaser, the Company, CalGen Finance and the Guarantors.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent Global Note in the form of Exhibit A-1, for the Floating Rate Notes, or Exhibit A-2, for the Fixed Rate Notes, bearing the Global Note
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Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the applicable Regulation S Temporary Global Note upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary Global Note in the form of Exhibit B-1, for the Floating Rate Notes, or Exhibit B-2, for the Fixed Rate Notes, deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of Floating Rate Notes or Fixed Rate Notes, as applicable, initially sold in reliance on Rule 903 of Regulation S.
"Remedy Bar Lift Trigger Date" means, at any time after the occurrence and during the continuation of an event of default with respect to Second Priority Lien Debt, the earlier of (1) the date that is 180 days after the occurrence of such event of default and (2) the date of the commencement of any proceeding under Bankruptcy Law in respect of the Company or any Guarantor.
"Required First Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of First Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute First Priority Lien Debt,
in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, First Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Required Second Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of Second Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute Second Priority Lien Debt,
in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, Second Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Required Third Priority Debtholders" means, at any time, the holders of a majority in aggregate principal amount of:
(1) the aggregate outstanding principal amount of Third Priority Lien Debt (including outstanding letters of credit whether or not then available or drawn); plus
(2) other than in connection with an exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute Third Priority Lien Debt,
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in each case voting in accordance with the provisions set forth in Article 4 of the Collateral Trust Agreement. For purposes of this definition, Third Priority Lien Debt registered in the name of, or Beneficially Owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding.
"Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Period" means the 40-day distribution compliance period as defined in Regulation S.
"Revolving Loan Administrative Agent" means The Bank of Nova Scotia, as administrative agent under the Revolving Loan Agreement, together with its successors in such capacity.
"Revolving Loan Agreement" means the Amended and Restated Credit Agreement, dated as of the Closing Date, among the Company, the Guarantors, the Revolving Loan Administrative Agent and the agents and lenders thereunder, relating to $200.0 million in aggregate principal amount of revolving credit facilities, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
"Revolving Loans" means the principal of, and interest and premium (if any) on, Indebtedness of the Company incurred under the Revolving Loan Agreement.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.

      "S&P" means Standard and Poor's Ratings Group, or any successor rating
agency.

      "SEC" means the Securities and Exchange Commission.	

"Second Priority Debt Representative" means:
(1) in the case of the Second Priority Notes, the Second Priority Trustee;
(2) in the case of the Second Priority Term Loans, the Second Priority Term Loan Administrative Agent; or
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(3) in the case of any other Series of Second Priority Lien Debt, the trustee, agent or representative of the holders of such Series of Priority Lien Debt who maintains the transfer register for such Series of Second Priority Lien Debt and (a) is appointed as a Second Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Second Priority Lien Debt and (b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"Second Priority Indenture" means the Second Priority Indenture, dated as of the Closing Date, among the Company, CalGen Finance, the Guarantors and Wilmington Trust FSB, as trustee.
"Second Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Second Priority Lien Obligations.
"Second Priority Lien Cap" means, as of any date:
(1) the principal amount of Second Priority Notes issued on the Closing Date; plus
(2) the principal amount of all Indebtedness outstanding under the Second Priority Term Loan Agreement on the Closing Date, plus any Indebtedness outstanding under any other Credit Facility, all in an aggregate principal amount not to exceed the amount provided by clause
(1)(b) of the definition of Permitted Debt; less
(3) the amount of Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay any Second Priority Lien Debt; plus
(4) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (1) and (2); plus
(5) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500.0 million.
For purposes of this definition of Second Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"Second Priority Lien Debt" means:
(1) the Second Priority Notes;
(2) Indebtedness under the Second Priority Term Loan Agreement incurred on the Closing Date;
(3) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500.0 million;
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(4) Indebtedness under any other Credit Facility that is secured by a Second Priority Lien; and
(5) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Second Priority Lien Debt or any First Priority Lien Debt;
provided, that in the case of any Indebtedness referred to in clause (3), (4) or
(5) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Second Priority Debt Representative and the Collateral Agent, as "Second Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other Second Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable Second Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "Second Priority Lien Debt").
"Second Priority Lien Documents" means the Second Priority Notes, the related Subsidiary guarantees, the Second Priority Indenture, the Second Priority Term Loan Agreement, each agreement governing any other Series of Second Priority Lien Debt and all other agreements governing, securing or relating to any Second Priority Lien Obligations.
"Second Priority Lien Obligations" means the Second Priority Lien Debt and all other Obligations in respect of Second Priority Lien Debt.
"Second Priority Notes" means the Second Priority Secured Floating Rate Notes due 2010 issued by the Company and CalGen Finance on the Closing Date under the Second Priority Indenture.
"Second Priority Term Loan Administrative Agent" means Morgan Stanley Senior Funding, Inc., as administrative agent under the Second Priority Term Loan Agreement, together with its successors in such capacity.
"Second Priority Term Loan Agreement" means the Credit and Guaranty Agreement, dated as of the Closing Date, among the Company, the Guarantors and the Second Priority Term Loan Administrative Agent, relating to $100.0 million in aggregate principal amount of term loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
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"Second Priority Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Second Priority Term Loan Agreement.
"Second Priority Trustee" means the trustee under the Second Priority Indenture.
"Secured Debt" means First Priority Lien Debt, Second Priority Lien Debt and Third Priority Lien Debt.
"Secured Debt Documents" means the First Priority Lien Documents, the Second Priority Lien Documents and the Third Priority Lien Documents.
"Secured Debt Representatives" means each First Priority Debt Representative, each Second Priority Debt Representative and each Third Priority Debt Representative.
"Secured Obligations" means, collectively, all First Priority Lien Obligations, all Second Priority Lien Obligations and all Third Priority Lien Obligations.
"Secured Obligations Termination Date" means the date on which all Secured Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Secured Debt Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Secured Debt Documents), all commitments to extend credit under all Secured Debt Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Secured Debt Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Secured Parties" means the Collateral Agent and the holders of any Secured Obligations at any time outstanding.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated as of the Closing Date, among the Company, the Guarantors and the Collateral Agent.
"Security Documents" means the Security Agreement, the Pledge Agreements, the Mortgages, the Control Agreement, the Collateral Trust Agreement, each Sharing Confirmation and Lien Priority Confirmation, and all security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, control agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Agent, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms.
"Series of First Priority Lien Debt" means, severally, the First Priority Notes, the First Priority Term Loans, the Revolving Loans and each other issue or series of First Priority Lien Debt for which a single transfer register is maintained.
"Series of Junior Lien Debt" means, severally, each issue or series of Junior Lien Debt for which a single transfer register is maintained.
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"Series of Second Priority Lien Debt" means, severally, the Second Priority Notes, the Second Priority Term Loans and each other issue or series of Second Priority Lien Debt for which a single transfer register is maintained.
"Series of Secured Debt" means, severally, each Series of First Priority Lien Debt, each Series of Second Priority Lien Debt and each Series of Third Priority Lien Debt.
"Series of Third Priority Lien Debt" means, severally, the Notes and each other issue or series of Third Priority Lien Debt for which a single transfer register is maintained.
"Shared Facilities" means equipment, facilities, pipelines, permits, real estate rights, entitlements or other property that are shared or jointly used, owned or operated by the Company or any of its Subsidiaries and any owner of Expansion Assets.
"Shared Facilities Arrangement" means any arrangement that provides for the sharing, joint operation or use, common ownership, leasing or contingent use of Shared Facilities between the Company or any of its Subsidiaries and any owner of Expansion Assets or Toll Party (as defined below), and/or their respective lenders, including (1) agreements for the sharing or joint use or operation of Shared Facilities, (2) ownership of undivided interests in Shared Facilities as tenants in common or other similar forms of joint ownership, (3) leasing of Shared Facilities by the Company or any of its Subsidiaries to an owner of Expansion Assets, (4) ownership of Shared Facilities by a single purpose entity formed solely to own the Shared Facilities and owned by the Company or any of its Subsidiaries or jointly owned by the Company or any of its Subsidiaries and the owner of the Expansion Assets, (5) tolling agreements between the Company or any of its Subsidiaries and any other Person (the "Toll Party") with respect to a Facility's steam turbine, (6) granting of conditional or unconditional real estate rights for the construction, installation or use of Shared Facilities, and (7) Liens on the Shared Facilities or interests therein to secure any such arrangement; provided, that the Company will deliver to the Collateral Agent an Officer's Certificate to the effect that, and, with respect to items (c) and (d) below, a nationally recognized independent engineer will deliver a report concluding that (subject to customary assumptions and qualifications):
(a) the ownership, operation, leasing or use of such Shared Facilities by the owner of Expansion Assets (including the use of the steam turbine by the Toll Party) cannot unreasonably interfere with or otherwise materially adversely affect the operation of the Facility;
(b) the owner of the Facility (or another entity on such owner's behalf) continues to operate and maintain the Facility and the Shared Facilities;
(c) the costs of operating and maintaining the Shared Facilities are shared by the owner of the Facility and the owner of the Expansion Assets or the Toll Party, as applicable, on an equitable basis;
(d) the Shared Facilities and the entitlements related thereto are sufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, or, to the extent the Shared Facilities or the entitlements related thereto are insufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, the Facility will have priority with respect to such Shared Facilities or entitlements, so long as the Facility is operated within the requirements, operating restrictions and other limitations associated with such Shared Facilities or entitlements;
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(e) the holder of the Expansion Assets or the Toll Party, as applicable, will not have any rights with respect to the sale or other disposition of, or exercise of remedies with respect to, the Facility, so long as the Shared Facilities remain subject to the Shared Facilities Arrangements;
(f) each party waives the defense that an adequate remedy exists at law and affords the other party (and its lenders or agents on behalf of such lenders) the right to specifically enforce the agreement; and
(g) the owner of the Expansion Assets or the Toll Party, as applicable, cannot prevent a dismantling of the Facility and the receipt by the holders of the Secured Debt of the proceeds of the sale thereof, so long as (i) such owner or Toll Party, as applicable, is given an option to purchase the Shared Facilities at their Fair Market Value, as determined by appraisal, prior to dismantling of the Facility, (ii) such owner or Toll Party, as applicable, is given a right of first refusal to acquire the Shared Facilities in the event they are offered for sale in connection with the dismantling of the Facility, and (iii) the owner of the Facility cooperates with the owner of the Expansion Assets or the Toll Party, as applicable, in accommodating the continued use and operation of the Expansion Assets and the Shared Facilities to the maximum extent reasonably possible notwithstanding the dismantling of the Facility, including providing reasonable periods for and cooperating in the modification of the Shared Facilities.
"Sharing Confirmation" means, as to any Series of Secured Debt within a Class, the written agreement of the holders of such Series of Secured Debt, as set forth in the indenture or other agreement governing such Series of Secured Debt, for the enforceable benefit of all holders of each other existing and future Series of Secured Debt within such Class and each existing and future Secured Debt Representative therefor to be bound as set forth under Section 10.01.
"Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1 - 02 of Regulation S - X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Closing Date.
"Special Interest" means all liquidated damages then owing pursuant to the Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Affiliate Subordinated Indebtedness, Working Capital Facility Indebtedness or Third Party Subordinated Indebtedness.
"Subordination Terms" means the subordination terms set forth in Exhibit H.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any
39
contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof) .
"Subsidiary Guarantee" or "Note Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and on the Notes, executed pursuant to the provisions of this Indenture.
"Synthetic Lease Obligations" means all monetary obligations of a Person under (1) a so-called synthetic, off-balance sheet or tax retention lease or (2) an agreement for the use or possession of any property (whether real, personal or mixed) creating obligations which do not appear on the balance sheet of such person, but which, upon the insolvency or bankruptcy of such Person, would be characterized as Indebtedness of such Person (without regard to accounting treatment).
"Third Party Subordinated Indebtedness" means Indebtedness loaned to the Company by a Person other than an Affiliate of the Company; provided, that such Indebtedness (1) is contractually subordinated in right of payment and in all other respects to the Notes and all other Secured Obligations in accordance with the Subordination Terms, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (2) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the Notes, (3) provides for payment of interest thereon in the form of cash or additional Third Party Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (4) is otherwise subordinated in accordance with the Subordination Terms.
"Third Priority Debt Representative" means:
(1) in the case of the Notes, the Trustee; or
(2) in the case of any other Series of Third Priority Lien Debt, the trustee, agent or representative of the holders of such Series of Third Priority Lien Debt who maintains the transfer register for such Series of Third Priority Lien Debt and (a) is appointed as a Third Priority Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Third Priority Lien Debt and (b) has become a party to the Collateral Trust Agreement by executing a joinder in the form required under the Collateral Trust Agreement.
"Third Priority Lien" means a Lien granted pursuant to a Security Document to the Collateral Agent upon any property of the Company or any Guarantor to secure Third Priority Lien Obligations.
"Third Priority Lien Debt" means:
(1) the Notes;
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(2) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Third Priority Lien Debt or any First Priority Lien Debt or Second Priority Lien Debt; and
(3) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Third Priority Lien Debt having a notional amount not to exceed the aggregate principal amount of outstanding Third Priority Lien Debt;
provided, that, in the case of any Indebtedness referred to in clause (2) or (3) of this definition:
(a) such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document (or the lenders under such Indebtedness obtained an Officer's Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Secured Debt Document);
(b) on or before the date on which such Indebtedness is incurred by the Company or the applicable Subsidiary, such Indebtedness is designated by the Company, in an Officer's Certificate delivered to each Third Priority Debt Representative and the Collateral Agent, as "Third Priority Lien Debt" for the purposes of the Collateral Trust Agreement and the other Third Priority Lien Documents;
(c) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the holder of such Indebtedness and the applicable Third Priority Debt Representative to vote with respect to such Indebtedness in accordance with Article 4 of the Collateral Trust Agreement; and
(d) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness and all Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Company delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is "Third Priority Lien Debt").
"Third Priority Lien Documents" means, collectively, the Notes, the Subsidiary Guarantees, this Indenture, each agreement governing any other Series of Third Priority Lien Debt and all other agreements governing, securing or relating to any Third Priority Lien Obligations.
"Third Priority Lien Obligations" means the Third Priority Lien Debt and all other Obligations in respect of Third Priority Lien Debt.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note substantially in the form of Exhibit A attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in
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the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing Notes that do not bear the Private Placement Legend.
"U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act.
"Voting Group" means a group of one or more Series of Secured Debt that casts its votes as a combined group in connection with decisions made by holders of Secured Debt under the Collateral Trust Agreement.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"WECC Fixed Price Gas Sale and Power Purchase Agreement" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, dated as of the Closing Date, among Calpine Energy Services, L.P., the Company and the Facility Owners party thereto.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) will at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means the Working Capital Facility Agreement, dated as of the Closing Date, among Calpine, CalGen Holdings and the Company.
"Working Capital Facility Indebtedness" means Indebtedness incurred by the Company or any of its Subsidiaries under the Working Capital Facility; provided, that such Indebtedness has the terms (including subordination terms) set forth in Exhibit I.
"Zion Facility" means the facility described under "Business -- Power Generation -- Other -- Facility Descriptions -- Zion Facility" in the Offering Memorandum.
Section 1.02 Other Definitions.

                                                           Defined
                                                             in
Term                                                       Section
----                                                       -------
"Affiliate Transaction"..................................    4.11
"Asset Sale Offer".......................................    4.10
"Authentication Order"...................................    2.02
"Change of Control Offer"................................    4.15
"Change of Control Payment"..............................    4.15
"Change of Control Payment Date".........................    4.15	

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                                                           Defined
                                                             in
Term                                                       Section
----                                                       -------
"Covenant Defeasance"....................................    8.03
"DTC"....................................................    2.03
"Event of Default".......................................    6.01
"incur"..................................................    4.09
"Legal Defeasance".......................................    8.02
"Offer Amount"...........................................    3.09
"Paying Agent"...........................................    2.03
"Payment Default" .......................................    6.01
"Permitted Debt".........................................    4.09
"Purchase Date"..........................................    3.09
"Registrar"..............................................    2.03
"Restricted Payments"....................................    4.07	

Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes and the Subsidiary Guarantees means the Issuers and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include the singular;
(5) "will" shall be interpreted to express a command;
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(6) provisions apply to successive events and transactions;
(7) references to sections of or rules under the Securities Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time; and
(8) references in this Indenture to Sections, Exhibits and Schedules are to Sections of, and Exhibits and Schedules to, this Indenture.
ARTICLE 2.
THE NOTES
Section 2.01 Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication will be substantially in the form of Exhibit A or Exhibit B, as applicable. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Issuers and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form will be substantially in the form of Exhibit A or Exhibit B, as applicable (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06.
(c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S will be issued initially in the form of the Regulation S Temporary Global Note, which will be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its corporate trust office, as Custodian, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided. The Restricted Period will be terminated upon the receipt by the Trustee of (1) a written certificate from the Depositary, together with copies of certificates from Euroclear and Clearstream, certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a
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Private Placement Legend, all as contemplated by Section 2.06(b)), and (2) an Officer's Certificate from the Company stating that such Restricted Period has ended.
Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note will be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee will, upon receipt of written directions, cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided.
(d) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Clearsteam.
Section 2.02 Execution and Authentication.
One Officer of each Issuer must sign the Notes for the Issuers by manual or facsimile signature.
If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid.
A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee will, upon receipt of a written order of the Issuers signed by one Officer of each Issuer (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuers.
Section 2.03 Registrar and Paying Agent.
The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar.
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The Issuers initially appoint The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04 Paying Agent to Hold Money in Trust.
The Issuers will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of, or premium, if any, interest or Special Interest, if any, on, the Notes, and will notify the Trustee of any default by the Issuers in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) will have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee will serve as Paying Agent for the Notes.
Section 2.05 Holder Lists.
The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company will furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders and the Company shall otherwise comply with TIA Section 312(a).
Section 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. A Global Note will be exchangeable by the Issuers for Definitive Notes if:
(1) the Issuers deliver to the Trustee written notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuers within 120 days after the date of such notice from the Depositary;
(2) the Issuers in their sole discretion determine that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and deliver a written notice to such effect to the Trustee; provided, that in no event shall the Regulation S Temporary Global Note be exchanged by the Issuers for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or
(3) there has occurred and is continuing a Default or Event of Default with respect to the Notes.
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Upon the occurrence of any of the preceding events in (1), (2) or (3) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee in writing. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a); however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f).
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than the Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1).
(2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either:
(A) both:
(i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and
(ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or
(B) both:
(i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and
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(ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above;
provided, that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act.
Upon consummation of an Exchange Offer by the Company in accordance with
Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the applicable exchange agent of (i) the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes or (ii) the instructions contained in the agent's message received by such exchange agent through DTC's Automated Tender Offer Procedures, as applicable. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications, certificates and Opinion of Counsel required by item
(3) thereof, if applicable.
(4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(2) above and:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
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(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit D, including the certifications in item (1)(a) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit D, including the certifications in item (2)(a) thereof;
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(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit C, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit C, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h), and the Issuers shall execute and the Trustee shall authenticate upon receipt of an Authentication Order and deliver to the Person designated in such order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes. Notwithstanding Sections 2.06(c)(1)(A) and (C), a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904.
(3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial
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interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit D, including the certifications in item (1)(b) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2), the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h), and the Company will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will not bear the Private Placement Legend.
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(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit C, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit C, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit C, including the certifications in item
(3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C, including the certifications in item (3)(c) thereof,
the Trustee will cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note.
(2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:
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(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (1)(c) thereof; or
(ii) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note.
(3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Unrestricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an Unrestricted Global Note has not yet been issued, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee will authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.
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(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e).
(1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.
(2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Restricted Definitive Note proposes to exchange such Note for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit D, including the certifications in item (1)(d) thereof; or
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(ii) if the Holder of such Restricted Definitive Note proposes to transfer such Note to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of Unrestricted Definitive Notes. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate:
(1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company; and
(2) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and
(C) they are not affiliates (as defined in Rule 144) of the Company.
Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company will execute and the Trustee, upon receipt of an Authentication Order, will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.
(1) Private Placement Legend. Except as permitted by the paragraph immediately following the legend below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR
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THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS."
(A) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(3), (c)(4), (d)(2),
(d)(3), (e)(2) or (e)(3) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend.
(2) Global Note Legend. Each Global Note will bear a legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS
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HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY AND CALGEN FINANCE.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(3) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note will bear a legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(1) To permit registrations of transfers and exchanges, the Issuers will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request.
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(2) No service charge will be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05).
(3) The Registrar will not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.
(4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(5) The Issuers will not be required:
(A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under
Section 3.02 and ending at the close of business on the day of selection;
(B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
(6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes, and none of the Trustee, any Agent, the Company or CalGen Finance shall be affected by notice to the contrary.
(7) The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02.
(8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.
Section 2.07 Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Issuers and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuers will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or either Issuer, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers may charge the applicable Holder for their expenses in replacing a Note.
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Every replacement Note is an additional obligation of the Issuers and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.
If the principal amount of any Note is considered paid under Section 4.01, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest.
Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded.
Section 2.10 Temporary Notes.
Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Issuers will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes will be entitled to all of the benefits of this Indenture.
Section 2.11 Cancellation.
The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. Upon receipt of written directions, the Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes will be delivered to the Issuers. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation.
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Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01. The Company will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company will fix or cause to be fixed each such special record date and payment date, provided, that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
Section 2.13 Same Day Settlement and Payment.
The Issuers will make payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, and interest and Special Interest, if any) by wire transfer of immediately available funds to the accounts specified by the Holder of the Global Note. The Issuers will make all payments of principal, interest and premium and Special Interest, if any, with respect to Definitive Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the Definitive Notes or, if no such account is specified, by mailing a check to each such Holder's registered address.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised the Issuers that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01 [Reserved]
Section 3.02 Selection of Notes to Be Redeemed or Purchased.
If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes for redemption or purchase on a pro rata basis except:
(1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or
(2) if otherwise required by law.
In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior
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to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase.
The Trustee will promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase.
Section 3.03 Notice of Redemption.
Subject to the provisions of Section 3.09, at least 30 days but not more than 60 days before a redemption date, the Company will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Article 8 or 12 of this Indenture. Notices of redemption may not be conditional.
The notice will identify the Note(s) to be redeemed and will state:
(1) the redemption date;
(2) the redemption price;
(3) if any Note is to be redeemed in part only, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(6) that, unless the Issuers default in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee will give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 days prior to the redemption date, an Officer's Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.
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Section 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional.
Section 3.05 Deposit of Redemption or Purchase Price.
Not less than one Business Day prior to the redemption or purchase price date, the Issuers will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Special Interest, if any, on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest and Special Interest, if any, on, all Notes to be redeemed or purchased.
If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01.
Section 3.06 Notes Redeemed or Purchased in Part.
Upon surrender of a Note that is redeemed or purchased in part, the Issuers will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder, at the expense of the Company, a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered.
Section 3.07 Optional Redemption.
The Notes are not redeemable at the option of the Issuers.
Section 3.08 Mandatory Redemption.
The Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes.
Section 3.09 Offer to Purchase by Application of Net Proceeds.
In the event that, pursuant to Section 4.10, the Issuers are required or elect to commence an Asset Sale Offer, they will follow the procedures specified below.
Within 30 days following the receipt by the Company or any of its Subsidiaries of Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event, in the case of an Asset Sale Offer described in clause (1) of the second paragraph of Section 4.10, or upon completion of a prior required Asset Sale Offer (and any associated mandatory purchase, prepayment or redemption), in the case of an Asset Sale Offer described in clause (2) or (3) of the second paragraph of Section 4.10, the Issuers will mail a notice
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to the Trustee and each Holder regarding such Asset Sale Offer. The notice will contain all instructions and materials necessary to enable the Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state:
(1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10;
(2) the amount of Net Proceeds being offered to purchase Notes and other Third Priority Lien Obligations (the "Offer Amount"), the purchase price and the date on which the purchase will be made (the "Purchase Date"), which date will be no earlier than 30 and no later than 60 days from the date the notice is mailed;
(3) that any Note not tendered or accepted for payment will continue to accrue interest;
(4) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only;
(6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, the Depositary or the Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date;
(7) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than two Business Days before the Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;
(8) that, if the aggregate principal amount of Notes and other Third Priority Lien Obligations tendered in the Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the Offer Amount, the Company will select the Notes and other Third Priority Lien Obligations to be purchased, prepaid or redeemed on a pro rata basis based on the principal amount of Notes and such other Third Priority Lien Obligations tendered (or required to be purchased, prepaid or redeemed), with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased, prepaid or redeemed; and
(9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes and other Third Priority Lien Obligations or portions thereof tendered pursuant to the Asset Sale Offer (or required to be purchased, prepaid or redeemed), or if less than the Offer Amount has been tendered (or is required to be purchased, prepaid or redeemed), all Notes and other Third Priority Lien Obligations tendered (or required to be
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purchased, prepaid or redeemed), and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officer's Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this Section 3.09. Payment for any Notes so purchased will be made in the same manner as interest payments are made. The Issuers, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuers for purchase, and the Issuers will promptly issue a new Note, and the Trustee, upon written request from the Issuers, will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results of the Asset Sale Offer on the Purchase Date.
If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Special Interest, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 3.09 or Section 4.10, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under this Section 3.09 or Section 4.10 by virtue of such compliance.
Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.02 through 3.06.
ARTICLE 4.
COVENANTS
Section 4.01 Payment of Notes.
The Company will pay or cause to be paid the principal of, and premium, if any, interest and Special Interest, if any, on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, interest and Special Interest, if any, will be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest and Special Interest, if any, then due. The Company will pay all Special Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement.
The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency.
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The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03.
Section 4.03 Reports.
Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company will furnish to the Holders or cause the Trustee to furnish to the Holders, within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the Company were required to file such reports; and
(2) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports.
All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K will include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, following consummation of the Exchange Offer contemplated by the Registration Rights Agreement, the Company will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing or the Company has elected to pay Special Interest in lieu of complying with the registration requirements of the Registration Rights Agreement) and will post the reports on its website within those time periods.
If the Company is not subject to the periodic reporting requirements of the Exchange Act for any reason, the Company will nevertheless file the reports specified in the preceding paragraphs of this covenant with the SEC within the time periods specified above unless the SEC will not accept such a filing or the Company has elected to pay Special Interest in lieu of complying with the registration requirements of the Registration Rights Agreement. However, if the Company does not file any such reports with the SEC, the Company will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if the Company were required to file those reports with the SEC.
In addition, the Company and the Guarantors agree that, for so long as any Notes remain
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outstanding, if at any time they are not required to file with the SEC the reports required by the preceding paragraphs, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04 Compliance Certificate.
(a) The Issuers and each Guarantor (to the extent that such Guarantor is so required under the TIA) will deliver to the Trustee, within 90 days after the end of each fiscal year, an Officer's Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the other Notes Documents, and further stating, as to the Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the other Notes Documents and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or any other Note Document (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest or Special Interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(1) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Notes are outstanding, the Company will deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.
Section 4.05 Taxes.
The Company will pay, and will cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.
Section 4.06 Stay, Extension and Usury Laws.
The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the
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Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.07 Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly:
(1) (a) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Equity Interests in their capacity as such, including Permitted Tax Payments (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Guarantor), or (b) pay any Major Maintenance Expenses;
(2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness or any other Indebtedness of the Company or any of its Subsidiaries that is contractually subordinated to the Secured Obligations (excluding any intercompany Indebtedness between or among the Company and any of the Guarantors); or
(4) make any Restricted Investment;
(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless:
(A) such Restricted Payment is made from Excess Cash Flow generated since the Closing Date;
(B) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and
(C) at the time of making any such Restricted Payment that is not a payment on or with respect to, or a purchase, redemption, defeasance or other acquisition or retirement for value of, Subordinated Indebtedness, all amounts then due under all Subordinated Indebtedness have been paid in full; or
(5) use the proceeds of any Indebtedness under any revolving Credit Facility which is First Priority Lien Debt to prepay, repay or redeem the principal of any Second Priority Lien Debt or Third Priority Lien Debt.
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or the applicable Subsidiary, as the case may be, pursuant to the Restricted Payment.
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Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Subsidiaries;
(2) make loans or advances to the Company or any of its Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) this Indenture, the Notes and the Subsidiary Guarantees, the First Priority Notes and the related Subsidiary guarantees, the First Priority Indenture, the Second Priority Notes and the related Subsidiary guarantees and the Second Priority Indenture;
(2) agreements governing Credit Facilities as in effect on the Closing Date (including the First Priority Term Loan Agreement, the Second Priority Term Loan Agreement and the Revolving Loan Agreement) and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Closing Date;
(3) any applicable law, rule, regulation or order;
(4) customary non-assignment provisions in contracts, agreements, leases, permits or licenses entered into or issued in the ordinary course of business and consistent with past practices;
(5) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clauses (1) and (3) of the preceding paragraph;
(6) any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending the sale or other disposition;
(7) Permitted Refinancing Indebtedness; provided, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(8) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant contained in Section 4.12 that limit the right of the debtor to dispose of the assets subject to such Liens or to use the proceeds of any such disposition;
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(9) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements;
(10) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and
(11) provisions restricting or encumbering the sale or other disposition of Expansion Assets or the payment of dividends, distributions or similar payments made from cash flow derived exclusively from Expansion Assets, in each case pursuant to the terms of any Expansion Debt incurred pursuant to clause (3) of the definition of Permitted Debt; provided, that such encumbrance or restriction will not materially adversely affect the Company's ability to meet its obligations on the Notes when due, and, in the written opinion of the president, chief operating officer or chief financial officer of the Company, is required in order to obtain such Expansion Debt and is customary for financings of such type.
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Equity.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred equity.
The preceding paragraph will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company (and the guarantee by its Subsidiaries) of:
(a) Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1)(a) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed $800.0 million, less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events or Condemnation Events applied by the Company or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder; and
(b) Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount outstanding under this clause
(1)(b) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed $100.0 million, less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events applied by the Company or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder;
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(2) the incurrence by the Issuers and the Guarantors of Indebtedness represented by the First Priority Notes, the Second Priority Notes and the Notes to be issued on the Closing Date, the related Subsidiary guarantees and the other Obligations incurred under the Indentures on the Closing Date, and the Exchange Notes and the related Subsidiary guarantees to be issued pursuant to the Registration Rights Agreement;
(3) the incurrence by the Company or any of its Subsidiaries of Expansion Debt; provided, that:
(a) any Expansion Debt incurred by the Excluded Subsidiary is recourse only to the Expansion Assets financed with such Expansion Debt and to other Expansion Assets owned by the Excluded Subsidiary (including any rights of the Excluded Subsidiary under Shared Facilities Arrangements);
(b) if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved), at least 25% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(c) if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been less than 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved),
(i) at least 40% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness, and
(ii) after giving effect to such incurrence, the amount of Expansion Debt incurred pursuant to this clause (3), together with the aggregate amount of all other Expansion Debt then outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Expansion Debt incurred pursuant to this clause (3), does not exceed $250.0 million;
(4) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under clauses (2), (3), (4) or (10) of this paragraph;
(5) the incurrence by the Company or any Guarantor of intercompany Indebtedness between or among the Company and any Guarantor that is subordinated in right of payment to all Secured Obligations pursuant to a customary subordination agreement delivered to the Collateral
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Agent (together with all other documents or instruments required to effect such subordination and any other documents reasonably requested by the Collateral Agent in connection therewith), and is not secured other than by unperfected security interests; provided, however, that (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Guarantor and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Guarantor will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Guarantor, as the case may be, that was not permitted by this clause (5); and provided, further, that any such intercompany Indebtedness must be included in the Collateral;
(6) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations, in connection with Permitted Debt or otherwise, in the ordinary course of business and not for speculative purposes; provided, that (a) such Hedging Obligations have tenors that expire on or prior to the maturity date (or other expiration) of the underlying obligation being hedged, and (b) any such Hedging Obligations hedging or managing interest rate risk with respect to (i) First Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the First Priority Notes, (ii) Second Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the Second Priority Notes, or (iii) Third Priority Lien Debt have tenors that expire on or prior to the Stated Maturity of the Notes;
(7) the incurrence by the Company or any of its Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, and performance and surety bonds in the ordinary course of business;
(8) the incurrence by the Company or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days;
(9) the incurrence by the Company of (a) Affiliate Subordinated Indebtedness in an aggregate principal amount not to exceed $250.0 million at any one time outstanding and (b) Working Capital Facility Indebtedness in an aggregate principal amount not to exceed $750.0 million at any one time outstanding;
(10) the incurrence by the Company of Third Party Subordinated Indebtedness; provided, that:
(a) the net proceeds of the Third Party Subordinated Indebtedness are applied:
(i) to acquire all or substantially all of the assets of, or any Equity Interests in, a business that constitutes a Permitted Business; provided, that in the case of an acquisition of Equity Interests, the business is or becomes a Subsidiary of the Company and a Guarantor concurrently with such acquisition;
(ii) to make a capital expenditure;
(iii) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business; or
(iv) any combination of the foregoing; and
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(b) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Third Party Subordinated Indebtedness is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Third Party Subordinated Indebtedness had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved).
The Company will not incur, and will not permit any Subsidiary to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Subsidiary unless such Indebtedness is also contractually subordinated in right of payment to the Secured Obligations on substantially identical terms or on terms that are more favorable to the holders of the Secured Obligations; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company or any of its Subsidiaries solely by virtue of being unsecured or by virtue of being secured on a junior basis.
For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (10) above, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.09. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
Section 4.10 Asset Sales.
The Company will not, and will not permit any of its Subsidiaries to, consummate any Asset Sale unless:
(1) except with respect to an Asset Sale made pursuant to an Existing Purchase Option, the Company (or any of its Subsidiaries, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;
(2) at least 90% of the consideration received in the Asset Sale by the Company or such Subsidiary is in the form of cash. For purposes of this provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Subsidiary from further liability;
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(b) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Subsidiary into cash, to the extent of the cash received in that conversion; and
(c) in connection with the exercise by a purchaser of an Existing Purchase Option, any amount owed by the Company or the applicable Subsidiary to the purchaser under the agreement containing such Existing Purchase Option that is set off by the purchaser against the purchase price;
(3) if the assets disposed of in such Asset Sale include any component of a Facility that is necessary for the operation of such Facility, the Asset Sale involves the disposition of such Facility as a whole; and
(4) if the Asset Sale involves the sale of a Facility or all or substantially all the assets of a Facility, (a) such Asset Sale is to a Person other than an Affiliate of the Company, and (b) all necessary amendments are made to those Major Project Documents applicable to such Facility to remove such Facility from the scope of such Major Project Documents.
The Company and its Subsidiaries will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event to make an offer (an "Asset Sale Offer"):
(1) first, to all holders of First Priority Notes and all holders of other First Priority Lien Obligations (to the extent required under the applicable First Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of First Priority Notes and such other First Priority Lien Obligations that may be purchased, prepaid or redeemed out of such Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of First Priority Lien Obligations required under any First Priority Lien Document);
(2) second, if any such Net Proceeds remain after the offer to holders of First Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations) in accordance with clause (1) above, to all holders of Second Priority Notes and all holders of other Second Priority Lien Obligations (to the extent required under the applicable Second Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of Second Priority Notes and such other Second Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations required under any Second Priority Lien Document); and
(3) third, if any such Net Proceeds remain after the offer to holders of First Priority Lien Obligations and Second Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations and Second Priority Lien Obligations) in accordance with clauses (1) and (2) above, to all holders of Notes and all holders of other Third Priority Lien Obligations (to the extent required under the applicable Third Priority Lien Documents) to purchase, prepay or redeem the maximum principal amount of Notes and such other Third Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Third Priority Lien Obligations required under any Third Priority Lien Document).
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The Issuers may, at their sole option, make an Asset Sale Offer in accordance with the priorities described above with the net proceeds from any sale, lease, conveyance or other disposition of any assets or rights not constituting an Asset Sale. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, and will be payable in cash. If any of such Net Proceeds remain after consummation of the Asset Sale Offer, the Company and its Subsidiaries may use those excess Net Proceeds for any purpose not otherwise prohibited by this Indenture, including the making of Restricted Payments in accordance with Section 4.07. If the aggregate principal amount of Notes and other Third Priority Lien Obligations tendered into such Asset Sale Offer or required to be purchased, prepaid or redeemed exceeds the amount of Net Proceeds available therefor, the Issuers will purchase, prepay or redeem Notes and such other Third Priority Lien Obligations on a pro rata basis based on the principal amount of Notes and such other Third Priority Lien Obligations tendered (or required to be purchased, prepaid or redeemed), with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased, prepaid or redeemed. The Issuers will comply with the procedures set forth in
Section 3.09 with respect to any Asset Sale Offer.
Section 4.11 Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction, taken as a whole with all other related Affiliate Transactions, is on terms that are no less favorable to the Company and its Subsidiaries, taken as a whole, than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee (other than with respect to a Shared Facilities Arrangement between or among the Company and/or any of its Subsidiaries):
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million but less than or equal to $25.0 million, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, a positive opinion as to the Fair Market Value of such Affiliate Transaction issued by an accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement, employee benefit plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Subsidiaries in the ordinary course of business;
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(2) transactions between or among the Company and/or any of the Guarantors (other than Shared Facility Arrangements);
(3) transactions with a Person that is an Affiliate of the Company (but not a Subsidiary of the Company) solely because the Company owns, directly or through a Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company;
(5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; provided, that such Equity Interests are included in the Collateral;
(6) Restricted Payments that do not violate Section 4.07;
(7) loans or advances to employees in the ordinary course of business not to exceed $1.0 million in the aggregate at any one time outstanding;
(8) Permitted Tax Payments;
(9) transactions under or pursuant to written agreements with Affiliates of the Company in place as of the Closing Date or any amendment or modification thereto, so long as any such amendment or modification meets the requirements of clause (10) or (11) of this paragraph;
(10) any amendments or modifications of, or waivers under, any written agreement described under clause (9) of this paragraph that is not a Major Project Document; provided, that no such amendment, modification or waiver alters any such agreement in a manner that is materially adverse to the Holders;
(11) any amendments or modifications of, or waivers under, any Major Project Document, which are permitted by Section 4.13 and are on terms that are no less favorable to the Company or its relevant Subsidiary (as certified to the Trustee in an Officer's Certificate) than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person; and
(12) any agreement to do any of the foregoing.
Section 4.12 Liens.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens.
Section 4.13 Business Activities.
The Company will not, and will not permit any of its Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole.
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The Company will, and will cause its Subsidiaries to, perform all their obligations under the Major Project Documents, and the Company will not, and will not permit any of its Subsidiaries to, terminate, amend or otherwise modify, or consent to any termination, amendment or modification of, or grant any waiver under, any Major Project Document, unless any failure to so perform or any such termination, amendment, modification or waiver would not, when taken together with all other such failures to perform, terminations, amendments, modifications and waivers since the Closing Date, be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Company; provided, however, that the provisions of this paragraph will not apply to any amendment, modification or termination of any Major Project Document required under this Indenture in connection with an Asset Sale.
The Company will, and will cause its Subsidiaries to, obtain and maintain all permits and approvals necessary for the construction and operation of the Facilities, including applicable exemptions from PUHCA, unless the failure to do so would not reasonably be expected to have a Material Adverse Effect.
The Company will not, and will not permit any of its Subsidiaries to, use or dispose of any hazardous materials or allow any hazardous materials to be brought onto or stored or used on or transported to or released from the Facilities, other than in accordance with prudent industry practices and in compliance with all applicable environmental laws, except to the extent such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
Section 4.14 Corporate Existence.
Subject to Article 5, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect:
(1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and
(2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company will not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.15 Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes repurchased, to, but excluding, the date of purchase (the "Change of Control Payment"), subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Notes tendered will be accepted for payment;
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(2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date");
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Issuers default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and
(7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change in Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Sections 4.15, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under this Section 4.15 by virtue of such compliance.
(b) On the Change of Control Payment Date, the Issuers will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so properly accepted together with an Officer's Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuers.
The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee, at the written request of the Company, will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each new Note will be in a principal amount of $1,000 or an integral multiple thereof.
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The Issuers will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Issuers to make a Change of Control Offer following a Change in Control will be applicable whether or not any other provisions of this Indenture are applicable. Except as described above with respect to a Change in Control, this Indenture does not contain provisions that permit the Holders to require that the Issuers repurchase or redeem the Notes in event of a takeover, recapitalization or similar transaction.
(c) Notwithstanding anything to the contrary in this Section 4.15, the Issuers will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this
Section 4.15 and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer.
Section 4.16 Limitation on Issuances and Sales of Equity Interests in Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Subsidiary of the Company to any Person (other than the Company or a Guarantor), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Subsidiary; and
(2) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10.
In addition, the Company will not permit any Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Guarantor.
Section 4.17 Payments for Consent.
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of any Note Document unless such consideration is offered to be paid and is paid to all Holders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Section 4.18 Restrictions on Activities of CalGen Finance.
CalGen Finance will not hold any material assets, become liable for any material obligations or engage in any significant business activities; provided, that CalGen Finance may be a co-obligor or guarantor with respect to Indebtedness if the Company is an obligor on such Indebtedness and the net proceeds of such Indebtedness are received by the Company, CalGen Finance or one or more of the Company's other Subsidiaries.
Section 4.19 Deposit of Revenues.
The Company will, and will cause its Subsidiaries to, deposit all revenues received by the Company and its Subsidiaries, within 10 Business Days of receipt thereof, in the "Revenue Account"
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established under the Control Agreement. Notwithstanding the foregoing, Excess Cash Flow may be distributed in accordance with Section 4.07.
Section 4.20 Additional Subsidiaries.
If the Company or any of its Subsidiaries acquires or creates another Subsidiary after the Closing Date, then (1) that newly acquired or created Subsidiary will become a Guarantor and execute a supplemental indenture in the form of Exhibit G and deliver an Opinion of Counsel reasonably satisfactory to the Trustee within 30 days of the date on which it was acquired or created, and
(2) all real and personal property of that Subsidiary will become part of the Collateral within 30 days of the date on which that Subsidiary was acquired or created pursuant to documentation (including Security Documents, financing statements, opinions and other documents) reasonably satisfactory to the Trustee and the Collateral Agent.
Section 4.21 Maintenance of Insurance.
The Company will, and will cause its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance on their property and assets (including the Collateral), in at least such amounts, with such deductibles and against at least such risks as is customary for companies of the same or similar size engaged in the same or similar businesses as those of the Company and its Subsidiaries and furnish to the Collateral Agent, upon written request, full information as to such Persons' property and liability insurance carriers. The Company will, and will cause the Guarantors to, cause all their insurance policies to name the Secured Parties, as a class, as additional insureds, with a waiver of subrogation, and shall cause all their property and casualty policies to name the Collateral Agent as loss payee (together with other lien holders as their interests may appear), with 30 days notice of cancellation or material change.
Section 4.22 Changes in Covenants when Notes Rated Investment Grade.
If on any date following the Closing Date:
(1) after giving effect to the suspension of covenants (and the Event of Default) described below, the Notes are rated Baa3 or better by Moody's and BBB- or better by S&P; and
(2) no Default or Event of Default shall have occurred and then be continuing,
then, beginning on that day and subject to the provisions of the following paragraph, the covenants (and the Event of Default) of this Indenture specifically listed below will be suspended:
(a) Section 4.07 (Restricted Payments);
(b) Section 4.08 (Dividend and Other Payment Restrictions Affecting Subsidiaries);
(c) Section 4.09 (Incurrence of Indebtedness and Issuance of Preferred Equity);
(e) Section 4.10 (Deposit of Revenues);
(d) Section 4.13 (Business Activities); and
(f) clause (9) under Section 6.01 (Events of Default).
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Notwithstanding the foregoing, if the rating assigned to the Notes by either Moody's or S&P should subsequently decline to below Baa3 or BBB-, respectively, the foregoing covenants (and the Event of Default) will be reinstituted with respect to the Notes as of and from the date of such rating decline. Calculations under reinstated Section 4.07 will be made as if such covenant had been in effect since the Closing Date except that no Default will be deemed to have occurred solely by reason of a Restricted Payment made while such covenant was suspended.
ARTICLE 5.
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of Assets.
The Company will not, directly or indirectly:
(1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole, in one or more related transactions, to another Person; or
(3) lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person.
This Section 5.01 will not apply to (A) a merger of the Company with an Affiliate solely for the purpose of reconstituting the Company in another jurisdiction or (B) any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Company and the Guarantors.
Notwithstanding the foregoing, the Company is permitted to reorganize as a corporation in accordance with the procedures established herein, provided, that the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that such reorganization is not adverse to Holders (it being recognized that such reorganization shall not be deemed adverse to the Holders solely because (i) of the accrual of deferred tax liabilities resulting from such reorganization or
(ii) the successor or surviving corporation (a) is subject to income tax as a corporate entity or (b) is considered to be an "includable corporation" of an affiliated group of corporations within the meaning of the Internal Revenue Code of 1986, as amended or any similar state or local law), and the Company delivers to the Trustee such other certificates and other documents reasonably requested by the Trustee in connection therewith.
Section 5.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole in a transaction that is subject to, and that complies with the provisions of, Section 5.01, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay
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the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
Each of the following is an "Event of Default":
(1) default for 30 days in the payment when due of interest on, or Special Interest, if any, with respect to, any of the Notes;
(2) default in the payment when due of the principal of, or premium, if any, on any of the Notes ;
(3) failure by the Company or any of its Subsidiaries to comply with the covenants contained in Sections 3.09, 4.10, 4.15 and 4.19;
(4) failure by the Company or any of its Subsidiaries for 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes to comply with any of the agreements in this Indenture or the Security Documents;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee existed on the Closing Date or is created after the Closing Date, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or the applicable Subsidiary becoming aware of such default;
(6) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $25.0 million (excluding those covered by insurance), which judgments are not paid, discharged or stayed for a period of 60 days;
(7) the repudiation by CalGen Holdings, the Company or any of its Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against CalGen Holdings, the Company or any of its Subsidiaries for any reason;
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provided, that such repudiation or unenforceability relates to Collateral with a Fair Market Value of $25.0 million or more;
(8) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee, and such condition shall not have been cured within 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes;
(9) breach by any Person (other than the Company or any of its Subsidiaries) of its obligations under, or termination or failure to be in full force and effect of, a Major Project Document (unless such breach, termination or failure to be in full force and effect would not, when taken together with all other such breaches, terminations or failures since the Closing Date (other than those that have been cured as contemplated below, including by entering into a replacement agreement), be Materially Adverse, as evidenced by an Officer's Certificate of the chief financial officer of the Company), unless with respect to any Major Project Document such breach is cured, or such Major Project Document is replaced with a substantially similar agreement (it being understood that
(a) an agreement will be considered substantially similar if it would not be Materially Adverse and (b) the use of an Affiliate of the Company as the counterparty under an agreement replacing the Index Hedge will not by itself be considered Materially Adverse), within 60 days (or 120 days with respect to the Index Hedge) thereafter; and
(10) the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, pursuant to or within the meaning of Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an involuntary case,
(c) consents to the appointment of a custodian of it or for all or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) generally is not paying its debts as they become due; or
(11) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(a) is for relief against the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, in an involuntary case;
(b) appoints a custodian of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary; or
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(c) orders the liquidation of the Company, any of its Subsidiaries that is a Significant Subsidiary or any group of its Subsidiaries that taken together would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days;
Section 6.02 Acceleration.
In the case of an Event of Default specified in clause (10) or (11) of
Section 6.01, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately.
The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of all of the Holders, rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium or Special Interest, if any, that has become due solely because of the acceleration) have been cured or waived.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest and Special Interest, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults.
Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of the Holders of all of the Notes, waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Special Interest, if any, or interest on, the Notes (including in connection with an offer to purchase). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.05 Control by Majority.
Subject to the provisions of the Collateral Trust Agreement, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability.
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Section 6.06 Limitation on Suits.
Except to enforce the right to receive payment of principal, premium, if any, or interest or Special Interest, if any, when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of Default is continuing;
(2) Holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested that the Trustee pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and
(5) Holders of a majority in aggregate principal amount of the Notes then outstanding have not given the Trustee a direction inconsistent with such request within such 60-day period.
A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.
Section 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Special Interest, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided, that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Special Interest, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor
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upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10 Priorities.
Subject to the provisions of the Collateral Trust Agreement, if the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under Section 7.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Special Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Special Interest, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07, or a suit by Holders of more than 10% in aggregate principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01 Duties of Trustee.
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(a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section 7.01.
(e) No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holder, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02 Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in
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good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company will be sufficient if signed by an Officer of the Company.
(f) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
(g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder unless and until the Trustee shall have received from a Holder of a Note or from the Company written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Even of Default hereunder.
(h) If the Trustee is acting as Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Paying Agent and Registrar.
Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after determining such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.04 Trustee's Disclaimer.
The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults.
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If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium or Special Interest, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06 Reports by Trustee to Holders of the Notes.
(a) Within 60 days after each May 15 beginning with the May 15 following the Closing Date, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA Section
313(b)(2). The Trustee will also transmit by mail all reports as required by TIA
Section 313(c).
(b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company will promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07 Compensation and Indemnity.
(a) The Company will pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation will not be limited by any law on compensation of a trustee of an express trust. The Company will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel.
(b) The Company and the Guarantors will indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture and any other Note Documents to which it is a party, including the costs and expenses of enforcing this Indenture and any other Note Documents to which it is a party against the Company and the Guarantors (including this
Section 7.07) and defending itself against any claim (whether asserted by the Company, the Guarantors, any Holder or any other Person) or liability, loss or expense incurred by it in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith as finally determined by a court of competent jurisdiction. The Trustee will notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company will not relieve the Company or any of the Guarantors of their obligations hereunder. The Company or such Guarantor will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Company will pay the reasonable fees and expenses of such counsel. Neither the Company nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld.
(c) The obligations of the Company and the Guarantors under this Section 7.07 will survive the satisfaction and discharge of this Indenture.
(d) To secure the Company's payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in
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trust to pay principal of and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture.
(e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(10) or (11) occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
(f) The Trustee will comply with the provisions of TIASection313(b)(2) to the extent applicable.
Section 7.08 Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a custodian or public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee, provided, that all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07.
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Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 will continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act will be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and (i) in the case of the initial Trustee, that also satisfies the eligibility requirements for a trustee under the TIA and (ii) in the case of any successor Trustee, that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition.
This Indenture will always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b).
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at their option at any time, elect to have either Section 8.02 or 8.03 be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.02 Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.02, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04, be deemed to have been discharged from their obligations with respect to all outstanding Notes (including the Subsidiary Guarantees) on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Issuers and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (including the Subsidiary Guarantees), which will thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes, the Subsidiary Guarantees and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder:
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(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium or Special Interest, if any, on such Notes when such payments are due from the trust referred to in Section 8.04;
(2) the Issuers' obligations with respect to such Notes under Article 2 and Section 4.02;
(3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers' and the Guarantors' obligations in connection therewith; and
(4) this Article 8.
Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of their option under Section 8.03.
Section 8.03 Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.03, the Issuers and the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20 and 4.21 with respect to the outstanding Notes on and after the date the conditions set forth in
Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes may not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Subsidiary Guarantees, the Issuers and the Guarantors may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under Section 6.01, but, except as specified above, the remainder of this Indenture and such Notes and Subsidiary Guarantees will be unaffected thereby. In addition, upon the Issuers' exercise under Section 8.01 of the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04, Sections 6.01(3) through 6.01(5) will not constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03:
(1) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium and Special Interest, if any, on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Issuers must specify whether the Notes are being defeased to maturity or to a particular redemption date;
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(2) in the case of an election under Section 8.02, the Issuers must have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that:
(A) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling; or
(B) since the Closing Date, there has been a change in the applicable federal income tax law;
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of an election under Section 8.03, the Issuers have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(6) the Issuers must deliver to the Trustee an Officer's Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders of Notes over the other creditors of the Issuers with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and
(7) the Issuers must deliver to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in
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respect of principal, premium and Special Interest, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.
Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Issuers from time to time upon the request of the Issuers any money or non-callable Government Securities held by them as provided in Section 8.04 which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1)), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium and Special Interest, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium and Special Interest, if any, or interest has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuers as trustee thereof, will thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuers.
Section 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03, as the case may be, by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, then the Issuers' and the Guarantors' obligations under this Indenture, the Notes and the Subsidiary Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03, as the case may be; provided, however, that, if the Issuers make any payment of principal of, premium or Special Interest, if any, or interest on any Note following the reinstatement of their obligations, the Issuers will be subrogated to the rights of the Holder of such Note to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Notes.
Notwithstanding Section 9.02, the Issuers, the Guarantors and the Trustee may, without the consent of any Holder, amend or supplement this Indenture, the Subsidiary Guarantees or the Notes:
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(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to provide for the assumption of the Issuers' obligations to the Holders of the Notes by a successor to the Issuers pursuant to Article 5;
(4) to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights hereunder of any Holder;
(5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;
(6) to make, complete or confirm any grant of Collateral permitted or required by this Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Indenture or any of the Security Documents;
(7) to conform the text of this Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the "Description of Notes" section contained in the Offering Memorandum to the extent that such provision in such "Description of Notes" section was intended to be a verbatim recitation of a provision of this Indenture, the Subsidiary Guarantees, the Security Documents or the Notes; or
(8) to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G and/or a Subsidiary Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee will join with the Company and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Section 3.09, 4.10 and 4.15), the Subsidiary Guarantees and the Notes with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium or Special Interest, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02.
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Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee will join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental indenture.
It will not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than the provisions of Sections 3.09, 4.10 and 4.15);
(3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;
(4) waive a Default or Event of Default in the payment of principal of, or premium, interest or Special Interest, if any, on, the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of this Indenture relating to waivers of Defaults or Events of Default or the rights of Holders of Notes to receive payments of principal of, or interest, premium or Special Interest, if any, on the Notes;
(7) waive a redemption payment with respect to any Note (other than a payment required under Section 4.10 or Section 4.15);
(8) release any Guarantor from any of its payment obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture;
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(9) release any portion of the Collateral from the Liens created by the Security Documents except as specifically provided for in this Indenture and the Security Documents; or
(10) make any change in the preceding amendment and waiver provisions.
Section 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes will be set forth in an amended or supplemental indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
Section 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee will sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01) will be fully protected in relying upon, in addition to the documents required by Section 13.04, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10.
COLLATERAL AND SECURITY
Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Secured Debt Within a Class.
Notwithstanding:
(1) anything to the contrary contained in the Security Documents;
(2) the time of incurrence of any Series of Secured Debt within a Class;
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(3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt within such Class;
(4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral;
(5) the time of taking possession or control over any Collateral; or
(6) the rules for determining priority under any law governing relative priorities of Liens:
(a) all Liens at any time granted by the Company or any Guarantor to secure any of the Secured Debt within such Class will secure, equally and ratably, all present and future Secured Obligations within such Class; and
(b) all proceeds of all Liens at any time granted by the Company or any Guarantor to secure any of the Secured Debt and other Secured Obligations within such Class will be allocated and distributed equally and ratably on account of the Secured Debt and other Secured Obligations within such Class; provided, that in the absence of an Event of Default, subject to the requirements set forth in Sections 3.09 and 4.10, the Company and the Guarantors shall be entitled to utilize cash proceeds of Collateral in the ordinary course of their business.
The foregoing provision is intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of Secured Obligations within the applicable Class, each present and future Secured Debt Representative therefor and the Collateral Agent as holder of Secured Obligations within such Class. The Secured Debt Representative of each future Series of Secured Debt within a Class will be required to deliver a Sharing Confirmation to the Collateral Agent and the Trustee at the time of incurrence of such Series of Secured Debt.
Section 10.02 Class Voting.
With respect to any vote to be cast by the Trustee on behalf of the Holders in accordance with Article 4 of the Collateral Trust Agreement, the Trustee will vote all of such Notes as directed by the Holders of a majority in aggregate principal amount of the outstanding principal amount of Notes. For purposes of such direction to the Trustee, Notes registered in the name of, or Beneficially Owned by, the Company or an Affiliate of the Company will be deemed not to be outstanding.
Section 10.03 Ranking of Note Liens.
Notwithstanding:
(1) anything to the contrary contained in the Security Documents;
(2) the time of incurrence of any Series of Secured Debt;
(3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt;
(4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral;
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(5) the time of taking possession or control over any Collateral; or
(6) the rules for determining priority under any law governing relative priorities of Liens,
all Liens at any time granted by the Company or any Guarantor to secure any of the Third Priority Lien Obligations will be subject and subordinate to (1) all First Priority Liens securing First Priority Lien Debt up to the First Priority Lien Cap and all related First Priority Lien Obligations and (2) all Second Priority Liens securing Second Priority Lien Debt up to the Second Priority Lien Cap and all related Second Priority Lien Obligations.
The foregoing provision is intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of First Priority Lien Obligations or Second Priority Lien Obligations, each present and future First Priority Debt Representative and Second Priority Debt Representative and the Collateral Agent as holder of First Priority Liens and Second Priority Liens. No other Person will be entitled to rely on, have the benefit of or enforce this provision. The Third Priority Debt Representative for each future Series of Third Priority Lien Debt will be required to deliver a Lien Priority Confirmation to the collateral agent, each First Priority Debt Representative and each Second Priority Debt Representative at the time of incurrence of such Series of Third Priority Lien Debt.
In addition, the foregoing provision is intended solely to set forth the relative ranking, as Liens, of the Liens securing Third Priority Lien Debt as against the First Priority Liens and Second Priority Liens. Neither the Notes nor any other Third Priority Lien Obligations nor the exercise or enforcement of any right or remedy for the payment or collection thereof are intended to be, or will ever be by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced.
Section 10.04 Relative Rights.
Nothing in the Note Documents will:
(1) impair, as between the Company and the holders of the Notes, the obligation of the Company to pay principal of, premium and interest, if any, on the Notes in accordance with their terms or any other obligation of the Company or any other obligor under the Note Documents;
(2) affect the relative rights of holders of Notes as against any other creditors of the Company or any Guarantor (other than holders of other Secured Obligations);
(3) restrict the right of any holder of Notes to sue for payments that are then due and owing (but not enforce any judgment in respect thereof against any Collateral to the extent specifically prohibited by the provisions of the Collateral Trust Agreement);
(4) restrict or prevent any holder of Notes, the Trustee, the Collateral Agent or other Person on their behalf from exercising any of its rights or remedies upon a Default or Event of Default not specifically restricted or prohibited by the Collateral Trust Agreement; or
(5) restrict or prevent any Holder of Notes, the Trustee, the Collateral Agent or any other Person on their behalf from taking any lawful action in an insolvency or liquidation proceeding not specifically restricted or prohibited by the Collateral Trust Agreement.
Section 10.05 Release of Security Interest in Respect of Notes.
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The Collateral Agent's Liens upon the Collateral shall no longer secure the Notes or any other Note Obligations, and the right of the holders of the Notes and such Note Obligations to the benefits and proceeds of the Collateral Agent's Liens on Collateral shall terminate and be discharged:
(1) upon satisfaction and discharge of this Indenture in accordance with Article 12;
(2) upon a Legal Defeasance or Covenant Defeasance of the Notes in accordance with Article 8; or
(3) upon payment in full and discharge of all Notes and other Note Obligations that are outstanding under this Indenture, due and payable under this Indenture at the time those Notes are paid in full and discharged.
Upon the occurrence of any of the events described in clauses (1), (2) and (3) above, the Trustee will authorize the Collateral Agent to release the Liens on the Collateral securing the Notes.
ARTICLE 11.
SUBSIDIARY GUARANTEES
Section 11.01 Guarantee.
(a) Subject to this Article 11 and the limitations set forth in Section 13.07, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(1) the principal of, premium and Special Interest, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest and Special Interest, if any, on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and
(2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
(b) Subject to the limitations set forth in Section 13.07, the Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands
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whatsoever and covenant that this Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture.
(c) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect.
(d) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee.
Section 11.02 Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance.
Section 11.03 Execution and Delivery of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form attached as Exhibit F will be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture will be executed on behalf of such Guarantor by one of its Officers.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 will remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee will be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors.
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In the event that the Company creates or acquires any Subsidiary after the Closing Date, if required by Section 4.21, the Company will cause such Subsidiary to comply with the provisions of Section 4.21 and this Article 11, to the extent applicable.
Section 11.04 Guarantors May Consolidate, etc., on Certain Terms.
Except as otherwise provided in Section 11.05, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, except as permitted by Section 4.10.
In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture in the form of Exhibit G, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or will prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor.
Section 11.05 Releases Following Sale of Assets.
In the event of any sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) the Company or a Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the Person acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided, that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10. Upon delivery by the Company to the Trustee of an Officer's Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation
Section 4.10, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee.
Any Guarantor not released from its obligations under its Subsidiary Guarantee will remain liable for the full amount of principal of and interest and premium and Special Interest, if any, on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11.
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ARTICLE 12.
SATISFACTION AND DISCHARGE
Section 12.01 Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Issuers) have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Issuers have or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Special Interest, if any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the date of such deposit or will occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Issuers are or any Guarantor is a party or by which the Issuers are or any Guarantor is bound;
(3) the Issuers have or any Guarantor has paid or caused to be paid all sums payable by it under this Indenture; and
(4) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be.
In addition, the Issuers must deliver an Officer's Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section 12.01, the provisions of Section 12.02 and Section 8.06 will survive. In addition, nothing in this Section 12.01 will be deemed to discharge those provisions of Section 7.07, that, by their terms, survive the satisfaction and discharge of this Indenture.
Section 12.02 Application of Trust Money.
Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 12.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including either Issuer acting
102
as Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium and Special Interest, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 12.01 by reason of any legal proceeding or by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, the Company's and any Guarantor's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.01; provided, that if the Issuers have made any payment of principal of, premium or Special Interest, if any, or interest on any Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent.
ARTICLE 13.
MISCELLANEOUS
Section 13.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section318(c), the imposed duties will control.
Section 13.02 Notices.
Any notice or communication by the Issuers, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), facsimile or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company, CalGen Finance and/or any Guarantor:
Calpine Generating Company, LLC CalGen Finance Corp.
50 West San Fernando Street, 5th Floor San Jose, California 95113 Facsimile No.: (408) 995-0505 Attention: Chief Financial Officer
With a copy to:
Covington & Burling
1330 Avenue of the Americas New York, New York 10019 Facsimile No.: (212) 841-1010 Attention: Bruce Bennett
If to the Trustee:
Wilmington Trust, FSB
c/o Wilmington Trust Company
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1100 North Market Street Rodney Square North
Wilmington, Delaware 19890-1615 Facsimile No.: (302) 636-4145 Attention: Kristin Long
With a Copy to:
Nixon Peabody LLP
437 Madison Avenue
24th Floor
New York, New York 10022 Facsimile No.: (866) 947-2203 Attention: Bart Pisella
The Company, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if sent by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it will mail a copy to the Trustee and each Agent at the same time.
Section 13.03 Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 13.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
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(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 13.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:
(1) a statement that the Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
Section 13.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 13.07 Non-Recourse; No Personal Liability of Directors, Officers, Employees and Stockholders.
Notwithstanding anything to the contrary set forth in this Indenture, the Notes, any Security Document or any other Note Document, the Notes and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a Holder will have with respect to the payment of principal of, or interest or premium on, the Notes (whether under the Indenture or the Notes, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under this Indenture or against the Collateral pursuant to the Security Documents. The Holders will have no recourse to the equity or assets of the Excluded Subsidiary.
No director, officer, employee, incorporator, stockholder, or partner of the Company or any of its Subsidiaries, as such, will have any liability for any obligations of the Issuers or any of its Subsidiaries under the Notes, this Indenture, the Subsidiary Guarantees or the Security Documents, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Section 13.08 Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES
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WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 13.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 13.10 Successors.
All agreements of the Issuers in this Indenture and the Notes will bind their respective successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 11.05.
Section 13.11 Severability.
In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.
Section 13.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement.
Section 13.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of March 23, 2004
CALPINE GENERATING COMPANY, LLC

By:  /s/ ZAMIR RAUF
     -----------------------------------
     Name:  Zamir Rauf
     Title: Vice President	

CALGEN FINANCE CORP.

By:  /s/ ZAMIR RAUF
     -----------------------------------
     Name:  Zamir Rauf
     Title: Vice President	

107
THE GUARANTORS:
CALGEN EXPANSION COMPANY, LLC
CPN FREESTONE, LLC
CALPINE FREESTONE, LLC
CALPINE FREESTONE ENERGY GP, LLC
CALPINE CHANNEL ENERGY CENTER LP, LLC
CALPINE CHANNEL ENERGY CENTER GP, LLC
CHANNEL POWER GP, LLC
 CALGEN EQUIPMENT FINANCE HOLDINGS, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY ONE, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY THREE LLC
CALGEN EQUIPMENT FINANCE COMPANY, LLC
NUECES BAY ENERGY LLC
CALPINE NORTHBROOK SOUTHCOAST INVESTORS, LLC
CALPINE CORPUS CHRISTI ENERGY GP, LLC
ZION ENERGY LLC
LOS MEDANOS ENERGY CENTER, LLC
MORGAN ENERGY CENTER, LLC
CARVILLE ENERGY LLC
DECATUR ENERGY CENTER, LLC
CALPINE ONETA POWER I, LLC
CALPINE ONETA POWER II, LLC
CALPINE BAYTOWN ENERGY CENTER LP, LLC
CALPINE BAYTOWN ENERGY CENTER GP, LLC
BAYTOWN POWER GP, LLC
COLUMBIA ENERGY LLC
DELTA ENERGY CENTER, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY TWO, LLC
PASTORIA ENERGY FACILITY L.L.C.
CALPINE PASTORIA HOLDINGS, LLC
Executing this Third Priority Indenture on behalf of and so as to bind each of the limited liability companies named above under the caption "The Guarantors"

By: /s/ ZAMIR RAUF
    ----------------------------------------------
    Name:  Zamir Rauf
    Title: Vice President	

108
THE GUARANTORS:
FREESTONE POWER GENERATION LP
CALPINE FREESTONE ENERGY, LP
CALPINE POWER EQUIPMENT LP
CHANNEL POWER, LP
CHANNEL ENERGY CENTER, LP
CALPINE CORPUS CHRISTI ENERGY, LP
CORPUS CHRISTI COGENERATION LP
CALPINE ONETA POWER, L.P.
BAYTOWN ENERGY CENTER, LP
BAYTOWN POWER, LP
Executing this Third Priority Indenture
on behalf of and so as to bind each of
the limited partnerships named above
under the caption "The Guarantors"

By: /s/ ZAMIR RAUF
    -------------------------------------
    Name:  Zamir Rauf
    Title: Vice President	

109
WILMINGTON TRUST FSB

By: /s/ JAMES J. MCGINLEY
    -------------------------------------
    Name:  James J. McGinley
    Title: Vice President	

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SCHEDULE A
SCHEDULE A-1
PERMITTED PRIOR LIENS EXISTING ON THE CLOSING DATE
See attached.
SCHEDULE A-1
EXHIBIT A-1
[Face of Note]
CUSIP [13135B AC 0 -- 144A] [13135B AG 1 -- Exchange]
ISIN [US13135BAC00 -- 144A] [US13135BAG14 -- Exchange]
Third Priority Secured Floating Rate Note due 2011 No. $

CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.

promises to pay to
or registered assigns,
the principal sum of
Dollars on April 1, 2011.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
By:

Name:

Title:
By:

Name:

Title:
Dated: March 23, 2004
This is one of the Notes referred to in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
By:

Authorized Signatory
EXHIBIT A-1-1
[Back of Note] Third Priority Secured Floating Rate Note due 2011
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO
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SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY AND FINANCE CORP.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) INTEREST. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at the Applicable Third Priority LIBOR Rate (as defined below) per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on April 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be October 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
"Applicable Third Priority LIBOR Rate" means, for each six month interest period, 900 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of six months as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period;
EXHIBIT A-1-3
provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable Third Party LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of six months as of approximately 11:00
a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
(2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) PAYING AGENT AND REGISTRAR. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(4) INDENTURE. The Company issued the Notes under a Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $680.0 million in aggregate principal amount. The Notes are secured on a third-priority basis, Equally and Ratably with all other Third Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to liens securing First Priority Lien Obligations and Second Priority Lien Obligations and to other Permitted Prior Liens.
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(5) OPTIONAL REDEMPTION. The Notes are not redeemable at the option of the Issuers.
(6) MANDATORY REDEMPTION. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) REPURCHASE AT OPTION OF HOLDER..
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event remaining after all required purchases, prepayments and/or redemptions of First Priority Lien Obligations and Second Priority Lien Obligations to offer to prepay Notes and other Third Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other Third Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other Third Priority Lien Obligations to be purchased on a pro rata basis.
(8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
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(10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
(11) Amendment, Supplement and Waiver. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with
Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event
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of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
(13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(15) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(17) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
(18) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as
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printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(19) NON-RECOURSE. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
Attention: Chief Financial Officer
EXHIBIT A-1-8
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-1-9
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-1-10
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

                                                                       Principal Amount
                                                                      at maturity of this
                       Amount of decrease    Amount of increase in        Global Note           Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                         at maturity of          at maturity of            decrease             of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------        ----------------        ----------------         -------------            ---------	

* This schedule should be included only if the Note is issued in global form.
EXHIBIT A-1-11
EXHIBIT A-2
[Face of Note]
CUSIP [13135B AD 8 -- 144A] [13135B AH 9 -- Exchange]
ISIN [US13135BAD82 -- 144A] [US13135BAH96 -- Exchange]
11-1/2% Third Priority Secured Note due 2011
No. $

CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.

promises to pay to
or registered assigns,
the principal sum of
Dollars on April 1, 2011.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
By:

Name:

Title:
By:

Name:

Title:
Dated: March 23, 2004
This is one of the Notes referred to in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
By:

Authorized Signatory
EXHIBIT A-2-1
[Back of Note] 11-1/2% Third Priority Secured Note due 2011
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT
EXHIBIT A-2-2
TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY AND FINANCE CORP.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) INTEREST. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at 11.500% per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on April 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be October 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
(2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special
EXHIBIT A-2-3
Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) PAYING AGENT AND REGISTRAR. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(4) INDENTURE. The Company issued the Notes under a Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $150.0 million in aggregate principal amount. The Notes are secured on a third-priority basis, Equally and Ratably with all other Third Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to liens securing First Priority Lien Obligations and Second Priority Lien Obligations and to other Permitted Prior Liens.
(5) OPTIONAL REDEMPTION. The Notes are not redeemable at the option of the Issuers.
(6) MANDATORY REDEMPTION. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) REPURCHASE AT OPTION OF HOLDER..
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special
EXHIBIT A-2-4
Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event remaining after all required purchases, prepayments and/or redemptions of First Priority Lien Obligations and Second Priority Lien Obligations to offer to prepay Notes and other Third Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other Third Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other Third Priority Lien Obligations to be purchased on a pro rata basis.
(8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
(10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
(11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of
EXHIBIT A-2-5
certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with
Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture
EXHIBIT A-2-6
except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
(13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(15) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(17) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
(18) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(19) NON-RECOURSE. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
EXHIBIT A-2-7
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
Attention: Chief Financial Officer
EXHIBIT A-2-8
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-2-9
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$

Date:

Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT A-2-10
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

                                                                       Principal Amount
                                                                      at maturity of this
                       Amount of decrease    Amount of increase in        Global Note           Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                         at maturity of          at maturity of            decrease             of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------        ----------------        ----------------         -------------            ---------	

* This schedule should be included only if the Note is issued in global form.
EXHIBIT A-2-11
EXHIBIT B-1
[Face of Regulation S Temporary Floating Rate Global Note]

CUSIP U1305Q AC 3
ISIN USU1305QAC34
Third Priority Secured Floating Rate Note due 2011
No. ___ $____________
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
promises to pay to ___________
or registered assigns,
the principal sum of ___________________________________________________________
Dollars on April 1, 2011.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
By: ___________________________________________
Name:
Title:
By: ___________________________________________
Name:
Title:
Dated: March 23, 2004
This is one of the Notes referred to
in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
By: ___________________________________________ Authorized Signatory
EXHIBIT B-1-1
[Back of Regulation S Temporary Floating Rate Global Note] Third Priority Secured Floating Rate Notes 2011
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
EXHIBIT B-1-2
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(1) Interest. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at the Applicable Third Priority LIBOR Rate (as defined below) per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on April 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be October 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
EXHIBIT B-1-3
"Applicable Third Priority LIBOR Rate" means, for each six month interest period, 900 basis points over the rate determined by the Company (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the greater of (x) 1.250% or (y) the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of six months as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such interest period; provided, that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable Third Party LIBOR Rate for the relevant interest period shall instead be the rate at which Morgan Stanley Senior Funding, Inc. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of six months as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such interest period, in amounts equal to $1.0 million.
Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture.
(2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(3) PAYING AGENT AND REGISTRAR. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(4) INDENTURE. The Company issued the Notes under a Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee.
EXHIBIT B-1-4
The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $680.0 million in aggregate principal amount. The Notes are secured on a third-priority basis, Equally and Ratably with all other Third Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to liens securing First Priority Lien Obligations and Second Priority Lien Obligations and to other Permitted Prior Liens.
(5) OPTIONAL REDEMPTION. The Notes are not redeemable at the option of the Issuers.
(6) MANDATORY REDEMPTION. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(7) REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event remaining after all required purchases, prepayments and/or redemptions of First Priority Lien Obligations and Second Priority Lien Obligations to offer to prepay Notes and other Third Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other Third Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other Third Priority Lien Obligations to be purchased on a pro rata basis.
(8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
EXHIBIT B-1-5
(9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note.
(10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
(11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by
EXHIBIT B-1-6
the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
(13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(15) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
EXHIBIT B-1-7
(16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(17) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
(18) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(19) NON-RECOURSE. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
Attention: Chief Financial Officer
EXHIBIT B-1-8
Assignment Form
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint
 to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT B-1-9
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
EXHIBIT B-1-10
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:

                     Amount of       Amount of       Principal
                    decrease in     increase in       Amount
                     Principal       Principal    at maturity of   Signature of
                      Amount          Amount        this Global     authorized
                  at maturity of  at maturity of  Note following    officer of
                   this Global     this Global     such decrease    Trustee or
Date of Exchange       Note            Note        (or increase)     Custodian
----------------  --------------  --------------  --------------   ------------	

EXHIBIT B-1-11
EXHIBIT B-2
[Face of Regulation S Temporary Fixed Rate Global Note]
CUSIP U1305Q AD 1
ISIN USU1305QAD17
11-1/2% Third Priority Secured Notes due 2011
No. ___ $____________
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
promises to pay to _____________
or registered assigns,
the principal sum of
Dollars on April 1, 2011.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.
By:

Name:

Title:
By:

Name:

Title:
Dated: March 23, 2004
This is one of the Notes referred to in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
By:

Authorized Signatory
Exhibit B-2-1
[Back of Regulation S Temporary Fixed Rate Global Note] 11-1/2% Third Priority Secured Fixed Rate Note 2011
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
Exhibit B-2-2
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.]
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
(20) Interest. Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), and CalGen Finance Corp., a Delaware corporation ("CalGen Finance" and, together with the Company, the "Issuers"), jointly and severally promise to pay interest on the principal amount of this Note at 11.500% per annum from March 23, 2004 until maturity and will pay the Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semiannually in arrears on April 1 and October 1 of each year or, if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date will be October 1, 2004. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
Exhibit B-2-3
Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture.
(21) Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 immediately preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Special Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided, that payment by wire transfer of immediately available funds will be required with respect to principal of, and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
(22) Paying Agent and Registrar. The Company, on behalf of itself and CalGen Finance, will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to the Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.
(23) Indenture. The Company issued the Notes under a Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company and CalGen Finance limited to $150.0 million in aggregate principal amount. The Notes are secured on a third-priority basis, Equally and Ratably with all other Third Priority Lien Obligations, by (a) a security interest in all the assets of the Company and the Guarantors other than Excluded Assets, and (b) a pledge of the equity interests in the Company and CalGen Expansion Company, LLC, subject to liens securing First Priority Lien Obligations and Second Priority Lien Obligations and to other Permitted Prior Liens.
Exhibit B-2-4
(24) Optional Redemption. The Notes are not redeemable at the option of the Issuers.
(25) Mandatory Redemption. The Issuers will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(26) Repurchase at Option of Holder..
(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating the procedures governing the Change of Control Offer as required by Section 4.15 of the Indenture.
(b) The Issuers will be required to use the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event remaining after all required purchases, prepayments and/or redemptions of First Priority Lien Obligations and Second Priority Lien Obligations to offer to prepay Notes and other Third Priority Lien Obligations (an "Asset Sale Offer"). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, on the Notes purchased, to, but excluding, the date of purchase, and will be payable in cash, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date. If the aggregate principal amount of Notes and other Third Priority Lien Obligations tendered into such Asset Sale Offer (or required to be purchased, prepaid or redeemed) exceeds the amount of Net Proceeds available therefor, the Trustee will select the Notes and such other Third Priority Lien Obligations to be purchased on a pro rata basis.
(27) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption.
(28) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
Exhibit B-2-5
This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note.
(29) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.
(30) Amendment, Supplement and Waiver. Subject to certain exceptions and the Collateral Trust Agreement, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a purchase or tender offer or exchange offer for Notes) voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding voting as a single class. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture and the Security Documents, to conform the text of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes to any provision of the Description of Notes in the Offering Memorandum to the extent such provision of the Description of Notes in the Offering Memorandum was intended to be a verbatim recitation of a provision of the Indenture, the Subsidiary Guarantees, the Security Documents or the Notes, or to allow any Guarantor to execute a supplemental indenture in the form of Exhibit G to the Indenture and/or a Note Guarantee with respect to the Notes.
(31) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Special Interest, if any, on any of the Notes; (ii) default in the payment when due of the principal of or premium, if any, on any of the Notes, (iii) failure by the Company or any of its Subsidiaries to comply with Section 3.09, 4.10, 4.15 or 4.19 of the Indenture; (iv) failure by the Company or any of its Subsidiaries to observe or perform any other agreement in the Indenture or the Security Documents for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (v) default under certain other agreements relating to Indebtedness of the Company and its Subsidiaries which default is caused by the failure to pay principal of, or interest or premium, if any, on, such Indebtedness, or results in the acceleration of such Indebtedness prior to its express maturity; (vi) final judgments for the payment of money that remain undischarged for a period of 60 days, provided the aggregate amount of such judgments exceeds $25.0 million (excluding those covered by insurance); (vii) the repudiation of the Security Documents by the Company or a Guarantor or the unenforceability of the Security Documents under certain circumstances;
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on
Exhibit B-2-6
its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; (ix) the breach by any Person (other than the Company and its Subsidiaries) of its obligations under, or the termination or failure to be in full force of, a Major Project Document, unless such breach when taken together with all other such breaches would not be materially adverse to the Company and its Subsidiaries taken as a whole; and (x) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture and the Collateral Trust Agreement. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium or Special Interest, if any) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest or Special Interest, if any, on, the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
(32) Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
(33) No Recourse Against Others. A director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Notes.
(34) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
(35) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(36) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement, dated as of March 23, 2004 (the "Registration Rights Agreement"), among the Company, CalGen Finance, the Guarantors and the initial purchaser of the Notes.
Exhibit B-2-7
(37) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
(38) Non-Recourse. Notwithstanding anything to the contrary set forth in the Indenture, this Note, any Security Document or any other Note Document, this Note and the Subsidiary Guarantees are non-recourse secured obligations of the Company and Guarantors, respectively. The only recourse a holder of the Notes will have with respect to the payment of principal of, or interest or premium or Special Interest, if any, on, this Note (whether under the Indenture or the Note, or pursuant to the Subsidiary Guarantees) will be enforcement of its rights against CalGen Finance under the Indenture or against the Collateral pursuant to the Security Documents.
The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, the Registration Rights Agreement and the Security Documents. Requests may be made to:
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Facsimile No.: (408) 995-0505
Attention: Chief Financial Officer
Exhibit B-2-8
Assignment Form
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:

(Insert assignee's legal name)

(Insert assignee's soc. sec. or tax I.D. no.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint
 to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date: _______________
Your Signature:
 (Sign exactly as your name appears on the face of this Note)
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
Exhibit B-2-9
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
--Section 4.10 --Section 4.15
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$---------------
Date: _______________
Your Signature:
 (Sign exactly as your name appears on the face of this Note)

Tax Identification No.:
Signature Guarantee*: ______________________
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
Exhibit B-2-10
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:

                                                                       Principal Amount
                                                                      at maturity of this
                       Amount of decrease    Amount of increase in        Global Note           Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                         at maturity of          at maturity of            decrease            of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
----------------        ----------------        ----------------         -------------            ---------	

Exhibit B-2-11
EXHIBIT C
FORM OF CERTIFICATE OF TRANSFER
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB, as Trustee
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1615
Re: Third Priority Secured Floating Rate Notes due 2011; 11-1/2% Third Priority Secured Notes due 2011
Reference is hereby made to the Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction
Exhibit C-1
was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed Transfer is being made prior to the expiration of the Restricted Period, the Transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act.
Exhibit C-2
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]

By:
 Name:

Title:
Dated: _______________________
Exhibit C-3
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(iii) [ ] IAI Global Note (CUSIP _________); or
(iv) [ ] Unrestricted Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
Exhibit C-4
EXHIBIT D
FORM OF CERTIFICATE OF EXCHANGE
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-16152
Re: Third Priority Secured Floating Rate Notes due 2011; 11-1/2% Third Priority Secured Notes due 2011
(CUSIP ____________)
Reference is hereby made to the Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the
Exhibit D-1
Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
[ ]144A Global Note, [ ]Regulation S Global Note, [ ]IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.
Exhibit D-2
This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Transferor]

By:
 Name:

Title:
Dated: ______________________
Exhibit D-3
EXHIBIT E
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Calpine Generating Company, LLC
CalGen Finance Corp.
50 West San Fernando Street, 5th Floor
San Jose, California 95113
Wilmington Trust FSB
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-1615
Re: Third Priority Secured Floating Rate Notes due 2011; 11-1/2% Third Priority Secured Notes due 2011
Reference is hereby made to the Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Company"), CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the
Exhibit E-1
requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

[Insert Name of Accredited Investor]

By:
 Name:

Title:
Dated: _______________________
Exhibit E-2
EXHIBIT F
FORM OF NOTATION OF SUBSIDIARY GUARANTEE
For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, on a non-recourse basis to the extent set forth in the Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), among Calpine Generating Company, LLC, a Delaware limited liability company, CalGen Finance Corp., a Delaware corporation, the Guarantors party thereto and Wilmington Trust FSB, as trustee (the "Trustee"), and subject to the provisions of the Indenture,
(a) the due and prompt payment of the principal of, premium, if any, and interest and Special Interest, if any, on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and prompt payment of interest on overdue principal of and interest and Special Interest, if any, on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee.
[Name of Guarantor(s)]
By:
 Name:
Title:
EXHIBIT F-1
EXHIBIT G
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, 20__, among __________________, a ___________________ (the "Guaranteeing Subsidiary"), Calpine Generating Company, LLC (the "Company"), CalGen Finance Corp. ("CalGen Finance" and, together with the Company, the "Issuers"), the other Guarantors (as defined in the Indenture referred to herein) and Wilmington Trust FSB, as trustee under the Indenture referred to herein (the "Trustee").
W I T N E S S E T H
WHEREAS, the Issuers have heretofore executed and delivered to the Trustee a Third Priority Indenture, dated as of March 23, 2004 (the "Indenture"), providing for the issuance of an aggregate principal amount of $680.0 million of Third Priority Secured Floating Rate Notes due 2011 and $150.0 million of 11-1/2% Third Priority Secured Notes due 2011 (collectively, the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture, including but not limited to Article 11 thereof, and to become bound as a "Guarantor" under the Indenture.
3. No Recourse Against Others. This Subsidiary Guarantee is a non-recourse secured obligation of the Subsidiary Guarantor. The only recourse a Holder of Notes will have under the Subsidiary Guarantee is enforcement of its rights against the Collateral securing the Subsidiary Guarantee pursuant to the Security Documents. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantee, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.
4. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
Exhibit G-1
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company.
Exhibit G-2
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
Dated: _______________, 20___
[Guaranteeing Subsidiary]
By: ____________________________ Name:

Title:
[Company]
By: ____________________________
Name:
Title:
[Existing Guarantors]
By: ____________________________
Name:
Title:
[Trustee],
as Trustee
By: ____________________________
Authorized Signatory
Exhibit G-3
EXHIBIT H
SUBORDINATION TERMS
[TO BE INCLUDED AS AN ARTICLE IN THE INSTRUMENT EVIDENCING "AFFILIATE
SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO CLAUSE (9)(a) OF THE DEFINITION OF PERMITTED DEBT AND "THIRD PARTY SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO CLAUSE (10) OF THE DEFINITION OF PERMITTED INDEBTEDNESS]
[THE COLLATERAL AGENT SHALL EITHER BE A PARTY TO OR A THIRD PARTY BENEFICIARY OF THESE SUBORDINATION TERMS]
ARTICLE [__]
SUBORDINATION
Section [__].1. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Collateral Trust Agreement, dated as of March 23, 2004, among Calpine CalGen Holdings, Inc., Calpine Generating Company, LLC ("CalGen"), CalGen Finance Corp., the guarantors party thereto from time to time (the "Guarantors"), the Secured Debt Representatives party thereto and Wilmington Trust Company, as collateral agent (the "Collateral Agent"), as in effect on the date hereof. As used in this Article, the following terms shall have the following respective meanings:
"Junior Claimant" means [INSERT NAME OF LENDER UNDER SUBORDINATED DEBT].
"Proceeding" means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding of or against the Subordinated Debtor or its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of the Subordinated Debtor, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of the Subordinated Debtor, or (d) other marshalling of the assets of the Subordinated Debtor.
"Senior Claimants" means the holders of Senior Obligations.
"Senior Claim Documents" means the Secured Debt Documents other than the Other Junior Lien Debt Documents.
"Senior Claims" means, collectively, (a) the principal of, and premium, if any, and interest on, the Senior Obligations (in each case, including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of such Proceeding), and (b) all other Obligations of the Subordinated Debtor to the Senior Claimants, whether now existing or hereafter incurred or created, under or with respect to the Senior Claim Documents or any replacement, supplement to or refinancing of the Senior Obligations.
"Senior Obligations" means all Secured Obligations other than the Other Junior Lien Obligations.
Exhibit H-1
"Senior Obligations Termination Date" means the date on which all Senior Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Senior Claim Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Senior Claim Documents), all commitments to extend credit under all Senior Claim Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Senior Claim Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Subordinated Debt" means all indebtedness owing to Junior Claimant arising under or in respect of the Subordinated Debt Documents.
"Subordinated Debt Documents" means [DESCRIBE SUBORDINATED DEBT INSTRUMENT], any promissory note or other instrument relating thereto and any other documents or instruments directly relating to the foregoing (in each case, including any amendments, replacements or substitutions thereof).
"Subordinated Debtor" means [INSERT CALGEN OR GUARANTOR INCURRING 
THE SUBORDINATED DEBT].
Section [_].2. Certain Subordination Terms. Until the Senior Obligations Termination Date, and notwithstanding anything in the Subordinated Debt Documents to the contrary:
[__].2.1. Except as permitted under the Senior Claim Documents, the Subordinated Debtor shall not, directly or indirectly, make any payment of principal, interest or otherwise on or in respect of the Subordinated Debt.
[__].2..2. Except for the right to accept payments as provided in Section [__].2.1 or [__].2.5(b), Junior Claimant shall not demand, sue for or accept from the Subordinated Debtor or any other Person any such payment or collateral, nor take any other action to enforce or collect upon any such payment or to enforce its rights to receive any such payment, in either case in respect of the Subordinated Debt, provided, however, that nothing herein shall limit the right or ability of Junior Claimant (i) to receive payments from the Subordinated Debtor in respect of the Subordinated Debt as provided in Section
[__].2.1 so long as no default or event of default under any Secured Debt Document has occurred and is continuing, or (ii) to accelerate the maturity of the Subordinated Debt at any time after all of the Senior Claims have been accelerated; and provided further, that in the event that after an acceleration any of the Senior Claimants rescind the acceleration of the Senior Claims, and provide written notice to Junior Claimant thereof, or Junior Claimant otherwise becomes aware of such rescission, Junior Claimant shall rescind the acceleration of the Subordinated Debt.
[__].2.3. Neither the Subordinated Debtor nor Junior Claimant shall take any action prejudicial to or inconsistent with the Senior Claimants' priority position over Junior Claimant created by this Article, including, without limitation, any action which will hinder, delay or otherwise prevent the Senior Claimants from taking any action they deem necessary to enforce rights with respect to the Senior Claims or the Lien of the Senior Claim Documents. The Junior Claimant shall not take any action or otherwise act to contest on account of the Subordinated Debt (i) the validity or priority of any Liens or security interests granted to, or for the benefit of, the Senior Claimants, (ii) the relevant rights and duties of the Senior Claimants with respect to Junior Claimant on account of any Subordinated Debt as established in this Article or
(iii) the Senior Claimants' exercise of remedies in accordance with the Senior Claim Documents.
Exhibit H-2
[__].2.4. Each document or instrument evidencing Subordinated Debt shall bear a legend providing that payment of the Subordinated Debt thereunder has been subordinated to prior payment of the Senior Claims in the manner and to the extent set forth in this Article.
[__].2.5. Junior Claimant shall not commence or join with any other creditor or creditors of the Subordinated Debtor in commencing any Proceeding against the Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor -- ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], but may join in any Proceeding after it has commenced. At any general meeting of creditors of Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor -- ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], or in the event of any Proceeding, if all Senior Claims have not been paid in full in cash at such time, the Collateral Agent on behalf of the Senior Claimants is hereby irrevocably authorized at any such meeting or in any such Proceeding:
(a) To enforce claims comprising Subordinated Debt in the name of Junior Claimant, by proof of debt, proof of claim, suit or otherwise;
(b) To collect any assets of the Subordinated Debtor distributed, divided or applied by way of dividend or payment as a result of a Proceeding, or such securities issued, on account of Subordinated Debt as a result thereof and apply the same, or the proceeds of any realization upon the same that the Senior Claimants in their discretion elect to effect, to Senior Claims until all Senior Claims shall have been paid in full in cash (the Senior Claimants hereby agreeing to render any surplus to Junior Claimant and/or other subordinated creditors, as their interests appear, or to interplead such surplus with a court of competent jurisdiction); and
(c) To take generally any action in connection with any such meeting or proceeding which Junior Claimant might otherwise take in respect of the Subordinated Debt and claims relating thereto.
After the commencement of any such Proceeding, Junior Claimant may inquire in writing of the Collateral Agent on behalf of the Senior Claimants whether the respective Senior Claimants intend to exercise the foregoing rights with respect to the Subordinated Debt. Should the Senior Claimants fail, at least 20 days before the deadline therefor, either to file a proof of claim with respect to the Subordinated Debt and to furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in writing that the Senior Claimants intend to exercise their rights to assert the Subordinated Debt in the manner hereinabove provided, Junior Claimant may, but shall not be required to, proceed to file a proof of claim with respect to the Subordinated Debt and take such further steps with respect thereto, not inconsistent with this Article, as Junior Claimant may deem proper.
[__].2.6. Upon the occurrence and during the continuation of an event of default under a Secured Debt Document, Junior Claimant may, but shall have no obligation to, upon not less than 10 days prior written notice to the Collateral Agent, purchase all of the outstanding Senior Obligations owing to the Senior Claimants by irrevocably tendering, in immediately available funds, full payment of the Purchase Price (as defined below) to the Senior Claimants:
(a) The Purchase Price shall be equal to the total amount of Senior Claims at the time of acceleration (assuming such obligations have been accelerated);
Exhibit H-3
(b) Any such purchase by Junior Claimant shall be without warranty by, or recourse to, the Senior Claimants, except with respect to the legal and beneficial ownership by the Senior Claimants of the Obligations so purchased, free and clear of all Liens and rights of others; and
(c) Concurrently with any such purchase, the Senior Claimants shall forthwith sell, assign, transfer and convey to Junior Claimant all of their right, title and interest in and to the Senior Obligations, and all Liens and other security interests in favor of the Senior Claimants securing the obligations of the Subordinated Debtor in connection therewith.
Section [__].3. Senior Claim Documents. The Junior Claimant acknowledges that it has been provided with a copy of the Senior Claim Documents and has read and is familiar with the provisions thereof.
Section [__].4. Time of Filing. Notwithstanding the time of filing, attachment or recording of any document or other instrument, it is agreed by Junior Claimant that any Liens arising under or pursuant to the Senior Claim Documents shall be senior to any Liens arising in favor of Junior Claimant as part of or relating to the Subordinated Debt Documents, if any; provided, however, that nothing herein shall be deemed to permit Junior Claimant to obtain any such Liens.
Section [__].5. Wrongful Collections. Should any payment on account of, or any collateral for any part of, the Subordinated Debt be received by Junior Claimant in violation of this Article, such payment or collateral shall be delivered forthwith to the Collateral Agent by the recipient for application to Senior Claims, in the form received. The Collateral Agent is irrevocably authorized to supply any required endorsement or assignment which may have been omitted. Until so delivered, any such payment or collateral shall be held by the recipient in trust for the Senior Claimants and shall not be commingled with other funds or property of the recipient.
Section [__].6. Ownership of Subordinated Debt; Amendment of Subordinated Debt Documents.
[__].6.1. The Junior Claimant represents and warrants that it is the lawful owner of the Subordinated Debt. Any security interest in the Junior Claimant's interest in the Subordinated Debt will at all times be subject to the rights of the Senior Claimants hereunder. The Junior Claimant agrees that it may not assign all or any portion of the Subordinated Debt or any of its rights or remedies under the Subordinated Debt Documents unless any assignee expressly agrees in writing for the benefit of the Collateral Agent that it takes such Subordinated Debt subject in all respects to the rights of the Senior Claimants hereunder.
[__].6.2. The Subordinated Debt Documents may not be amended so as to have an adverse effect upon the Senior Claims or the Subordinated Debtor's ability to pay the Senior Claims at any time.
Section [__].7. Waivers. The Collateral Agent and the Senior Claimants are hereby authorized to demand specific performance of this Article, whether or not the Subordinated Debtor shall have complied with the provisions hereof applicable to it, at any time when Junior Claimant shall have failed to comply with any provision hereof applicable to it. Junior Claimant hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance hereof in any action brought therefor by the Senior Claimants. Junior Claimant (a) further waives presentment, notice and protest in connection with all negotiable instruments
Exhibit H-4
evidencing Senior Claims or Subordinated Debt to which Junior Claimant may be a party, notice of the acceptance of this Article by the Senior Claimants, notice of any loan made, extension granted or other action taken in reliance hereon, and all demands and notices of every kind in connection with this Article, Senior Claims or time of payment of Senior Claims or Subordinated Debt and (b) hereby assents to any renewal, extension or postponement of the time of payment of Senior Claims or any other indulgence with respect thereto, to any increase in the amount of Senior Claims, to any substitution, exchange or release of collateral therefor and to the addition or release of any person primarily or secondarily liable thereon and assents to the provisions of any instrument, security or other writing evidencing Senior Claims.
Section [__].8. Subrogation; No Impairment of Subordinated Debtor's Obligations. Subject to and from and after the Senior Obligations Termination Date, Junior Claimant shall be subrogated to the rights of the Senior Claimants to receive payments or distributions of cash, property or securities of the Subordinated Debtor applicable to the Senior Claims until all amounts owing on the Subordinated Debt shall be paid in full. For purposes of such subrogation, no payments or distributions to the Senior Claimants to which Junior Claimant would be entitled but for the provisions of this Article, and no payments paid over by Junior Claimant to Senior Claimants pursuant to this Article shall, as among the Subordinated Debtor, its creditors other than the Senior Claimants, and Junior Claimant, be deemed to be a payment or distribution on account of the Subordinated Debt, it being understood that the provisions of this Article are intended solely for the purpose of defining the relative rights of Junior Claimant and the Senior Claimants. Nothing contained in this Article is intended to or shall impair, as between the Subordinated Debtor and Junior Claimant, the obligation of the Subordinated Debtor, which is absolute and unconditional, to pay to Junior Claimant the principal of and the premium, if any, and the interest on the Subordinated Debt, and all other amounts payable by the Subordinated Debtor under the Subordinated Debt Documents, as and when the same shall become due and payable, or to affect the relative rights of Junior Claimant and creditors of Subordinated Debtor other than the Senior Claimants.
Section [__].9. Reinstatement. The obligations of Junior Claimant under this Article shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Claim, or any other payment to any holder of any Senior Claim in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Claims upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Subordinated Debtor or any substantial part of its property, or otherwise, all as though such payment had not been made.
Section [__].10. Bankruptcy. This Article shall remain in full force and effect as between Junior Claimant and the Senior Claimants notwithstanding the occurrence of any Proceeding affecting the Subordinated Debtor.
Section [__].11. Further Assurances. The Subordinated Debtor and Junior Claimant shall execute and deliver to the Senior Claimants such further instruments and shall take such further action as the Senior Claimants may at any time or times reasonably request in order to carry out the provisions and intent of this Article.
Section [__].12. Successors and Assigns. The provisions of this Article shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Junior Claimant nor the Senior Claimants shall have a duty to preserve rights against prior parties in any property of any kind received hereunder. Nothing contained herein shall impose on the Senior Claimants any duties with respect to any property of the Subordinated Debtor or Junior Claimant received hereunder.
Exhibit H-5
Section [__].13. Governing Law. This Article is intended to take effect as a sealed instrument, shall be binding upon the parties hereto and their respective executors, administrators, other legal representatives, successors and assigns, and shall inure to the benefit of the Senior Claimants, their respective successors and assigns and shall be governed by the laws of the State of New York without reference to principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law). The parties hereto intend and agree that this Article shall remain binding on such parties (other than the Subordinated Debtor) notwithstanding the termination (except upon the payment in full of Senior Claims in cash) or unenforceability of this Article as against the Subordinated Debtor.
Exhibit H-6
EXHIBIT I
FORM OF WORKING CAPITAL FACILITY
See attached.
Exhibit I-1
 
EXHIBIT 10.1.1.2
EXECUTION VERSION
200,000,000
FIRST PRIORITY SECURED REVOLVING LOANS
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of March 23, 2004
among
CALPINE GENERATING COMPANY, LLC
The Borrower
THE GUARANTORS PARTY HERETO FROM TIME TO TIME
The Guarantors
THE LENDERS PARTY HERETO FROM TIME TO TIME
The Lenders
THE BANK OF NOVA SCOTIA
Administrative Agent, LC Bank, Lead Arranger and Sole Bookrunner
BAYERISCHE LANDESBANK CAYMAN ISLANDS BRANCH
Arranger and Co-Syndication Agent
CREDIT LYONNAIS NEW YORK BRANCH
Arranger and Co-Syndication Agent
ING CAPITAL LLC
Arranger and Co-Syndication Agent
TORONTO DOMINION (TEXAS) INC.
Arranger and Co-Syndication Agent
and
UNION BANK OF CALIFORNIA, N.A.
Arranger and Co-Syndication Agent
TABLE OF CONTENTS

                                                                                                                       PAGE
                                                                                                                       ----
                                   ARTICLE I.
                      DEFINITIONS AND RULES OF CONSTRUCTION

SECTION 1.1          Definitions................................................................................          3
SECTION 1.2          Rules of Construction......................................................................         49

                                   ARTICLE II.
                              THE CREDIT FACILITIES

SECTION 2.1          Revolving Loan Facility....................................................................         50
         Section 2.1.1        Revolving Loans...................................................................         50
         Section 2.1.2        Amount of Revolving Loans; Availability of Funds..................................         51
         Section 2.1.3        Use of Proceeds...................................................................         51
         Section 2.1.4        Evidence of Debt; Register; Lenders' Books and Records; Notes.....................         52
         Section 2.1.5        Interest..........................................................................         52
         Section 2.1.6        Continuation Notice...............................................................         53
         Section 2.1.7        Default Interest..................................................................         54
         Section 2.1.8        Fees..............................................................................         55
         Section 2.1.9        Payments..........................................................................         55
         Section 2.1.10       Voluntary Prepayments; Voluntary Commitment Reductions............................         55
         Section 2.1.11       Mandatory Repayments and Commitment Reductions....................................         56
         Section 2.1.12       General Provisions Regarding Payments.............................................         56
         Section 2.1.13       Ratable Sharing...................................................................         57
         Section 2.1.14       Making or Maintaining Revolving Loans.............................................         58
         Section 2.1.15       Increased Costs; Capital Adequacy.................................................         60
         Section 2.1.16       Taxes; Withholding, etc...........................................................         61
         Section 2.1.17       Removal or Replacement of a Lender................................................         64
SECTION 2.2          Letter of Credit Facilities................................................................         64
         Section 2.2.1        Issuance of the Letters of Credit.................................................         65
         Section 2.2.2        Use of Letters of Credit..........................................................         65
         Section 2.2.3        Notice of LC Activity.............................................................         65
         Section 2.2.4        Reimbursement.....................................................................         66
         Section 2.2.5        Reimbursement Obligation Absolute.................................................         66
         Section 2.2.6        Reduction and Reinstatement of Stated Amount......................................         67
         Section 2.2.7        Lender Participation..............................................................         67
         Section 2.2.8        Commercial Practices..............................................................         68
         Section 2.2.9        Letter of Credit Fees.............................................................         69
         Section 2.2.10       Termination of Letters of Credit..................................................         69

                                  ARTICLE III.
                              CONDITIONS PRECEDENT

SECTION 3.1          Conditions Precedent to Closing............................................................         69	

i

         Section 3.1.1        Resolutions.......................................................................         69
         Section 3.1.2        Incumbency........................................................................         70
         Section 3.1.3        Formation Documents...............................................................         70
         Section 3.1.4        Good Standing Certificates........................................................         70
         Section 3.1.5        Financial Officer's Certificate...................................................         70
         Section 3.1.6        Security..........................................................................         71
         Section 3.1.7        Consummation of Notes Offering, Term Loan Agreements,
                              and Revolving Loan Documents .....................................................         72
         Section 3.1.8        No Material Adverse Change........................................................         73
         Section 3.1.9        Independent Engineer Report.......................................................         73
         Section 3.1.10       Third Party Approvals.............................................................         73
         Section 3.1.11       Opinions..........................................................................         74
         Section 3.1.12       Officer's Certificates............................................................         74
         Section 3.1.13       Title Policies....................................................................         74
         Section 3.1.14       Evidence of Insurance.............................................................         74
         Section 3.1.15       Other Financing Documents.........................................................         75
         Section 3.1.16       No Default........................................................................         75
         Section 3.1.17       Fees..............................................................................         75
         Section 3.1.18       Delivery of Financials............................................................         75
         Section 3.1.19       Notice of Borrowing...............................................................         75
         Section 3.1.20       Notice of LC Activity.............................................................         75
         Section 3.1.21       Site Assessment Reports...........................................................         75
         Section 3.1.22       Major Project Documents...........................................................         76
SECTION 3.2          Conditions Precedent to Each Revolving Loan After the Closing Date.........................         76
         Section 3.2.1        Representations and Warranties....................................................         76
         Section 3.2.2        No Material Adverse Effect........................................................         76
         Section 3.2.3        No Default........................................................................         76
         Section 3.2.4        Notice of Borrowing...............................................................         76
SECTION 3.3          Conditions Precedent to the Issuance of Letters of Credit..................................         76
         Section 3.3.1        Representations and Warranties....................................................         76
         Section 3.3.2        No Material Adverse Effect........................................................         76
         Section 3.3.3        No Default........................................................................         77
         Section 3.3.4        Notice of LC Activity.............................................................         77

                                   ARTICLE IV.

                         REPRESENTATIONS AND WARRANTIES

SECTION 4.1          Organization...............................................................................         77
SECTION 4.2          Financing Documents and Major Project Documents............................................         77
SECTION 4.3          Collateral.................................................................................         78
SECTION 4.4          Governmental Approvals.....................................................................         78
SECTION 4.5          Compliance with Law........................................................................         78
SECTION 4.6          Ownership of Property; Liens...............................................................         79
SECTION 4.7          Governmental Authorizations; Permits.......................................................         79
SECTION 4.8          Labor Disputes.............................................................................         79
SECTION 4.9          Intellectual Property Rights...............................................................         79	

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SECTION 4.10         Hazardous Substances.......................................................................         79
SECTION 4.11         Litigation.................................................................................         80
SECTION 4.12         Financial Information......................................................................         80
SECTION 4.13         Disclosure; Projections....................................................................         80
SECTION 4.14         Adverse Change.............................................................................         81
SECTION 4.15         Taxes......................................................................................         83
SECTION 4.16         Investment Company Act.....................................................................         81
SECTION 4.17         ERISA    ..................................................................................         81
SECTION 4.18         Governmental Regulation....................................................................         82
SECTION 4.19         Margin Stock, Etc..........................................................................         83
SECTION 4.20         No Violations or Defaults..................................................................         83
SECTION 4.21         No Material Adverse Agreements.............................................................         83
SECTION 4.22         Solvency ..................................................................................         83
SECTION 4.23         Capitalization.............................................................................         84
SECTION 4.24         Other Indebtedness.........................................................................         84
SECTION 4.25         Patriot Act Compliance.....................................................................         84

                                   ARTICLE V.
                                    COVENANTS

SECTION 5.1          Reports....................................................................................         85
SECTION 5.2          Compliance Certificate.....................................................................         86
SECTION 5.3          Stay, Extension and Usury Laws.............................................................         87
SECTION 5.4          Restricted Payments........................................................................         87
SECTION 5.5          Dividend and Other Payment Restrictions Affecting Subsidiaries.............................         88
SECTION 5.6          Incurrence of Indebtedness and Issuance of Preferred Equity................................         90
SECTION 5.7          Asset Sales; Application of Net Proceeds...................................................         93
SECTION 5.8          Transactions with Affiliates...............................................................         96
SECTION 5.9          Liens......................................................................................         98
SECTION 5.10         Business Activities........................................................................         98
SECTION 5.11         Payments for Consent.......................................................................         98
SECTION 5.12         Restrictions on Activities of CalGen Finance...............................................         99
SECTION 5.13         Additional Subsidiaries....................................................................         99
SECTION 5.14         Limitation on Issuances and Sales of Equity Interests in Subsidiaries......................         99
SECTION 5.15         Deposit of Revenues........................................................................         99
SECTION 5.16         Maintenance of Insurance...................................................................         99
SECTION 5.17         Coverage Ratio; Kilowatt Test..............................................................        100
SECTION 5.18         Further Assurances.........................................................................        100
SECTION 5.19         Commercial Operations......................................................................        100
SECTION 5.20         Compliance with Law........................................................................        100
SECTION 5.21         Inspection Rights..........................................................................        100
SECTION 5.22         Suspension of Certain Covenants............................................................        101

                                   ARTICLE VI.
                                   SUCCESSORS

SECTION 6.1          Merger, Consolidation, or Sale of Assets...................................................        101	

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SECTION 6.2          Successor Corporation Substituted..........................................................        101

                                  ARTICLE VII.
                              DEFAULTS AND REMEDIES

SECTION 7.1          Events of Default..........................................................................        102
SECTION 7.2          Acceleration...............................................................................        103
SECTION 7.3          Other Remedies.............................................................................        103
SECTION 7.4          Waiver of Past Defaults; Rescission........................................................        104
SECTION 7.5          Control by Majority........................................................................        104
SECTION 7.6          Collection Suit by Administrative Agent....................................................        104
SECTION 7.7          Priorities.................................................................................        105

                                  ARTICLE VIII.
                                     AGENTS

SECTION 8.1          Appointment of Agents......................................................................        105
SECTION 8.2          Powers and Duties..........................................................................        106
SECTION 8.3          General Immunity...........................................................................        106
SECTION 8.4          Agents Entitled to Act as Lender...........................................................        107
SECTION 8.5          Lenders' Representations, Warranties and Acknowledgment....................................        107
SECTION 8.6          Right to Indemnity.........................................................................        107
SECTION 8.7          Successor Administrative Agent or LC Bank..................................................        108
SECTION 8.8          Withholding Tax............................................................................        108

                                   ARTICLE IX.
                             COLLATERAL AND SECURITY

                                   ARTICLE X.
                     RANKING OF LIENS AND COLLATERAL SHARING

                                   ARTICLE XI.
                            REVOLVING LOAN GUARANTEE

SECTION 11.1         Guarantee..................................................................................        110
SECTION 11.2         Right of Contribution......................................................................        111
SECTION 11.3         Subordination..............................................................................        111
SECTION 11.4         No Subrogation.............................................................................        112
SECTION 11.5         Amendments, etc. with respect to the Revolving Loan Obligations............................        112
SECTION 11.6         Guarantee Absolute and Unconditional.......................................................        112
SECTION 11.7         Waiver.....................................................................................        114
SECTION 11.8         Bankruptcy.................................................................................        116
SECTION 11.9         Reinstatement..............................................................................        117
SECTION 11.10        Payments ..................................................................................        118	

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                                  ARTICLE XII.
                                  MISCELLANEOUS

SECTION 12.1         Notices ...................................................................................        118
SECTION 12.2         Expenses ..................................................................................        118
SECTION 12.3         Indemnity..................................................................................        119
SECTION 12.4         Set-Off
SECTION 12.5         Amendments and Waivers.....................................................................        120
SECTION 12.6         Successors and Assigns; Participations.....................................................        122
SECTION 12.7         Independence of Covenants..................................................................        126
SECTION 12.8         Survival of Representations, Warranties and Agreements.....................................        126
SECTION 12.9         No Waiver; Remedies Cumulative.............................................................        126
SECTION 12.10        Marshalling; Payments Set Aside............................................................        127
SECTION 12.11        Severability...............................................................................        127
SECTION 12.12        Revolving Loan Obligations Several; Independent Nature of Lenders' Rights..................        127
SECTION 12.13        Headings ..................................................................................        127
SECTION 12.14        Applicable Law.............................................................................        127
SECTION 12.15        Consent to Jurisdiction....................................................................        128
SECTION 12.16        Waiver Of Jury Trial.......................................................................        128
SECTION 12.17        Confidentiality............................................................................        129
SECTION 12.18        Usury Savings Clause.......................................................................        129
SECTION 12.19        Counterparts; Execution by Facsimile.......................................................        130
SECTION 12.20        Effectiveness..............................................................................        130
SECTION 12.21        Statements Required in Certificate or Opinion..............................................        130
SECTION 12.22        No Recourse Against the Borrower or the Guarantors.........................................        130	

APPENDICES:

Appendix A:       Revolving Loan Commitments
Appendix B:       Notice Addresses

EXHIBITS:
Exhibit A:        Subordination Terms
Exhibit B:        Assignment and Assumption Agreement
Exhibit C:        Certificate Re Non-Bank Status
Exhibit D:        Continuation Notice
Exhibit E:        Notice of Borrowing
Exhibit F:        Lender Addendum
Exhibit G:        Loan Note
Exhibit H:        Notice of LC Activity
Exhibit I:        Form of Opinions

SCHEDULES:
Schedule A:       Third Party Project Documents
Schedule 4.1:     Capital Structure
Schedule 4.11:    Litigation

                                       v	

Schedule 4.18(b): Qualifying Facilities
Schedule 4.18(c): Exempt Wholesale Generators	

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AMENDED AND RESTATED
CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March 23, 2004 (this "Agreement"), is entered into by and among CALPINE GENERATING COMPANY, LLC, a Delaware limited liability company (the "Borrower"), the GUARANTORS party hereto from time to time, the LENDERS party hereto from time to time, THE BANK OF NOVA SCOTIA, as administrative agent (together with its successors and permitted assignees in such capacity, the "Administrative Agent"), as issuer of the Letters of Credit hereunder (together with its successors and permitted assigns in such capacity, the "LC Bank") and as lead arranger and sole bookrunner, and BAYERISCHE LANDESBANK CAYMAN ISLANDS BRANCH, CREDIT LYONNAIS NEW YORK BRANCH, ING CAPITAL LLC, TORONTO DOMINION (TEXAS) INC. and UNION BANK OF
CALIFORNIA, N.A., each as an Arranger and Co-Syndication Agent, and this Agreement amends and restates in its entirety that certain Credit Agreement, dated as of October 16, 2000 (the "Existing Senior Secured Credit Facility"), among the Borrower, Credit Suisse First Boston, as lead arranger and administrative agent (in such capacity, the "Existing Credit Administrative Agent"), and the lenders and other agents and arrangers party thereto from time to time.
RECITALS
WHEREAS, the Borrower intends to borrow, on a non-recourse basis, $600,000,000 in aggregate principal amount of first priority secured institutional term loans due 2009 (the "First Priority Term Loans") pursuant to a Credit and Guarantee Agreement, dated as of the date hereof (the "First Priority Term Loan Agreement"), among the Borrower, the Guarantors party thereto from time to time, Morgan Stanley Senior Funding, Inc., as the administrative agent (together with its successors and permitted assigns in such capacity, the "First Priority Term Loan Administrative Agent"), Morgan Stanley Senior Funding, Inc., as sole lead arranger, Morgan Stanley Senior Funding, Inc., as sole book-runner, and the lenders party thereto from time to time;
WHEREAS, the Borrower:
(a) intends to issue, together with CalGen Finance Corp., a Delaware corporation and a Wholly Owned Subsidiary of the Borrower ("CalGen Finance"), as co-issuer, on a non-recourse basis:
(i) $235,000,000 in aggregate principal amount of its First Priority Secured Floating Rate Notes due 2009 (the "First Priority Notes"), pursuant to the Indenture, dated as of the date hereof (the "First Priority Indenture"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "First Priority Indenture Trustee");
(ii) $640,000,000 in aggregate principal amount of its Second Priority Secured Floating Rate Notes due 2010 (the "Second Priority Notes"), pursuant to the Indenture, dated as of the date hereof (the "Second Priority Indenture"),
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among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "Second Priority Indenture Trustee"); and
(iii) (A) $680,000,000 in aggregate principal amount of its Third Priority Secured Floating Rate Notes due 2011
(the "Third Priority Floating Rate Notes"), and (B) $150,000,000 in aggregate principal amount of its 11.50% Third Priority Secured Notes due 2011 (the "Third Priority Fixed Rate Notes" and, together with the First Priority Notes, the Second Priority Notes and the Third Priority Floating Rate Notes, the "Notes"), pursuant to the Indenture, dated as of the date hereof (the "Third Priority Indenture" and, together with the First Priority Indenture and the Second Priority Indenture, the "Indentures"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "Third Priority Indenture Trustee");
(b) intends to borrow, on a non-recourse basis, $100,000,000 in aggregate principal amount of second priority secured institutional term loans due 2010 (the "Second Priority Term Loans" and, together with the First Priority Term Loans, the "Term Loans"), pursuant to a Credit and Guarantee Agreement, dated as of the date hereof (the "Second Priority Term Loan Agreement" and, together with the First Priority Term Loan Agreement, the "Term Loan Agreements"), among the Borrower, the Guarantors party thereto from time to time, Morgan Stanley Senior Funding, Inc., as the administrative agent (together with its successors and permitted assigns in such capacity, the "Second Priority Term Loan Administrative Agent"), Morgan Stanley Senior Funding, Inc., as sole lead arranger, Morgan Stanley Senior Funding, Inc., as sole book-runner, and the lenders party thereto from time to time; and
(c) intends to borrow, on a non-recourse basis, as described in Section 12.22 (No Recourse), up to $200,000,000 in aggregate principal amount of first priority secured revolving loans (the "Revolving Loans") under this Agreement;
WHEREAS, each Guarantor is a Wholly Owned Subsidiary of the Borrower and each Guarantor will receive substantial direct and indirect benefit from the making of the Revolving Loans and the use of proceeds therefrom and the issuance of Letters of Credit (as defined below) hereunder;
WHEREAS, the Guarantors shall guarantee, on a non-recourse basis as described in Section 12.22 (No Recourse), payment of the Revolving Loans and all other Revolving Loan Obligations pursuant to the terms hereof;
WHEREAS, the Borrower and the Guarantors intend to secure the First Priority Term Loans, the Second Priority Term Loans, all other First Priority Term Loan Obligations, all other Second Priority Term Loan Obligations, the Notes, all other Note Obligations and all other First Priority Lien Obligations (including the Revolving Loan Obligations), Second Priority Lien Obligations and Third Priority Lien Obligations with a lien on all present and future Collateral;
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WHEREAS, Calpine CalGen Holdings, Inc., a Delaware corporation ("Holdings"), CalGen Finance, the Borrower, the Guarantors, the Administrative Agent, the First Priority Term Loan Administrative Agent, Second Priority Term Loan Administrative Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, and Wilmington Trust Company as collateral agent (together with its successors and permitted assigns, the "Collateral Agent") have entered into the Collateral Trust Agreement (as defined below), which sets forth the terms on which the Borrower and the Guarantors, among others, have appointed the Collateral Agent as trustee for the present and future holders of the Secured Obligations to (a) receive, hold, maintain, administer, and enforce (i) all Security Documents and (ii) all interests, rights, powers and remedies of the Collateral Agent thereunder, and
(b) distribute the proceeds of the Collateral in a manner consistent with the priority of liens established by the Collateral Trust Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Existing Senior Secured Credit Facility is hereby amended and restated in its entirety, upon all of the terms and conditions of this Agreement, as follows:
ARTICLE I.
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1 Definitions.
Unless the context otherwise requires, the following capitalized terms, when used in this Agreement, including in its preamble and recitals, shall have the following meanings:
"Acquired Debt" means, with respect to any specified Person:
(a) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(b) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Adjusted LIBOR Rate" means, with respect to the relevant Interest Period, the quotient of (a) the LIBOR Rate applicable to such Interest Period, divided by (b) one minus the Applicable Reserve Requirement (expressed as a decimal) applicable to such Interest Period.
"Administrative Agent" is defined in the Preamble hereto.
"Administrative Services Agreement" means that certain Master Administrative Services Agreement, dated as of the date hereof, among the Borrower, CalGen Finance, each of the Subsidiaries of the Borrower from time to time party thereto and Calpine Administrative Services Company, Inc.
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"Affected Lender" is defined in Section 2.1.14 (Making or Maintaining Revolving Loans).
"Affected Loans" is defined in Section 2.1.14 (Making or Maintaining Revolving Loans).
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Affiliate Subordinated Indebtedness" means Indebtedness incurred by the Borrower pursuant to any arrangement with an Affiliate of the Borrower; provided, that such Indebtedness (a) is contractually subordinated in right of payment and in all other respects to the Revolving Loan Obligations and all other Secured Obligations on the terms described in Exhibit A, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date and is not secured other than by unperfected security interests, (b) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the Revolving Loans, (c) provides for payment of interest thereon in the form of cash or additional Affiliate Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., pay-in-kind), and (d) is otherwise in the form set forth in Exhibit A.
"Affiliate Transaction" is defined in Section 5.8 (Transactions With Affiliates).
"Agents" means the Administrative Agent, the Collateral Agent, the LC Bank and the Lead Arranger.
"Aggregate Amounts Due" is defined in Section 2.1.13 (Ratable Sharing).
"Aggregate LC Stated Amount" means, at any time, the aggregate Stated Amounts of all Letters of Credit issued and outstanding under this Agreement.
"Agreement" is defined in the Preamble hereto.
"Applicable Reserve Requirement" means, at any time, the maximum rate, expressed as a decimal, at which reserves (including any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the applicable Adjusted LIBOR Rate or any other interest rate of a Revolving Loan is to be determined, or (b) any category of extensions of credit or other assets which include Revolving Loans. Each Revolving
4
Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on Revolving Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.
"Asset Sale" means:
(a) the sale, lease, conveyance or other disposition of any assets or rights by the Borrower or any of its Subsidiaries; provided, that the sale, conveyance or other disposition of all or substantially all of the assets of the Borrower and its Subsidiaries taken as a whole will be governed by the provisions of Section 6.1 (Merger, Consolidation or Sale of Assets) and not by the provisions of
Section 5.7 (Asset Sales; Application of Net Proceeds); and
(b) the issuance of Equity Interests in any of the Borrower's Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(a) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $25,000,000 (other than any transaction which involves the sale of an undivided interest, participation or Equity Interest in any Facility or any Subsidiary of the Borrower, each of which shall constitute an Asset Sale);
(b) a transfer of assets between or among the Borrower and the Guarantors,
(c) an issuance of Equity Interests by a Subsidiary to the Borrower or to a Guarantor;
(d) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(e) the sale or other disposition of cash or Cash Equivalents;
(f) a Restricted Payment that does not violate the covenant in Section 5.4 (Restricted Payments) or a Permitted Investment;
(g) an issuance of Equity Interests in the Borrower in accordance with the terms of this Agreement; and
(h) the sale of the Columbia Facility pursuant to the Columbia FILOT Arrangement.
"Assignment Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit B with such amendments or modifications thereto as may be approved by the Administrative Agent.
5
"Available Loan Commitment" means, at any time and from time to time during the Loan Availability Period, the Total Loan Commitment at such time minus the sum of (a) the aggregate principal amount of all Revolving Loans outstanding at such time plus (b) the Aggregate LC Stated Amount and the aggregate amount of all outstanding Reimbursement Obligations at such time.
"Bank Book" means that certain confidential information memorandum titled "Calpine Generating Company, LLC, $600,000,000 First Priority Secured Term Loan B, $100,000,000 Second Priority Secured Term Loan B" dated March 2004.
"Bankruptcy Case" means any case under the Bankruptcy Law commenced voluntarily or involuntarily against the Borrower or any other Obligor.
"Bankruptcy Event" shall be deemed to occur, with respect to any Person, if that Person shall institute a voluntary case seeking liquidation or reorganization under the Bankruptcy Law, or shall consent to the institution of an involuntary case thereunder against it; or such Person shall file a petition or consent or otherwise institute any similar proceeding under any other applicable Federal or state law, or shall consent thereto; or such Person shall apply for, or consent or acquiesce to, the appointment of, a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other officer with similar powers for itself or any substantial part of its assets; or such Person shall make a general assignment for the benefit of its creditors; or such Person shall admit in writing its inability to pay its debts generally as they become due; or if an involuntary case shall be commenced seeking liquidation or reorganization of such Person under the Bankruptcy Law or any similar proceedings shall be commenced against such Person under any other applicable Federal or state law and (a) the petition commencing the involuntary case is not timely controverted, (b) the petition commencing the involuntary case is not dismissed within 90 days of its filing, (c) an interim trustee is appointed to take possession of all or a portion of the property, and/or to operate all or any part of the business of such Person and such appointment is not vacated within 90 days, or (d) an order for relief shall have been issued or entered therein; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other officer having similar powers, over such Person or all or a part of its property shall have been entered; or any other similar relief shall be granted against such Person under any applicable Bankruptcy Law.
"Bankruptcy Law" means Title 11, United States Code, and any other state or federal insolvency, reorganization, moratorium or similar law for the relief of debtors, or any successor statute.
"Base Rate" means, for any day, a fluctuating rate of interest per annum equal to the higher of (a) the Prime Rate for such day and (b) the sum of
(i) the Federal Funds Effective Rate for such day and (ii) one half of one percent (0.50%) per annum.
"Base Rate Loan" means a Revolving Loan bearing interest at a rate determined by reference to the Base Rate.
"Beck Report" is defined in Section 3.1.5(d) (Financial Officer's Certificate).
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"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(a) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(b) with respect to a partnership, the Board of Directors of the general partner of the partnership or any committee duly authorized and empowered to take action on behalf of such partnership by the partnership agreement of such partnership;
(c) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(d) with respect to any other Person, the board or committee of such Person serving a similar function.
"Borrower" is defined in the Preamble hereto.
"Business Day" shall mean any day other than a Saturday, Sunday or day on which commercial banks in New York City or any of the Lenders are authorized or required by law to close; provided, however, that when used in connection with a LIBOR Rate Loan (including with respect to all notices and determinations in connection therewith and any payments of principal, interest or other amounts thereon), the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
"CalGen Companies" means the Borrower and the Subsidiaries of the Borrower.
"CalGen Expansion Company" means CalGen Expansion Company, LLC, a Delaware limited liability company.
"CalGen Finance" is defined in the Recitals hereto.
"Calpine" means Calpine Corporation, a Delaware corporation.
"Calpine Performance Guaranty" means that certain Affiliated Party Guaranty, dated as of the date hereof, by Calpine in favor of the Borrower and each of the Facility Owners.
"Calpine Project Undertaking" means that certain Project Undertaking and Agreement, dated as of the date hereof, among the Borrower, each of the Facility Owners and Calpine.
7
"Capital Lease Obligations" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(a) in the case of a corporation, corporate stock;
(b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(c) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Cash Equivalents" means:
(a) United States dollars;
(b) securities issued or directly and fully guaranteed or insured by the United States government (or any agency or instrumentality thereof), the Canadian government (or any agency or instrumentality thereof) or the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(c) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Facilities or any domestic commercial bank having capital and surplus in excess of $500,000,000 and a Thomson Bank Watch (or successor rating agency) Rating of "B" or better;
(d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the qualifications specified in clause (c) above;
(e) overnight deposits with entities whose unsecured commercial paper or other unsecured short-term debt obligations have, at the time of such investment, credit
8
ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P; and
(e) investments in money market funds or money market mutual funds which have, at the time of such investments, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P.
"Casualty Event" means any damage to or destruction of a Facility in excess of $20,000,000.
"Certificate re Non-Bank Status" means a certificate substantially in the form of Exhibit C.
"CES" means Calpine Energy Services, L.P., a Delaware limited partnership.
"Change of Control" means the occurrence of any of the following:
(a) the adoption of a plan relating to the liquidation or dissolution of the Borrower;
(b) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as that term is used in Section 13(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Calpine, measured by voting power rather than number of shares; or
(c) the first day on which Calpine fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests (other than Perpetual Preferred Stock) of the Borrower (other than as a result of the issuance of Perpetual Preferred Stock by any direct or indirect parent of the Borrower).
"Closing Date" means the date on which all of the conditions precedent set forth in Article III shall have been satisfied or waived in accordance with
Section 12.5 (Amendments and Waivers).
"Closing Date Facilities" means the electric generating facilities (including any electric generating facilities under construction) owned by Baytown Energy Center, LP; Carville Energy LLC; Channel Energy Center, LP; Columbia Energy LLC; Corpus Christi Cogeneration LP; Decatur Energy Center, LLC; Delta Energy Center, LLC, Freestone Power Generation, LP; Goldendale Energy Center, LLC, Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Calpine Oneta Power, L.P.; Pastoria Energy Facility, LLC and Zion Energy LLC.
"Closing Date Mortgages" is defined in Section 3.1.13 (Title Policies).
"Closing Date Mortgage Policies" is defined in Section 3.1.13 (Title Policies).
9
"Closing Date Mortgaged Properties" means all of the real property interests owned or leased by any of the Guarantors, and "Closing Date Mortgaged Property" means all of the real property interests owned or leased by a Guarantor.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Collateral" means (a) all of the Capital Stock of the Borrower held by Holdings, (b) all of the Capital Stock of CalGen Expansion Company held by the Borrower, and (c) all assets and properties of the Borrower and each of the Guarantors (other than the Excluded Assets and the Excluded Subsidiary), in each case as more particularly provided for in the Security Documents.
"Collateral Agent" has the meaning provided in the Recitals hereto.
"Collateral Trust Agreement" means that certain Collateral Trust and Intercreditor Agreement, dated as of the date hereof, by and among Holdings, the Borrower, the Guarantors, the Administrative Agent, the First Priority Term Loan Administrative Agent, the Second Priority Term Loan Administrative Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, the Collateral Agent and each other party from time to time a party thereto.
"Columbia Facility" means the Facility owned by Columbia Energy LLC.
"Columbia FILOT Arrangement" means a fee-in-lieu-of-taxes arrangement pursuant to which the Columbia Facility will be sold to Calhoun County, South Carolina, or a Person acting on its behalf, and leased to Columbia Energy LLC for a nominal annual amount in lieu of certain ad valorem taxes that would otherwise be owed to Calhoun County in connection with the Columbia Facility, together with the payment of a fee to Calhoun County in lieu of such ad valorem taxes; provided, that (a) Columbia Energy LLC has the right under such arrangement to repurchase the Columbia Facility for nominal consideration upon completion or termination of the lease agreement, (b) the leasehold interest held by Columbia Energy LLC is part of the Collateral, (c) the arrangement is not reasonably expected to have a material adverse effect on the operation or financial condition of the Columbia Facility and (d) the arrangement does not impair the Columbia Facility's status as a QF.
"Commercial Operation" means, with respect to a Facility, that such Facility is able to operate and produce electrical energy for commercial sale in accordance with Prudent Utility Practices and applicable Legal Requirements.
"Commitment Fee" is defined in Section 2.1.8 (Fees).
"Condemnation Event" means any Facility (or any portion thereof in excess of $20,000,000) is condemned, confiscated, requisitioned, captured, seized or subjected to forfeiture, or title thereto is taken, by any governmental authority (or any Person acting under color of governmental authority).
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
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(a) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(b) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(c) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(d) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(e) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus (a) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of (i) any and all interest expense for such period, including, without limitation, Consolidated Interest Expense and any interest expense attributable to Affiliate Subordinated Indebtedness, (ii) consolidated income tax expense for such period, (iii) all amounts attributable to depreciation and amortization for such period, (iv) any extraordinary or non-recurring non-cash charges (other than the write-down of current assets) for such period (including any such non-cash charges for such period relating to the application of fresh start accounting principals), (v) any non-cash goodwill or other intangible asset impairment charges incurred after the date hereof resulting from the application of Statement Number 142 of the Financial Accounting Standards Board, (vi) any non-recurring expenses incurred in connection with the transactions contemplated by the Financing Documents and (vii) any non-cash compensation charges (provided that, to the extent that all or any portion of the income of any Subsidiary of the Borrower or other Person is excluded from Consolidated Net Income pursuant to the definition thereof for all or any portion of such period, any amounts set forth in the preceding clauses (i) through (vii) that are attributable to such Subsidiary or other Person shall be not be included for purposes of this clause
(a) for such period or portion thereof), plus (b) without duplication, the cash amount of (i) prepayments received by the Borrower or any of its Subsidiaries under any Major Project Document during such period and (ii) any distributions received by the Borrower or any of its Subsidiaries pursuant to the Index Hedge during such period, and minus (c) without duplication (i) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net
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Income pursuant to clause (a) above in a previous period and (ii) to the extent included in determining such Consolidated Net Income, any extraordinary gains and all non-cash items of income for such period, all determined on a consolidated basis in accordance with GAAP; provided that, if the Borrower has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the sum of (1) the consolidated net income (loss) of such Subsidiary (to the extent included in Consolidated Net Income) and (2) the amounts set forth in clause (a)(i)-(vii) above attributable to such Subsidiary multiplied by (B) the percentage of Equity Interests in such Subsidiary not directly or indirectly owned by the Borrower on the last day of such period. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated EBITDA will be calculated on a Pro Forma basis as if all transactions entered into by the Borrower on the Closing Date were entered into on the first day of the period for which Consolidated EBITDA is being measured.
"Consolidated Interest Coverage Ratio" means, on any date, the ratio of
(a) Consolidated EBITDA of the Borrower and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended on or prior to such date, taken as one accounting period, to (b) Consolidated Interest Expense of the Borrower and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended on or prior to such date, taken as one accounting period.
"Consolidated Interest Expense" means, for any period, (a) the sum of, without duplication, (i) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations, but excluding any interest expense attributable to Affiliate Subordinated Indebtedness) of the Borrower and its Subsidiaries for such period (including all commissions, discounts and other fees and charges owed by the Borrower and its Subsidiaries with respect to letters of credit and bankers' acceptance financing), net of interest income, in each case determined on a consolidated basis in accordance with GAAP, plus (ii) any interest accrued (other than interest accrued with respect to Affiliate Subordinated Indebtedness) during such period in respect of Indebtedness of the Borrower or any Subsidiary of the Borrower that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP, minus (b) to the extent included in such consolidated interest expense for such period, amounts attributable to the amortization of financing costs and non-cash amounts attributable to the amortization of debt discounts. For purposes of this definition, interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any Subsidiary of the Borrower with respect to interest rate Hedging Obligations. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated Interest Expense will be calculated on a Pro Forma basis as if all transactions entered into by the Borrower on the Closing Date were entered into on the first day of the period for which Consolidated Interest Expense is being measured.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that:
(a) the Net Income of any Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net
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Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; and
(b) the cumulative effect of a change in accounting principles will be excluded.
"Continuation Notice" means a Continuation Notice substantially in the form of Exhibit D.
"Credit Event Date" means the date of the making of a Revolving Loan by the Lenders or of the issuance of a Letter of Credit by the LC Bank.
"Credit Facilities" means one or more debt facilities or commercial paper facilities (including the debt facilities provided under this Agreement and the Term Loan Agreements), in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
"Default Rate" is defined in Section 2.1.7 (Default Interest).
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the Stated Maturity of the Revolving Loans. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Borrower to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Borrower may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 5.4 (Restricted Payments). The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Borrower and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Dollars" and the sign "$" mean the lawful money of the United States of America.
"Drawing Date" has the meaning given in Section 2.2.4 (Reimbursement).
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"Drawing Payment" means any payment by the LC Bank honoring a drawing under a Letter of Credit.
"Eligible Assignee" means (a) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (b) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses.
"Environmental Consultants" means E Cubed, Inc., ENSR Corporation, Environmental Consulting & Technology, Inc., STS Consultants, Ltd and Separation Systems Consultants, Inc.
"Environmental Law" is defined in Section 4.10 (Hazardous Substances).
"Equally and Ratably" is defined in the Collateral Trust Agreement.
"Equity Contributions" means contributions of cash or Cash Equivalents to the common equity capital of the Borrower by Persons other than the Borrower and its Subsidiaries.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with Borrower or any of its Subsidiaries under Section 52 or 414 of the Code or Title IV of ERISA.
"ERISA Plan" means any employee benefit plan (including any Multiemployer Plan) under Section 3(3) of ERISA (a) maintained by Borrower or its Subsidiaries or any ERISA Affiliate, or to which any of them contributes or is obligated to contribute, or has contributed or been obligated to contribute, or has any liability, and (b) covered by Title IV of ERISA or to which Section 302 of ERISA, Section 412 of the Code or Subtitle J of the Code applies.
"Estimated Peak Capacity" means, with respect to a Facility, the nominal, as-tested new and clean capacity of such Facility, as corrected to average ambient conditions, plus all incremental peaking capability of such Facility derived from duct firing, power augmentation, steam injection or other means.
"Event of Default" is defined in Section 7.1 (Events of Default).
"EWG" is defined in Section 4.18 (Governmental Regulation).
"Excess Cash Flow" means, for any period:
(a) the sum of:
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(i) all revenues (excluding (A) non-cash revenues and (B) any payments received from contract monetizations, contract buy-outs and similar transactions) received by the Borrower and its Subsidiaries during such period,
(ii) all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events, and all net proceeds from the sale, lease, conveyance or other disposition of any assets or rights not constituting "Asset Sales", in each case received by the Borrower and its Subsidiairies during such period remaining after application of such proceeds to any repayment pursuant to Sections 2.1.11 (Mandatory Repayments and Commitment Reductions) and 5.7 (Asset Sales; Application of Net Proceeds), and
(iii) all Excess Expansion Asset Financing Proceeds received by the Borrower and its Subsidiaries during such period; less
(b) the sum of:
(i) all costs, expenses, fees and other charges
(including liquidated damages or other damages or penalties) incurred by the Borrower and its Subsidiaries during such period in connection with the ownership, operation, maintenance and use of the Facilities, including all payments under Major Project Documents and other agreements relating to the Facilities (other than Major Maintenance Expenses),
(ii) all trustee fees, collateral agent fees and other similar administrative fees and expenses paid by the Borrower and its Subsidiaries during such period,
(iii) the Fixed Charges of the Borrower and its Subsidiaries during such period (other than Fixed Charges of the kind referred to in clause (d) of the definition of Fixed Charges and Fixed Charges relating to Subordinated Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the Revolving Loan Obligations),
(iv) all payments of principal of Indebtedness of the Borrower and its Subsidiaries required to be made (whether or not actually made) during such period, other than payments of principal of Subordinated Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the Revolving Loan Obligations, and
(v) all amounts paid by the Borrower and its Subsidiaries for capital expenditures to the Facilities during such period, other than Excluded CapEx Amounts.
"Excess Expansion Asset Financing Proceeds" means the excess of (a) the aggregate amount of proceeds of Expansion Debt incurred to finance costs associated with Expansion Assets in accordance with Section 5.6(b)(iii) and Equity Contributions made in connection therewith, over (b) the amount of such proceeds and Equity Contributions required to finance
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costs associated with such Expansion Assets in compliance with the conditions set forth in Section 5.6(b)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" means
(a) the fixtures and equipment relating to any Facility if, to the extent that and for so long as (i) the ownership or operation of such Facility is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (A) such fixtures and equipment will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (a) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (B) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the security documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section
5.7 (Asset Sales; Application of Net Proceeds);
(b) with respect to personal property, any contract, agreement, lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such contract, agreement, lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such contract, agreement, lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable Legal Requirement (including the United States bankruptcy code); provided, that (A) such contract, agreement, lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (b) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (B) the proceeds of any sale, lease or other disposition of any such contract, agreement, lease, license, permit, franchise, power,
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authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section 5.7 (Asset Sales; Application of Net Proceeds);
(c) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for as long as the condition set forth above is and remains satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section 5.7 (Asset Sales; Application of Net Proceeds);
(d) any Excluded Subsidiary Securities;
(e) any property or assets owned by the Excluded Subsidiary;
(f) any Expansion Assets; provided, that any Expansion Assets will be Excluded Assets only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on the ability to grant a Lien on such Expansion Assets to secure the Secured Obligations continue to be applicable, as determined in good faith by the Borrower; and
(g) the Borrower's rights under or with respect to the Working Capital Facility.
"Excluded CapEx Amounts" means amounts paid by the Borrower and its Subsidiaries for capital expenditures to the Facilities using funds derived from either of the following funding sources:
(a) Equity Contributions, other than Equity Contributions made to comply with Section 5.6(b)(iii); and
(b) proceeds of Expansion Debt incurred in accordance with
Section 5.6(b)(iii).
"Excluded Subsidiary" means Goldendale Energy Center, LLC, only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on Goldendale Energy Center, LLC's ability to be a Guarantor and grant a Lien on its property and assets to
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secure the Secured Obligations continue to be applicable to Goldendale Energy Center, LLC, as determined in good faith by the Borrower.
"Excluded Subsidiary Securities" means Capital Stock or other securities of any Subsidiary of the Borrower, other than the Equity Interests in CalGen Expansion Company.
"Existing Credit Administrative Agent" is defined in the Preamble hereto.
"Existing Purchase Option" means an Asset Sale required in accordance with any of the following, without giving effect to any amendments or other modifications thereto after the Closing Date:
(a) the exercise by Eastman Chemical Company (or its successors and permitted assigns) of any of its purchase options under the Energy Services Agreement, dated as of August 15, 2000 and as amended to the Closing Date, between Columbia Energy LLC and Eastman Chemical Company;
(b) the exercise by Solutia, Inc. (or its successors and permitted assigns) of its purchase option upon an event of default under the Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001 and as amended to the Closing Date, between Decatur Energy Center, LLC and Solutia, Inc.;
(c) the exercise by Bayer Corporation (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of January 12, 2000 and as amended to the Closing Date, between Baytown Energy Center, LP and Bayer Corporation;
(d) the exercise by Lyondell-CITGO Refining L.P. (or its successors and permitted assigns) of any of its options to acquire certain property under the Amended and Restated Ground Lease and Easement Agreement, dated as of March 30, 2001 and as amended to the Closing Date, between Channel Energy Center, LP and Lyondell-CITGO Refining L.P.;
(e) the exercise by CITGO Refining and Chemicals Company L.P. (or its successors and permitted assigns) of its right of first offer under the Energy Services Agreement, dated as of March 23, 1999 and as amended to the Closing Date, between Corpus Christi Cogeneration, LP and CITGO Refining and Chemicals Company L.P.; and
(f) the exercise by Flint Hills Resources, L.P. (or its successors and permitted assigns) its purchase option under the Energy Services Agreement, dated as of July 24, 2003 and as amended to the Closing Date, between Corpus Christi Cogeneration, LP and Flint Hills Resources, L.P.
"Existing Senior Secured Credit Facility" is defined in the Preamble hereto.
"Expansion Assets" means the assets (including real property rights, contractual rights, rights under permits, other general intangibles and other ancillary rights) added to a Facility in
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connection with the addition of capacity to, or other expansion of, such Facility; provided, that such Expansion Assets are not necessary for the operation of such Facility or any other Facility (other than the Expansion Assets themselves), are readily distinguishable from such Facility and can be removed or separated from such Facility, dismantled or operated independently of the operation of such Facility without impairing such Facility or any other Facility in any material respect.
"Expansion Debt" means Indebtedness incurred for the purpose of financing the development, construction or purchase of, or repairs, improvements or additions to, Expansion Assets relating to one or more Facilities, including any Indebtedness existing at the time such Expansion Assets are acquired, whether or not such Indebtedness is incurred in connection with, or in contemplation of, the acquisition of such Expansion Assets; provided, that such Indebtedness was incurred to finance the development, construction or purchase of, or repairs, improvements or additions to, such Expansion Assets.
"Expiration Date" has the meaning given in each Letter of Credit.
"Facilities" means the Closing Date Facilities and any other electric generating facilities acquired or constructed after the Closing Date in accordance with the terms hereof; provided that any Facility disposed of in accordance with the terms hereof shall from and after the date of any such disposition be deemed not to be a Facility hereunder from and after the date of such disposition.
"Facility Owners" means Baytown Energy Center, LP; Carville Energy LLC; Channel Energy Center, LP; Columbia Energy LLC; Corpus Christi Cogeneration LP; Decatur Energy Center, LLC; Delta Energy Center, LLC, Freestone Power Generation, LP; Goldendale Energy Center, LLC, Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Calpine Oneta Power, L.P.; Pastoria Energy Facility, L.L.C. and Zion Energy LLC.
"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, (a) determined in good faith by an Officer of the Borrower and evidenced by an Officer's Certificate delivered to the Administrative Agent, if such value is less than or equal to $10,000,000, or (b) determined in good faith by the Board of Directors of the Borrower and evidenced by a resolution delivered to the Administrative Agent, if such value is greater than $10,000,000.
"Federal Funds Effective Rate" means for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent, in its capacity as a Lender, on such day on such transactions as determined by the Administrative Agent.
"FERC" is defined in Section 4.18 (Governmental Regulation).
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"Financing Documents" means this Agreement, the Term Loan Agreements, the Purchase Agreement, the Indentures, the Notes, the Registration Rights Agreement, the Security Documents and all other security documents and intercreditor agreements entered into by Holdings, the Borrower or any Subsidiary thereof (on the one hand) and any Agent or any Lender (on the other hand) in connection therewith.
"Financing Statements" is defined in Section 3.1.6 (Security).
"First Priority Debt Representative" is defined in the Collateral Trust Agreement.
"First Priority Indenture" is defined in the Recitals hereto.
"First Priority Indenture Trustee" is defined in the Recitals hereto.
"First Priority Lien" means a Lien granted by the Borrower or any Guarantor under a Security Document to the Collateral Agent upon any assets or property of the Borrower or any Guarantor to secure First Priority Lien Obligations.
"First Priority Lien Cap" means as of any date, (a) the principal amount of First Priority Notes, plus (b) the principal amount of all Indebtedness outstanding under the First Priority Term Loan Agreement plus the Indebtedness outstanding under any other Credit Facility (including this Agreement), all in an aggregate principal amount not to exceed the amount provided for in Section 5.6(b)(i)(A), less (c) the amount of Second Priority Lien Debt and Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay First Priority Lien Debt, plus (d) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (a) and (b), plus (e) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to other First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500,000,000. For purposes of this definition of First Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"First Priority Lien Debt" means, collectively, (a) the First Priority Notes, (b) the Indebtedness under this Agreement, (c) the Indebtedness under the First Priority Term Loan Agreement, (d) Hedging Obligations incurred to hedge or manage interest rate risk with respect to other First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500,000,000, (e) Indebtedness under any other Credit Facility that is secured by a First Priority Lien, and (f) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other First Priority Lien Debt; provided, however, such Indebtedness shall constitute First Priority Lien Debt only if, in the case of clauses (d), (e) or (f) of this definition:
(A) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such
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Indebtedness was permitted to be incurred and so secured under each applicable Financing Document);
(B) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each First Priority Debt Representative and the Collateral Agent, as First Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other First Priority Lien Documents;
(C) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation and an agreement by the holder of such Indebtedness and the applicable First Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and
(D) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is First Priority Lien Debt).
"First Priority Lien Documents" means this Agreement, the First Priority Notes, the Guarantees related thereto, the First Priority Indenture, the First Priority Term Loan Agreement, each agreement governing any other series of First Priority Lien Debt and all other agreements governing, securing or relating to any First Priority Lien Obligations.
"First Priority Lien Obligations" means the First Priority Lien Debt and all other Obligations in respect of First Priority Lien Debt.
"First Priority Notes" is defined in the Recitals hereto.
"First Priority Notes Indenture" is defined in the Recitals hereto.
"First Priority Secured Parties" shall mean the holders of the First Priority Lien Obligations (including the holders of the First Priority Notes, the Lenders, the Administrative Agent, the LC Bank and the lenders under the First Priority Term Loan Agreement).
"First Priority Term Loan Administrative Agent" is defined in the Recitals hereto.
"First Priority Term Loan Agreement" is defined in the Recitals hereto.
"First Priority Term Loan Documents" means the First Priority Term Loan Agreement and the Security Documents which relate to any of the First Priority Term Loan Obligations and all other agreements related thereto.
"First Priority Term Loan Obligations" means the First Priority Term Loans and all other Obligations under the First Priority Term Loan Documents relating to such loans.
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"First Priority Term Loans" is defined in the Recitals hereto.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred equity subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving Pro Forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(a) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries acquired by the specified Person or any of its Subsidiaries, and including any related financing transactions and including increases in ownership of Subsidiaries, during the applicable reference period or subsequent to such reference period and on or prior to the Calculation Date will be given Pro Forma effect as if they had occurred on the first day of such reference period;
(b) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(c) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date;
(d) any Person that is a Subsidiary on the Calculation Date will be deemed to have been a Subsidiary at all times during such reference period;
(e) any Person that is not a Subsidiary on the Calculation Date will be deemed not to have been a Subsidiary at any time during such reference period; and
(f) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire reference period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
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"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(a) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases, but excluding the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, under any Affiliate Subordinated Indebtedness; plus
(b) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, but excluding the consolidated capitalized interest of such Person and its Subsidiaries for such period under any Affiliate Subordinated Indebtedness; plus
(c) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(d) the product of (i) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred equity of such Person or any of its Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of CalGen (other than Disqualified Stock) or to CalGen or a Subsidiary of CalGen, times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal,
in each case, on a consolidated basis and determined in accordance with GAAP.
"FPA" is defined in Section 4.18 (Governmental Regulation).
"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the applicable date of determination.
"Goldendale Facility" means the Facility owned by Goldendale Energy Center, LLC.
"Governmental Authority" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
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"Governmental Rule" means any law, rule, regulation, ordinance, order, code interpretation, treaty, judgment, decree, directive, guidelines, policy or similar form of decision of any Governmental Authority.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantors" means
(a) CalGen Expansion Company; CPN Freestone, LLC; Calpine Freestone, LLC; Freestone Power Generation LP; Calpine Freestone Energy GP, LLC; Calpine Freestone Energy, LP; Calpine Power Equipment LP; Calpine Channel Energy Center LP, LLC; Calpine Channel Energy Center GP, LLC; Channel Power GP, LLC; Channel Power, LP; Channel Energy Center, LP; CalGen Equipment Finance Holdings, LLC; CalGen Project Equipment Finance Company One, LLC; CalGen Project Equipment Finance Company Three LLC; CalGen Equipment Finance Company, LLC; Nueces Bay Energy LLC; Calpine Northbrook Southcoast Investors, LLC; Calpine Corpus Christi Energy GP, LLC; Calpine Corpus Christi Energy, LP; Corpus Christi Cogeneration LP; Zion Energy LLC; Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Carville Energy LLC; Decatur Energy Center, LLC; Calpine Oneta Power I, LLC; Calpine Oneta Power II, LLC; Calpine Oneta Power, L.P.; Calpine Baytown Energy Center LP, LLC; Calpine Baytown Energy Center GP, LLC; Baytown Energy Center, LP; Baytown Power GP, LLC; Baytown Power, LP; Columbia Energy LLC; Delta Energy Center, LLC; CalGen Project Equipment Finance Company Two, LLC; Pastoria Energy Facility L.L.C.; and Calpine Pastoria Holdings, LLC; and
(b) any other Subsidiary of the Borrower that becomes a Guarantor in accordance with the provisions of this Agreement;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the Obligations of such Person under:
(a) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(b) other agreements or arrangements designed to manage interest rate risk; and
(c) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.
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"Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
"Holding Companies" means
(a) Calpine Baytown Energy Center LP, LLC; Calpine Baytown Energy Center GP, LLC; Baytown Power GP, LLC; Baytown Power, LP; Channel Power, LP; Calpine Channel Energy Center LP, LLC; Calpine Channel Energy Center GP, LLC; Channel Power GP, LLC; Calpine Corpus Christi Energy GP, LLC; Calpine Corpus Christi Energy, LP; Nueces Bay Energy LLC; Calpine Northbrook Southcoast Investors, LLC; CPN Freestone, LLC; Calpine Freestone, LLC; Calpine Freestone Energy GP, LLC; Calpine Freestone Energy, LP; Calpine Oneta Power I, LLC; Calpine Oneta Power II, LLC; CalGen Equipment Finance Holdings, LLC; and Calpine Pastoria Holdings, LLC; and
(b) any other Subsidiary of the Borrower that becomes a Holding Company in accordance with the provisions of this Agreement;
and their respective successors and assigns.
"Holdings" is defined in the Recitals hereto.
"Increased-Cost Lender" is defined in Section 2.1.17 (Removal Replacement of a Lender).
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(a) in respect of borrowed money;
(b) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(c) in respect of bankers' acceptances;
(d) representing Capital Lease Obligations;
(e) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
(f) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with
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GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(i) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(ii) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(iii) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(A) the Fair Market Value of such asset at the date of determination, and
(B) the amount of the Indebtedness of the other Person.
Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation.
"Indemnified Liabilities" has the meaning assigned to it in the Collateral Trust Agreement.
"Indemnitee" is defined in Section 12.3 (Indemnity).
"Indentures" is defined in the Recitals hereto.
"Independent Engineer" means R.W. Beck or any other independent engineering company of national standing selected by the Borrower and reasonably acceptable to the Administrative Agent.
"Index Based Gas Sale and Power Purchase Agreement" means that certain Index Based Gas Sale and Power Purchase Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and CES.
"Index Hedge" means, collectively, (a) that certain ISDA Master Agreement (MULTICURRENCY-CROSS BORDER), dated as of March 12, 2004, between the Borrower and MSCG, as supplemented by that certain Schedule to the Master Agreement, dated as of March 12, 2004, between the Borrower and MSCG and by that certain Amended and Restated
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Confirmation, dated as of March 12, 2004, between the Borrower and MSCG, and (b) that certain Guaranty, dated as of March 12, 2004, by Morgan Stanley for the benefit of the Borrower.
"Insolvency Proceeding" means
(a) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Borrower or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Borrower or any other Obligor or any similar case or proceeding relative to the Borrower or any other Obligor or its creditors, as such, in each case whether or not voluntary;
(b) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Borrower or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or
(c) any other proceeding of any type or nature in which substantially all claims of creditors of the Borrower or any other Obligor are determined and any payment or distribution is or may be made on account of such claims.
"intellectual property rights" is defined in Section 4.9 (Intellectual Property Rights).
"Interest Payment Date" means (a) in the case of each Base Rate Loan, on the last Business Day of each March, June, September and December, (b) in the case of each LIBOR Rate Loan, on the last day of the each Interest Period related to such LIBOR Rate Loan or, if such Interest Period is longer than three months, every three months after the date immediately preceding the date that such LIBOR Rate Loan was made, converted or continued, and (c) in all cases, upon prepayment of any Revolving Loans (to the extent thereof and including any optional or mandatory prepayments or redemptions), upon conversion from a Base Rate Loan to a LIBOR Rate Loan or a LIBOR Rate Loan to a Base Rate Loan, and on the Maturity Date.
"Interest Period" means the period of one, two, three or six months, as selected by the Borrower in the applicable Notice of Borrowing or Continuation Notice commencing on the day on which the immediately preceding Interest Period expires; provided, (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) of this definition, end on the last Business Day of such calendar month; and (c) no Interest Period shall extend beyond the Maturity Date.
"Interest Rate Determination Date" means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period.
"Investment Company Act" is defined in Section 4.16 (Investment Company Act).
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"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Borrower or any of its Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Borrower such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Borrower, the Borrower will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Borrower's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of Section 5.4 (Restricted Payments). Except as otherwise provided in this Agreement, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
"LC Bank" is defined in the Preamble hereto.
"LC Beneficiary" means the account beneficiary under a Letter of Credit, or any assignee or transferee of such beneficiary with respect to the rights of such beneficiary under such Letter of Credit.
"Lead Arranger" means The Bank of Nova Scotia.
"Legal Requirements" means, as to any Person, the articles of incorporation, bylaws or other organizational or governing documents of such Person, and any requirement under a Permit, and any Governmental Rule in each case applicable to or binding upon such Person or any of its properties or to which such Person or any of its property is subject.
"Lender" means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.
"Lender Addendum" means with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit F to be executed and delivered by such Lender on the Closing Date as provided in Section 12.6(j) (Successors and Assigns; Participations).
"Letter of Credit" means a letter of credit issued by the LC Bank pursuant to Section 2.2 (Letter of Credit Facilities) in substantially the form of letters of credit generally issued by the LC Bank.
"Letter of Credit Fee" is defined in Section 2.2.9 (Letter of Credit Fee).
"LIBOR Rate" means, with respect to any LIBOR Rate Loan for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the applicable Interest Rate Determination Date by reference to the British Bankers' Association Interest Settlement Rates for deposits in dollars (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized
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information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "LIBOR Rate" shall be the rate per annum at which the Administrative Agent or one of its affiliate banks offers to place deposits in Dollars with first-class banks in the London interbank market in London, England for such relevant Interest Period at approximately 11:00 a.m. (London time) on the applicable Interest Rate Determination Date, in amounts equal to $1,000,000.
"LIBOR Rate Loan" means a Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Lien Priority Confirmation" is defined in the Collateral Trust Agreement.
"Loan Agreements" means this Agreement and the Term Loan Agreements.
"Loan Availability Period" means the period from the Closing Date to (but excluding) the Maturity Date.
"Major Maintenance Expenses" means all costs, expenses, fees and other charges (including liquidated damages or other damages or penalties) incurred by the Borrower and its Subsidiaries during a period for major maintenance of the Facilities under the Master Maintenance Services Agreement or otherwise.
"Major Project Documents" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, the Index Based Gas Sale and Power Purchase Agreement, the Index Hedge, the Working Capital Facility, the Master Operation and Maintenance Agreement, the Master Maintenance Services Agreement, the Calpine Performance Guaranty, the Master Construction Management Agreement, the Calpine Project Undertaking and the Administrative Services Agreement.
"Master Construction Management Agreement" means that certain Master Construction Management Agreement, dated as of the date hereof, among the Borrower, Columbia Energy LLC, Goldendale Energy Center, LLC, Pastoria Energy Facility, LLC and Calpine Construction Management Company, Inc.
"Master Maintenance Services Agreement" means that certain Master Maintenance Services Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and Calpine Operating Services Company, Inc.
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"Master Operation and Maintenance Agreement" means that certain Master Operation and Maintenance Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and Calpine Operating Services Company, Inc.
"Material Adverse Effect" means a material adverse effect on (a) the current or reasonably anticipated business, property, results of operation or financial condition of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower and its Subsidiaries to perform their obligations under this Agreement and the other Revolving Loan Documents or (c) the value of, or the validity or priority of the Collateral Agent's security interests in, the Collateral taken as a whole.
"Materially Adverse" means, with respect to an event or circumstance, that such event or circumstance has had or is reasonably expected to have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole; it being understood that an event or circumstance would have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole, if the Excess Cash Flow for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event or circumstance occurred or commenced to exist, as applicable, would have decreased by more than 5.0%, determined on a Pro Forma basis.
"Maturity Date" means the earlier of (a) March 23, 2007 and (b) the date that all Revolving Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Mortgages" means each of the mortgages and deeds of trust encumbering any of the properties of any of the Guarantors including the Closing Date Mortgages and the mortgages and/or deeds of trust entered into pursuant to
Section 5.13 (Additional Subsidiaries).
"MSCG" means Morgan Stanley Capital Group, Inc.
"MSSF" means Morgan Stanley Senior Funding, Inc.
"Multiemployer Plan" means any "Multiemployer Plan" (as such term is defined in Section 3(37) or 4001(a)(3) of ERISA).
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(a) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and
(b) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
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"Net Proceeds" means:
(a) the aggregate cash proceeds received by the Borrower or any of its Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, sales commissions, any relocation expenses incurred as a result of the Asset Sale, and any taxes paid or payable by the Borrower, any of its Subsidiaries or Calpine as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of the Asset Sale (other than Secured Obligations), and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP;
(b) all proceeds of any insurance, indemnity, warranty or guaranty payable from time to time with respect to any Casualty Event that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, other than business interruption insurance proceeds, net of the direct costs relating to the collection of such proceeds; and
(c) all payments (in any form whatsoever) made or due and payable from time to time in connection with any Condemnation Event by any governmental authority (or any Person acting under color of governmental authority) that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, net of the direct costs relating to the collection of such proceeds.
"Non-Consenting Lender" is defined in Section 2.1.17 (Removal or Replacement of a Lender).
"Non-U.S. Lender" is defined in Section 2.1.16 (Taxes; Withholding, etc.).
"Note Documents" means the Indentures, the Notes, the Note Guarantees, the Collateral Trust Agreement, each Sharing Confirmation, the other Security Documents which relate to any of the Note Obligations and all other agreements related thereto.
"Note Guarantee" means the Guarantee by each Guarantor of the Borrower's obligations under each Indenture and on the Notes issued in connection therewith, including the payment, when due and payable, of principal, interest and premium, if any, thereunder, executed pursuant to the provisions of each Indenture.
"Note Obligations" means the Notes, the Note Guarantees and all other Obligations of any Obligor under the Note Documents.
"Notes" is defined in the Recitals hereto.
"Notice of Borrowing" means a notice of borrowing substantially in the form of Exhibit E.
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"Notice of LC Activity" is defined in Section 2.2.3 (Notice of LC Activity).
"Obligations" means any principal (including reimbursement obligations with respect to letters of credit whether or not drawn), interest, premium (if any), fees, indemnifications, reimbursements, expenses and other liabilities payable under the documentation governing or securing any Indebtedness.
"Obligor" means Holdings, the Borrower, the Guarantors and each other Subsidiary of the Borrower that has granted the Collateral Agent a Lien upon any of the Collateral as security for any Secured Obligations.
"Offering Memorandum" means the Offering Memorandum dated March 17, 2004 of the Borrower and CalGen Finance, as amended or supplemented.
"Officer" means, with respect to any Person, the chairman of the board, the chief executive officer, the president, the chief operating officer, the chief financial officer, the treasurer, any assistant treasurer, the controller, the secretary or any vice-president of such Person.
"Officer's Certificate" means a certificate signed on behalf of the Borrower by one Officer of the Borrower that meets the requirements of Section 12.21.
"Other Taxes" means any and all present and future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any of the Revolving Loan Documents or from the execution, delivery or enforcement of, or otherwise with respect to, any of the Revolving Loan Documents.
"Participation Interests" is defined in Section 2.2.7 (Lender Participation)
"Pastoria Facility" means the Facility owned by Pastoria Energy Facility, LLC.
"Payment Default" is defined in Section 7.1 (Events of Default).
"Payout Amount" is defined in Section 3.1.6(a)(iv) (Security).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
"Permitted Business" means the ownership, construction, operation and maintenance of the Closing Date Facilities and any substantially similar electric generating facilities located in the United States, together with any related assets or facilities, including gas pipelines supplying natural gas to such generating facilities, electric transmission lines carrying energy generated from such generating facilities, and any related gas or electric interconnection facilities.
"Permitted Counterparty Lien" means a Lien in favor of a counterparty under a PPA; provided, that the following conditions are satisfied:
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(a) the counterparty is not an Affiliate of the Borrower;
(b) the Lien does not secure any Indebtedness and (i) is granted solely to secure the performance obligations of the Borrower or the applicable Subsidiary under the PPA and/or any obligation of the Borrower or the applicable Subsidiary to make a termination payment under the PPA upon the occurrence of the event described in clause (c)(iii)(A) below or the termination by the counterparty upon the occurrence of any of the events described in clause (c)(iii)(B) below, or (ii) creates rights designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA;
(c) the counterparty can exercise its rights with respect to the Lien only (i) for so long as the counterparty remains current with respect to all of its payment obligations under the PPA and is not otherwise in a continuing default under the PPA, (ii) if the counterparty continues to acknowledge the existence of the Liens securing the Secured Obligations (unless and until Liens securing the Secured Obligations are eliminated in connection with a foreclosure of the Permitted Counterparty Liens as contemplated by clause (d) of this definition), and (iii) if either (A) the Borrower or the applicable Subsidiary has terminated, rejected or repudiated the PPA (including any rejection or similar act by or on behalf of the Borrower or the applicable Subsidiary in connection with any bankruptcy proceeding) or (B) the Borrower or the applicable Subsidiary has intentionally breached its obligations under the PPA; provided, that the following actions will be considered an intentional breach by the Borrower or the applicable Subsidiary under the PPA: (1) the Borrower or the applicable Subsidiary provides or delivers capacity or energy to a third party if the Borrower or the applicable Subsidiary is required under the PPA to provide or deliver such capacity or energy to the counterparty; (2) the Borrower or the applicable Subsidiary of the Borrower fails to operate or attempt to operate one or more of the relevant Facilities at a time when the Borrower or the applicable Subsidiary of the Borrower was required, under the PPA, to operate or attempt to operate such Facility or Facilities and such operation or attempted operation is not prevented by force majeure, forced outage or other events or circumstances outside the reasonable control of the Person responsible therefor;
(3) any failure by the Borrower or the applicable Subsidiary to comply with any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise take actions necessary to continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA, in each case to the extent the Borrower or the applicable Subsidiary is then capable of complying with such provisions; or (4) any failure by the Borrower or the applicable Subsidiary to pay to the counterparty any amount due and payable in accordance with the terms and conditions of the PPA; and
(d) the counterparty's exercise of its rights with respect to the Lien is limited to (i) the taking of actions pursuant to any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise necessary to continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA or (i) the recovery of any termination
33
payment due under the PPA upon the occurrence of the event described in clause (c)(iii)(A) above or the termination by the counterparty upon the occurrence of any of the events described in clause
(c)(iii)(B) above.
"Permitted Debt" is defined in Section 5.6 (Incurrence of Indebtedness and Issuance of Preferred Equity).
"Permitted Investment" means:
(a) any Investment in the Borrower or in a Guarantor;
(b) (i) any Investment in the Goldendale Facility to finance the construction and completion of the Goldendale Facility and any other repairs, improvements or other capital expenditures necessary to operate and maintain such Facility in accordance with prudent industry practice, and (ii) any other Investment in the Goldendale Facility made with the proceeds of Equity Contributions, Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(c) any Investment in Cash Equivalents;
(d) any Investment by the Borrower or any Guarantor in a Person, if as a result of such Investment:
(i) such Person becomes a Wholly Owned Subsidiary of the Borrower and a Guarantor; or
(ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Borrower or a Guarantor;
(e) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 5.7 (Asset Sales; Application of Net Proceeds);
(f) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Borrower;
(g) any Investments received in compromise or resolution of
(i) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Borrower or any of its Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (ii) litigation, arbitration or other disputes with Persons who are not Affiliates;
(h) Investments represented by Hedging Obligations;
(i) repurchases of the Notes and other Secured Obligations;
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(j) negotiable instruments held for deposit or collection in the ordinary course of business; and
(k) other Investments in any Person other than an Affiliate of the Borrower having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (k) that are at the time outstanding, not to exceed $30,000,000.
"Permitted Liens" means:
(a) Liens in favor of the Collateral Agent Equally and Ratably securing the First Priority Notes, the First Priority Term Loans, the Revolving Loans and all other First Priority Lien Debt, all in an aggregate principal amount not exceeding the First Priority Lien Cap, and all related First Priority Lien Obligations;
(b) Liens in favor of the Collateral Agent Equally and Ratably securing the Second Priority Notes, the Second Priority Term Loans and all other Second Priority Lien Debt, all in an aggregate principal amount not exceeding the Second Priority Lien Cap, and all related Second Priority Lien Obligations;
(c) Liens in favor of the Collateral Agent Equally and Ratably securing the Third Priority Notes and all other Third Priority Lien Debt and all related Third Priority Lien Obligations;
(d) Liens in favor of the Borrower or the Guarantors;
(e) pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or operating leases to which such Person is a party;
(f) Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
(g) (i) Liens to secure Expansion Debt that encumber the Expansion Assets financed with the proceeds of such Expansion Debt and other Expansion Assets owned by the Person incurring such Expansion Debt (including any rights of such Person under Shared Facilities Arrangements), (ii) Liens to secure Expansion Debt that encumber the Capital Stock of CalGen Expansion Company; provided, that any such Capital Stock must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and (iii) if such Expansion Assets are not Excluded Assets and are part of the Collateral, Liens to secure Expansion Debt on the other property and assets of such Person; provided, that any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust
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Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(h) obligations under Shared Facilities Arrangements, to the extent such obligations constitute Liens, and Liens on Shared Facilities securing the Borrower's or the applicable Subsidiary's obligations under Shared Facility Arrangements;
(i) Liens which constitute bankers' liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract;
(j) Liens existing on the Closing Date;
(k) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided, that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(l) Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the ordinary course of business; or Liens arising out of judgments that do not constitute a Default or an Event of Default;
(m) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(n) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Agreement; provided, however, that:
(i) the new Lien shall be limited to all or part of the same property and assets that secured the original Lien (plus repairs, improvements and additions to such property or assets); and
(ii) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (B) an amount necessary to pay any fees and expenses, including premiums, related to such Indebtedness;
(o) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to operating leases incurred in the ordinary course of business and not otherwise prohibited by this Agreement;
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(p) Liens not in respect of Indebtedness consisting of the interest of the lessor under any operating lease entered into in the ordinary course of business and not otherwise prohibited by this Agreement;
(q) Permitted Counterparty Liens;
(r) to the extent constituting Liens, obligations of the Borrower or its Subsidiaries under or restrictions imposed by any PPA Recognition Agreement;
(s) Liens on property and assets of the Borrower to secure Third Party Subordinated Indebtedness; provided, that all such property and assets must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to the Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of any Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(t) unperfected security interests to secure (i) intercompany Indebtedness permitted to be incurred under Section 5.6(b)(v) or (ii) Affiliate Subordinated Indebtedness permitted to be incurred under Section 5.6(b)(ix); and
(u) Liens incurred in the ordinary course of business of the Borrower or any Subsidiary of the Borrower with respect to obligations that do not exceed $50,000,000 at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Borrower or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Borrower or any of its Subsidiaries (other than intercompany Indebtedness); provided, that:
(a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);
(b) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(c) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Revolving Loan Obligations, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Revolving Loan Obligations on terms at least as favorable to the holders of the Revolving Loan Obligations as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
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(d) such Indebtedness is incurred either by the Borrower or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means without duplication as to amounts and as long as the Borrower is a pass-through entity for U.S. federal income tax purposes, payments to Calpine in an amount equal to the federal, state, local and foreign taxes (including any penalties and interest) that the Borrower would owe if the Borrower were a corporation for U.S. federal income tax purposes filing a consolidated or combined return with its Subsidiaries.
"Perpetual Preferred Stock" means, with respect to any Person, preferred Capital Stock of such Person that is not subject to mandatory redemption and is not Voting Stock.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"PPA" means an agreement (including a tolling agreement, fuel conversion services agreement or other similar agreement) entered into by the Borrower or any of its Subsidiaries for the sale of capacity or energy (and services ancillary or related thereto) from one or more of the Facilities.
"PPA Recognition Agreement" means an agreement by the Collateral Agent, on behalf of the holders of Secured Obligations, (a) to assume the rights and obligations of the Borrower or any of its Subsidiaries under the WECC Fixed Price Gas Sale and Power Purchase Agreement in the event of a foreclosure under any Financing Documents and (b) not to reject the WECC Fixed Price Gas Sale and Power Purchase Agreement in a Bankruptcy Case (subject to applicable law and the discretion of the bankruptcy court) so long as CES is not then in default under WECC Fixed Price Gas Sale and Power Purchase Agreement or the Index Based Gas Sale and Power Purchase Agreement, provided that such Recognition Agreement is substantially in the form attached as an exhibit to the Collateral Trust Agreement.
"preferred stock" means, with respect to any Person, any Capital Stock of such Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of the other Capital Stock issued by such Person.
"Prime Rate" means the rate of interest per annum that the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.
"Principal Office" means, for the Administrative Agent, its "Principal Office" as set forth on Appendix B, or such other office as the Administrative Agent (or any permitted successor or thereof) may from time to time designate in writing to the Borrower, the Collateral Agent and each Lender.
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"Pro Forma" means, with respect to a calculation, that such calculation is made in accordance with Regulation S-X under the Securities Act and gives effect to all relevant modifications to Major Project Documents and other contractual arrangements that have been made prior to, or are being made on, the calculation date and, in the case of a calculation for any period commencing prior to the Closing Date, all Major Project Documents and other contractual arrangements in effect on the Closing Date shall be deemed to have been in effect for the entirety of such period.
"Pro Rata Share" means, with respect to the Revolving Loans, the Participation Interests or the Revolving Loan Commitments of any Lender, as applicable, the percentage set forth after such Lender's name on Appendix A (as the same may be updated or adjusted from time to time to reflect any assignments made by any Lender hereunder).
"Project Documents" means, collectively, agreements or documents relating to the development, construction, operation or maintenance of any Facility owned by any Subsidiary of the Borrower, including any such documents or agreements entered into after the Closing Date.
"Projections" is defined in Section 3.1.18 (Delivery of Financials).
"Prudent Utility Practices" means those practices, methods, equipment, specifications and standards of safety and performance, as the same may change from time to time, as are commonly used by natural gas fired electric generation stations in the United States of America of a type and size similar to the Facility as good, safe and prudent engineering practices in connection with the design, construction, operation, maintenance, repair and use of electrical and other equipment, facilities and improvements of such electrical station, with commensurate standards of safety, performance, dependability, efficiency and economy. "Prudent Utility Practices" does not necessarily mean one particular practice, method, equipment specification or standard in all cases, but is instead intended to encompass a broad range of acceptable practices, methods, equipment specifications and standards.
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"PURPA" is defined in Section 4.18 (Governmental Regulation).
"Purchase Agreement" means the Purchase Agreement, dated March 12, 2004, among the Borrower, CalGen Finance, the Guarantors and Morgan Stanley & Co. Incorporated as the initial purchaser.
"QF" means a "qualifying cogeneration facility" as defined under the FPA, as amended by PURPA and Subpart B of Part 292 of the FERC's regulations.
"Register" is defined in Section 2.1.4(b)(Evidence of Debt; Register).
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date hereof, among the Borrower, CalGen Finance, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, and the other Person from time to time party thereto.
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"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Reimbursement Obligation" means the Borrower's obligation to repay Drawing Payments under any of the Letters of Credit as provided in Sections
2.2.4 (Reimbursement) and 2.2.5 (Reimbursement Obligations Absolute).
"Reimbursement Payment" means a payment made by or on behalf of the Borrower in partial or complete satisfaction of a Reimbursement Obligation, including any interest payment obligation in connection therewith.
"Related Fund" means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans similar to the Revolving Loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
"Replacement Lender" is defined in Section 2.1.17 (Removal or Replacement of a Lender).
"Requisite Lenders" means one or more Lenders holding more than 50% of the sum of the aggregate outstanding Revolving Loans, unfunded Revolving Loan Commitments and outstanding Participation Interests. For this purpose only, Revolving Loans and Participation Interests registered in the name of, or beneficially owned by, the Borrower or any Affiliate of the Borrower shall be deemed not to be outstanding.
"Restricted Investments" means an Investment other than a Permitted Investment.
"Restricted Payment" is defined in Section 5.4 (Restricted Payments).
"Revenue Account" means account number A/C 65572-1 (short title:
CALGEN REV A/C SUB SEC INT of WTC AS CA) in the name of the Borrower maintained at Wilmington Trust Company and any successor account or accounts.
"Revolving Loan" is defined in the Recitals hereto
"Revolving Loan Commitment" means the commitment of a Lender to make or otherwise fund a Revolving Loan. The amount of each Lender's Revolving Loan Commitment is set forth (as the case may be) on Appendix A, on Schedule 1 to the Lender Addendum delivered by such Lender or in the applicable Assignment Agreement, subject to any adjustment or reduction in
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such amount pursuant to the terms and conditions hereof. The Revolving Loan Commitment of each Lender shall be reduced, on a pro rata basis, in the event that the Total Loan Commitment is reduced for any reason. The aggregate amount of the Revolving Loan Commitments as of the Closing Date is $200,000,000.
"Revolving Loan Documents" means this Agreement, any Letters of Credit issued hereunder, the Security Documents which relate to the Revolving Loan Obligations and all other agreements related thereto.
"Revolving Loan Guarantees" means the Guarantees by the Guarantors of the Borrower's and the other Guarantors' obligations with respect to Revolving Loan Obligations under this Agreement, as set forth in Article XI hereof.
"Revolving Loan Notes" means a promissory note in the form of Exhibit G evidencing a Revolving Loan.
"Revolving Loan Obligations" means the Revolving Loans, the Reimbursement Obligations and all other Obligations under the Revolving Loan Documents relating to such loans.
"Revolving Loans" is defined in the Recitals hereto.
"Revolving Loan Secured Obligations Termination Date" means the date on which all Revolving Loan Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the Revolving Loan Documents even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash, all outstanding Letters of Credit have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount thereof and all commitments to extend credit (including Letters of Credit) hereunder have been terminated.
"Revolving Loan Secured Parties" means the Administrative Agent, the LC Bank and the Lenders.
"R.W. Beck" means R.W. Beck, Inc.
"S&P" means Standard & Poor's Ratings Group.
"Second Priority Debt Representative" is defined in the Collateral Trust Agreement.
"Second Priority Indenture" is defined in the Recitals hereto.
"Second Priority Indenture Trustee" is defined in the Recitals hereto.
"Second Priority Lien Cap" means as of any date, (a) the principal amount of Second Priority Notes, plus (b) the principal amount of all Indebtedness outstanding under the Second Priority Term Loan Agreement plus the Indebtedness outstanding under any other Credit Facility, all in an aggregate principal amount not to exceed the amount provided for in Section
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5.6(b)(i)(B), less (c) the amount of Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay Second Priority Lien Debt, plus (d) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (a) and (b), plus (e) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to other Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500,000,000. For purposes of this definition of Second Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"Second Priority Lien Debt" means, collectively, (a) the Second Priority Notes, (b) the Indebtedness under the Second Priority Term Loan Agreement, (c) Hedging Obligations incurred to hedge or manage interest rate risk with respect to other Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500,000,000, (d) Indebtedness under any other Credit Facility that is secured by a Second Priority Lien, and (e) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Second Priority Lien Debt or any First Priority Lien Debt; provided, however, in the case of clauses (c), (d) or (e) of this definition, such Indebtedness shall constitute Second Priority Lien Debt only if
(i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document), (ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each Second Priority Debt Representative and the Collateral Agent, as Second Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other Second Priority Lien Documents; (iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the applicable Second Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and (iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is Second Priority Lien Debt).
"Second Priority Lien Documents" means the Second Priority Notes, the Guarantees related thereto, the Second Priority Indenture, the Second Priority Term Loan Agreement, each agreement relating to any other series of Second Priority Lien Debt and all other agreements governing, securing or relating to any Second Priority Lien Obligations.
"Second Priority Lien Obligations" means the Second Priority Lien Debt and all other Obligations in respect of Second Priority Lien Debt.
"Second Priority Notes" is defined in the Recitals hereto.
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"Second Priority Secured Parties" shall mean the holders of the Second Priority Lien Obligations (including the holders of the Second Priority Notes, the Second Priority Term Loan Administrative Agent and the lenders under the Second Priority Term Loan Agreement).
"Second Priority Term Loan Administrative Agent" is defined in the Recitals hereto.
"Second Priority Term Loan Agreement" is defined in the Recitals hereto.
"Second Priority Term Loan Documents" means the Second Priority Term Loan Agreement and any security documents which relate to any of the Second Priority Term Loan Obligations and all other agreements related thereto.
"Second Priority Term Loan Obligations" means the Second Priority Term Loans and all other Obligations related thereto under the Second Priority Term Loan Documents.
"Second Priority Term Loans" is defined in the Recitals hereto.
"Secured Debt" means, collectively, First Priority Lien Debt, Second Priority Lien Debt and Third Priority Lien Debt.
"Secured Obligations" means, collectively, First Priority Lien Obligations, Second Priority Lien Obligations and Third Priority Lien Obligations.
"Secured Obligations Termination Date" means the date on which all Secured Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the First Priority Lien Documents, Second Priority Lien Documents or Third Priority Lien Documents, as applicable, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Financing Documents), all commitments to extend credit under all Financing Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Financing Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Secured Parties" means the First Priority Secured Parties, the Second Priority Secured Parties and the Third Priority Secured Parties.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Documents" means the Collateral Trust Agreement and all security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, control agreements, deeds of trust or other grants or transfers for security executed and delivered by Holdings, the Borrower or any Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Agent with respect to the Revolving Loan Obligations.
"SEC" means the Securities and Exchange Commission.
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"SERC" means the Southeastern Electric Reliability Council and any successor organization.
"Shared Facilities" means equipment, facilities, pipelines, permits, real estate rights, entitlements or other property that are shared or jointly used, owned or operated by the Borrower or any of its Subsidiaries and any owner of Expansion Assets.
"Shared Facilities Arrangement" means any arrangement that provides for the sharing, joint operation or use, common ownership, leasing or contingent use of Shared Facilities between the Borrower or any of its Subsidiaries and any owner of Expansion Assets or Toll Party (as defined below), and/or their respective lenders, including (a) agreements for the sharing or joint use or operation of Shared Facilities, (b) ownership of undivided interests in Shared Facilities as tenants in common or other similar forms of joint ownership, (c) leasing of Shared Facilities by the Borrower or any of its Subsidiaries to an owner of Expansion Assets, (d) ownership of Shared Facilities by a single purpose entity formed solely to own the Shared Facilities and owned by the Borrower or any of its Subsidiaries or jointly owned by the Borrower or any of its Subsidiaries and the owner of the Expansion Assets, (e) tolling agreements between the Borrower or any of its Subsidiaries and any other Person (the "Toll Party") with respect to a Facility's steam turbine, (f) granting of conditional or unconditional real estate rights for the construction, installation or use of Shared Facilities, (g) Liens on the Shared Facilities or interests therein to secure any such arrangement; provided, that the Borrower shall deliver to the Collateral Agent an Officer's Certificate to the effect that, and, with respect to items (c) and (d) below, a nationally-recognized independent engineer will deliver a report concluding that (subject to customary assumptions and qualifications):
(a) the ownership, operation, leasing or use of such Shared Facilities by the owner of Expansion Assets (including the use of the steam turbine by the Toll Party) cannot unreasonably interfere with or otherwise materially adversely affect the operation of the Facility;
(b) the owner of the Facility (or another entity on such owner's behalf) continues to operate and maintain the Facility and the Shared Facilities;
(c) the costs of operating and maintaining the Shared Facilities are shared by the owner of the Facility and the owner of the Expansion Assets or the Toll Party, as applicable, on an equitable basis;
(d) the Shared Facilities and the entitlements related thereto are sufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, or, to the extent the Shared Facilities or the entitlements related thereto are insufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, the Facility will have priority with respect to such Shared Facilities or entitlements, so long as the Facility is operated within the requirements, operating restrictions and other limitations associated with such Shared Facilities or entitlements;
(e) the holder of the Expansion Assets or the Toll Party, as applicable, will not have any rights with respect to the sale or other disposition of, or exercise of remedies
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with respect to, the Facility, so long as the Shared Facilities remain subject to the Shared Facilities Arrangements;
(f) each party waives the defense that an adequate remedy exists at law and affords the other party (and its lenders or agents on behalf of such lenders) the right to specifically enforce the agreement; and
(g) the owner of the Expansion Assets or the Toll Party, as applicable, cannot prevent a dismantling of the Facility and the receipt by the holders of the Secured Debt of the proceeds of the sale thereof, so long as (i) such owner or Toll Party, as applicable, is given an option to purchase the Shared Facilities at their Fair Market Value, as determined by appraisal, prior to dismantling of the Facility, (ii) such owner or Toll Party, as applicable, is given a right of first refusal to acquire the Shared Facilities in the event they are offered for sale in connection with the dismantling of the Facility, and (iii) the owner of the Facility cooperates with the owner of the Expansion Assets or the Toll Party, as applicable, in accommodating the continued use and operation of the Expansion Assets and the Shared Facilities to the maximum extent reasonably possible notwithstanding the dismantling of the Facility, including providing reasonable periods for and cooperating in the modification of the Shared Facilities.
"Sharing Confirmation" means, as the context requires, First Priority Debt Sharing Confirmation, Second Priority Debt Sharing Confirmation or Third Priority Debt Sharing Confirmation, in each case as defined in the Collateral Trust Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof.
"Stated Amount" means, with respect to each Letter of Credit, the total amount available to be drawn thereunder at any time in question in accordance with the terms of such Letter of Credit.
"Stated Maturity" means, with respect to any installment of interest or principal on any Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Affiliate Subordinated Indebtedness, Working Capital Facility Indebtedness or Third Party Subordinated Indebtedness.
"Subsidiary" means, with respect to any specified Person,
(a) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is
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at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(b) any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
"Synthetic Lease Obligations" means all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease or (b) an agreement for the use or possession of any property (whether real, personal or mixed) creating obligations which do not appear on the balance sheet of such Person, but which, upon the insolvency or bankruptcy of such Person, would be characterized as Indebtedness of such Person (without regard to accounting treatment).
"Tax" means any present or future tax, levy, impost, charge, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed by a taxing authority other than a "Tax on the overall net income" of any Person. A "Tax on the overall net income" of a Person shall be construed as a reference to a tax (including U.S. backup withholding taxes) imposed by the jurisdiction in which that Person is organized or in which that Person's applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).
"Terminated Lender" is defined in Section 2.1.17 (Removal or Replacement of a Lender).
"Term Loan Agreements" is defined in the Recitals hereto.
"Term Loans" is defined in the Recitals hereto.
"Third Party Project Documents" means the agreements listed on Schedule A.
"Third Party Subordinated Indebtedness" means Indebtedness loaned to the Borrower by a Person other than an Affiliate of the Borrower; provided, that such Indebtedness (a) is contractually subordinated in right of payment to the Revolving Loans and all other Secured Obligations on the terms described in Exhibit A, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (b) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the Revolving Loans, (c) provides for payment of interest thereon in the form of cash or additional Third Party Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (d) is otherwise in the form set forth in Exhibit A.
"Third Priority Debt Representative" is defined in the Collateral Trust Agreement.
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"Third Priority Fixed Rate Notes" is defined in the Recitals hereto.
"Third Priority Floating Rate Notes" is defined in the Recitals hereto.
"Third Priority Indenture" is defined in the Recitals hereto.
"Third Priority Indenture Trustee" is defined in the Recitals hereto.
"Third Priority Lien Debt" means, collectively, (a)the Third Priority Floating Rate Notes and the Third Priority Fixed Rate Notes; (b) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire First Priority Lien Debt, Second Priority Lien Debt or other Third Priority Lien Debt; and (c) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Third Priority Lien Debt having a notional amount not to exceed the aggregate principal amount of outstanding Third Priority Lien Debt; provided, that, in the case of any Indebtedness referred to in clause (b) or (c) of this definition:
(i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document);
(ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each Third Priority Debt Representative and the Collateral Agent, as Third Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other Third Priority Lien Documents;
(iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation and an agreement by the applicable Third Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and
(iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is Third Priority Lien Debt).
"Third Priority Lien Documents" means the Third Priority Floating Rate Notes and the Third Priority Fixed Rate Notes, the Guarantees related thereto, the Third Priority Indenture, each agreement governing any other series of Third Priority Lien Debt and all other agreements governing, securing or relating to any Third Priority Lien Obligations.
"Third Priority Lien Obligations" means the Third Priority Lien Debt and all other Obligations in respect of Third Priority Lien Debt.
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"Third Priority Secured Parties" shall mean the holders of the Third Priority Lien Obligations (including the holders of the Third Priority Fixed Rate Notes and the holders of the Third Priority Floating Rate Notes).
"Title Company" means Stewart Title Guaranty Company.
"Total Loan Commitment" is defined in Section 2.1.1 (Revolving Loans).
"TPUC" is defined in Section 4.18(d) (Governmental Regulation).
"Type of Loan" means, with respect to any Revolving Loan, a Base Rate Loan or a LIBOR Rate Loan.
"U.S." means the United States of America.
"UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"WECC" means the Western Electricity Coordinating Council and any successor organization.
"WECC Fixed Price Gas Sale and Power Purchase Agreement" means that certain WECC Fixed Price Gas Sale and Power Purchase Agreement, dated as of the date hereof, among the Borrower, certain Facility Owners and CES.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(a) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(b) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) will at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means that certain Working Capital Facility, dated as of the date hereof, among the Borrower, Holdings and Calpine.
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"Working Capital Facility Indebtedness" means Indebtedness incurred by the Borrower under the Working Capital Facility; provided, that such Indebtedness
(a) is contractually subordinated in right of payment and in all other respects to the Revolving Loans and all other Secured Obligations on the terms described in Exhibit A including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (b) does not provide for mandatory redemption thereof until at least six months after the Maturity Date, (c) provides for payment of interest thereon in the form of cash or by capitalizing the interest to principal, and (d) is otherwise in the form set forth in Exhibit A.
SECTION 1.2 Rules of Construction.
Unless the context otherwise requires:
(a) An accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.
(b) Any of the terms used or defined herein may be used in the singular or the plural, depending on the reference.
(c) Except as expressly provided in any Revolving Loan Documents, any reference to any agreement or instrument shall be deemed to include a reference to such agreement or instrument as assigned, amended, amended and restated, supplemented, otherwise modified from time to time or replaced in accordance with the terms of this Agreement.
(d) The use in this Agreement or any of the Revolving Loan Documents of the word "include" or "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. The word "will" shall be construed to have the same meaning and effect as the word "shall."
(e) References to "Articles", "Sections" and "clauses" shall be to Articles, Sections and clauses, respectively, of this Agreement unless otherwise specifically provided.
(f) References to "Exhibits", "Appendices" and "Schedules" shall be to Exhibits, Appendices and Schedules, respectively, to this Agreement unless otherwise specifically provided.
(g) The use in this Agreement of the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof.
(h) This Agreement, the other Revolving Loan Documents and any documents or instruments delivered pursuant hereto or thereto shall be construed without regard to the identity of the party who drafted the various provisions of the same. Each and every provision of this Agreement, the other Revolving Loan Documents and instruments and documents entered into
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and delivered in connection therewith shall be construed as though the parties participated equally in the drafting of the same. Consequently, each of the parties acknowledges and agrees that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or the other Revolving Loan Documents and instruments and documents entered into and delivered in connection therewith.
ARTICLE II.
THE CREDIT FACILITIES
SECTION 2.1 Revolving Loan Facility.
Section 2.1.1 Revolving Loans.
(a) Revolving Loan Commitments. Subject to the terms and conditions hereof (including without limitation the conditions to extensions of credit set forth in Article 3), (i) each Lender severally agrees to make, from time to time during the Loan Availability Period, Revolving Loans to the Borrower in an amount up to such Lender's Revolving Loan Commitment, and (ii) the Borrower may borrow, repay and reborrow the funds available for Revolving Loans from time to time during the Loan Availability Period. The aggregate principal amount of all Revolving Loans outstanding at any time shall not exceed the difference of (A) $200,000,000 or, if such amount is reduced pursuant to Section 2.1.10 (Voluntary Prepayments) or Section 2.1.11 (Mandatory Repayments and Commitment Reductions), such lower amount (such amount as so reduced from time to time, the "Total Loan Commitment"), minus (B) the sum of (1) the Aggregate LC Stated Amount then outstanding plus (2) the aggregate amount of all Reimbursement Obligations then outstanding. All amounts owed hereunder with respect to the Revolving Loans shall be paid in full no later than the Maturity Date. Each Lender's Revolving Loan Commitment shall terminate immediately and without further action on the Maturity Date.
(b) Borrowing Mechanics for Revolving Loans. By delivering a Notice of Borrowing to the Administrative Agent on or before 10:00 a.m. (New York City time) on a Business Day, an Officer of the Borrower may from time to time irrevocably request, on not less than three Business Days, in the case of LIBOR Rate Loans, or one Business Day in the case of Base Rate Loans, nor more than five Business Days' notice, that a Revolving Loan be made in a minimum amount of $2,000,000 or in the unused amount of the Total Loan Commitment. The Administrative Agent shall promptly transmit the information in each of the Borrower's Notices of Borrowing to each Lender. On the terms and subject to the conditions of this Agreement (including the conditions precedent specified in
Section 3.1 (Conditions Precedent to Closing) or Section 3.2 (Conditions Precedent to each Revolving Loan), as applicable), each Revolving Loan shall be comprised of the Types of Loans, and shall be made by each Lender on the Business Day, specified in such Notice of Borrowing. On or before 12:00 p.m. (New York City time) on the Business Day specified in such Notice of Borrowing, each Lender shall deposit with the Administrative Agent an amount equal to such Lender's applicable Pro Rata Share of the requested Revolving Loan. Such deposit will be made by wire transfer of same day funds in Dollars to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the applicable Lenders, the Administrative
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Agent shall make such funds available to the Borrower by wire transfer to one or more accounts as may be designated in writing to the Administrative Agent by the Borrower.
Section 2.1.2 Amount of Revolving Loans; Availability of Funds.
(a) Amount of Revolving Loans. All Revolving Loans shall be made by the Lenders simultaneously in proportion to their respective Revolving Loan Commitments, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Revolving Loan hereunder nor shall any Revolving Loan Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a Revolving Loan hereunder.
(b) Availability of Funds. Unless the Administrative Agent shall have been notified by any Lender prior to a Credit Event Date that such Lender does not intend to make available to the Administrative Agent the amount of such Lender's Revolving Loan, the Administrative Agent may assume that such Lender has made and will make such amount available to the Administrative Agent on such Credit Event Date and the Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to the Borrower a corresponding amount on such Credit Event Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Credit Event Date until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent together with interest thereon, for each day from the Closing Date until the date such amount is paid to the Administrative Agent, at the rate payable hereunder for Revolving Loans. Nothing in this Section 2.1.2(b) shall be deemed to relieve any Lender from its obligation to fulfill its Revolving Loan Commitment hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder.
Section 2.1.3 Use of Proceeds. The proceeds of Revolving Loans shall be applied by the Borrower only (a) to finance the development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Borrower or any Subsidiary (other than a Subsidiary that is a Holding Company) or (b) to pay interest on the Term Loans and the Notes. The proceeds of Revolving Loans may also be applied by the Borrower to repay Reimbursement Obligations under a Letter of Credit; provided that such Letter of Credit financed the development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Borrower or any Subsidiary (other than a Subsidiary that is a Holding Company). No portion of the proceeds of any Revolving Loan shall be used (nor shall any Letter of Credit be used) in any manner that causes or might cause the funding of the Revolving Loans or the issuance of a Letter of Credit or the application of such proceeds to violate Regulation T, Regulation U or Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act.
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Section 2.1.4 Evidence of Debt; Register; Lenders' Books and Records; Notes.
(a) Lenders' Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of the Borrower to such Lender, including the amounts of the Revolving Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on the Borrower, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's Obligations in respect of any Revolving Loan; and provided further, that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern.
(b) Register. The Administrative Agent shall maintain at the Principal Office a register for the recordation of the names and addresses of the Lenders and the Revolving Loans and Participation Interests of each Lender from time to time (the "Register"). The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall record in the Register the Revolving Loans, the Participation Interests, each issuance, cancellation, drawing or termination of any Letter of Credit, each repayment or prepayment in respect of the principal amount of the Revolving Loans and the Total Loan Commitment and each Lender's Revolving Loan Commitment, and any such recordation shall be conclusive and binding on the Borrower and each Lender, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's Obligations in respect of any Revolving Loan. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent solely for purposes of maintaining the Register as provided in this Section 2.1.4, and the Borrower hereby agrees that, to the extent the Administrative Agent serves in such capacity, the Administrative Agent and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees" under Section 12.3 (Indemnity).
(c) Revolving Loan Notes. If so requested by any Lender by written notice to the Borrower (with a copy to the Administrative Agent) at any time, the Borrower shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 12.6 (Successors and Assigns; Participations)) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after the Borrower's receipt of such notice), a Revolving Loan Note payable to such Lender in a maximum principal amount equal to such Lender's commitment to fund Revolving Loans.
Section 2.1.5 Interest.
(a) Except as otherwise set forth herein, the Revolving Loans shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:
(i) if a Base Rate Loan, at the Base Rate plus 2.50% per annum; or
(ii) if a LIBOR Rate Loan, at the Adjusted LIBOR Rate plus 3.50% per annum.
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(b) The Type of Loan, and the Interest Period with respect to any LIBOR Rate Loan, shall be selected by the Borrower and notified to the Administrative Agent and the Lenders pursuant to the applicable Notice of Borrowing or Continuation Notice, as the case may be. If on any day a Revolving Loan is outstanding with respect to which a Notice of Borrowing or Continuation Notice has not been delivered to the Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Revolving Loan shall be a Base Rate Loan.
(c) In connection with LIBOR Rate Loans there shall be no more than five Interest Periods outstanding at any time. In the event that the Borrower fails to specify the Type of Loan in the applicable Notice of Borrowing or Continuation Notice, such Revolving Loan (if outstanding as a LIBOR Rate Loan) will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Revolving Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan). In the event that the Borrower fails to specify an Interest Period for any LIBOR Rate Loan in the applicable Notice of Borrowing or Continuation Notice, the Borrower shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Rate Loans for which an interest rate is then being determined for the applicable Interest Period and, upon the request of the Borrower, shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and each Lender.
(d) Interest payable pursuant to Section 2.1.5(a) shall be computed (i) in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of LIBOR Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Revolving Loan, the date of the making of such Revolving Loan or the first day of an Interest Period applicable to such Revolving Loan or, with respect to a Base Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Revolving Loan or the expiration date of an Interest Period applicable to such Revolving Loan or, with respect to a Base Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such Base Rate Loan to such LIBOR Rate Loan, as the case may be, shall be excluded; provided, if a Revolving Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Revolving Loan.
(e) Except as otherwise set forth herein, interest on each Revolving Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Revolving Loan.
Section 2.1.6 Continuation Notice.
(a) Subject to Section 2.1.15 (Increased Costs; Capital Adequacy) and so long as no Default or Event of Default shall have occurred and then be continuing, the Borrower shall have the option:
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(i) to convert at any time all or any part of any Revolving Loan equal to $2,000,000 and integral multiples of $500,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a LIBOR Rate Loan may only be converted on the expiration of the Interest Period applicable to such LIBOR Rate Loan unless the Borrower shall pay all amounts due under Section 2.1.14 (Making or Maintaining Revolving Loans) in connection with any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any LIBOR Rate Loan, to continue all or any portion of such Revolving Loan equal to $2,000,000 and integral multiples of $500,000 in excess of that amount as a LIBOR Rate Loan.
(b) The Borrower shall deliver a Continuation Notice to the Administrative Agent no later than 10:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBOR Rate Loan). Except as otherwise provided herein, a Continuation Notice for conversion to, or continuation of, any LIBOR Rate Loans shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to effect a conversion or continuation in accordance therewith. In the event that the Borrower shall have failed to provide a Continuation Notice as required by this Section 2.1.6(b) to continue any LIBOR Rate Loan into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.1.6(b) to convert such LIBOR Rate Loan into a Base Rate Loan), then such LIBOR Rate Loan shall, at the end of the applicable Interest Period, automatically be converted into a Base Rate Loan.
(c) Any Continuation Notice shall be executed by an Officer of the Borrower in a writing delivered to the Administrative Agent. In lieu of delivering a written notice, the Borrower may give the Administrative Agent telephonic notice by the required time of any continuation; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Continuation Notice to the Administrative Agent on or before the applicable date of continuation. Neither the Administrative Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer or other Person authorized on behalf of the Borrower or otherwise acting in good faith.
Section 2.1.7 Default Interest. Notwithstanding anything to the contrary herein, upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Revolving Loans and, to the extent permitted by applicable Legal Requirements, any accrued but unpaid interest payments thereon and any accrued but unpaid fees and other amounts hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under applicable Bankruptcy Laws) payable upon demand at a rate that is (a) 2% per annum in excess of the interest rate then otherwise payable under this Agreement with respect to the applicable Revolving Loans or (b) in the case of any such fees and other amounts, at a rate that is 2% per annum in excess of the interest rate then otherwise payable under this Agreement for Base Rate Loans (the "Default Rate"); provided that if an Event of Default has occurred and is continuing on the expiration date of the Interest Period for any LIBOR Rate Loans, then such LIBOR Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest
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payable upon demand at a rate that is 2% per annum in excess of the interest rate then otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.1.7 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent, the Collateral Agent or any Lender.
Section 2.1.8 Fees.
(a) Fee Letter. The Borrower agrees to pay to each Agent and each applicable Lender the fees in the amounts and at the times set forth herein and any other fees as separately agreed upon by the Borrower and such Agent or such Lender (as applicable) in writing.
(b) Revolving Loan Commitment Fees. On the last Business Day in each calendar quarter (where all or any portion of such calendar quarter occurs on or after the Closing Date and prior to the Maturity Date) and on the Maturity Date (or, if the Total Loan Commitment is canceled prior to such date, on the date of such cancellation), the Borrower shall pay to the Administrative Agent, for the benefit of the Lenders, accruing from the Closing Date or the first day of such quarter, as the case may be, a commitment fee (the "Commitment Fee") for such quarter (or portion thereof) then ending equal to the product of (a) 0.75% times
(b) the daily average Available Loan Commitment for such quarter (or portion thereof) times (c) a fraction, the numerator of which is the number of days in such quarter (or portion thereof) and the denominator of which is the number of days in that calendar year (365 or 366, as the case may be).
Section 2.1.9 Payments. The principal amounts of the Revolving Loans (reduced in connection with any voluntary or mandatory prepayments of the Revolving Loans, in accordance with Sections 2.1.10 (Voluntary Prepayments),
2.1.11 (Mandatory Repayments and Commitment Reductions) and Section 5.7 (Asset Sales; Application of Net Proceeds), as applicable) shall be repaid from time to time in the discretion of the Borrower, but in any event in full on the Maturity Date.
Section 2.1.10 Voluntary Prepayments; Voluntary Commitment Reductions.
(a) The Borrower may voluntarily prepay (without premium or penalty) Revolving Loans on any Business Day, in whole or in part, in an aggregate minimum amount of $2,000,000 and integral multiples of $500,000 (or the remaining amount outstanding) in excess of that amount.
(b) All such prepayments shall be made:
(i) upon not less than one Business Day's prior written, email or telephonic notice in the case of Base Rate Loans; and
(ii) upon not less than three Business Days' prior written, email or telephonic notice in the case of LIBOR Rate Loans;
in each case given to the Administrative Agent by 1:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to the Administrative Agent (and
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the Administrative Agent will promptly transmit such telephonic or original notice, by telefacsimile or telephone to each Lender). Upon the giving of any such notice, the principal amount of the Revolving Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any prepayment of any Revolving Loan pursuant to this Section shall be applied in inverse order of maturities and otherwise in accordance with Section 2.1.12 (General Provisions Regarding Payments).
(c) The Borrower may, upon not less than five Business Days' prior written notice to Administrative Agent, at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Total Loan Commitment; provided that any such partial reduction of the Total Loan Commitment shall be in an aggregate minimum amount of $2,000,000 and integral multiples of $500,000 in excess of that amount. The Borrower's notice to the Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Total Loan Commitment shall be effective on the date specified in the Borrower's notice and shall reduce the Revolving Loan Commitment of each Lender proportionately to its Pro Rata Share. Notwithstanding anything to the contrary herein, the Borrower may not terminate in whole or permanently reduce in part the Total Loan Commitment if, after giving effect to any such termination or reduction, such termination or reduction would result in the aggregate amount of the Total Loan Commitment being at such time less than the sum of (i) the aggregate principal amount of outstanding Revolving Loans at such time and (ii) the Aggregate Stated LC Amount and all outstanding Reimbursement Obligations at such time. Together with the delivery by the Borrower to the Administrative Agent of its notice of intent to terminate or reduce the Total Loan Commitment, the Borrower shall deliver an Officer's Certificate certifying to the foregoing.
Section 2.1.11 Mandatory Repayments and Commitment Reductions. The Borrower shall prepay the Revolving Loans with the Net Proceeds of an Asset Sale, Casualty Event or Condemnation Event as and to the extent required by
Section 5.7(c). Each such prepayment shall be made on a pro rata basis with the First Priority Term Loans and the First Priority Notes. The Total Loan Commitment shall be permanently reduced by the amount of each such prepayment, and each Lender's Revolving Loan Commitment shall be correspondingly reduced in proportion to its Pro Rata Share (provided, if after giving effect to any such reduction, the Total Loan Commitment is less than the sum of (i) the aggregate principal amount of all Revolving Loans outstanding at such time and (ii) the aggregate Stated LC Amount and Reimbursement Obligations at such time, then the Borrower shall immediately prepay such Revolving Loans and cash collateralize (pursuant to a cash collateral agreement in form and substance reasonable satisfactory to the Administrative Agent) such Letters of Credit or Reimbursement Obligations to the extent necessary to cause the Total Loan Commitment to be equal to or greater than the amounts specified in clauses (i) and (ii) above).
Section 2.1.12 General Provisions Regarding Payments.
(a) All payments by the Borrower or any Guarantor of principal, interest, fees and other Revolving Loan Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to the Administrative Agent not later than 1:00 p.m. (New York City time) on the date due at the Administrative
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Agent's Principal Office for the account of the Administrative Agent or the Lenders, as the case may be. Funds received by the Administrative Agent after that time on such due date shall be deemed to have been paid by the Borrower or the applicable Guarantor on the next succeeding Business Day.
(b) All payments in respect of the principal amount of any Revolving Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Revolving Loan on a date when interest is due and payable with respect to such Revolving Loan) shall be applied to the payment of interest before application to principal.
(c) The Administrative Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder together with all other amounts due thereon, including all fees payable with respect thereto, to the extent received by the Administrative Agent.
(d) Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be due on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder.
(e) The Borrower hereby authorizes the Administrative Agent to charge the Borrower's accounts (if any) with the Administrative Agent in order to cause timely payment to be made to the Administrative Agent of all principal, interest, fees and expenses due hereunder (to the extent there are funds available in its accounts for that purpose) upon the occurrence and during the continuation of any Event of Default in respect of its payment obligations hereunder.
(f) The Administrative Agent shall deem any payment by or on behalf of the Borrower hereunder that is not made in same day funds prior to 1:00 p.m. (New York City time) on the date therefor to be a non-conforming payment. Any such payment shall not be deemed to have been received by the Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. The Administrative Agent shall give prompt telephonic notice to the Borrower and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 7.1 (Events of Default). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.1.7 (Default Interest) from the date such amount was due and payable until the date such amount is paid in full.
Section 2.1.13 Ratable Sharing. The Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Revolving Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Revolving Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Law, receive payment or reduction of a proportion of the
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aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Revolving Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify the Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each Lender that is deemed to be the seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders, so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to each of them, respectively; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of the Borrower or otherwise, the foregoing purchases of participations shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender(s) ratably to the extent of such recovery, but without interest. The Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Borrower to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.
Section 2.1.14 Making or Maintaining Revolving Loans.
(a) Inability to Determine Applicable Interest Rate. In the event that the Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto absent manifest error), on any Interest Rate Determination Date with respect to any Revolving Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Revolving Loans on the basis provided for in the definition of Adjusted LIBOR Rate, the Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and each Lender of such determination, whereupon (i) no Revolving Loans may be made or maintained with an interest rate based on the Adjusted LIBOR Rate, and instead will be made and maintained with an interest rate equal to the Base Rate plus 2.50% per annum, until such time as the Administrative Agent notifies the Borrower and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Notice of Borrowing or Continuation Notice given by the Borrower with respect to the Revolving Loans in respect of which such determination was made shall be deemed to be rescinded by the Borrower.
(b) Illegality or Impracticability of using the Adjusted LIBOR Rate. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with the Borrower and the Administrative Agent) that the making, maintaining or continuation of its Revolving Loans with an interest rate based on the Adjusted LIBOR Rate (i) has become unlawful as a result of compliance by such Lender in good faith with any Legal Requirement or would conflict with any treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful, or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and
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adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and on that day it shall give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (A) the obligation of the Affected Lender to make or maintain Revolving Loans with an interest rate based on the Adjusted LIBOR Rate shall be suspended until such notice shall be withdrawn by the Affected Lender, (B) to the extent such determination by the Affected Lender relates to a Revolving Loan then being requested by the Borrower pursuant to a Notice of Borrowing or a Continuation Notice, the Affected Lender shall make such Revolving Loan as (or continue such Revolving Loan as) a Revolving Loan with an interest rate equal to the Base Rate plus 2.50% annum, (C) the Affected Lender's obligation to maintain its outstanding Revolving Loans with an interest rate based on the Adjusted LIBOR Rate (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (D) the Affected Loans shall automatically convert into Revolving Loans with an interest rate equal to the Base Rate plus 2.50% per annum on the date of such termination. Except as provided in the immediately preceding sentence, nothing in this
Section 2.1.14(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Revolving Loans with an interest rate based on the Adjusted LIBOR Rate in accordance with the terms hereof.
(c) Compensation for Breakage or Non-Commencement of Interest Periods. The Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Revolving Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits (such anticipated profits being the 3.50% spread over the Adjusted LIBOR Rate) which such Lender may sustain within an Interest Period: (i) if any prepayment or other principal payment of any of its Revolving Loans occurs on a date prior to the last day of an Interest Period applicable to that Revolving Loan (including pursuant to Section 2.1.10 (Voluntary Prepayments), 2.1.11 (Mandatory Repayments and Commitment Reductions) and 5.7 (Asset Sales; Application of Net Proceeds)); (ii) if any prepayment of any of its Revolving Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iii) if the Borrower revokes any Notice of Borrowing submitted pursuant to Section 2.1.2(b) above after a date which is after the applicable minimum periods for the submission of such Notice of Borrower specified in
Section 2.1.2(b) above.
(d) Booking of Revolving Loans. Any Lender may make, carry or transfer Revolving Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
(e) Assumptions Concerning Funding of Revolving Loans. Calculation of all amounts payable to a Lender under this Section 2.1.14 and under Section 2.1.15 (Increased Costs; Capital Adequacy) shall be made as though such Lender had actually funded each of its relevant Revolving Loans through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to clause (b) of the definition of Adjusted LIBOR Rate in an amount equal to the amount of such Revolving Loan and having a maturity comparable to the relevant Interest
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Period and through the transfer of such LIBOR deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, each Lender may fund each of its Revolving Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.1.14 and under
Section 2.1.15 (Increased Costs; Capital Adequacy).
Section 2.1.15 Increased Costs; Capital Adequacy.
(a) Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.1.16 (Taxes; Withholding, etc.) (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any Legal Requirement, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new Legal Requirement), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law):
(i) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to any Revolving Loans that are reflected in the definition of Adjusted LIBOR Rate); or
(ii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Revolving Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Borrower shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.1.15(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
(b) Capital Adequacy Adjustment. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any Legal Requirement (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central
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bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Revolving Loans, or participations therein or other obligations hereunder with respect to the Revolving Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by the Borrower from such Lender of the statement referred to in the next sentence, the Borrower shall pay to such Lender such additional amount or amounts as shall compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this
Section 2.1.15(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
Section 2.1.16 Taxes; Withholding, etc.
(a) Payments to Be Free and Clear. Except as otherwise provided in this
Section 2.1.16, all sums payable by or on behalf of any Obligor hereunder and under the other Revolving Loan Documents shall (except to the extent required by any applicable Legal Requirement) be paid free and clear of, and without any deduction or withholding on account of, any Tax imposed, levied, collected, withheld or assessed by or within the U.S. or any political subdivision in or of the U.S. or any other jurisdiction from or to which a payment is made by or on behalf of any Obligor.
(b) Withholding of Taxes. If any Obligor or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by or on behalf of any Obligor to the any Agent or any Lender under any of the Revolving Loan Documents:
(i) the Borrower shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as the Borrower becomes aware of it;
(ii) the Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Obligor) for its own account or (if that liability is imposed on such Agent or such Lender, as the case may be) on behalf of and in the name of such Agent or such Lender;
(iii) the sum payable by such Obligor in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of all deductions, withholding or payments for or with respect to Taxes, such Agent or such Lender, as the case may be, receives on the due date
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a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and
(iv) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any tax which it is required by clause (ii) above to pay, the Borrower shall deliver to the Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in either the imposition of deduction, withholding or payment or an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender.
(c) Other Taxes. The Borrower shall pay any Other Taxes to the relevant taxing or other authority in accordance with applicable Legal Requirements, and shall comply with the requirements of Section 2.1.16(b)(iv) with respect to such payments.
(d) Indemnification. Subject to the requirements of Section 2.1.16(e), the Borrower shall indemnify each Agent and each Lender for the full amount of Taxes (to the extent the Borrower would be required to pay additional amounts with respect to such Taxes pursuant to Section 2.1.16(b)) or Other Taxes arising in connection with payments made under any of the Revolving Loan Documents (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.1.16) paid by such Agent or Lender and any penalties, additions to tax, interest and expenses arising from or with respect to such Taxes or Other Taxes, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 10 days from the date any Agent or any Lender makes written demand therefor.
(e) Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax purposes (a "Non-U.S. Lender") shall deliver to the Administrative Agent for transmission to the Borrower, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of the Borrower or the Administrative Agent (each in the reasonable exercise of its discretion):
(i) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to establish that such Lender is not subject to deduction or withholding of
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United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Revolving Loan Documents or is subject to such deduction or withholding at a reduced rate; or
(ii) if such Lender is not a "bank" or other Person described in
Section 881(c)(3) of the Code and is claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Certificate Re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Revolving Loan Documents.
Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this
Section 2.1.16(e) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to the Administrative Agent for transmission to the Borrower two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Revolving Loan Documents or is subject to such deduction or withholding at a reduced rate, or notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence. The Borrower shall not be required to pay any additional amount to any Non-U.S. Lender under Section 2.1.16(b)(iii) or to indemnify the Non-U.S. Lender under Section 2.1.16(d) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this Section 2.1.16(e), or (2) to notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided, if such Lender shall have satisfied the requirements of the first sentence of this
Section 2.1.16(e) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of this Section 2.1.16(e) shall relieve the Borrower of its obligation to pay any additional amounts pursuant to Section 2.1.16(b) or to indemnify the Non-U.S. Lender under Section 2.1.16(d) in the event that, as a result of any change in any applicable Legal Requirement, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein. For the avoidance of doubt, to the extent the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a U.S. withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes.
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Section 2.1.17 Removal or Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that:
(a) (i) any Lender (an "Increased-Cost Lender") shall give notice to the Borrower that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.1.14 (Making or Maintaining Revolving Loans), 2.1.15 (Increased Costs; Capital Adequacy) or 2.1.16 (Taxes; Withholding, etc), (ii) the circumstances which have caused such Lender to be an Increased-Cost Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after the Borrower's request for such withdrawal; or
(b) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 12.5(b) (Amendments and Waivers), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "Non-Consenting Lender") whose consent is required shall not have been obtained;
then, with respect to each such Increased-Cost Lender or Non-Consenting Lender (the "Terminated Lender"), the Borrower may, by giving written notice to the Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Revolving Loans and its Participation Interests in full to one or more Eligible Assignees (each a "Replacement Lender") in accordance with the provisions of Section 12.6 (Successors and Assigns; Participations) and the Borrower shall pay any fees payable thereunder in connection with such assignment; provided,
(i) on the date of such assignment, the Replacement Lender shall pay to such Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Revolving Loans and Participation Interests of the Terminated Lender, and (B) an amount equal to all accrued, but theretofore unpaid, fees owing to such Terminated Lender pursuant to Section 2.1.8 (Fees);
(ii) on the date of such assignment, the Borrower shall pay any amounts payable to such Terminated Lender pursuant to Section 2.1.14(c) (Making or Maintaining Revolving Loans), 2.1.15 (Increased Costs; Capital Adequacy) or 2.1.16 (Taxes; Withholding, etc.); provided that no premium on such amounts shall be required to be paid; and
(iii) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender.
Upon the prepayment of all amounts owing to any Terminated Lender, such Terminated Lender shall no longer constitute a "Lender" under any of the Revolving Loan Documents; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender.
SECTION 2.2 Letter of Credit Facilities.
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Section 2.2.1 Issuance of the Letters of Credit. Subject to the terms and conditions set forth in this Agreement (including the conditions precedent set forth in Section 3.3), the LC Bank shall, during the Loan Availability Period, on each Business Day specified in a Notice of LC Activity described in Section 2.2.3, issue, extend or increase the Stated Amount (as applicable), for the account of the Borrower, of the Letter(s) of Credit to which such Notice of LC Activity relates, and shall deliver each such Letter of Credit (or a notice of extension or increase in the Stated Amount thereof) to the Borrower for ultimate delivery to the applicable LC Beneficiary, or directly to the applicable LC Beneficiary, as requested by the Borrower. Subject to Section 2.2.6(b), the LC Bank shall not modify the conditions for draws or terms of availability for any Letter of Credit issued and outstanding hereunder without the Borrower's prior written consent.
Section 2.2.2 Use of Letters of Credit. The LC Bank shall, subject to the terms and conditions of the Agreement, at the request and for the account of the Borrower, make Letter(s) of Credit available to the Borrower and/or its Affiliates solely to enable the Borrower or such Affiliates (as applicable) to provide security for their respective obligations under Project Documents (other than Project Documents that evidence "Indebtedness" as such term is defined in Calpine's senior indentures). No Letter of Credit shall be issued, renewed, replaced or extended by the LC Bank until such time (or a reasonable period before such time) as required under the Project Document pursuant to which such Letter of Credit is being issued. The expiration date of each Letter of Credit shall be on or prior to the scheduled Maturity Date.
Section 2.2.3 Notice of LC Activity. The Borrower shall request the issuance, extension or increase in the Stated Amount of any Letter of Credit by delivering to the Administrative Agent and the LC Bank an irrevocable written notice in the form of Exhibit H, appropriately completed (a "Notice of LC Activity"), which specifies, among other things:
(a) The particulars of the Letter of Credit to be issued or the Letter of Credit to be extended or the Stated Amount of which is to be increased;
(b) The Borrower (or its Affiliates) and the Facility to which such Letter of Credit relates;
(c) The issue date and expiration date of the Letter of Credit to be issued or extended (neither of which shall in any event be later than the scheduled Maturity Date); and
(d) The Stated Amount of such Letter of Credit; provided, that the sum of (i) such Stated Amount plus (ii) the Aggregate LC Stated Amount plus (iii) all outstanding Reimbursement Obligations, shall not exceed the amount equal to the excess, if any, of (A) the Total Loan Commitment at such time over (B) the aggregate principal amount of all Revolving Loans then outstanding plus the Aggregate LC Stated Amount and all outstanding Reimbursement Obligations at such time.
The Borrower shall give the Notice of LC Activity to the Administrative Agent and the LC Bank at least five Business Days before the requested date of issuance of any Letter of Credit, or of any
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extension or increase in the Stated Amount of any Letter of Credit. Any Notice of LC Activity, once given by Borrower, may not be modified or revoked without the prior consent of the LC Bank.
Section 2.2.4 Reimbursement. The LC Bank shall notify the Borrower of any Drawing Payment under any Letter of Credit within one Business Day after the date that such Drawing Payment is made (the date such Drawing Payment is made, the "Drawing Date"); provided, however, that the LC Bank's failure to provide such notification shall not relieve Borrower of its Reimbursement Obligation (it being understood, however, that the LC Bank shall not be excused from any liability it may have to the Borrower as a result of such failure to provide the required notice). No later than 11:00 a.m. (New York City time) on the fifth Business Day after the Drawing Date, the Borrower shall make or cause to be made to the LC Bank a Reimbursement Payment in an amount equal to the sum of (a) the full amount of such Drawing Payment and (b) interest thereon for each day or portion thereof until such Reimbursement Payment is made at a rate equal to (i) from the Drawing Date through the fifth Business Day following the Drawing Date, the interest rate that would be applicable to a one-month LIBOR Rate Loan made on the Drawing Date and (ii) thereafter, the Default Rate; provided, however, that such Reimbursement Payment shall be for the benefit of each Lender (in proportion to its Pro Rata Share) to the extent that, prior to the time such Reimbursement Payment is made, such Lender has, pursuant to Section 2.2.7, paid the LC Bank its respective Pro Rata Share of the Drawing Payment made by the LC Bank. If a Reimbursement Payment is made in the full amount of such Drawing Payment by 3:00 p.m. on the applicable Drawing Date, no interest shall be payable on such Drawing Payment.
Section 2.2.5 Reimbursement Obligation Absolute. The Reimbursement Obligation of the Borrower for each Drawing Payment shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under and without regard to any circumstances, including, (a) any lack of validity or enforceability of any Revolving Loan Documents or Project Documents, (b) any amendment or waiver of or any consent to departure from all or any terms of any of the Revolving Loan Documents or Project Documents, (c) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against any LC Beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such LC Beneficiary or transferee may be acting), the LC Bank, the Administrative Agent, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein, any Revolving Loan Document, or in the Project Documents, or in any unrelated transaction, (d) any breach of contract or dispute among or between the Borrower, the LC Bank, the Administrative Agent, any Lender, or any other Person, (e) any demand, statement, certificate, draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect, (f) payment by the LC Bank under any Letter of Credit against presentation of any demand, statement, certificate, draft or other document which does not comply with the terms of such Letter of Credit, (g) any non-application or misapplication by an LC Beneficiary of the proceeds of any Drawing Payment under a Letter of Credit or any other act or omission of an LC Beneficiary in connection with a Letter of Credit, (h) any extension of time for or delay, renewal or compromise of or other indulgence or modification to the Drawing Payment granted or agreed to by the LC Bank, the Administrative Agent or any Lender, with or without notice to or approval by the Borrower, (i) any failure to preserve or protect any Collateral, any failure to perfect or preserve the perfection of any Lien
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thereon, or the release of any of the Collateral securing the performance or observance of the terms of this Agreement or any of the other Revolving Loan Documents or any of the Project Documents, or (j) any other circumstances or happenings whatsoever relating to the Borrower, such Reimbursement Obligation or any Facility, whether or not similar to any of the foregoing, including the failure of the Borrower to occupy or use any Facility in the manner contemplated by the Revolving Loan Documents or Project Documents or otherwise, any defect in title, design, operation, merchantability, fitness or condition of any Facility or in the suitability of any Facility for the Borrower's purposes or needs, any failure of consideration, destruction of or damage to any Facility, any commercial frustration of purpose, the taking by condemnation of title to or the use of all or any part of any Facility, any Regulatory Change, any failure of an LC Beneficiary or any other Person to perform or observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or in connection with the Revolving Loan Documents or the Project Documents to which each is a party; provided, however, that nothing in this Section 2.2.5 shall relieve the LC Bank, the Administrative Agent or any Lender from liability for its bad faith, gross negligence or willful misconduct or breach of this Agreement.
Section 2.2.6 Reduction and Reinstatement of Stated Amount.
(a) The Stated Amount of each Letter of Credit shall be reduced by the amount of Drawing Payments made in respect thereof. Notwithstanding anything to the contrary contained in this Section 2.2, once so reduced, the Stated Amount of any Letter of Credit shall not be reinstated except (i) upon the prior written consent of the Administrative Agent, the LC Bank and the Requisite Lenders or (ii) upon payment by Borrower of the Reimbursement Obligation corresponding to such Drawing Payment and satisfaction of the conditions for an increase in the Stated Amount of a Letter of Credit set forth in Section 2.2.3 and Article 3.
(b) Upon the occurrence and during the continuation of an Event of Default under Section 7.1(k) or at such time as, pursuant to the terms hereof, the Revolving Loan Obligations have been accelerated, the Administrative Agent (acting at the direction of the LC Bank or the Requisite Lenders) shall be entitled to cancel all outstanding Letters of Credit any time at least 30 days after delivery to the LC Beneficiary of each Letter of Credit that will be canceled a written notice of such intent to cancel, whereupon the LC Beneficiary shall be entitled to draw upon the applicable Letter of Credit in accordance with its terms.
Section 2.2.7 Lender Participation. Each Lender severally agrees to participate with the LC Bank in the extension of credit arising from the issuance of the Letters of Credit (each a "Participation Interest") in an amount equal to such Lender's Pro Rata Share of the Stated Amount of each Letter of Credit, and the issuance of a Letter of Credit shall be deemed a confirmation to the LC Bank of such participation in such amount. After written notification by the LC Bank to the Administrative Agent at any time after the LC Bank has received notice of or request for any Drawing Payment, the Administrative Agent may request the Lenders to pay to the Administrative Agent on behalf of the LC Bank their respective Pro Rata Shares of all or any portion of such Drawing Payment made or to be made by the LC Bank under any Letter of Credit by contacting each Lender telephonically (promptly confirmed in writing), and specifying the amount of such Drawing Payment (as set forth in the LC Bank's written notification of the Administrative Agent of the same), such Lender's Pro Rata Share thereof, and the date on which
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such Drawing Payment is to be made or was made (as set forth in the LC Bank's written notification of the Administrative Agent of the same); provided, however, that the Administrative Agent shall not request the Lenders to make any payment under this Section 2.2.7 in connection with any portion of a Drawing Payment for which the LC Bank has been reimbursed through a Reimbursement Payment by the Borrower (unless such Reimbursement Payment has been thereafter recovered by the Borrower). Upon receipt of any such request for payment from the Administrative Agent, each Lender shall pay to Administrative Agent such Lender's Pro Rata Share of the unreimbursed portion of such Drawing Payment, together with interest thereon at a per annum rate equal to the Federal Funds Effective Rate, as in effect from time to time, from the date of such Drawing Payment to the date on which such Lender makes payment, and the Administrative Agent shall promptly thereafter pay to the LC Bank all amounts so received. Each Lender's obligation to make each such payment to the Administrative Agent shall be absolute, unconditional and irrevocable and shall not be affected by any circumstance whatsoever, including the occurrence or continuance of any Default or Event of Default, or the failure of any other Lender to make any payment under this Section 2.2.7, and each Lender further agrees that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. If any Reimbursement Payment is made to Administrative Agent or the LC Bank, the Administrative Agent or the LC Bank, as applicable, shall pay to each Lender which has paid its Pro Rata Share of the Drawing Payment such Lender's Pro Rata Share of the Reimbursement Payment and shall, in the case of the Administrative Agent, pay to the LC Bank and, in the case of the LC Bank, retain, the balance of such Reimbursement Payment.
Section 2.2.8 Commercial Practices. The Borrower assumes all risks of the acts or omissions of any LC Beneficiary or transferee of any Letter of Credit with respect to the use of such Letter of Credit. The Borrower agrees that neither the LC Bank, the Administrative Agent nor any Lender (nor any of their respective directors, officers or employees) shall be liable or responsible for:
(a) the use which may be made of any Letter of Credit or for any acts or omissions of any LC Beneficiary or transferee in connection therewith; (b) any reference which may be made to this Agreement or to any Letter of Credit in any agreements, instruments or other documents; (c) the validity, sufficiency or genuineness of documents other than the Letters of Credit, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged or any statement therein prove to be untrue or inaccurate in any respect whatsoever; (d) payment by the LC Bank against presentation of documents which do not strictly comply with the terms of the applicable Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit; or (e) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except only that the LC Bank shall be liable to the Borrower for acts or events described in clauses (a) through (e) above, to the extent, but only to the extent, of any direct damages, as opposed to indirect, special or consequential damages, suffered by the Borrower which the Borrower proves were caused by (i) the LC Bank's bad faith, willful misconduct or gross negligence in determining whether a drawing made under the applicable Letter of Credit complies with the terms and conditions therefor stated in such Letter of Credit or (ii) the LC Bank's willful failure to pay under any Letter of Credit after a drawing by the respective LC Beneficiary strictly complying with the terms and conditions of the applicable Letter of Credit. Without limiting the foregoing, the LC Bank may accept any document that appears on its face to be in order, without responsibility for further investigation. The Borrower hereby waives any right to object to any payment made under a Letter of Credit with regard to a
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drawing that is in the form provided in such Letter of Credit but which varies with respect to punctuation (except punctuation with respect to any Dollar amount specified therein), capitalization, spelling or similar matters of form.
Section 2.2.9 Letter of Credit Fees. On the last Business Day in each calendar quarter commencing on or after the Closing Date and through the Maturity Date, on the Expiration Date of each Letter of Credit and on the Maturity Date, the Borrower shall pay to the Administrative Agent for the benefit of the Lenders, accruing from the date of issuance of such Letter of Credit, a Letter of Credit fee (the "Letter of Credit Fee") for such quarter (or portion thereof in the case of payment on the Expiration Date of a Letter of Credit or on the Maturity Date) then ending at the rates per annum described below and computed in the following manner: The Letter of Credit Fee in respect of each Letter of Credit shall be equal to the product of (i) 3.50%, times (ii) the daily average Stated Amount of each such Letter of Credit for such quarter (or portion thereof in the case of payment on the Expiration Date of a Letter of Credit or on the Maturity Date) times (iii) a fraction, the numerator of which is the number of days in such quarter (or portion thereof in the case of payment on the Expiration Date of a Letter of Credit or on the Maturity Date) and the denominator of which is 360.
Section 2.2.10 Termination of Letters of Credit. Unless terminated earlier in accordance with its terms, or extended pursuant to Section 2.2.3 (Notice of LC Activity), each Letter of Credit shall terminate on the earlier to occur of
(a) 12:01 a.m., on the Expiration Date stated therein (which shall be no later than the earlier of the Maturity Date and 15 days following the scheduled expiration of the letter of credit obligations under the Project Document in connection with which such Letter of Credit is to be issued) and (b) cancellation of such Letter of Credit pursuant to Section 2.2.6(b) (Reduction and Reinstatement of Stated Amount).
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1 Conditions Precedent to Closing.
The effectiveness of this Agreement, the obligations of the Administrative Agent hereunder, the obligations of the LC Bank hereunder and the obligations of any Lender to make a Revolving Loan (if any) on the Closing Date are each subject to the satisfaction, or waiver in accordance with Section 12.5 (Amendments and Waivers), of the following conditions precedent on or before the Closing Date:
Section 3.1.1 Resolutions. The Administrative Agent shall have received a copy of one or more resolutions or other authorizations of Holdings, the Borrower and each Guarantor authorizing, as applicable and among other things, the granting of the Liens under the Security Documents and the execution, delivery and performance of this Agreement and the other Financing Documents, in each case certified by an Officer of each such Person as being (a) in full force and effect as of the Closing Date and (b) true, correct and complete copies of all of the resolutions or other authorizations of such Person relating to the transactions contemplated by this Agreement and the other Financing Documents as of the Closing Date.
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Section 3.1.2 Incumbency. The Administrative Agent shall have received a certificate from each of Holdings, the Borrower and each Guarantor, signed by the appropriate authorized officer of such Person and dated as of the Closing Date, as to the incumbency of the natural persons authorized to execute and deliver the Revolving Loan Documents to which such Person is a party.
Section 3.1.3 Formation Documents. The Administrative Agent shall have received (a) a copy of the certificate of formation, articles of incorporation or other comparable constituent documents of Holdings, the Borrower and each Subsidiary of the Borrower, in each case certified by the Secretary of State of the state of such Person's formation or incorporation (as applicable) and (b) a copy of the limited liability company operating agreement, bylaws or other comparable constituent documents of such Person, in each case certified by an Officer of such Person as being true, correct and complete as of the Closing Date.
Section 3.1.4 Good Standing Certificates. The Administrative Agent shall have received certificates issued by the Secretary of State of the state in which each of Holdings, the Borrower, and each Subsidiary of the Borrower is formed or organized (as applicable), (a) dated no more than five days prior to the Closing Date and (b) certifying that such Person is in good standing and is qualified to do business in, and has paid all franchise taxes or similar taxes due to the applicable state.
Section 3.1.5 Financial Officer's Certificate. The chief financial officer of the Borrower shall have furnished a certificate, dated the Closing Date, in form and substance satisfactory to the Administrative Agent, stating to the effect that:
(a) The present fair saleable value of the assets of each of the Borrower and each Subsidiary of the Borrower (other than CalGen Finance) exceeds the amount required to pay the probable liability on its existing debts, respectively (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent), as they become absolute and matured, and as a result of the consummation of the transactions contemplated herein and in the Bank Book, will continue to exceed such amount;
(b) Each of the Borrower and each Subsidiary of the Borrower (other than CalGen Finance) does not, and, as a result of the consummation of the transactions contemplated in this Agreement, the other Financing Documents and the Bank Book, will not, have unreasonably small capital for it to carry on its business as proposed to be conducted;
(c) Neither the Borrower nor any Subsidiary of the Borrower (other than CalGen Finance) is incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted; and
(d) Nothing has come to the Borrower's attention to cause it to believe that: (i) R.W. Beck is not qualified to pass on questions relating to the technical, environmental and economic aspects of the projects operated by the CalGen Companies as such projects are described in the Bank Book; (ii) the assumptions included in R.W.
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Beck's report dated March 15, 2004, entitled "Independent Engineer's Report, Calpine Generating Company, LLC Facilities" (the "Beck Report"), are not reasonable; (iii) the information provided by the CalGen Companies to R.W. Beck in connection with the Beck Report was not prepared in good faith by the CalGen Companies; and (iv) the factual information or the conclusions contained in the Beck Report are inaccurate in any material adverse respect.
Section 3.1.6 Security.
(a) Release. The Collateral Agent shall have received:
(i) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Administrative Agent, dated a date reasonably near to the Closing Date, listing all effective Financing Statements which name Holdings, the Borrower or any Subsidiary thereof (under its present names or any previous name) as the debtor, together with copies of such Financing Statements (none of which shall cover any Collateral, other than Financing Statements that evidence (A) Liens granted in connection with the Existing Senior Secured Credit Facility or (B) Liens permitted to exist hereunder after the Closing Date);
(ii) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of each UCC Financing Statement Amendment (Form UCC-3) termination statement, if any, necessary to release all Liens of any Person in any Collateral previously granted by the Borrower or any of its Subsidiaries to the extent not permitted under the Revolving Loan Documents after the Closing Date (including (A) Liens granted in connection with the Existing Senior Secured Credit Facility and (B) other existing Liens which are not permitted hereunder after the Closing Date);
(iii) such releases, reconveyances, satisfactions or other instruments as it may reasonably request to confirm the release, satisfaction and discharge in full of all mortgages and deeds of trust at any time delivered by the Borrower or any of its Subsidiaries to secure any Obligations in respect of the Existing Senior Secured Credit Facility, duly executed, delivered and acknowledged in recordable form by the grantee named therein or its of record successors or assigns; and
(iv) a letter or letters (in form and substance reasonably satisfactory to the Administrative Agent) addressed to the Collateral Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, the Administrative Agent, the First Priority Term Loan Administrative Agent and the Second Priority Term Loan Administrative Agent executed and delivered by the Existing Credit Administrative Agent, stating the amount (the "Payout Amount") required to pay in full in cash at the Closing Date all outstanding Obligations under or in respect of the Existing Senior Secured Credit Facility.
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(b) Security. The Collateral Agent shall have received (with a copy to the Administrative Agent):
(i) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of Uniform Commercial Code Financing Statements or fixture filings naming Holdings, the Borrower, or each of the Guarantors (as applicable) as a debtor and the Collateral Agent as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the reasonable opinion of the Administrative Agent and its counsel, desirable to perfect the security interests of the Revolving Loan Secured Parties pursuant to the Security Documents;
(ii) (A) certificates (which certificates shall be accompanied by irrevocable undated stock powers or transfer documents, duly endorsed in blank and otherwise satisfactory in form and substance to the Administrative Agent) representing all Capital Stock pledged pursuant to the Security Documents and (B) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner reasonably satisfactory to the Administrative Agent) evidencing any Collateral; and
(iii) such other documents and instruments as the Administrative Agent or the Collateral Agent may reasonably request in order to grant and perfect the security interests contemplated by the Security Documents
(c) Filing. All Uniform Commercial Code Financing Statements (Forms UCC-1) or other similar Financing Statements and UCC Financing Statement Amendments (Forms UCC-3) required pursuant to clauses (a) and (b) above (collectively, the "Financing Statements") shall have been filed or recorded or delivered to the Collateral Agent for filing or recording.
Section 3.1.7 Consummation of Notes Offering, Term Loan Agreements, and Revolving Loan Documents.
(a) The Borrower and CalGen Finance shall have consummated the offering of the Notes, and such Notes shall have been issued and sold prior to, or shall be issued and sold simultaneously with, the Closing Date on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
(b) The Borrower and each Guarantor shall have executed and delivered the Term Loan Agreements and each such agreement shall be in full force and effect prior to, or shall become in full force and effect simultaneously with, the Closing Date, on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
(c) Holdings, the Borrower and each Guarantor shall have delivered to the Lenders, each of the Revolving Loan Documents to be entered into as of the Closing Date, each duly executed and delivered by the party or parties thereto and, unless otherwise noted, dated the Closing Date.
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(d) The Borrower shall have received cash proceeds from the sale of the Notes (net of underwriting discounts and commissions) in an amount sufficient, when added to the cash proceeds from the borrowings under the Term Loan Agreements (net of applicable expenses and fees), to pay in full in cash the Payout Amount and all other fees, costs and expenses payable by the Borrower in connection with the closing of the transactions contemplated herein and in the Bank Book and shall have authorized disbursement of such cash proceeds directly to pay the Payout Amounts and such fees, costs and expenses pursuant to a disbursement authorization letter (in form and substance reasonably satisfactory to the Administrative Agent) executed and delivered by the Borrower.
Section 3.1.8 No Material Adverse Change. There shall not have occurred
(a) since December 31, 2003, any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Borrower and its Subsidiaries, taken as a whole, which, in the judgment of the Administrative Agent, is material and adverse and makes it impractical or inadvisable to proceed with making of the Revolving Loans; (b) since March 12, 2004, any suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of Calpine on any exchange or in the over-the-counter market; (c) since March 12, 2004, a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States which, in the judgment of the Administrative Agent, makes it impracticable or inadvisable to proceed with the making of the Revolving Loans; or (d) since March 12, 2004, any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of the Lead Arranger, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with the making of the Revolving Loans.
Section 3.1.9 Independent Engineer Report. The Administrative Agent shall have received (a) a copy of a report (including the appendices thereto) by the Independent Engineer relating to the Closing Date Facilities and (b) a reliance letter from the Independent Engineer, dated as of the Closing Date, permitting the Lenders to rely on such report (including the appendices thereto) as if addressed to them and reaffirming the accuracy and completeness in all material respects, as of the Closing Date, of the Independent Engineer's conclusions and findings contained in the such report (including the appendices thereto); in each case in form and substance reasonably satisfactory to the Administrative Agent.
Section 3.1.10 Third Party Approvals. All consents, exemptions, authorizations, or other actions by, or notices to, or filings with, governmental authorities and other Persons in respect of all applicable Legal Requirements, necessary or desirable in connection with the execution, delivery or performance by each of Holdings, the Borrower and each Guarantor of the Revolving Loan Documents to which it is a party (including all federal, state and local regulatory filings, consents and approvals necessary or desirable in connection therewith) shall have been obtained and be in full force and effect, and the Administrative Agent shall have been furnished with appropriate evidence thereof, and all waiting periods related thereto shall have lapsed or expired without extension or the imposition of any conditions or restrictions.
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Section 3.1.11 Opinions. The Administrative Agent shall have received one or more opinions addressed to the Administrative Agent and each of the Lenders from time to time party to this Agreement, in form and substance reasonably satisfactory to the Administrative Agent and its counsel, dated as of the Closing Date and in the form of Exhibit I.
Section 3.1.12 Officer's Certificates. The Administrative Agent shall have received a certificate, dated as of the Closing Date, of the president or any vice president and a principal financial or accounting officer of the Borrower and each of the Guarantors in which such officer, to the best of his or her knowledge after reasonable investigation, shall state that (a) the representations and warranties of such CalGen Company in this Agreement and the other Revolving Loan Documents are true and correct in all material respects;
(b) such CalGen Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and (c) subsequent to December 31, 2003, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of such CalGen Company or its respective subsidiaries taken as a whole except as set forth in or contemplated by the Bank Book or otherwise disclosed in writing to the Administrative Agent prior to the Closing Date.
Section 3.1.13 Title Policies.
(a) Mortgages. The Collateral Agent shall have received (with a copy to the Administrative Agent) a fully executed and notarized mortgage or deed of trust from each Guarantor (each a "Closing Date Mortgage") encumbering all of such Guarantor's Closing Date Mortgaged Property as security for the payment and performance of the Secured Obligations. Each Closing Date Mortgage shall be in proper form for recording in all applicable jurisdictions where the property encumbered thereby is located.
(b) Title Insurance Policies. The Collateral Agent shall have received CLTA mortgagee policies of title insurance or unconditional commitments therefor (the "Closing Date Mortgage Policies") issued by the Title Company with respect to the Closing Date Mortgaged Properties, providing coverage in an amount equal to $50,000,000 per Closing Date Mortgaged Property and assuring the Collateral Agent that the applicable Closing Date Mortgages create valid and enforceable perfected mortgage Liens on the respective Closing Date Mortgaged Properties encumbered thereby. The Closing Date Mortgage Policies shall (i) include endorsements providing mechanics' lien coverage and such other coverages as are reasonably requested by the Administrative Agent, and (ii) provide for such affirmative insurance, gap coverage and reinsurance as the Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to the Administrative Agent.
Section 3.1.14 Evidence of Insurance. The Collateral Agent shall have received a certificate from the Borrower's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to this Agreement is in full force and effect and that Collateral Agent on behalf of the Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this Agreement.
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Section 3.1.15 Other Financing Documents. The Administrative Agent shall have received true, correct and complete copies of each Financing Document (other than the Revolving Loan Documents) and each shall be in full force and effect as of the Closing Date, as certified to the Administrative Agent by an Officer of the Borrower as of the Closing Date
Section 3.1.16 No Default. No Default or Event of Default shall have occurred and be continuing (or would occur or would be continuing immediately after giving effect to the making of the Revolving Loans).
Section 3.1.17 Fees. The Borrower shall have paid all fees and reasonable out-of-pocket costs and expenses (including reasonable legal fees and expenses of counsel) and other compensation contemplated hereby payable to the Agents and the Lenders.
Section 3.1.18 Delivery of Financials. The Administrative Agent and each Lender, at least four Business Days prior to the Closing Date, shall have received copies of (a) the consolidated financial statements for the Borrower and its Subsidiaries (covering the fiscal year ended December 31, 2003) as audited by PricewaterhouseCoopers LLP, and such consolidated financial statements shall be reasonably satisfactory to the Administrative Agent, (b) the unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries as of the Closing Date giving effect to (i) the consummation of the transactions contemplated hereby, (ii) the issuance of the Notes, the making of the loans under the Term Loan Agreements and the use of proceeds thereof, and
(iii) the payment of fees and expenses in connection with the foregoing, and (c) the forecasted operating results of the Borrower and its Subsidiaries (the "Projections"), giving effect to the consummation of the transactions contemplated by this Agreement, the making of the loans under the Term Loan Agreements and the issuance of the Notes, covering the period from the Closing Date until December 31, 2010 and in form and substance substantial similar to the draft Projections provided to the Lenders on March 15, 2004. The Administrative Agent is entitled, but not obligated to, request and receive, prior to the making of any Revolving Loan, additional information reasonably satisfactory to the Administrative Agent confirming the satisfaction of any of the foregoing if, in the good faith judgment of the Administrative Agent, such request is warranted under the circumstances.
Section 3.1.19 Notice of Borrowing. If the Borrower desires that the Lenders make a Revolving Loan on the Closing Date, then the Administrative Agent shall have received an appropriately completed Notice of Borrowing from the Borrower at least three Business Days (in the event the Borrower is requesting a LIBOR Rate Loan) or one Business Day (in the event the Borrower is requesting a Base Rate Loan) prior to the Closing Date.
Section 3.1.20 Notice of LC Activity. If the Borrower desires that the LC Bank issue a Letter of Credit on the Closing Date, then the Administrative Agent shall have received an appropriately completed Notice of LC Activity from the Borrower at least three Business Days prior to the Closing Date.
Section 3.1.21 Site Assessment Reports. The Administrative Agent shall have received (a) a copy of one or more environmental site assessment reports from each of the Environmental Consultants relating to the Closing Date Facilities (in the form provided to counsel to the Administrative Agent prior to the Closing Date) and (b) a reliance letter from each of the
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Environmental Consultants, permitting the Lenders to rely on such environmental site assessment reports as if addressed to them (in form and substance reasonably satisfactory to the Administrative Agent).
Section 3.1.22 Major Project Documents. The Borrower and each applicable Guarantor shall have executed and delivered the Major Project Documents to which it is a party and each such Major Project Document shall be in full force and effect prior to, or shall become in full force and effect simultaneously with, the Closing Date, on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
As promptly as is reasonably practicable after the Closing Date, the Borrower shall, at its expense, deliver to each of the Lenders as of the Closing Date an electronic copy in cd-rom format of all of the documents, instruments and reports delivered pursuant to this Section 3.1.
SECTION 3.2 Conditions Precedent to Each Revolving Loan After the Closing Date. The obligations of the Lenders to make each Revolving Loan after the Closing Date are subject to the satisfaction, or waiver in accordance with
Section 12.5 (Amendments and Waivers), of the following conditions precedent on the relevant Credit Event Date:
Section 3.2.1 Representations and Warranties. Each representation and warranty of the Borrower and each Guarantor in any of the Revolving Loan Documents shall be true and correct in all material respects as if made on such Credit Event Date, unless such representation or warranty expressly relates solely to an earlier date.
Section 3.2.2 No Material Adverse Effect. Since the Closing Date, no Material Adverse Effect shall have occurred and be continuing.
Section 3.2.3 No Default. No Event of Default or Default shall have occurred and be continuing or will result from the making of such Revolving Loan.
Section 3.2.4 Notice of Borrowing. The Borrower shall have delivered an appropriately completed Notice of Borrowing to the Administrative Agent in accordance with the procedures specified in Section 2.1.1(b).
SECTION 3.3 Conditions Precedent to the Issuance of Letters of Credit. The obligation of the LC Bank to issue a Letter of Credit after the Closing Date is subject to the satisfaction, or waiver in accordance with Section 12.5 (Amendments and Waivers), of the following conditions precedent on the relevant Credit Event Date:
Section 3.3.1 Representations and Warranties. Each representation and warranty of the Borrower and each Guarantor in any of the Revolving Loan Documents shall be true and correct in all material respects as if made on such Credit Event Date, unless such representation or warranty expressly relates solely to an earlier date.
Section 3.3.2 No Material Adverse Effect. Since the Closing Date, no Material Adverse Effect shall have occurred and be continuing.
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Section 3.3.3 No Default. No Event of Default or Default shall have occurred and be continuing or will result from the issuance of such Letter of Credit.
Section 3.3.4 Notice of LC Activity. The Borrower shall have delivered an appropriately completed Notice of LC Activity to the Administrative Agent in accordance with the procedures specified in Section 2.2.3.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Each of the Borrower and each Guarantor makes the following representations and warranties to and in favor of the Lead Arranger, the Administrative Agent, the LC Bank and the Lenders as of the Closing Date and each Credit Event Date:
SECTION 4.1 Organization.
(a) The Borrower has been duly formed and is an existing limited liability company in good standing under the laws of the State of Delaware, with power and authority under such laws to own or lease its properties and conduct its business; and the Borrower is duly qualified to do business as a foreign limited liability company, and is in good standing, in all other jurisdictions in which its ownership or leasing of property or the conduct of its business requires such qualification.
(b) Each Subsidiary of the Borrower either (i) has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with the corporate power and authority to own or lease its properties and conduct its business; or (ii) is a general partnership, limited partnership or a limited liability company, has been duly formed and is validly existing as a general partnership, limited partnership or limited liability company, as the case may be, is in good standing under the laws of the jurisdiction of its formation, and has full partnership or limited liability company power and authority, as the case may be, to own or lease its properties and conduct its business.
(c) Each Subsidiary of the Borrower is duly qualified to do business as a foreign corporation, general or limited partnership or limited liability company, as the case may be, and is in good standing, in all other jurisdictions in which its ownership or leasing of property or the conduct of its business requires such qualification.
(d) All of the issued and outstanding Capital Stock in each Subsidiary of the Borrower has been duly authorized and validly issued and is fully paid and nonassessable, and the Capital Stock of each Subsidiary owned by the Borrower, directly or through Subsidiaries, is owned free from liens, encumbrances and defects except for those to be terminated at the Closing Date with respect to the Existing Senior Secured Credit Facility and Permitted Liens.
(e) As of the Closing Date, the capital structure of Holdings and the Borrower and its Subsidiaries is accurately set forth on Schedule 4.1.
SECTION 4.2 Financing Documents and Major Project Documents. Each of the Financing Documents, Major Project Documents and Third Party Project Documents to which the
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Borrower or any of its Subsidiaries is a party has been duly authorized by such CalGen Company. Each of the Financing Documents, Major Project Documents and Third Party Project Documents has been validly executed and delivered by such CalGen Company and constitutes a valid and legally binding obligation of such CalGen Company, enforceable against such CalGen Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
SECTION 4.3 Collateral.
(a) The Security Documents grant and create, in favor of the Collateral Agent (for the benefit of the Secured Parties as security for all of the Secured Obligations), a valid security interest in the personal property Collateral defined in each of such instruments to the extent contemplated thereby.
(b) Each Mortgage grants and creates, in favor of the Collateral Agent (for the benefit of the Secured Parties as security for all of the Secured Obligations), a valid mortgage lien and/or security interest in the Collateral defined in each of such Mortgage to the extent contemplated thereby.
(c) All pledged Collateral is represented by certificated securities and all such certificated securities and all promissory notes and other instruments evidencing or representing any Collateral have been delivered to the Collateral Agent in pledge for the benefit of the Secured Parties as security for all of the Secured Obligations duly endorsed by an effective endorsement.
SECTION 4.4 Governmental Approvals. No consent, approval, authorization, or order of, or filing with, any Governmental Authority is required for the consummation of the transactions contemplated by this Agreement, the other Financing Documents, the Major Project Documents or the Third Party Project Documents or otherwise in connection with the transactions contemplated by any such documents or the grant and perfection of the security interests in the Collateral pursuant to the Security Documents, except (a) such consents, approvals, authorizations and orders as have already been obtained, (b) filings required pursuant to Section 3.1.6 (Security) to perfect the Collateral Agent's security interests granted pursuant to the Security Documents, (c) such consents, approvals, authorizations and orders as may be required under state securities or blue sky laws and (d) such other consents approvals, authorizations and orders as would not, in the aggregate, have a Material Adverse Effect.
SECTION 4.5 Compliance with Law. The execution, delivery and performance of this Agreement, the other Financing Documents, the Major Project Documents and the Third Party Project Documents by the Borrower and its Subsidiaries party thereto, as applicable; the making of the Revolving Loans hereunder; the grant and perfection of the security interests in the Collateral pursuant to the Security Documents; compliance with the terms and provisions of each of the foregoing by the CalGen Companies, as applicable; and the consummation by such CalGen Companies of the transactions contemplated herein and therein, in each case, will not result in a breach or violation of any of the terms and provisions of, or conflict with or constitute a default under, or result in the imposition or creation of (or the obligation to create or impose) a
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Lien (other than in favor of the Collateral Agent for the benefit of the Secured Parties) under, any Legal Requirement applicable to any such CalGen Company, or any agreement or instrument to which any of the CalGen Companies is a party or by which any of the CalGen Companies is bound or to which any of the properties of any of the CalGen Companies is subject, except to the extent that the foregoing would not, in the aggregate, have a Material Adverse Effect.
SECTION 4.6 Ownership of Property; Liens. Except as disclosed in the Closing Date Mortgage Policies, each of the Borrower and each Guarantor has good and marketable title to all real properties owned by it, and good title to all other properties and assets owned by it, in each case except for Permitted Liens, free from Liens that would materially affect the value thereof or materially interfere with the use made or to be made thereof by it; and, except for Permitted Liens or as disclosed in the Closing Date Mortgage Policies, each of the Borrower and each Guarantor holds any leased real or personal property under valid and enforceable leases with no exceptions to title that would materially interfere with the use made or to be made thereof by it. No Financing Statements in respect of any property or assets of any of the Borrower or any Guarantor is on file in favor of any Person other than those in respect of Permitted Liens and those to be terminated at the Closing Date with respect to the Existing Senior Secured Credit Facility.
SECTION 4.7 Governmental Authorizations; Permits. Each of the Borrower and its Subsidiaries possesses adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it and has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect.
SECTION 4.8 Labor Disputes. No labor dispute with the employees of any of the Borrower or its Subsidiaries exists or, to the knowledge of the Borrower or any Guarantor, is imminent that might have a Material Adverse Effect.
SECTION 4.9 Intellectual Property Rights. Each of the Borrower and its Subsidiaries owns, possesses or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by it, or presently employed by it, and has not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect.
SECTION 4.10 Hazardous Substances. None of the Borrower and its Subsidiaries is in violation of any Legal Requirement relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim
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would individually or in the aggregate have a Material Adverse Effect; and the Borrower is not aware of any pending investigation which might lead to such a claim.
SECTION 4.11 Litigation. Except as set forth on Schedule 4.11, there are no pending actions, suits or proceedings against the Borrower or any of its Subsidiaries or any of their respective properties that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of such CalGen Company to perform its or their obligations under, or contemplated by, this Agreement, the other Financing Documents, the Major Project Documents or the Third Party Project Documents, in each case to which such CalGen Company is a party, or which are otherwise material in the context of the transactions contemplated by the Financing Documents.
SECTION 4.12 Financial Information. The financial information delivered pursuant to clauses (a) and (b) of Section 3.1.18 (Delivery of Financials) or Section 5.1 (Reports), as applicable, presents fairly the financial position of the Borrower and its Subsidiaries on a combined or consolidated basis, as the case may be, as of the dates shown therein and their results of operations and cash flows for the periods shown therein, and, except as otherwise disclosed in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, such financial statements have been prepared in conformity with GAAP applied on a consistent basis. None of the Borrower or any of its Subsidiaries has any material liabilities, direct or contingent, which are required to be shown on such financial statements under GAAP, except as has been disclosed in such financial statements.
SECTION 4.13 Disclosure; Projections(a).
(a) As of the Closing Date, the Borrower has delivered to each Lender a copy of the Bank Book. As of the Closing Date, the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, fairly describes, in all material respects, the general nature of the business of the Borrower and its Subsidiaries, the transactions contemplated by the Financing Documents and the principal assets of the Borrower and its Subsidiaries. As of the Closing Date, none of this Agreement, the Bank Book, the documents, certificates or other writings delivered to or the Administrative Agent or any Lender by or on behalf of the Borrower or any Guarantor in connection with the transactions contemplated hereby, taken as a whole, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made (other than any information that was corrected or updated in writing by the Borrower to the Administrative Agent and the Lenders prior to the Closing Date).
(b) As of the Closing Date, the Projections are based on good faith estimates and assumptions believed by management of the Borrower to be reasonable as of the date of the Projections, and there are no statements or conclusions in any of the Projections which are based upon or include information known to the Borrower to be misleading in any material respect or which fail to take into account material information regarding the matters reported therein. As of
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the Closing Date, the Borrower believes that the Projections are reasonable, it being acknowledged and agreed by the Administrative Agent and the Lenders, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by the Projections may differ from the projected results and such differences may be material.
(c) Except as expressly set forth in this Section 4.13, neither the Borrower nor any Guarantor makes any representation with respect to any information, projections, forecasts, statements of opinion, expectations or beliefs of any party contained in the Bank Book or delivered in connection with the transactions contemplated under this Agreement.
SECTION 4.14 Adverse Change. Except as has been disclosed in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, (a) with respect to the representations and warranties to be made as of the Closing Date, since December 31, 2003 and (b) with respect to each representation and warranty to be made after the Closing Date, since the Closing Date, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Borrower and its Subsidiaries taken as a whole. As of the Closing Date, except as has been disclosed in writing to the Administrative Agent, no long-term indebtedness has been incurred (other than long-term indebtedness that is expressly contemplated by the Bank Book), and no dividend or distribution of any kind has been declared, paid or made by Borrower on any class of its equity interests.
SECTION 4.15 Taxes. Each of the Borrower, each Subsidiary of the Borrower and Holdings has timely filed (or caused to be filed timely) all federal, material state and material local tax returns and reports that are required to be filed by it. All material taxes, assessments, utility charges, fees and other governmental charges imposed on it have been timely paid (other than those taxes that it is contesting in good faith and by appropriate proceedings). All such tax returns are complete and accurate in all material respects. Except for Permitted Liens, no material tax Lien has been filed, and to the knowledge of the Borrower and each Guarantor, no claim is being asserted, with respect to any such taxes, assessments, charges or fees. To the extent any taxes, assessments, charges and fees are being contested, the Borrower or the applicable Guarantor has established reserves that are adequate for the payment thereof in conformity with GAAP.
SECTION 4.16 Investment Company Act. None of the Borrower or any of its Subsidiaries is an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under
Section 8 of the United States Investment Company Act of 1940, as amended (the "Investment Company Act"); none of the Borrower or any of its Subsidiaries is or, after giving effect to the transactions contemplated by this Agreement, the other Revolving Loan Documents and the Major Project Documents, will be an "investment company" as defined in the Investment Company Act of 1940.
SECTION 4.17 ERISA. Either (a) there are no ERISA Plans or Multiemployer Plans for the Borrower or any ERISA Affiliate thereof or (b) (i) each of the Borrower and each ERISA
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Affiliate thereof has fulfilled its obligations (if any) under the minimum funding standards of ERISA and the Code for each ERISA Plan, (ii) each such Plan is in compliance in all material respects with the currently applicable provisions of ERISA and the Code and (iii) neither the Borrower nor any ERISA Affiliate thereof has incurred any liability to the PBGC or an ERISA Plan or Multiemployer Plan under Title IV of ERISA (other than liability for premiums due in the ordinary course). None of the assets of the Borrower or any ERISA Affiliate thereof, constitute assets of an employee benefit plan within the meaning of 29 C.F.R. Section 2510.3-101. Neither the Borrower nor any Subsidiary thereof maintains, or has at any point of its existence maintained, any employee-benefit plans that were subject to ERISA.
SECTION 4.18 Governmental Regulation.
(a) None of the Borrower or any "subsidiary company," as that term is defined in PUHCA, of the Borrower is, or after giving effect to the borrowing of any Revolving Loans or the issuance of any Letters of Credit will be, subject to regulation (i) as a "holding company," a "subsidiary company" of a holding company or a "public-utility company," as those terms are defined in PUHCA; (ii) under the Federal Power Act, as amended (the "FPA"), other than (A) as an "exempt wholesale generator" ("EWG") as that term is defined in PUHCA, that is subject to regulation as a "public utility" under the FPA, other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, or (B) as a QF under the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), as contemplated by 18 C.F.R. Section 292.601(c); or (iii) under any state law or regulation with respect to rates or the financial or organizational regulation of electric utilities, other than, with respect to Subsidiaries of the Borrower that are QFs, as contemplated by 18 C.F.R. Section 292.602(c).
(b) Other than as described in the Bank Book, each of the power generation projects in which the Borrower's Subsidiaries listed on Schedule 4.18(b) (as such Schedule shall be updated by the Borrower from time to time in connection with the acquisition or disposition of any Subsidiary thereof) have an interest meets the requirements under PURPA and the regulations of the Federal Energy Regulatory Commission (the "FERC") promulgated thereunder, as amended from time to time, necessary to be a "qualifying cogeneration facility" and/or a "qualifying small power generation production facility".
(c) Each of the Borrower's Subsidiaries listed on Schedule 4.18(c) (as such Schedule shall be updated by the Borrower from time to time in connection with the acquisition or disposition of any Subsidiary thereof; it being acknowledged that the Borrower shall update Schedule 4.18(b) or 4.18(c) from time to time such that at all times each Facility owned or leased by the Borrower or any Subsidiary thereof is set forth on one of such Schedules) (i) own and/or operate Eligible Facilities within the meaning of Section 32 of PUHCA, and each such Subsidiary has received a determination from the FERC, not subject to any pending challenge or appeal, that it is an EWG, within the meaning of Section 32 of PUHCA; and (ii) other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby or, after the Closing Date, has validly issued orders from the FERC, not subject to any pending challenge,
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investigation, or proceeding (other than the FERC's generic proceeding initiated in Docket No. EL01-118-000), (A) authorizing such Subsidiary to engage in wholesale sales of electricity, ancillary services and, to the extent permitted under its market-based rate tariff, other services at market-based rates, and (B) granting such waivers and blanket authorizations as are customarily granted to entities with market-based rate authority; with respect to each such Subsidiary, the FERC has not imposed any rate caps or mitigation measures other than rate caps and mitigation measures generally applicable to similarly situated marketers or generators selling electricity, ancillary services or other services at wholesale in the geographic market where such Subsidiary conducts its business.
(d) Each of the Borrower's Subsidiaries that are participating in the Texas wholesale electric market has registered with the Texas Public Utilities Commission ("TPUC"), and the TPUC has not imposed on the Borrower any specific rate cap or mitigation measures.
(e) Other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, there are no pending complaints filed with the FERC seeking abrogation or modification of a contract for the sale of power by the Borrower or any of its Subsidiaries.
SECTION 4.19 Margin Stock, Etc. None of the transactions contemplated by this Agreement or the other Revolving Loan Documents (including the use of the proceeds received as a result of such transactions) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including Regulations T, U, and X of the Board of Governors of the Federal Reserve System.
SECTION 4.20 No Violations or Defaults. As of the Closing Date, neither the Borrower nor any Subsidiary of the Borrower is in violation of its organizational documents or in default in the performance or observance of any material obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other material agreement or instrument to which it is a party or by which it or any of its properties may be bound.
SECTION 4.21 No Material Adverse Agreements. None of the Borrower or any Guarantor is party to any agreement which restricts in any material respect the ability of any Subsidiary of the Borrower to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or restricts in any material respect the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower, in each case other than (a) this Agreement or any other Financing Document, (b) the Existing Senior Secured Credit Facility (to the extent any such prohibitions or restrictions will be terminated on the Closing Date) or (c) Permitted Liens.
SECTION 4.22 Solvency. As of the Closing Date, the present fair saleable value of the assets of each of the Borrower and each Subsidiary of the Borrower exceeds the amount required to pay the probable liability on its existing debts, respectively (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent), as they become absolute and matured,
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and as a result of the consummation of the transactions contemplated herein and in the Bank Book, will continue to exceed such amount.
SECTION 4.23 Capitalization. As of the Closing Date, each of the Borrower and each Subsidiary of the Borrower does not, and, as a result of the consummation of the transactions contemplated in this Agreement, the other Revolving Loan Documents and the Bank Book, will not, have unreasonably small capital for it to carry on its business as proposed to be conducted.
SECTION 4.24 Other Indebtedness. As of the Closing Date, neither the Borrower nor any Subsidiary of the Borrower is incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted.
SECTION 4.25 Patriot Act Compliance.
(a) Neither the Borrower's borrowing of the Revolving Loans nor its use of the proceeds thereof will violate in any material respect (i) the United States Trading with the Enemy Act, as amended, (ii) any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto, (iii) Executive Order No. 13,224, 66 Fed Reg 49,079 (2001), issued by the President of the United States (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism) (the "Terrorism Order") or (iv) the anti-money laundering provisions of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, Public Law 107-56 (October 26, 2001) amending the Bank Secrecy Act, 31 U.S.C. Section 5311 et seq. No part of the proceeds from the Revolving Loans hereunder will be used, directly or, to the best of the Borrower's and each Subsidiary's knowledge, indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in material violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
(b) Neither the Borrower nor any Subsidiary (i) is or will become a "blocked person" as described in Section 1 of the Terrorism Order or (ii) to the best of the Borrower's and each Subsidiary's knowledge, engages or will engage in any dealings or transactions, or is otherwise associated, with any such blocked person.
(c) The Borrower and its Subsidiaries are in compliance in all material respects with the anti-money laundering provisions of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, Public Law 107-56 (October 26, 2001) amended the Bank Secrecy Act, 31 U.S.C. Section 5311 et seq.
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ARTICLE V.
COVENANTS
SECTION 5.1 Reports. Unless the Administrative Agent otherwise consents, the Borrower shall deliver or cause to be delivered to the Administrative Agent, in form and detail reasonably satisfactory to the Administrative Agent:
(a) As soon as available and in any event within 60 days after the end of the first, second and third quarterly accounting periods of each fiscal year of the Borrower (commencing with the quarter ending March 31, 2004), the unaudited consolidated financial statements of (i) Calpine and (ii) the Borrower and its Subsidiaries as of the last day of such quarterly period and the related statements of income, cash flow, and shareholders' or members' equity (as applicable) for such quarterly period and for the portion of the fiscal year ending with the last day of such quarterly period, setting forth in each case in comparative form corresponding unaudited figures from the preceding fiscal year (it being acknowledged that such requirement may be satisfied by the delivery of the appropriate report or Form 10-Q filed with the SEC), all prepared in accordance with GAAP (subject to changes resulting from audit and normal year-end adjustments and the absence of footnote disclosure);
(b) As soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, the audited consolidated financial statements of (i) Calpine and (ii) the Borrower and its Subsidiaries (it being acknowledged that such requirement may be satisfied by the delivery of the appropriate report or Form 10-K filed with the SEC). Such financial statements shall include a statement of equity, a balance sheet as of the close of such year, an income and expense statement, reconciliation of capital accounts (where applicable), a statement of cash flow and summary results of hedging and trading activities, all prepared in accordance with GAAP and certified by an independent certified public accountant selected by the Person whose financial statements are being prepared. Such certificate shall not be qualified or limited because of restricted or limited examination by such accountant of any material portion of the records of Calpine or the Borrower or any of its Subsidiaries, as applicable.
(c) Promptly, upon acquiring notice or giving notice (except as otherwise specified below), as the case may be, or obtaining knowledge thereof, written notice (together with copies of any underlying notices, papers, files or related documentation) of:
(i) any litigation pending or, to the Borrower's or any of its Subsidiaries' knowledge, threatened in writing against the Borrower or any of its Subsidiaries involving claims against the Borrower, any Subsidiary or any Facility in excess of $10,000,000 individually or $25,000,000 in the aggregate per calendar year or involving any injunctive, declaratory or other equitable relief, or that otherwise has or could have a Material Adverse Effect, such notice to include, if requested in writing by the Administrative Agent, copies of all papers filed in such litigation and to be given monthly if any such papers have been filed since the last notice given;
(ii) any casualty, damage or loss, whether or not insured, through fire, theft, other hazard or casualty, or any act or omission of (a) the Borrower or any Subsidiary of the Borrower, or any of their employees, agents, contractors, consultants or
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representatives in excess of $10,000,000 for any one casualty or loss or $20,000,000 in the aggregate in any calendar year, or (b) to Borrower's or any of its Subsidiaries' knowledge, any other Person if such casualty, damage or loss could reasonably be expected to have a Material Adverse Effect;
(iii) any cancellation, suspension or material change in the terms, coverage or amounts of any insurance maintained by the Borrower or any of its Subsidiaries;
(iv) any material written notices, reports or other information related to the construction, operation or maintenance of any of the Facilities delivered to, or received by the Borrower or any Subsidiary of the Borrower from, the parties to the Major Project Documents;
(v) any contractual obligations (including change orders) incurred by the Borrower or any Subsidiary of the Borrower exceeding $35,000,000 per year in the aggregate, not including any obligations incurred pursuant to the Financing Documents or any Project Document or any other obligation contemplated in the Bank Book;
(vi) any written claim of events of force majeure which exist or have existed for more than seven consecutive Business Days and which could reasonably be expected to have a Material Adverse Effect (as determined by the Borrower in good faith), together with a copy of any supporting documentation relating thereto delivered or received by the Borrower or any of its Subsidiaries under any Third Party Project Document or any other Major Project Document; and
(vii) any ownership transfers of interests in any of the Borrower's Subsidiaries or the acquisition of any new Subsidiary.
(d) Promptly after the delivery thereof to the First Priority Term Loan Administrative Agent, Second Priority Term Loan Administrative Agent, First Priority Indenture Trustee, Second Priority Indenture Trustee, or the Third Priority Indenture Trustee, the Borrower shall deliver a copy of each report or notice delivered to the First Priority Term Loan Administrative Agent, Second Priority Term Loan Administrative Agent, First Priority Indenture Trustee, Second Priority Indenture Trustee, or the Third Priority Indenture Trustee under any of the Financing Documents to the Administrative Agent.
SECTION 5.2 Compliance Certificate.
(a) Together with the delivery of each financial statement referred to in
Section 5.1(a) or Section 5.1(b) above, the Borrower shall provide a compliance certificate of an Officer of the Borrower (who shall be a senior financial officer of the Borrower) stating that a review of the activities of the Borrower and its Subsidiaries during the preceding fiscal quarter or year, as applicable, has been made under the supervision of the signing Officer with a view to determining whether the Borrower and its Subsidiaries have kept, observed, performed and fulfilled their obligations under this Agreement, and further stating, as to the Officer signing such certificate, that to the best of his or her knowledge the Borrower and its Subsidiaries have kept, observed, performed and fulfilled each and every covenant contained in this Agreement and is not in default in the performance or observance of any of the terms, provisions and conditions of
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this Agreement (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Borrower is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Revolving Loans borrowed under this Agreement is prohibited or if such event has occurred, a description of the event and what action the Borrower is taking or proposes to take with respect thereto. Such certificate shall include the information (in reasonable detail and with appropriate calculations, supporting information and computations) (i) demonstrating compliance by the Borrower with Section 5.17 (Coverage Ratio; Kilowatt Test), Section 5.8 (Transactions with Affiliates), Section 2.1.11 (Mandatory Repayment and Commitment Reductions), Section 5.7 (Asset Sales; Application of Net Proceeds), Section 5.5 (Dividend and Other Payment Restrictions Affecting Subsidiaries, and Section 5.6 (Incurrence of Indebtedness and Issuance of Preferred Equity) during such quarter or year, (ii) calculating Excess Cash Flow for such quarter or year, and (iii) calculating cumulative excess Asset Sale and Casualty Event proceeds.
(b) So long as not contrary to the then-current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 5.1(a) (Reports) above shall be accompanied by a written statement of the Borrower's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Borrower has violated any provisions of Article V or Article VI hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Revolving Loan Obligations are outstanding, the Borrower shall deliver to the Administrative Agent, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Borrower is taking or proposes to take with respect thereto.
SECTION 5.3 Stay, Extension and Usury Laws. Each of the Borrower and each Guarantor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Agreement; and each of the Borrower and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but shall suffer and permit the execution of every such power as though no such law has been enacted.
SECTION 5.4 Restricted Payments.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly:
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(i) (A) declare or pay any dividend or make any other payment or distribution on account of the Borrower's Equity Interests (including any payment in connection with any merger or consolidation involving the Borrower) or to the direct or indirect holders of the Borrower's Equity Interests in their capacity as such, including Permitted Tax Payments (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Borrower or dividends or distributions payable to the Borrower or a Guarantor) or (B) pay any Major Maintenance Expenses;
(ii) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Borrower) any Equity Interests of the Borrower;
(iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the Secured Obligations (excluding any intercompany Indebtedness between or among the Borrower and any of the Guarantors); or
(iv) make any Restricted Investment;
(all such payments and other actions set forth in these clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless:
(A) such Restricted Payment is made from Excess Cash Flow generated since the Closing Date;
(B) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and
(C) at the time of making any such Restricted Payment that is not a payment on or with respect to, or a purchase, redemption, defeasance or other acquisition or retirement for value of, Subordinated Indebtedness, all amounts then due under all Subordinated Indebtedness have been paid in full.
SECTION 5.5 Dividend and Other Payment Restrictions Affecting Subsidiaries.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to:
(i) pay dividends or make any other distributions on its Capital Stock to the Borrower or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Borrower or any of its Subsidiaries;
(ii) make loans or advances to the Borrower or any of its Subsidiaries; or
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(iii) transfer any of its properties or assets to the Borrower or any of its Subsidiaries.
However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of:
(A) this Agreement;
(B) the Term Loan Agreements, the Indentures and the Notes and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the Term Loan Agreements, the Indentures and the Notes; provided, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Term Loan Agreements, the Indentures and the Notes on the Closing Date;
(C) any applicable Legal Requirements;
(D) customary non-assignment provisions in contracts, agreements, leases, permits or licenses entered into or issued in the ordinary course of business and consistent with past practices;
(E) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clauses (i) and (iii) of the preceding paragraph;
(F) any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending the sale or other disposition;
(G) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(H) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 5.6 (Incurrence of Indebtedness and Issuance of Preferred Equity) hereof that limit the right of the debtor to dispose of the assets subject to such Liens or to use the proceeds of any such disposition;
(I) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Borrower's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements;
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(J) provisions restricting cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business; and
(K) provisions restricting or encumbering the sale or other disposition of Expansion Assets or the payment of dividends, distributions or similar payments made from cash flow derived exclusively from Expansion Assets, in each case pursuant to the terms of any Expansion Debt incurred pursuant to clause (iv) of the definition of Permitted Debt; provided, that such encumbrance or restriction will not materially adversely affect the Borrower's ability to meet its obligations under this Agreement, and, in the written opinion of the president, chief operating officer or chief financial officer of the Borrower, is required in order to obtain such Expansion Debt and is customary for financings of such type.
SECTION 5.6 Incurrence of Indebtedness and Issuance of Preferred Equity.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Borrower shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred equity.
(b) Section 5.6(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"):
(i) (A) the incurrence by the Borrower (and the guarantee by its Subsidiaries) of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (i)(A) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Borrower and its Subsidiaries thereunder) not to exceed $800,000,000 less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events or Condemnation Events applied by the Borrower or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facilities or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facilities and effect a corresponding commitment reduction thereunder, and (B) the incurrence by the Borrower (and the guarantee by its Subsidiaries) of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount outstanding under this clause (i)(B) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Borrower and its Subsidiaries thereunder) not to exceed $100,000,000 less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events applied by the Borrower or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder;
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(ii) the incurrence by the Borrower, CalGen Finance and the Guarantors of Indebtedness represented by the Notes, the related Note Guarantees and the other Note Obligations incurred on the Closing Date, and the exchange notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement;
(iii) the incurrence by the Borrower or any of its Subsidiaries of Expansion Debt; provided, that:
(A) any Expansion Debt incurred by the Excluded Subsidiary is recourse only to the Expansion Assets financed with such Expansion Debt and to other Expansion Assets owned by the Excluded Subsidiary (including any rights of the Excluded Subsidiary under Shared Facilities Arrangements);
(B) if the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved), at least 25% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(C) if the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been less than 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved);
(1) at least 40% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness; and
(2) after giving effect to such incurrence, the amount of Expansion Debt incurred pursuant to this clause (iii), together with the aggregate amount of all other Expansion Debt then outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Expansion Debt incurred pursuant to this clause (iii), does not exceed $250,000,000;
(iv) the incurrence by the Borrower or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that
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was permitted by this Agreement to be incurred under clauses (ii), (iii),
(iv) or (x) of this Section 5.6(b);
(v) the incurrence by the Borrower or any Guarantor of intercompany Indebtedness between or among the Borrower and any Guarantors that is subordinated in right of payment to all Secured Obligations on the terms set forth on Exhibit A hereto and is not secured other than by unperfected security interests; provided, however, that (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Borrower or a Guarantor and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Borrower or a Guarantor will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Borrower or such Guarantor, as the case may be, that was not permitted by this clause (v); and provided, further, that any such intercompany Indebtedness must be included in the Collateral;
(vi) the incurrence by the Borrower or any of its Subsidiaries of Hedging Obligations, in connection with Permitted Debt or otherwise, in the ordinary course of business and not for speculative purposes; provided, that (A) such Hedging Obligations will have tenors that expire on or prior to the maturity date (or other expiration) of the underlying Obligation being hedged, and (B) any such Hedging Obligations hedging or managing interest rate risk with respect to a particular series of Notes or loans under the Term Loan Agreements or this Agreement will have tenors that expire on or prior to the Stated Maturity of the applicable Notes or loans;
(vii) the incurrence by the Borrower or any of its Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, and performance and surety bonds in the ordinary course of business;
(viii) the incurrence by the Borrower or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days;
(ix) the incurrence by the Borrower of (a) Affiliate Subordinated Indebtedness in an aggregate principal amount not to exceed $250,000,000 at any one time outstanding and (b) Working Capital Facility Indebtedness in an aggregate principal amount not to exceed $750,000,000 at any one time outstanding; and
(x) the incurrence by the Borrower of Third Party Subordinated Indebtedness; provided, that:
(A) the Net Proceeds of the Third Party Subordinated Indebtedness are applied:
(1) to acquire all or substantially all of the assets of, or any Equity Interests in, a business that constitutes a Permitted Business, provided, that in the case of an acquisition of Equity Interests, the business
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is or becomes a Subsidiary of the Borrower and a Guarantor concurrently with such acquisition;
(2) to make a capital expenditure;
(3) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business; or
(4) any combination of the foregoing; and
(B) the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Third Party Subordinated Indebtedness is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Third Party Subordinated Indebtedness had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved).
(c) The Borrower shall not incur, and shall not permit any Subsidiary to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Borrower or such Subsidiary unless such Indebtedness is also contractually subordinated in right of payment to the Revolving Loans, the applicable Revolving Loan Guarantees and the other Revolving Loan Obligations on substantially identical terms or on terms that are more favorable to the Lenders hereunder; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Borrower or any of its Subsidiaries solely by virtue of being unsecured or by virtue of being secured on a junior basis.
(d) For purposes of determining compliance with this Section 5.6, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) of
Section 5.6(b), the Borrower will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 5.6. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 5.6. Notwithstanding any other provision of this Section 5.6, the maximum amount of Indebtedness that the Borrower or any Subsidiary may incur pursuant to this Section 5.6 shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
SECTION 5.7 Asset Sales; Application of Net Proceeds.
(a) Asset Sales. The Borrower shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless:
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(i) except with respect to an Asset Sale made pursuant to the Existing Purchase Option, the Borrower (or any of its Subsidiaries, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;
(ii) at least 90% of the consideration received in the Asset Sale by the Borrower or such Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash:
(A) any liabilities, as shown on the Borrower's most recent consolidated balance sheet, of the Borrower or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Revolving Loans and the Revolving Loan Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Borrower or such Subsidiary from further liability;
(B) any securities, notes or other obligations received by the Borrower or any such Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Borrower or such Subsidiary into cash, to the extent of the cash received in that conversion; and
(C) in connection with the exercise by a purchaser of an Existing Purchase Option, any amount owed by the Borrower or the applicable Subsidiary to the purchaser under the agreement containing such Existing Purchase Option that is set off by the purchaser against the purchase price;
(iii) if the assets disposed of in such Asset Sale include any component of a Facility that is necessary for the operation of such Facility, the Asset Sale involves the disposition of such Facility as a whole; and
(iv) if the Asset Sale involves the sale of a Facility or all or substantially all the assets of a Facility, (A) such Asset Sale is to a Person other than an Affiliate of the Borrower, and (B) all necessary and appropriate amendments are made to those Major Project Documents applicable to such Facility to remove such Facility from the scope of such Major Project Documents.
(b) Application of Net Proceeds from First Asset Sale and Second Asset Sale. The Borrower (or the applicable Subsidiary, as the case may be) shall apply the Net Proceeds from the first and the second Asset Sale to occur (other than any Asset Sale relating to the Facility owned or operated by Delta Energy Center, LLC or Los Medanos Energy Center, LLC, the Net Proceeds of which shall be applied under Section 5.7(c) below), as follows:
(i) to the lenders under the First Priority Term Loan Agreement and all holders of First Priority Notes (to the extent required under the applicable First Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such First Priority Lien Obligations that may be purchased, prepaid or redeemed out of such Net Proceeds (taking into account any mandatory prepayment or redemption of First Priority Lien Obligations required under any First Priority Lien Document);
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(ii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of First Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations) in accordance with clause (i) above, to all holders of the Second Priority Lien Obligations (to the extent required under the applicable Second Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Second Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations required under any Second Priority Lien Document); and
(iii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of Second Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations) in accordance with clauses (i) and (ii) above, to all holders of the Third Priority Lien Obligations (to the extent required under the applicable Third Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Third Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Third Priority Lien Obligations required under any Second Third Lien Document).
For the avoidance of doubt, the Lenders under this Agreement shall not be entitled to receive any Net Proceeds under this Section 5.7(b).
(c) Application of Other Net Proceeds. Other than the Net Proceeds to be applied under Section 5.7(b), the Borrower (or the applicable Subsidiary, as the case may be) shall apply the Net Proceeds from each Asset Sale, Casualty Event or Condemnation Event, as follows:
(i) to the Lenders under this Agreement and all other holders of the First Priority Lien Obligations (to the extent required under the applicable First Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such First Priority Lien Obligations that may be purchased, prepaid or redeemed out of such Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of First Priority Lien Obligations required under any First Priority Lien Document);
(ii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of First Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations) in accordance with clause (i) above, to all holders of the Second Priority Lien Obligations (to the extent required under the applicable Second Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Second Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations required under any Second Priority Lien Document); and
(iii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of Second Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations) in accordance with clauses (i) and (ii)
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above, to all holders of the Third Priority Lien Obligations (to the extent required under the applicable Third Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Third Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Third Priority Lien Obligations required under any Third Priority Lien Document).
The Borrower is required to and shall prepay the Revolving Loans within 30 days of the receipt of any such Net Proceeds under this Section 5.7(c), in the order of priority and in the manner provided for in Section 5.7(c)(i) above and in
Section 2.1.11.
(d) Excess Proceeds; Pro Rata Basis. In the event that any Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event remain after the Borrower has made the prepayments in accordance with Section 2.1.11 (Mandatory Repayments and Commitment Reductions) and the Term Loan Agreements and such Net Proceeds have otherwise been applied in accordance with clause (b) and (c) above, then the Borrower may use such remaining Net Proceeds for any purpose not otherwise prohibited by the Financing Documents, including the making of Restricted Payments. If the aggregate principal amount of all Secured Obligations having the same priority that are to be prepaid under clauses (b) or
(c) above exceeds the amount of Net Proceeds available therefor, then the Borrower will repurchase, repay or redeem the Secured Obligations, pro rata based on the aggregate principal amount of all of such Secured Obligations to be prepaid.
SECTION 5.8 Transactions with Affiliates.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Borrower (each, an "Affiliate Transaction"), unless:
(i) the Affiliate Transaction, taken as a whole with all other related Affiliate Transactions, is on terms that are no less favorable to the Borrower and its Subsidiaries, taken as a whole, than those that would have been obtained in a comparable transaction by the Borrower or such Subsidiary with an unrelated Person; and
(ii) the Borrower delivers to the Administrative Agent (other than with respect to a Shared Facilities Arrangement between or among only the Borrower and/or any of its Subsidiaries):
(A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10,000,000 but less than or equal to $25,000,000, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this Section 5.8 and that such Affiliate Transaction has been approved by a majority of the Board of Directors; and
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(B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25,000,000, a positive opinion as to the Fair Market Value of such Affiliate Transaction issued by an accounting, appraisal or investment banking firm of national standing.
(b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 5.8(a):
(i) any employment agreement, employee benefit plan, officer and director indemnification agreement or any similar arrangement entered into by the Borrower or any of its Subsidiaries in the ordinary course of business;
(ii) transactions between or among the Borrower and/or any of the Guarantors (other than Shared Facilities Arrangements);
(iii) transactions with a Person that is an Affiliate of the Borrower (but not a Subsidiary of the Borrower) solely because the Borrower owns, directly or through a Subsidiary, an Equity Interest in, or controls, such Person;
(iv) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Borrower;
(v) any issuance of Equity Interests (other than Disqualified Stock) of the Borrower to Affiliates of the Borrower; provided that such Equity Interests are included in the Collateral;
(vi) Restricted Payments that do not violate the provisions of this Agreement as described in Section 5.4 (Restricted Payments);
(vii) loans or advances to employees in the ordinary course of business not to exceed $1,000,000 in the aggregate at any one time outstanding;
(viii) Permitted Tax Payments;
(ix) transactions under or pursuant to written agreements with Affiliates of the Borrower in place as of the date of this Agreement or any amendment or modification thereto, so long as any such amendment or modification meets the requirements of clause (x) or (xi) of this Section 5.8(b);
(x) any amendments or modifications of, or waivers under, any written agreement described under clause (ix) of this 5.8(b) that is not a Major Project Document; provided that no such amendment, modification or waiver alters any such agreement in a manner than is materially adverse to the interests of the Lenders;
(xi) any amendments or modifications of, or waivers under, any Major Project Document, which are permitted by Section 5.10(b) (Business Activities) and are on terms that are no less favorable to the Borrower or its relevant Subsidiary (as certified to the
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Administrative Agent in an Officer's Certificate) than those that would have been obtained in a comparable transaction by the Borrower or such Subsidiary with an unrelated Person; and
(xii) any agreement to do any of the foregoing.
SECTION 5.9 Liens. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens.
SECTION 5.10 Business Activities.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Borrower and its Subsidiaries taken as a whole.
(b) The Borrower shall, and shall cause its Subsidiaries to, perform all their obligations under the Major Project Documents, and the Borrower shall not, and shall not permit any of its Subsidiaries to, terminate, amend or otherwise modify, or consent to any termination, amendment or modification of, or grant any waiver under, any Major Project Document, unless any failure to so perform or any such termination, amendment, modification or waiver would not, when taken together with all other such failures to perform, terminations, amendments, modifications and waivers since the Closing Date, be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Borrower; provided, however, that the provisions of this paragraph will not apply to any amendment, modification or termination of any Major Project Document required under this Agreement in connection with an Asset Sale.
(c) The Borrower shall, and shall cause its Subsidiaries to, obtain and maintain all permits and approvals necessary for the construction and operation of the Facilities, including applicable exemptions from PUHCA, unless the failure to do so would not reasonably be expected to have a Material Adverse Effect.
(d) The Borrower shall not, and shall not permit any of its Subsidiaries to, use or dispose of any hazardous materials or allow any hazardous materials to be brought onto or stored or used on or transported to or released from the Facilities, other than in accordance with prudent industry practices and in compliance with all applicable Environmental Laws, except to the extent such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
(e) Notwithstanding anything to the contrary herein, the Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any contract monetization, contract buy-out or similar transactions.
SECTION 5.11 Payments for Consent. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of any Revolving Loan or as an inducement to any consent, waiver or amendment of any of the terms or provisions of any Revolving Loan Document unless such consideration is offered to be paid and is paid to all Lenders that consent, waive or agree to
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amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
SECTION 5.12 Restrictions on Activities of CalGen Finance. The Borrower shall not permit CalGen Finance to hold any material assets, become liable for any material obligations or engage in any significant business activities; provided that, notwithstanding anything to the contrary contained herein, CalGen Finance may be a co-obligor or guarantor with respect to Indebtedness if the Borrower is an obligor on such Indebtedness and the net proceeds of such Indebtedness are received by the Borrower, CalGen Finance or one or more of the Borrower's other Subsidiaries.
SECTION 5.13 Additional Subsidiaries. If the Borrower or any of its Subsidiaries acquires or creates another Subsidiary after the Closing Date, then (a) that newly acquired or created Subsidiary will (i) become a Guarantor hereunder, (ii) if such Subsidiary's assets and property consist solely of its ownership interests in any Guarantor, become a Holding Company hereunder and (iii) deliver or cause to be delivered an opinion of counsel reasonably satisfactory to the Administrative Agent within 30 days of the date on which it was acquired or created, and (b) all real and personal property of that Subsidiary will become part of the Collateral within 30 days of the date on which that Subsidiary was acquired or created pursuant to documentation (including security documents, financing statements, opinions and other documents) reasonably satisfactory to the Administrative Agent and the Collateral Agent.
SECTION 5.14 Limitation on Issuances and Sales of Equity Interests in Subsidiaries.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Subsidiary of the Borrower to any Person (other than the Borrower or a Guarantor), unless:
(i) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Subsidiary; and
(ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 5.7 (Asset Sales; Application of Net Proceeds).
(b) The Borrower shall not permit any of its Subsidiaries to issue any Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Borrower or a Guarantor.
SECTION 5.15 Deposit of Revenues. The Borrower shall, and shall cause its Subsidiaries to, deposit all revenues received by the Borrower and its Subsidiaries, within 10 Business Days of receipt thereof, in the Revenue Account.
SECTION 5.16 Maintenance of Insurance. The Borrower shall, and shall cause its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance on their property, including the Collateral, in at least such amounts, with such deductibles and against at least such risks as is customary for companies of the same or similar size engaged in the same or similar businesses as those of the Borrower and its Subsidiaries and furnish to the Administrative Agent, upon written request, full information as to such Persons' property and
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liability insurance carriers. The Borrower shall, and shall cause its Subsidiaries to, cause all their insurance policies to name the Lenders, as a class, as additional insureds with waiver of subrogation and shall cause all its, and its Subsidiaries', property and casualty policies to name the Collateral Agent as loss payee (together with other lien holders as their interests may appear), with the right to receive 30 days notice of any cancellation of or material change in such insurance policies.
SECTION 5.17 Coverage Ratio; Kilowatt Test.
(a) Consolidated Interest Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall cause the Consolidated Interest Coverage Ratio of the Borrower and its Subsidiaries to be equal to or greater than 1.25:1.0.
(b) Consolidated First and Second Priority Lien Debt to Kilowatt Test. As of the last day of each fiscal quarter of the Borrower, the Borrower shall cause the ratio of (a) the aggregate outstanding principal amount of First Priority Term Loans, First Priority Notes, Revolving Loans, Second Priority Term Loans and Second Priority Notes, to (b) the combined Estimated Peak Capacity of all the Facilities (including all Facilities in operation and under construction) owned by the Borrower and its Subsidiaries (expressed in kilowatts) to be equal to or less than $235 per kilowatt.
SECTION 5.18 Further Assurances. The Borrower and each Guarantor shall perform such reasonable acts as may be necessary to carry out the intent of this Agreement and the other Revolving Loan Documents promptly after written request by the Administrative Agent.
SECTION 5.19 Commercial Operations. The Borrower shall cause (a) the Columbia Facility to achieve Commercial Operation on or before April 5, 2005; (b) phase one of the Pastoria Facility to achieve Commercial Operation on or before September 1, 2005; (c) phase two of the Pastoria Facility to achieve Commercial Operation on or before September 1, 2006; and (d) the Goldendale Facility to achieve Commercial Operation on or before August 1, 2005.
SECTION 5.20 Compliance with Law. The Borrower shall, and shall cause its Subsidiaries to, comply with all applicable Legal Requirements, except to the extent that any such noncompliance would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 5.21 Inspection Rights. Upon the request of the Administrative Agent, the Borrower and its Subsidiaries will permit the Administrative Agent or any of the Lenders to visit and inspect any of the Collateral and examine and make abstracts from any of its books and records relating to the Collateral at any reasonable time and as often as may be reasonably requested (it being acknowledged that (a) the costs and expenses of the Administrative Agent and the Lenders incurred in connection with any such visits, inspections and examinations shall be borne solely by the Administrative Agent or the applicable Lender (as the case may be), unless a Default or Event of Default shall have occurred and be continuing, in which case such costs and expenses shall be borne solely by the Borrower, and (b) nothing in this Section 5.21 shall limit the Collateral Agent's rights under the Collateral Trust Agreement).
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SECTION 5.22 Suspension of Certain Covenants. In the event that from time to time, after giving effect to the suspension of covenants and the event of default provided for in this Section 5.20, the Third Priority Fixed Rate Notes and the Third Priority Floating Rate Notes are rated Baa3 or better by Moody's and BBB- or better by S&P, then the covenants contained in Section 5.4 (Restricted Payments), Section 5.5 (Dividend and Other Payment Restrictions Affecting Subsidiaries), Section 5.6 (Incurrence of Indebtedness and Issuance of Preferred Equity), Section 5.10 (Business Activities), Section 5.15 (Deposit of Revenues) and Section 7.1(j) shall be suspended. In the event that, at any time, neither the Third Priority Fixed Rate Notes nor the Third Priority Floating Rate Notes are rated Baa3 or better by Moody's and BBB- or better by S&P, the covenants and event of default contained in such Sections shall be reinstated.
ARTICLE VI.
SUCCESSORS
SECTION 6.1 Merger, Consolidation, or Sale of Assets.
(a) The Borrower shall not, directly or indirectly: (i) consolidate or merge with or into another Person (whether or not the Borrower is the surviving entity); (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Borrower and its Subsidiaries taken as a whole, in one or more related transactions, to another Person; or (iii) lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person; provided, however, that the foregoing shall not apply to:
(i) a merger of the Borrower with an Affiliate solely for the purpose of reconstituting the Borrower in another jurisdiction; or
(ii) any sale, transfer, assignment, conveyance, lease or other disposition of assets between or among the Borrower and the Guarantors.
(b) Notwithstanding the foregoing, the Borrower is permitted to reorganize as a corporation or a limited liability company in accordance with the procedures established in this Agreement, provided that the Borrower shall have delivered to the Administrative Agent an Opinion of Counsel in the United States reasonably acceptable to the Administrative Agent confirming that such reorganization is not adverse to the Lenders (it being recognized that such reorganization shall not be deemed adverse to the Lenders solely because (i) of the accrual of deferred tax liabilities resulting from such reorganization or
(ii) the successor or surviving corporation (A) is subject to income tax as a corporate entity or (B) is considered to be an "includable corporation" of an affiliated group of corporations within the meaning of the Code or any similar state or local law).
SECTION 6.2 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Borrower in a transaction that is subject to, and that complies with the provisions of, Section 6.1 (Merger, Consolidation, or Sale of Assets), the successor corporation formed by such consolidation or into or with which the Borrower is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other
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disposition, the provisions of this Agreement referring to the "Borrower" shall refer instead to the successor corporation and not to the Borrower), and may exercise every right and power of the Borrower under this Agreement with the same effect as if such successor Person had been named as the Borrower herein; provided, however, that the predecessor Borrower shall not be relieved from the obligation to pay the principal of and interest on or other amounts in respect of the Revolving Loans.
ARTICLE VII.
DEFAULTS AND REMEDIES
SECTION 7.1 Events of Default.
Each of the following is an "Event of Default":
(a) default for 5 days in the payment when due of interest or fees on the Revolving Loans;
(b) default in payment when due of the principal of, or premium, if any, on the Revolving Loans;
(c) the occurrence of a Change of Control;
(d) failure by the Borrower or any of its Subsidiaries to comply with
Section 5.7 (Asset Sales; Application of Net Proceeds) or 5.15 (Deposit of Revenues);
(e) failure by Holdings, the Borrower or any of its Subsidiaries for 30 days after written notice from the Administrative Agent or the Lenders holding at least 50% in outstanding aggregate principal amount of the Revolving Loans then outstanding to comply with any of the agreements in this Agreement or the other Revolving Loan Documents;
(f) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Borrower or any of its Subsidiaries (or the payment of which is guaranteed by the Borrower or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Agreement, if that default:
(i) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
(ii) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25,000,000 or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Borrower or the applicable Subsidiary becoming aware of such default;
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(g) failure by the Borrower or any of its Subsidiaries to pay final judgments aggregating in excess of $25,000,000 (excluding those covered by insurance), which judgments are not paid, discharged or stayed for a period of 60 days;
(h) the repudiation by Holdings, the Borrower or any of its Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against Holdings, the Borrower or any of its Subsidiaries for any reason; provided that such repudiation or unenforceability relates to Collateral having a Fair Market Value of $25,000,000 or more;
(i) except as permitted by this Agreement, any Revolving Loan Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Revolving Loan Guarantee, and such condition shall not have been cured within 30 days after written notice from the trustee or the holders of at least 50% in aggregate principal amount of outstanding Revolving Loans;
(j) breach by any Person (other than the Borrower or any of its Subsidiaries) of its obligations under, or termination or failure to be in full force and effect of, a Major Project Document (unless such breach, termination or failure to be in full force and effect would not, when taken together with all other such breaches, terminations or failures since the date of this Agreement (other than those that have been cured as contemplated below, including by entering into a replacement agreement), be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Borrower), unless with respect to any Major Project Document such breach is cured, or such Major Project Document is replaced with a substantially similar agreement (it being understood that an agreement will be considered substantially similar if it would not be Materially Adverse), within 60 days thereafter (or 120 days with respect to the Interest Hedge); and
(k) the Borrower, any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary, suffer a Bankruptcy Event.
SECTION 7.2 Acceleration. In the case of an Event of Default specified in clause
(k) of Section 7.1 (Events of Default), with respect to the Borrower or any of its Subsidiaries, the outstanding Revolving Loans and Reimbursement Obligations shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Administrative Agent or the Requisite Lenders may declare all the Revolving Loans and Reimbursement Obligations to be due and payable immediately. Upon any such declaration, the Revolving Loans and Reimbursement Obligations shall become due and payable immediately.
SECTION 7.3 Other Remedies.
(a) Subject to the Collateral Trust Agreement, if an Event of Default occurs and is continuing, the Administrative Agent may pursue any available remedy to collect the payment of
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principal, premium, if any, and interest on the Revolving Loan Obligations or to enforce the performance of this Agreement and any other Revolving Loan Document.
(b) The Administrative Agent may maintain a proceeding even if it does not possess any of the Revolving Loan Obligations. A delay or omission by the Administrative Agent or any Lender in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
(c) Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may cancel all or any portion of the Total Commitment and each Lender's Revolving Loan Commitment; further, the Administrative Agent, the LC Bank and the Lenders shall not be obligated to continue any Revolving Loans, make any additional Revolving Loans, issue, renew, extend or increase the Stated Amount of any Letter of Credit, or make any payments, or permit the making of payments, from any account or any proceeds or other funds held by the Administrative Agent under the Revolving Loan Documents or on behalf of the Borrower.
(d) Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may maintain in a cash collateral account, for payment of any Reimbursement Obligations or interest thereon (in each case, in whole or in part) arising in connection with any outstanding Letter of Credit, an amount of cash equal to the Stated Amount of each such Letter of Credit (plus accrued interest on the amounts in such account).
SECTION 7.4 Waiver of Past Defaults; Rescission. The Requisite Lenders by notice to the Administrative Agent may on behalf of the Lenders waive an existing Default or Event of Default and its consequences hereunder. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Agreement; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. The Requisite Lenders, by written notice to the Administrative Agent, may on behalf of all of the Lenders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived.
SECTION 7.5 Control by Majority. The Requisite Lenders may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Administrative Agent or exercising any trust or power conferred on it. However, the Administrative Agent may refuse to follow any direction that conflicts with law, this Agreement, the other Revolving Loan Documents, that the Administrative Agent determines may be unduly prejudicial to the rights of other Lenders, that may involve the Administrative Agent in personal liability, or that is inconsistent with the Collateral Trust Agreement.
SECTION 7.6 Collection Suit by Administrative Agent. If an Event of Default specified in Section 7.1(a) or (b) (Events of Default) occurs and is continuing, the Administrative Agent is authorized to recover judgment in its own name and as trustee of an express trust against the Borrower for the whole amount of principal of, premium, if any, and interest remaining unpaid
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on the Revolving Loans and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Administrative Agent, its agents and counsel.
SECTION 7.7 Priorities.
Subject to the Collateral Trust Agreement, if the Administrative Agent collects any money pursuant to this Article VII, it shall pay out the money in the following order:
First: to the Administrative Agent and the Lenders on a pro rata basis, their respective agents and attorneys for amounts due under this Agreement and the other Revolving Loan Documents, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Administrative Agent or any of the Lenders and the costs and expenses of collection;
Second: to the Lenders for amounts due and unpaid on the Revolving Loan Obligations for principal, premium, if any, fees, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Revolving Loan Obligations for principal, premium, if any, fees, and interest, respectively; and
Third: to the Borrower or to such party as a court of competent jurisdiction shall direct.
The Administrative Agent may fix a record date and payment date for any payment to the Lenders pursuant to this Section 7.7.
ARTICLE VIII.
AGENTS
SECTION 8.1 Appointment of Agents. The Borrower and the Lenders acknowledge and agree that The Bank of Nova Scotia has acted and shall be credited as lead arranger and bookrunner of the Revolving Loans. The Borrower and the Lenders acknowledge and agree that The Bank of Nova Scotia is hereby appointed the Administrative Agent and the LC Bank hereunder and under the other Revolving Loan Documents. The Borrower and each Lender hereby authorizes the Collateral Agent to act as the Collateral Agent with respect to the Revolving Loan Obligations, and each Lender authorizes the Collateral Agent and the Administrative Agent to enter into and perform their respective obligations under the Collateral Trust Agreement. Each Lender hereby authorizes (a) the Administrative Agent to act as its agent and (b) the LC Bank to act as issuing bank, in each case in accordance with the terms hereof and the other Revolving Loan Documents. The Administrative Agent hereby agrees to act upon the express conditions contained herein and the other Revolving Loan Documents, as applicable. The provisions of this Article VIII are solely for the benefit of the Agents and the Lenders and no Obligor shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, the Administrative Agent shall act solely as an agent of the Lenders and no Agent does or shall assume or be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower or any of its Subsidiaries. The Bank of Nova Scotia in its capacity as the lead arranger and bookrunner shall
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not have any duties, liabilities or obligations under the Revolving Loan Documents but shall be entitled to all benefits of this Article VIII.
SECTION 8.2 Powers and Duties. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Revolving Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and in the other Revolving Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Revolving Loan Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Revolving Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Revolving Loan Documents except as expressly set forth herein or therein.
SECTION 8.3 General Immunity.
(a) No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency hereof or any other Revolving Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to the Lenders or by or on behalf of any Obligor to any Agent or any Lender in connection with the Revolving Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Obligor or any other Person liable for the payment of any Revolving Loan Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Revolving Loan Documents or as to the use of the proceeds of the Revolving Loans or Letters of Credit or as to the existence or possible existence of any Material Adverse Effect, Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Revolving Loans, Participation Interests or the component amounts thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by any Agent under or in connection with any of the Revolving Loan Documents except to the extent caused by such Agent's bad faith, gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Revolving Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 12.5 (Amendments and Waivers)) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to
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exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Borrower and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Revolving Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 12.5 (Amendments and Waivers)).
SECTION 8.4 Agents Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Revolving Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with the Borrower or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection herewith and otherwise without having to account for the same to the Lenders.
SECTION 8.5 Lenders' Representations, Warranties and Acknowledgment.
(a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with its Revolving Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of the CalGen Companies. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Revolving Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders.
(b) Each Lender, by delivering its signature page to this Agreement, shall be deemed to have acknowledged receipt of, and consented to and approved, each Revolving Loan Document and each other document required to be approved by any Agent, Requisite Lenders or the Lenders, as applicable on the Closing Date.
SECTION 8.6 Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Obligor, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or
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asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Revolving Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Revolving Loan Documents; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's bad faith, gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.
SECTION 8.7 Successor Administrative Agent or LC Bank. The Administrative Agent or the LC Bank may resign at any time by giving 30 days' prior written notice thereof to the Lenders and the Borrower, and the Administrative Agent or the LC Bank may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Borrower and the Administrative Agent and the LC Bank and signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, the Requisite Lenders shall have the right, upon five Business Days' notice to the Borrower, to appoint a successor Administrative Agent or LC Bank (as applicable); provided, that the Borrower shall have the right to approve any such successor Administrative Agent (such approval not to be unreasonably withheld or delayed) so long as no Default or Event of Default shall have occurred and be continuing. Upon the acceptance of any appointment as Administrative Agent or LC Bank hereunder by a successor Administrative Agent or LC Bank, as applicable, that successor Administrative Agent or LC Bank (as applicable) shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent or LC Bank, as applicable and the retiring or removed Administrative Agent or LC Bank shall promptly transfer to such successor Administrative Agent or LC Bank, as applicable, all sums, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent or LC Bank, as applicable under the Revolving Loan Documents, whereupon such retiring or removed Administrative Agent or LC Bank (as applicable) shall be discharged from its duties and obligations hereunder. After any retiring or removed Administrative Agent's or LC Bank's (as applicable) resignation or removal hereunder as Administrative Agent or LC Bank, as applicable, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or LC Bank (as applicable) hereunder. In connection with any retiring or replacement of the LC Bank hereunder, the new LC Bank shall, at the expense of the Lenders, replace and reissue all Letters of Credit issued by the retiring or removed LC Bank.
SECTION 8.8 Withholding Tax.
(a) To the extent required by any applicable Legal Requirement, the Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to any
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applicable withholding tax, including any withholding tax resulting from any Lenders' failure to deliver the forms or other documentation as required by
Section 2.1.16(e) (Taxes; Withholding, etc). Nothing in this Section 8.8 shall relieve the Borrower of its obligation with respect to Taxes and Other Taxes provided in Section 2.1.16 (Taxes; Withholding, etc.).
(b) If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
ARTICLE IX.
COLLATERAL AND SECURITY
The Collateral Agent's Liens upon the Collateral shall no longer secure the Revolving Loan Obligations outstanding under this Agreement, and the right of the Lenders to the benefits and proceeds of the Collateral Agent's Liens on Collateral shall terminate and be discharged:
(a) on the Revolving Loan Secured Obligations Termination Date; or
(b) with the prior written consent of each Lender whose consent is required under Section 12.5.
Nothing in this Article IX shall be deemed to restrict the Collateral Agent's rights to release liens on Collateral in accordance with the terms of the Collateral Trust Agreement or as otherwise permitted pursuant to the terms of this Agreement.
ARTICLE X.
RANKING OF LIENS AND COLLATERAL SHARING
EACH LENDER AND EACH AGENT HEREBY ACKNOWLEDGES AND AGREES THAT THE THEIR RESPECTIVE LIEN PRIORITIES, THE DISTRIBUTION OF PROCEEDS OF COLLATERAL, THE EXERCISE OF REMEDIES UNDER THE REVOLVING LOAN DOCUMENTS, AMENDMENTS AND WAIVERS TO THE REVOLVING LOAN DOCUMENTS, AND OTHER MATTERS RELATED TO THE COLLATERAL ARE SUBJECT TO AND GOVERNED BY THE COLLATERAL TRUST AGREEMENT. Each Lender and each Agent, by delivering its signature page hereto, funding its Revolving Loan on the Closing Date and/or executing an Assignment Agreement (as the case may be), shall be deemed to have (a) acknowledged receipt of, consented to and approved the Collateral Trust Agreement, and (b) authorized the Agents to perform their respective obligations thereunder. Each Lender and each Agent further acknowledges that, in certain circumstances related to intercreditor and security matters, the Collateral Trust Agreement provides that, where lenders and/or noteholders hold the same series of Obligations (such as the Revolving Loan Obligations, the Obligations under the Term Loan Agreement and the Obligations under the First Priority
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Notes), such lenders and noteholders will vote as a single class, and the agent or trustee for such lenders or noteholders, as applicable, will vote the obligations of such lenders or noteholders, as applicable, as a class (and not by percentage of lenders or noteholders voting for or against the applicable intercreditor or security matter). Accordingly, in such circumstances under the Collateral Trust Agreement, if the Requisite Lenders hereunder do (or do not) consent, approve, waive or otherwise provide direction to the Administrative Agent with respect to any request, decision, action, or otherwise, then the Administrative Agent shall vote 100% of the Revolving Loan Obligations in favor of such consent, approval or waiver (or rejection thereof), as applicable, all in accordance with the terms of the Collateral Trust Agreement.
ARTICLE XI.
REVOLVING LOAN GUARANTEE
SECTION 11.1 Guarantee.
(a) Subject to the limitations set forth in Section 12.22 (No Recourse Against the Borrower or the Guarantors) and in Section 11.1(b), the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Administrative Agent, for the benefit of the Lenders and the LC Bank and their respective successors, endorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower and each other Guarantor when due (whether at the stated maturity, by acceleration or otherwise) of the Revolving Loan Obligations;
(b) Each Guarantor, and by its making of a Revolving Loan on the Closing Date, each Lender, and by its issuance of each Letter of Credit, the LC Bank, hereby confirms that it is the intention of all such parties that the Revolving Loan Guarantee(s) of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Revolving Loan Guarantee. To effectuate the foregoing intention, the Administrative Agent, the LC Bank, the Lenders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article XI, result in the obligations of such Guarantor under its Revolving Loan Guarantee not constituting a fraudulent transfer or conveyance.
(c) Each Guarantor agrees that the Revolving Loan Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor under this Article XI without impairing the guarantee of such Guarantor to the extent provided in this Article XI or affecting the rights and remedies of the Administrative Agent or any other Secured Party hereunder.
(d) The guarantee provided in this Article XI shall remain in full force and effect until the Revolving Loan Secured Obligations Termination Date.
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(e) With respect to each Guarantor, no payment made by the Borrower, any of the Guarantors or any other Person or received or collected by the Administrative Agent or any other Secured Party from the Borrower, any of the other Guarantors or any other Person, by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of any Revolving Loan Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of such Guarantor hereunder, which Guarantor shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Revolving Loan Obligations or any payment received or collected from such Guarantor in respect of the Revolving Loan Obligations), remain liable for the Revolving Loan Obligations outstanding from time to time hereunder up to the maximum amount of such Guarantor's liability hereunder until the Revolving Loan Secured Obligations Termination Date.
SECTION 11.2 Right of Contribution.
(a) Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 11.4 (No Subrogation).
(b) The provisions of this Section 11.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the other Revolving Loan Secured Parties, and each Guarantor shall remain liable to the Administrative Agent and the other Revolving Loan Secured Parties for the full amount guaranteed by such Guarantor hereunder.
SECTION 11.3 Subordination. Except as otherwise specifically provided in this Article XI, (a) all existing and future indebtedness of, or other obligations owed by, the Borrower or any of its subsidiaries to any Guarantor is hereby subordinated to all Revolving Loan Obligations, and (b) without the prior written consent of the Administrative Agent, such subordinated indebtedness (including interest thereon) shall not be paid or withdrawn in whole or in part, nor shall any Guarantor accept any payment of or on account of any such indebtedness while the guarantee provided hereunder is in effect. Any payment by the Borrower or any subsidiary thereof in violation of this Section 11.3 shall be received by the relevant Guarantor in trust for the Administrative Agent and the Revolving Loan Secured Parties, and such Guarantor shall cause the same to be paid to the Administrative Agent for the benefit of the Revolving Loan Secured Parties immediately upon demand by the Administrative Agent on account of the Revolving Loan Obligations. No Guarantor shall assign all or any portion of such indebtedness while the guarantee provided hereunder remains in effect except upon prior written notice to the Administrative Agent and pursuant to an agreement by which the assignee of any such indebtedness agrees that the assignment is made subject to the terms of this Agreement, and that any attempted assignment of such indebtedness in violation of the provisions hereof shall be void. Nothing in this Section 11.3 shall apply to any repayment of existing or future indebtedness or obligation, distribution, withdrawal of capital or any other payment of any kind or nature whether in cash, in kind, or otherwise, that is permitted to be made to the Guarantor or any of its Affiliates pursuant to and in accordance with the Financing Documents.
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SECTION 11.4 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Administrative Agent or any other Secured Party, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any other Secured Party against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Administrative Agent or any other Secured Party for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until the Revolving Loan Secured Obligations Termination Date. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Revolving Loan Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the other Revolving Loan Secured Parties, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly endorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Revolving Loan Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine, subject to the terms and provisions of the Collateral Trust Agreement.
SECTION 11.5 Amendments, etc. with respect to the Revolving Loan Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Revolving Loan Obligations made by the Administrative Agent or any other Secured Party may be rescinded by the Administrative Agent or such other Secured Party and any of the Revolving Loan Obligations continued, and the Revolving Loan Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any other Secured Party, and any of the Revolving Loan Documents may be amended, modified, supplemented or terminated, in whole or in part, as the requisite parties thereto deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any other Secured Party for the payment of the Revolving Loan Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Revolving Loan Obligations or for the guarantee contained in this Article XI or any property subject thereto.
SECTION 11.6 Guarantee Absolute and Unconditional.
(a) Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Revolving Loan Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guarantee contained in this Article XI or acceptance of the guarantee contained in this Article XI. Each Guarantor agrees that the Revolving Loan Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the Revolving Loan Guarantees. Each Guarantor agrees that all dealings between the Borrower and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the
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other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Article XI. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Revolving Loan Obligations.
(b) The obligations of each Guarantor hereunder are primary obligations of such Guarantor and are an absolute, unconditional, continuing and irrevocable guaranty of payment and performance of the Revolving Loan Obligations and the other obligations of Guarantor hereunder and not of collectibility, and are in no way conditioned on or contingent upon any attempt to enforce in whole or in part Holdings', the Borrower's or any CalGen Company's liabilities and obligations to the Secured Parties. Each failure by a Guarantor to pay or perform, as the case may be, a Revolving Loan Obligation or any other obligation hereunder shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises.
(c) The Revolving Loan Secured Parties may, at any time and from time to time (whether or not after revocation or termination of the guarantee contained in this Article XI) without the consent of or notice to any Guarantor, except such notice as may be required by the Revolving Loan Documents or applicable law which cannot be waived, without incurring responsibility to any Guarantor, without impairing or releasing the obligations of any Guarantor hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place and terms of payment or performance of, or renew or alter, any Revolving Loan Obligation or any obligations and liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, or in any manner modify, amend or supplement the terms of the Revolving Loan Documents or any documents, instruments or agreements executed in connection therewith, in each case with the consent of Holdings, the Borrower, the CalGen Companies and any Guarantor (in each case, as and to the extent required by this Agreement or the relevant Security Document, as applicable), and the agreements and guarantees herein made shall apply to the Revolving Loan Obligations or such other obligations as changed, extended, renewed, modified, amended, supplemented or altered in any manner;
(ii) exercise or refrain from exercising any rights against Holdings, the Borrower, any CalGen Company, or others (including any Guarantor) or otherwise act or refrain from acting;
(iii) add or release any other guarantor from its obligations without affecting or impairing the obligations of any Guarantor hereunder;
(iv) settle or compromise any Revolving Loan Obligations or any obligations and liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment or performance of all or any part thereof to the payment or performance of any obligations and liabilities which may be due to the Secured Parties or others;
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(v) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner or in any order any property by whomsoever pledged or mortgaged to secure or securing the Revolving Loan Obligations or any liabilities or obligations (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof and/or any offset there against;
(vi) apply any sums by whomsoever paid or howsoever realized to any obligations and liabilities of Holdings, the Borrower or any CalGen Company to the Revolving Loan Secured Parties under the Revolving Loan Documents in the manner provided therein regardless of what obligations and liabilities remain unpaid, except that sums paid by any Guarantor hereunder shall be deemed to have been paid in respect of the applicable obligation of such Guarantor hereunder;
(vii) consent to or waive any breach of, or any act, omission or default under, the Revolving Loan Documents or otherwise amend, modify or supplement (with the consent of the Guarantors, Holdings, the Borrower and the CalGen Companies, as and to the extent required by the Revolving Loan Documents) the Revolving Loan Documents or any of such other instruments or agreements; and/or
(viii) act or fail to act in any manner referred to in this Agreement which may deprive any Guarantor of its right to subrogation against the Borrower or any CalGen Company to recover full indemnity for any payments or performances made pursuant to this Agreement or of its right of contribution against any other party.
(d) No invalidity, irregularity or unenforceability of the Revolving Loan Obligations or invalidity, irregularity, unenforceability or non-perfection of any collateral therefor, shall affect, impair or be a defense to the guarantee contained in this Article XI, which is a primary obligation of each Guarantor.
(e) The guarantee provided hereunder is a continuing guarantee and all obligations to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. In the event that, notwithstanding the provisions of Section 11.6(b) above, the guarantee provided by any Guarantor hereunder shall be deemed revocable in accordance with applicable law, then any such revocation shall become effective only upon receipt by Administrative Agent of written notice of revocation signed by such Guarantor. To the extent permitted by applicable law, no revocation or termination hereof shall affect, in any manner, rights arising under hereunder with respect to Revolving Loan Obligations arising prior to receipt by Administrative Agent of written notice of such revocation or termination. Any such revocation or termination shall be deemed to be an Event of Default.
SECTION 11.7 Waiver. Each Guarantor hereby unconditionally and irrevocably waives and relinquishes, to the maximum extent permitted by applicable Legal Requirements, all rights and remedies accorded to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies, including:
(a) any right to require Administrative Agent or the other Secured Parties to proceed against the Borrower, any CalGen Company or any other Person or to proceed against or exhaust
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any security held by Administrative Agent or any other Secured Party at any time or to pursue any other remedy in Administrative Agent's or any other Secured Party's power before proceeding against such Guarantor;
(b) any defense that may arise by reason of the incapacity, lack of power or authority, death, dissolution, merger, termination or disability of such Guarantor, the Borrower, any other CalGen Company or any other Person or the failure of the Administrative Agent or any other Secured Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of such Guarantor, Holdings, the Borrower, any CalGen Company or any other Person;
(c) promptness, diligence, demand, presentment, protest and notice of any kind, including notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Holdings, the Borrower, any CalGen Company, the Administrative Agent, the other Secured Parties, any endorser or creditor of the foregoing or on the part of any other Person under this or any other instrument in connection with any obligation or evidence of indebtedness held by the Administrative Agent or the other Secured Parties as collateral or in connection with any Revolving Loan Obligation;
(d) any defense based upon an election of remedies by the Administrative Agent or the other Secured Parties, including an election to proceed by non-judicial rather than judicial foreclosure, which destroys or otherwise impairs the subrogation rights of such Guarantor, the right of such Guarantor to proceed against Holdings, the Borrower, any CalGen Company or another Person for reimbursement, or both;
(e) any defense based on any offset against any amounts which may be owed by any Person to such Guarantor for any reason whatsoever;
(f) any defense based on any act, failure to act, delay or omission whatsoever on the part of Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates or the failure by Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates to do any act or thing or to observe or perform any covenant, condition or agreement to be observed or performed by it under the Financing Documents;
(g) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
(h) any defense setoff or counterclaim which may at any time be available to or asserted by Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates thereof against the Administrative Agent, the other Secured Parties or any other Person under the Financing Documents;
(i) any duty on the part of the Administrative Agent or any other Secured Party to disclose to such Guarantor any facts any Secured Party may now or hereafter know about Holdings, the Borrower, any CalGen Company or the Facilities, regardless of whether the Administrative Agent or any other Secured Party has reason to believe that any such facts materially increase the risk beyond that which such Guarantor intends to assume, or have reason
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to believe that such facts are unknown to such Guarantor, or have a reasonable opportunity to communicate such facts to such Guarantor, since such Guarantor acknowledges that such Guarantor is fully responsible for being and keeping informed of the financial condition of the Borrower and of all circumstances bearing on the risk of non-payment or non-performance of any Revolving Loan Obligation;
(j) any defense based on any change in the time, manner or place of any payment or performance under, or in any other term of, this Agreement or any other Financing Document, or any other amendment, renewal, extension, acceleration, compromise or waiver of or any consent or departure from the terms of this Agreement or any other Financing Document;
(k) any right to assert the bankruptcy or insolvency of Holdings, the Borrower, any CalGen Company or any other Person as a defense hereunder or as the basis for rescission hereof and any defense arising because of the Administrative Agent's or any other Secured Party's election, in any proceeding instituted under the Bankruptcy Law, of the application of Section 1111(b)(2) of the Bankruptcy Law;
(l) any defense based upon any borrowing or grant of a security interest under Section 364 of the Bankruptcy Law; and
(m) any other circumstance (including any statute of limitations), any act or omission by Holdings, the Borrower, any CalGen Company, or any existence of or reliance on any representation by the Administrative Agent, Holdings, the Borrower, any CalGen Company or any Secured Party that might otherwise constitute a defense available to, or discharge of, any guarantor or surety (other than, subject to Section 11.8 (Bankruptcy), the defense of payment or performance of the applicable Obligations guaranteed hereunder).
SECTION 11.8 Bankruptcy.
(a) The obligations of any Guarantor under the guarantee provided in this Article XI shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement of Holdings, the Borrower, any other Guarantor or any Affiliate thereof, or by any defense which Holdings, the Borrower, any Guarantor or any Affiliate thereof may have by reason of any order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor shall file, in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law, all claims which such Guarantor may have against Holdings, the Borrower or any CalGen Company relating to any indebtedness of the Borrower or any CalGen Company to such Guarantor, and hereby assigns to the Administrative Agent (for the benefit of itself and the Lenders) all rights of such Guarantor thereunder. If any Guarantor does not file any such claim, the Administrative Agent, as attorney-in-fact for such Guarantor, is hereby authorized to do so in the name of such Guarantor or, in the Administrative Agent's discretion, to assign the claim to a nominee and to cause proofs of claim to be filed in the name of the Administrative Agent's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. The Administrative Agent or its nominee shall have the sole right to accept or reject any plan proposed in any such proceeding and to take any other
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action which a party filing a claim is entitled to take. In all such cases, whether in administration, bankruptcy or otherwise, the person authorized to pay such a claim shall pay the same to the Administrative Agent to the extent of any Revolving Loan Obligations which then remain unpaid or unperformed, and, to the full extent necessary for that purpose, each Guarantor hereby assigns to the Administrative Agent all of such Guarantor's rights to all such payments or distributions to which such Guarantor would otherwise be entitled; provided, however, that such Guarantor's obligations hereunder shall not be satisfied except to the extent that the Administrative Agent receives cash by reason of any such payment or distribution. If the Administrative Agent receives anything hereunder other than cash, the same shall be held as collateral for amounts due under the guarantee contained in this Article XI.
(c) Each Guarantor hereby irrevocably waives, to the extent it may do so under applicable Legal Requirements, any protection to which it may be entitled under Sections 365(c)(1), 365(c)(2) and 365(e)(2) of the Bankruptcy Law or equivalent provisions of the laws or regulations of any other jurisdiction with respect to any proceedings, or any successor provision of law of similar import, in the event of any Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company. Specifically, in the event that the trustee (or similar official) in a Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company or the debtor-in-possession takes any action (including the institution of any action, suit or other proceeding for the purpose of enforcing the rights of Holdings, the Borrower, or any Guarantor under this Agreement or any Security Document), no Guarantor shall assert any defense, claim or counterclaim denying liability hereunder on the basis that this Agreement or any Security Document is an executory contract or a "financial accommodation" that cannot be assumed, assigned or enforced or on any other theory directly or indirectly based on Section 365(c)(1), 365(c)(2) or 365(e)(2) of the Bankruptcy Law, or equivalent provisions of the law or regulations of any other jurisdiction with respect to any proceedings or any successor provision of law of similar import. If a Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company shall occur, each Guarantor agrees, after the occurrence of such Bankruptcy Event, to reconfirm in writing, to the extent permitted by applicable Legal Requirements, its pre-petition waiver of any protection to which it may be entitled under Sections 365(c)(1), 365(c)(2) and 365(e)(2) of the Bankruptcy Law or equivalent provisions of the laws or regulations of any other jurisdiction with respect to proceedings and, to give effect to such waiver, each Guarantor consents to the assumption and enforcement of each provision of the guarantee contained in this Article XI and any other provision hereof and in any other Revolving Loan Document by the debtor-in-possession or Holdings', the Borrower's or any CalGen Company's trustee in bankruptcy, as the case may be.
SECTION 11.9 Reinstatement. The guarantee contained in this Article XI shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Revolving Loan Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Holdings, the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Holdings, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.
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SECTION 11.10 Payments. Each Guarantor shall make all payments due hereunder in accordance with Section 2.1.12 (General Provisions Regarding Payments).
ARTICLE XII.
MISCELLANEOUS
SECTION 12.1 Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to the Borrower, any Guarantor, the Administrative Agent or the LC Bank shall be sent to such Person's address as set forth on Appendix B or in the other relevant Revolving Loan Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to the Administrative Agent and the LC Bank in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to the Administrative Agent or the LC Bank shall be effective until received by the Administrative Agent or the LC Bank (as applicable). Documents, notices or reports required to be delivered to the Lenders pursuant to Sections 2.1.1(b)(Revolving Loans), 2.1.6 (Continuation Notice), 2.1.10 (Voluntary Prepayment; Commitment Reductions), 2.1.11 (Mandatory Repayments and Commitment Reductions), 2.2 (Letter of Credit Facilities), 5.1(a) (Reports) and 5.2 (Compliance Certificate) may be delivered electronically and posted electronically on IntraLinks/IntraAgency or other relevant website to which the Lenders have access (whether a commercial, third-party website or whether sponsored by Administrative Agent), if any; provided that (i) the Administrative Agent shall deliver paper copies of such reports to any Lender upon written request therefor; and (ii) the Administrative Agent shall notify (which may be by facsimile or electronic mail) each Lender of the posting of any such reports and provide to each Lender by email electronic versions (i.e., soft copies) of such reports.
SECTION 12.2 Expenses.
The Borrower agrees to pay promptly, without duplication among the separate clauses of this Section 12.2 and without duplication of amounts paid under the Purchase Agreement or the Term Loan Agreements or any other Financing Document:
(a) all the costs incurred after the Closing Date of furnishing all opinions by counsel for the Borrower and the other Obligors;
(b) the reasonable fees, expenses and disbursements of counsel to the Lead Arranger in connection with the administration of the Revolving Loan Documents and the negotiation, preparation and execution of any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by the Borrower;
(c) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of the Secured Parties pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance
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premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Security Documents;
(d) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers if reasonably required in connection with the administration or enforcement of this Agreement;
(e) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) reasonably required in connection with the custody or preservation of any of the Collateral; and
(f) after the occurrence of a Default or an Event of Default, all costs and expenses, including attorneys' fees and costs of settlement, incurred by any Agent and the Lenders in enforcing any Revolving Loan Obligations of or in collecting any payments due from any Obligor hereunder or under the other Revolving Loan Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Revolving Loan Guarantees) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any Bankruptcy Case or Insolvency Proceeding.
SECTION 12.3 Indemnity.
(a) In addition to the payment of costs and expenses pursuant to Section
12.2 (Expenses), whether or not the transactions contemplated hereby shall be consummated, the Borrower and the Guarantors agree to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless the Administrative Agent, the LC Bank and the Lenders and each of their respective Affiliates and each and all of the directors, officers, partners, trustees, employees, attorneys and agents, and (in each case) their respective heirs, representatives, successors and assigns (each of the foregoing, an "Indemnitee") from and against any and all Indemnified Liabilities; provided, no Indemnitee shall be entitled to indemnification hereunder with respect to any Indemnified Liability to the extent such Indemnified Liability is found by a final and nonappealable decision of a court of competent jurisdiction to have resulted directly and primarily from the bad faith, gross negligence or willful misconduct of such Indemnitee.
(b) All amounts due under Section 12.3(a) shall be payable not later than 10 days after written demand therefor.
(c) To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in Section 12.3(a) may be unenforceable in whole or in part because they are violative of any law or public policy, the Borrower and the Guarantors shall contribute the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.
(d) The Borrower and the Guarantors shall not assert any claim against any Indemnitee, on any theory of liability, for any lost profits or special, indirect or consequential damages or (to the fullest extent lawful) any punitive damages arising out of, in connection with,
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or as a result of, this Agreement or any other Revolving Loan Document or any agreement or instrument or transaction contemplated hereby or relating in any respect to any Indemnified Liability, and the Borrower and the Guarantors hereby forever waive, release and agree not to sue upon any claim for any such lost profits or special, indirect, consequential or (to the fullest extent lawful) punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.
(e) The agreements in this Section 12.3 shall survive repayment of the Revolving Loans and all other amounts payable hereunder.
SECTION 12.4 Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by the Borrower and the Guarantors at any time or from time to time subject to the consent of the Administrative Agent, without prior written notice to such Person or to any other Person (other than the Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of the Borrower or any Guarantor against and on account of the obligations and liabilities of such party to such Lender hereunder, and under the other Revolving Loan Documents, including all claims of any nature or description arising out of or connected hereto, or with any other Revolving Loan Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Revolving Loans or any other amounts due hereunder shall have become due and payable pursuant to Article II and although such obligations and liabilities, or any of them, may be contingent or unmatured.
SECTION 12.5 Amendments and Waivers.
(a) Requisite Lenders' Consent. Subject to Section 12.5(e), no amendment, modification, termination or waiver of any provision of the Revolving Loan Documents, or consent to any departure by any Obligor therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders and any additional consents required by Sections 12.5(b) and (c).
(b) Affected Lenders' Consent. No amendment, modification, termination, or consent shall be effective if the effect thereof would:
(i) extend the scheduled final maturity or Expiration Date of any Revolving Loan, Letter of Credit or Revolving Loan Note outstanding to any Lender without the prior written consent of that Lender and, with respect to Letters of Credit, the LC Bank;
(ii) waive, reduce or postpone any scheduled repayment (but not prepayment) due to any Lender without the prior written consent of that Lender;
(iii) reduce the rate of interest on any Revolving Loan Obligation (other than any waiver of any increase in the interest rate applicable to any Revolving Loan Obligation pursuant to Section 2.1.7 (Default Interest)) payable to any Lender or reduce
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or extend any fee payable hereunder to any Lender without the prior written consent of that Lender;
(iv) reduce the principal amount of any Revolving Loan or Reimbursement Obligation outstanding to any Lender without the prior written consent of that Lender;
(v) amend, modify, terminate or waive any provision of this Section 12.5(b), as it applies to any Lender without the prior written consent of that Lender;
(vi) amend the definition of "Requisite Lenders" or "Pro Rata Share" without the prior written consent of all Lenders;
(vii) release any Collateral (other than immaterial portions thereof) from the Liens created by the Security Documents, except as specifically provided for in this Agreement and the Security Documents, without the prior written consent of all Lenders;
(viii) release any Guarantor from its obligations under its Revolving Loan Guarantee(s) or otherwise consent to the assignment or transfer by any Obligor of any of its rights and obligations under any Revolving Loan Document without the prior written consent of all Lenders; or
(ix) amend or modify any provision which requires pro rata payments among and as between the Lenders without the prior written consent of all Lenders.
(c) Other Consents. No amendment, modification, termination or waiver of any provision of the Revolving Loan Documents, or consent to any departure by any Obligor therefrom, shall amend, modify, terminate or waive any provision of Article VIII as the same applies to the Administrative Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of the Administrative Agent and the LC Bank.
(d) Execution of Amendments, etc. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Obligor in any case shall entitle any Obligor to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 12.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by an Obligor, on such Obligor.
(e) Certain Amendments. Notwithstanding the preceding provisions of this
Section 12.5, the Borrower and the Administrative Agent may amend or supplement the Revolving Loan Documents without the consent of any Lender:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for the assumption of the Borrower's obligations to the Lenders by a successor to the Borrower pursuant to Article VI hereof;
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(iii) to make any change that would provide any additional rights or benefits to the Lenders or that does not adversely affect the legal rights hereunder of any Lender;
(iv) to allow any Subsidiary of the Borrower to provide a Revolving Loan Guarantee or allow any Guarantor to execute a supplemental Guarantee with respect to the Revolving Loan Obligations;
(v) to make, complete or confirm any grant of Collateral permitted or required by this Agreement or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Agreement or any of the Security Documents;
(vi) to conform the text of this Agreement, the Revolving Loan Notes or the Security Documents to any provision of the "Description of Revolving Credit Facility" or "Description of Notes" section of the Offering Memorandum to the extent that such provision of the "Description of Revolving Credit Facility" or "Description of Notes" section of the Offering Memorandum was intended to be a verbatim recitation of a provision of this Agreement, the Revolving Loans or the Security Documents; or
(vii) to reflect any waiver or termination of any right arising under the provisions of this Agreement that otherwise would be enforceable by any holder of the Notes, if such waiver or termination is set forth in the indentures governing such Notes, provided that no such waiver or amendment shall adversely affect the rights of the Lenders.
SECTION 12.6 Successors and Assigns; Participations.
(a) Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders and the other parties hereto. No Obligor's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Obligor without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Register. The Borrower, the Administrative Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Revolving Loan Commitments, Participation Interests and Revolving Loans listed therein for all purposes hereof, and no assignment or transfer of any such Revolving Loan Commitment, Participation Interest or Revolving Loan (including any Revolving Loan represented by a Revolving Loan Note) shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by the Administrative Agent and recorded in the Register as provided in
Section 12.6(e). Prior to such recordation, all amounts owed with respect to the applicable Revolving Loan Commitment, Participation Interest or Revolving Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at
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the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Revolving Loan Commitments, Participation Interests or Revolving Loans.
(c) Right to Assign. Each Lender shall have the right (after receiving the Borrower's prior written consent as to the identity of the assignee, which consent shall not be unreasonably withheld or delayed or required if an Event of Default has occurred and is continuing) at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including all or a portion of its Revolving Loan Commitment, Participation Interest, Participation Interest or Revolving Loans owing to it or other Revolving Loan Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Revolving Loan, Participation Interests and any related Revolving Loan Commitments):
(i) to any Person meeting the criteria of clause (a) of the definition of the term of "Eligible Assignee" upon the giving of notice to the Borrower and the Administrative Agent; and
(ii) to any Person meeting the criteria of clause (b) of the definition of the term of "Eligible Assignee";
provided, further each such assignment pursuant to this Section 12.6(c) shall be in an aggregate amount of not less than $1,000,000 (or such lesser amount as may be agreed to by the Borrower and the Administrative Agent or as shall constitute the aggregate amount of the Revolving Loan Commitments, Participation Interests and Revolving Loans outstanding to the assigning Lender), and written notice of each such assignment shall be provided to the Borrower and the Administrative Agent by the delivery of an Assignment Agreement executed by the parties to such assignment.
Notwithstanding anything to the contrary herein, the LC Bank shall have the unfettered right to approve any assignment of any of Participation Interests.
(d) Mechanics; Fee. The assigning Lender and the assignee thereof shall execute and deliver to the Administrative Agent an Assignment Agreement, together with (a) such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to the Administrative Agent pursuant to Section 2.1.16(e) (Taxes; Withholding, etc.) and (b) an administrative fee of $3,500 paid by the assignee thereof.
(e) Notice of Assignment. Upon its receipt of a duly executed and completed Assignment Agreement (and any forms, certificates or other evidence required by this Agreement in connection therewith) and the applicable fee, the Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to the Borrower and shall maintain a copy of such Assignment Agreement.
(f) Representations and Warranties of Assignee. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, and without limiting any other representation or warranty contained in any such Assignment
123
Agreement, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Revolving Loan Commitments or Revolving Loans, as the case may be; and (iii) it shall make or invest in, as the case may be, its Revolving Loan Commitments, Participation Interests or Revolving Loans for its own account in the ordinary course of its business and without a view to distribution of such Revolving Loan Commitments, Participation Interests or Revolving Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 12.6, the disposition of such Revolving Loan Commitments, Participation Interests or Revolving Loans or any interests therein shall at all times remain within its exclusive control).
(g) Effect of Assignment. Subject to the terms and conditions of this
Section 12.6, as of the "Effective Date" specified in the applicable Assignment Agreement:
(i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof;
(ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 12.8 (Survival of Representations, Warranties and Agreements) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the Revolving Loan Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder);
(iii) the Revolving Loan Commitments shall be modified to reflect the Revolving Loan Commitment of such assignee; and
(iv) if any such assignment occurs after the issuance of any Revolving Loan Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Revolving Loan Notes to the Administrative Agent for cancellation, and thereupon the Borrower shall issue and deliver new Revolving Loan Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new outstanding Revolving Loans of the assignee and/or the assigning Lender.
(h) Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than the Borrower, any of its Restricted Subsidiaries or any of its Affiliates) in all or any part of its Revolving Loan Commitments, Revolving Loans or in any other Revolving Loan Obligation. The holder of any such participation, other than an Affiliate
124
of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would:
(i) extend the final scheduled maturity of any Revolving Loan or Revolving Loan Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Revolving Loan Commitment shall not constitute a change in the terms of such participation, and that an increase in any Revolving Loan Commitment or Revolving Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof);
(ii) consent to the assignment or transfer by any Obligor of any of its rights and obligations under this Agreement; or
(iii) release the Collateral under the Security Documents
(except as expressly provided in the Revolving Loan Documents) supporting the Revolving Loan Obligations hereunder in which such participant is participating.
The Borrower agrees that each participant shall be entitled to the benefits of Sections 2.1.14(c) (Making or Maintaining Revolving Loans), 2.1.15 (Increased Costs; Capital Adequacy) and 2.1.16 (Taxes; Withholding, etc.) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.1.14 (Making or Maintaining Revolving Loans) or 2.1.15 (Increased Costs; Capital Adequacy) than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with the Borrower's prior written consent and (ii) a participant that would be a Non-U.S. Lender if it were a Lender shall not be entitled to the benefits of Section 2.1.16 (Taxes; Withholding, etc.) unless the Borrower is notified of the participation sold to such participant and such participant agrees, for the benefit of the Borrower, to comply with Section
2.1.16 (Taxes; Withholding, etc.) as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of
Section 12.4 (Set-Off) as though it were a Lender, provided such participant agrees to be subject to Section 2.1.13 (Ratable Sharing) as though it were a Lender.
(i) Certain Other Assignments.
(i) In addition to any other assignment permitted pursuant to this Section 12.6, any Lender may assign and/or pledge all or any portion of its Revolving Loans, the other Revolving Loan Obligations owed by or to such Lender, and its Revolving Loan Notes, if any, to secure obligations of such Lender including (i) to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank and (ii) with respect to any Lender that is a fund that invests in bank loans, to any trustee
125
or holder of obligations owed, or securities issued by, such fund as security for such obligations or securities or to any other representative of such holders; provided, no Lender, as between the Borrower and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, trustee or such holder of obligations be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
(ii) At the request of the Borrower in connection with the payment in full of all of the Revolving Loan Obligations, whether by voluntary or mandatory prepayment thereof or on the Maturity Date or otherwise, each Lender shall execute and deliver to the Borrower (or to such Person(s) as the Borrower requests) such documents and instruments as the Borrower reasonably requests to assign all of such Lender's Revolving Loan Obligations (together with all of such Lender's right, title and interest in, to and under all the Revolving Loan Documents) to such Person(s) as the Borrower may direct; provided, that (A) upon the effectiveness of such assignment the Borrower shall execute and deliver to each Lender an instrument pursuant to which the Borrower and the Guarantors release such Lender from all claims under this Agreement and all of the other Revolving Loan Documents and (B) such assignment shall be without recourse to and without any representations or warranties from the assigning Lender. If any such assignment occurs after the issuance to it of any Revolving Loan Notes hereunder, then upon the effectiveness of such assignment, the assigning Lender shall deliver all of its Revolving Loan Notes to the Borrower for cancellation or re-issuance to the new Lender.
(j) Delivery of Lender Addenda. Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender, the Borrower and the Administrative Agent.
SECTION 12.7 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.
SECTION 12.8 Survival of Representations, Warranties and Agreements. All agreements made herein shall survive the execution and delivery hereof and the making of any Revolving Loan. Notwithstanding anything herein or implied by law to the contrary, the agreements of the Borrower and the Guarantors set forth in Sections 2.1.14(c) (Making or Maintaining Revolving Loans), 2.1.15 (Increased Costs; Capital Adequacy), 2.1.16 (Taxes; Withholding, etc.), 12.2 (Expenses),
12.3 (Indemnity), 12.4 (Set-Off), 12.15 (Consent to Jurisdiction), 12.16 (Waiver of Jury Trial) and 12.17 (Confidentiality) and the agreements of Lenders set forth in Sections 2.1.13 (Ratable Sharing), 8.3(b) (General Immunity), 8.6 (Right to Indemnity), 2.2.7 (Lender Participation), 2.2.8 (Commercial Practices), shall survive the payment of the Revolving Loans, the Reimbursement Payments for Letters of Credit and the termination hereof.
SECTION 12.9 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other
126
Revolving Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Revolving Loan Documents. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
SECTION 12.10 Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Obligor or any other Person or against or in payment of any or all of the Revolving Loan Obligations. To the extent that any Obligor makes a payment or payments to the Administrative Agent or the Lenders (or to the Administrative Agent, on behalf of the Lenders), or the Administrative Agent or the Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
SECTION 12.11 Severability. In case any provision in or obligation under any Revolving Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 12.12 Revolving Loan Obligations Several; Independent Nature of Lenders' Rights. The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or Revolving Loan Commitment of any other Lender hereunder. Nothing contained herein or in any other Revolving Loan Document, and no action taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
SECTION 12.13 Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
SECTION 12.14 Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
127
SECTION 12.15 Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING HERETO OR ANY OTHER REVOLVING LOAN DOCUMENT, OR ANY OF THE REVOLVING LOAN OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY HERETO, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE OBLIGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 12.1 (NOTICES); (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE OBLIGOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES THAT THE AGENTS AND THE LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 12.16 Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
12.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER REVOLVING LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO
128
THE REVOLVING LOAN OBLIGATIONS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 12.17 Confidentiality.
Each Lender shall hold all non-public information regarding the Borrower and its business identified as such by the Borrower and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender's customary procedures for handling confidential information of such nature, it being understood and agreed by the Borrower that, in any event, a Lender may make:
(i) disclosures of such information to Affiliates of such Lender and to their agents and advisors (and to other Persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 12.17);
(ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Revolving Loan Obligations or any participations therein;
(iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Obligors received by it from any of the Agents or any Lender, and
(iv) disclosures required or requested by any governmental agency or representative thereof or by the National Association of Insurance Commissioners or pursuant to legal or judicial process; provided, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information.
SECTION 12.18 Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Revolving Loan Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Revolving Loan Obligations shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Revolving Loan Obligations are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower
129
shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Revolving Loan Obligations or be refunded to the Borrower.
SECTION 12.19 Counterparts; Execution by Facsimile.
(a) This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
(b) The delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
SECTION 12.20 Effectiveness. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Borrower and the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.
SECTION 12.21 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement must include:
(i) a statement that the Person making such certificate or opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
SECTION 12.22 No Recourse Against the Borrower or the Guarantors.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT OR ANY OTHER REVOLVING LOAN DOCUMENT, THE REVOLVING LOANS AND THE REVOLVING LOAN GUARANTEES ARE NON-RECOURSE SECURED OBLIGATIONS OF THE BORROWER AND THE APPLICABLE GUARANTORS, RESPECTIVELY. THE ONLY RECOURSE A LENDER WILL HAVE WITH RESPECT TO
130
THE PAYMENT OF PRINCIPAL OF, OR INTEREST OR PREMIUM ON, THE REVOLVING LOAN OBLIGATIONS (WHETHER UNDER THIS AGREEMENT OR PURSUANT TO THE GUARANTEES) WILL BE ENFORCEMENT OF ITS RIGHTS AGAINST THE COLLATERAL PURSUANT TO THE SECURITY DOCUMENTS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
CALPINE GENERATING COMPANY, LLC,
as the Borrower

By:  /s/ ZAMIR RAUF
   -------------------------------------
   Name:  Zamir Rauf
   Title: Vice President	

[Revolving Loan Agreement - Calpine Generating Company, LLC]
THE BANK OF NOVA SCOTIA,
 as Administrative Agent, LC Bank, Lead
Arranger and Bookrunner

By:  /s/ DENIS O'MEARA
   -------------------------------------
   Name:  Denis O'Meara
   Title: Managing Director	

THE BANK OF NOVA SCOTIA,
as a Lender

By:  /s/ DENIS O'MEARA
   -------------------------------------
   Name:  Denis O'Meara
   Title: Managing Director	

ING CAPITAL LLC,
as a Lender

By:  /s/ DAVID S. BARRICK
   -------------------------------------
   Name:  David S. Barrick
   Title: Managing Director

By:  /s/ G. DOMINICK BELLAMY, JR.
   -------------------------------------
   Name:  G. Dominick Bellamy, Jr.
   Title: Director	

CREDIT LYONNAIS NEW YORK BRANCH,
as a Lender

By:  /s/ MARTIN C. LIVINGSTON
   -------------------------------------
   Name:  Martin C. Livingston
   Title: Vice President	

UNION BANK OF CALIFORNIA, N.A.,
as a Lender

By:  /s/ KAREN ELLIOTT
   -------------------------------------
   Name:  Karen Elliott
   Title: Assistant Vice President	

[Revolving Loan Agreement - Calpine Generating Company, LLC]
TORONTO DOMINION (TEXAS) INC.,
as a Lender

By:  /s/ NEVA NESBITT
   -------------------------------------
   Name:  Neva Nesbitt
   Title: Vice President	

BAYERISCHE LANDESBANK CAYMAN ISLANDS
BRANCH,
as a Lender

By:  /s/ CHRISTOPHER STOLARSKI
   -------------------------------------
   Name:  Christopher Stolarski
   Title: First Vice President

By:  /s/ JAMES KING
   -------------------------------------
   Name:  James King
   Title: Vice President	

[Revolving Loan Agreement - Calpine Generating Company, LLC]
THE GUARANTORS:
CALGEN EXPANSION COMPANY, LLC
CPN FREESTONE, LLC
CALPINE FREESTONE, LLC
CALPINE FREESTONE ENERGY GP, LLC
CALPINE CHANNEL ENERGY CENTER LP, LLC
CALPINE CHANNEL ENERGY CENTER GP, LLC
CHANNEL POWER GP, LLC
CALGEN EQUIPMENT FINANCE HOLDINGS, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY
ONE, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY
THREE LLC
CALGEN EQUIPMENT FINANCE COMPANY, LLC
NUECES BAY ENERGY LLC
CALPINE NORTHBROOK SOUTHCOAST INVESTORS,
LLC
CALPINE CORPUS CHRISTI ENERGY GP, LLC
ZION ENERGY LLC
LOS MEDANOS ENERGY CENTER, LLC
MORGAN ENERGY CENTER, LLC
CARVILLE ENERGY LLC
DECATUR ENERGY CENTER, LLC
CALPINE ONETA POWER I, LLC
CALPINE ONETA POWER II, LLC
CALPINE BAYTOWN ENERGY CENTER LP, LLC
CALPINE BAYTOWN ENERGY CENTER GP, LLC
BAYTOWN POWER GP, LLC
COLUMBIA ENERGY LLC
DELTA ENERGY CENTER, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY
TWO, LLC
PASTORIA ENERGY FACILITY L.L.C.
CALPINE PASTORIA HOLDINGS, LLC
Executing this Agreement on behalf of
and so as to bind each of the limited
liability companies named above under
the caption "The Guarantors"

By: /s/ ZAMIR RAUF
   -------------------------------------
    Name:  Zamir Rauf
    Title: Vice President	

[Revolving Loan Agreement - Calpine Generating Company, LLC]
THE GUARANTORS:
FREESTONE POWER GENERATION LP
CALPINE FREESTONE ENERGY, LP
CALPINE POWER EQUIPMENT LP
CHANNEL POWER, LP
CHANNEL ENERGY CENTER, LP
CALPINE CORPUS CHRISTI ENERGY, LP
CORPUS CHRISTI COGENERATION LP
CALPINE ONETA POWER, L.P.
BAYTOWN ENERGY CENTER, LP
BAYTOWN POWER, LP
Executing this Agreement on behalf of
and so as to bind each of the limited
partnerships named above under the
caption "The Guarantors"

By: /s/ ZAMIR RAUF
   -------------------------------------
    Name:  Zamir Rauf
    Title: Vice President	

[Revolving Loan Agreement - Calpine Generating Company, LLC]
 
APPENDIX A
TO REVOLVING LOAN AGREEMENT
INITIAL REVOLVING LOAN COMMITMENTS

                                                                                                  Pro
Lender                                            Revolving Loan Commitment                    Rata Share
------                                            -------------------------                    ----------
Bayerische Landesbank Cayman Islands Branch            $33,333,333.33                             16.66%
Credit Lyonnais New York Branch                        $33,333,333.33                             16.67%
ING Capital LLC                                        $33,333,333.33                             16.67%
Toronto Dominion (Texas) INC.                          $33,333,333.33                             16.66%
The Bank of Nova Scotia                                $33,333,333.35                             16.67%
Union Bank of California, N.A.                         $33,333,333.33                             16.67%
                                                       --------------                             -----
Total                                                  $  200,000,000                               100%
                                                       ==============                             =====	

B-1
 
APPENDIX B
TO REVOLVING LOAN AGREEMENT
NOTICE ADDRESSES

Administrative Agent's
Principal Office:                       The Bank of Nova Scotia,
                                        as Administrative Agent
                                        One Liberty Plaza
                                        New York, New York 10006
                                        Attention: Hilma Gabbidon
                                                   Loan Administration
                                        Tel: (404) 877-1558
                                        Fax: (404) 888-8998

Collateral Agent:                       Wilmington Trust Company
                                        Rodney Square North
                                        1100 North Market Street
                                        Wilmington, DE 19890-1615
                                        Attn: Kristin Long

Borrower:                               Calpine Generating Company, LLC
                                        50 West San Fernando Street
                                        San Jose, CA 95113
                                        Attn: Chief Financial Officer
                                        Fax: (408) 995-0505
                                        Phone: (408) 995-5115

Each Guarantor:                         c/o Calpine Generating Company, LLC
                                        50 West San Fernando Street
                                        San Jose, CA 95113
                                        Attn: Chief Financial Officer
                                        Fax: (408) 995-0505
                                        Phone: (408) 995-5115	

B-2
EXHIBIT A
TO REVOLVING LOAN AGREEMENT
FORM OF SUBORDINATION TERMS
[TO BE INCLUDED AS AN ARTICLE IN THE INSTRUMENT EVIDENCING "AFFILIATE
SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO THIS AGREEMENT, THIRD PARTY SUBORDINATED INDEBTEDNESS INCURRED PURSUANT TO THIS AGREEMENT, AND AS OTHERWISE REQUIRED BY THIS AGREEMENT]
[THE COLLATERAL AGENT SHALL EITHER BE A PARTY TO OR A THIRD PARTY BENEFICIARY OF THESE SUBORDINATION TERMS]
ARTICLE [__]
SUBORDINATION
Section [__].1. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Collateral Trust Agreement, dated as of March 23, 2004, among Calpine CalGen Holdings, Inc., Calpine Generating Company, LLC ("CalGen"), CalGen Finance Corp., the guarantors party thereto from time to time (the "Guarantors"), the Secured Debt Representatives party thereto and Wilmington Trust Company, as collateral agent (the "Collateral Agent"), as in effect on the date hereof. As used in this Article, the following terms shall have the following respective meanings:
"Junior Claimant" means [INSERT NAME OF LENDER UNDER 
SUBORDINATED DEBT].
"Proceeding" means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding of or against the Subordinated Debtor or its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of the Subordinated Debtor, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of the Subordinated Debtor, or (d) other marshalling of the assets of the Subordinated Debtor.
"Senior Claimants" means the holders of Senior Obligations.
"Senior Claim Documents" means the Secured Debt Documents other than the Other Junior Lien Debt Documents.
"Senior Claims" means, collectively, (a) the principal of, and premium, if any, and interest on, the Senior Obligations (in each case, including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding
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and any additional interest that would have accrued thereon but for the commencement of such Proceeding), and (b) all other Obligations of the Subordinated Debtor to the Senior Claimants, whether now existing or hereafter incurred or created, under or with respect to the Senior Claim Documents or any replacement, supplement to or refinancing of the Senior Obligations.
"Senior Obligations" means all Secured Obligations other than the Other Junior Lien Obligations.
"Senior Obligations Termination Date" means the date on which all Senior Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Senior Claim Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Senior Claim Documents), all commitments to extend credit under all Senior Claim Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Senior Claim Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Subordinated Debt" means all indebtedness owing to Junior Claimant arising under or in respect of the Subordinated Debt Documents.
"Subordinated Debt Documents" means [DESCRIBE SUBORDINATED DEBT INSTRUMENT], any promissory note or other instrument relating thereto and any other documents or instruments directly relating to the foregoing (in each case, including any amendments, replacements or substitutions thereof).
"Subordinated Debtor" means [INSERT CALGEN OR 
GUARANTOR INCURRING THE SUBORDINATED DEBT].
Section [_].2. Certain Subordination Terms. Until the Senior Obligations Termination Date, and notwithstanding anything in the Subordinated Debt Documents to the contrary:
[__].2.1. Except as permitted under the Senior Claim Documents, the Subordinated Debtor shall not, directly or indirectly, make any payment of principal, interest or otherwise on or in respect of the Subordinated Debt.
[__].2..2. Except for the right to accept payments as provided in Section [__].2.1 or [__].2.5(b), Junior Claimant shall not demand, sue for or accept from the Subordinated Debtor or any other Person any such payment or collateral, nor take any other action to enforce or collect upon any such payment or to enforce its rights to receive any such payment, in either case in respect of the Subordinated Debt, provided, however, that nothing herein shall limit the right or ability of Junior Claimant (i) to receive payments from the Subordinated Debtor in respect of the Subordinated Debt as provided in
Section [__].2.1 so long as no default or event of default under any Secured Debt Document has occurred and is
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continuing, or (ii) to accelerate the maturity of the Subordinated Debt at any time after all of the Senior Claims have been accelerated; and provided further, that in the event that after an acceleration any of the Senior Claimants rescind the acceleration of the Senior Claims, and provide written notice to Junior Claimant thereof, or Junior Claimant otherwise becomes aware of such rescission, Junior Claimant shall rescind the acceleration of the Subordinated Debt.
[__].2.3. Neither the Subordinated Debtor nor Junior Claimant shall take any action prejudicial to or inconsistent with the Senior Claimants' priority position over Junior Claimant created by this Article, including, without limitation, any action which will hinder, delay or otherwise prevent the Senior Claimants from taking any action they deem necessary to enforce rights with respect to the Senior Claims or the Lien of the Senior Claim Documents. The Junior Claimant shall not take any action or otherwise act to contest on account of the Subordinated Debt (i) the validity or priority of any Liens or security interests granted to, or for the benefit of, the Senior Claimants, (ii) the relevant rights and duties of the Senior Claimants with respect to Junior Claimant on account of any Subordinated Debt as established in this Article or (iii) the Senior Claimants' exercise of remedies in accordance with the Senior Claim Documents.
[__].2.4. Each document or instrument evidencing Subordinated Debt shall bear a legend providing that payment of the Subordinated Debt thereunder has been subordinated to prior payment of the Senior Claims in the manner and to the extent set forth in this Article.
[__].2.5. Junior Claimant shall not commence or join with any other creditor or creditors of the Subordinated Debtor in commencing any Proceeding against the Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor--ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], but may join in any Proceeding after it has commenced. At any general meeting of creditors of Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor--ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], or in the event of any Proceeding, if all Senior Claims have not been paid in full in cash at such time, the Collateral Agent on behalf of the Senior Claimants is hereby irrevocably authorized at any such meeting or in any such Proceeding:
(a) To enforce claims comprising Subordinated Debt in the name of Junior Claimant, by proof of debt, proof of claim, suit or otherwise;
(b) To collect any assets of the Subordinated Debtor distributed, divided or applied by way of dividend or payment as a result of a Proceeding, or such securities issued, on account of Subordinated Debt as a result thereof and apply the same, or the proceeds of any realization upon the same that the Senior Claimants in their discretion elect to effect, to Senior Claims until all Senior Claims shall have been paid in full in cash (the Senior Claimants hereby agreeing to render any surplus to Junior Claimant and/or other subordinated creditors, as their interests appear, or to interplead such surplus with a court of competent jurisdiction); and
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(c) To take generally any action in connection with any such meeting or proceeding which Junior Claimant might otherwise take in respect of the Subordinated Debt and claims relating thereto.
After the commencement of any such Proceeding, Junior Claimant may inquire in writing of the Collateral Agent on behalf of the Senior Claimants whether the respective Senior Claimants intend to exercise the foregoing rights with respect to the Subordinated Debt. Should the Senior Claimants fail, at least 20 days before the deadline therefor, either to file a proof of claim with respect to the Subordinated Debt and to furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in writing that the Senior Claimants intend to exercise their rights to assert the Subordinated Debt in the manner hereinabove provided, Junior Claimant may, but shall not be required to, proceed to file a proof of claim with respect to the Subordinated Debt and take such further steps with respect thereto, not inconsistent with this Article, as Junior Claimant may deem proper.
[__].2.6. Upon the occurrence and during the continuation of an event of default under a Secured Debt Document, Junior Claimant may, but shall have no obligation to, upon not less than 10 days prior written notice to the Collateral Agent, purchase all of the outstanding Senior Obligations owing to the Senior Claimants by irrevocably tendering, in immediately available funds, full payment of the Purchase Price (as defined below) to the Senior Claimants:
(a) The Purchase Price shall be equal to the total amount of Senior Claims at the time of acceleration (assuming such obligations have been accelerated);
(b) Any such purchase by Junior Claimant shall be without warranty by, or recourse to, the Senior Claimants, except with respect to the legal and beneficial ownership by the Senior Claimants of the Obligations so purchased, free and clear of all Liens and rights of others; and
(c) Concurrently with any such purchase, the Senior Claimants shall forthwith sell, assign, transfer and convey to Junior Claimant all of their right, title and interest in and to the Senior Obligations, and all Liens and other security interests in favor of the Senior Claimants securing the obligations of the Subordinated Debtor in connection therewith.
Section [__].3. Senior Claim Documents. The Junior Claimant acknowledges that it has been provided with a copy of the Senior Claim Documents and has read and is familiar with the provisions thereof.
Section [__].4. Time of Filing. Notwithstanding the time of filing, attachment or recording of any document or other instrument, it is agreed by Junior Claimant that any Liens arising under or pursuant to the Senior Claim Documents shall be senior to any Liens arising in favor of Junior Claimant as part of or relating to the Subordinated Debt Documents, if any;
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provided, however, that nothing herein shall be deemed to permit Junior Claimant to obtain any such Liens.
Section [__].5. Wrongful Collections. Should any payment on account of, or any collateral for any part of, the Subordinated Debt be received by Junior Claimant in violation of this Article, such payment or collateral shall be delivered forthwith to the Collateral Agent by the recipient for application to Senior Claims, in the form received. The Collateral Agent is irrevocably authorized to supply any required endorsement or assignment which may have been omitted. Until so delivered, any such payment or collateral shall be held by the recipient in trust for the Senior Claimants and shall not be commingled with other funds or property of the recipient.
Section [__].6. Ownership of Subordinated Debt; Amendment of Subordinated Debt Documents.
[__].6.1. The Junior Claimant represents and warrants that it is the lawful owner of the Subordinated Debt. Any security interest in the Junior Claimant's interest in the Subordinated Debt will at all times be subject to the rights of the Senior Claimants hereunder. The Junior Claimant agrees that it may not assign all or any portion of the Subordinated Debt or any of its rights or remedies under the Subordinated Debt Documents unless any assignee expressly agrees in writing for the benefit of the Collateral Agent that it takes such Subordinated Debt subject in all respects to the rights of the Senior Claimants hereunder.
[__].6.2. The Subordinated Debt Documents may not be amended so as to have an adverse effect upon the Senior Claims or the Subordinated Debtor's ability to pay the Senior Claims at any time.
Section [__].7. Waivers. The Collateral Agent and the Senior Claimants are hereby authorized to demand specific performance of this Article, whether or not the Subordinated Debtor shall have complied with the provisions hereof applicable to it, at any time when Junior Claimant shall have failed to comply with any provision hereof applicable to it. Junior Claimant hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance hereof in any action brought therefor by the Senior Claimants. Junior Claimant (a) further waives presentment, notice and protest in connection with all negotiable instruments evidencing Senior Claims or Subordinated Debt to which Junior Claimant may be a party, notice of the acceptance of this Article by the Senior Claimants, notice of any loan made, extension granted or other action taken in reliance hereon, and all demands and notices of every kind in connection with this Article, Senior Claims or time of payment of Senior Claims or Subordinated Debt and (b) hereby assents to any renewal, extension or postponement of the time of payment of Senior Claims or any other indulgence with respect thereto, to any increase in the amount of Senior Claims, to any substitution, exchange or release of collateral therefor and to the addition or release of any person primarily or secondarily liable thereon and assents to the provisions of any instrument, security or other writing evidencing Senior Claims.
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Section [__].8. Subrogation; No Impairment of Subordinated Debtor's Obligations. Subject to and from and after the Senior Obligations Termination Date, Junior Claimant shall be subrogated to the rights of the Senior Claimants to receive payments or distributions of cash, property or securities of the Subordinated Debtor applicable to the Senior Claims until all amounts owing on the Subordinated Debt shall be paid in full. For purposes of such subrogation, no payments or distributions to the Senior Claimants to which Junior Claimant would be entitled but for the provisions of this Article, and no payments paid over by Junior Claimant to Senior Claimants pursuant to this Article shall, as among the Subordinated Debtor, its creditors other than the Senior Claimants, and Junior Claimant, be deemed to be a payment or distribution on account of the Subordinated Debt, it being understood that the provisions of this Article are intended solely for the purpose of defining the relative rights of Junior Claimant and the Senior Claimants. Nothing contained in this Article is intended to or shall impair, as between the Subordinated Debtor and Junior Claimant, the obligation of the Subordinated Debtor, which is absolute and unconditional, to pay to Junior Claimant the principal of and the premium, if any, and the interest on the Subordinated Debt, and all other amounts payable by the Subordinated Debtor under the Subordinated Debt Documents, as and when the same shall become due and payable, or to affect the relative rights of Junior Claimant and creditors of Subordinated Debtor other than the Senior Claimants.
Section [__].9. Reinstatement. The obligations of Junior Claimant under this Article shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Claim, or any other payment to any holder of any Senior Claim in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Claims upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Subordinated Debtor or any substantial part of its property, or otherwise, all as though such payment had not been made.
Section [__].10. Bankruptcy. This Article shall remain in full force and effect as between Junior Claimant and the Senior Claimants notwithstanding the occurrence of any Proceeding affecting the Subordinated Debtor.
Section [__].11. Further Assurances. The Subordinated Debtor and Junior Claimant shall execute and deliver to the Senior Claimants such further instruments and shall take such further action as the Senior Claimants may at any time or times reasonably request in order to carry out the provisions and intent of this Article.
Section [__].12. Successors and Assigns. The provisions of this Article shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Junior Claimant nor the Senior Claimants shall have a duty to preserve rights against prior parties in any property of any kind received hereunder. Nothing contained herein shall impose on the Senior Claimants any duties with respect to any property of the Subordinated Debtor or Junior Claimant received hereunder.
Section [__].13. Governing Law. This Article is intended to take effect as a sealed instrument, shall be binding upon the parties hereto and their respective executors,
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administrators, other legal representatives, successors and assigns, and shall inure to the benefit of the Senior Claimants, their respective successors and assigns and shall be governed by the laws of the State of New York without reference to principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law). The parties hereto intend and agree that this Article shall remain binding on such parties (other than the Subordinated Debtor) notwithstanding the termination (except upon the payment in full of Senior Claims in cash) or unenforceability of this Article as against the Subordinated Debtor.
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EXHIBIT B
TO REVOLVING LOAN AGREEMENT
FORM OF ASSIGNMENT
AND ASSUMPTION AGREEMENT
Date: _______ __, ____
The Bank of Nova Scotia,
as Administrative Agent
One Liberty Plaza
New York, New York 10006
Attention: Hilma Gabbidon
Loan Administration
Calpine Generating Company, LLC
50 West San Fernando Avenue, 5th Floor
San Jose, CA 95113
Attention: President
Re: Calpine Generating Company, LLC - Assignment Agreement
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated as of March 23, 2004 (the "Revolving Loan Agreement"), entered into by and among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the Guarantors party thereto from time to time, the Lenders party thereto from time to time, and The Bank of Nova Scotia, as administrative agent (together with its successors and permitted assignees in such capacity, the "Administrative Agent"), as issuer of the Letters of Credit thereunder (together with its successors and permitted assigns in such capacity, the "LC Bank") and as lead arranger and sole bookrunner. Unless otherwise defined herein, terms defined in the Revolving Loan Agreement and used herein shall have the meanings given to them in the Revolving Loan Agreement.
As of [INSERT EFFECTIVE DATE OF ASSIGNMENT] (the "Effective Date"), [INSERT NAME OF ASSIGNOR] (the "Assignor") irrevocably sells, transfers, conveys and assigns, without recourse, representation or warranty (except as expressly set forth herein), to [INSERT NAME OF ASSIGNEE] (the "Assignee"), and the Assignee irrevocably purchases from the Assignor and assumes (as more particularly described in Schedule I hereto), (a) [INSERT PERCENTAGE OF REVOLVING LOAN COMMITMENTS TO BE ASSIGNED]% of the Revolving Loan Commitments under the Revolving Loan Agreement (which represents $[INSERT AMOUNT OF REVOLVING LOAN COMMITMENTS TO BE ASSIGNED]), (b) [INSERT PERCENTAGE OF PARTICIPATION INTERESTS TO BE ASSIGNED]% of the Participation Interests under the Revolving Loan Agreement (which represents $[INSERT AMOUNT OF PARTICIPATION INTERESTS TO BE ASSIGNED]), (c) [INSERT PERCENTAGE OF REVOLVING LOANS TO BE
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ASSIGNED]% of the Revolving Loans under the Revolving Loan Agreement (which represents $[INSERT AMOUNT OF REVOLVING LOANS TO BE ASSIGNED]), and (d) all rights, benefits, obligations, liabilities, and indemnities related to such Revolving Loan Commitments, Participation Interests, and Revolving Loans, as applicable, under and in connection with the Revolving Loan Agreement and the other Revolving Loan Documents (the "Assigned Portion"). After giving effect to the foregoing assignment and delegation, the Assignor's and the Assignee's outstanding Revolving Loan Commitments, Participation Interests and Revolving Loans for the purposes of the Revolving Loan Agreement and each other Revolving Loan Document will be as set forth in Schedule I hereto.
In addition, this Assignment Agreement constitutes notice to the Administrative Agent, pursuant to Section 12.6 of the Revolving Loan Agreement, of the assignment and delegation to the Assignee of the Assigned Portion of the Revolving Loans of the Assignor outstanding under the Revolving Loan Agreement as of the Effective Date, subject to its written consents.
All accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period of time prior to the Effective Date shall be payable to the Assignor, and all accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period from and after the Effective Date shall be payable to the Assignee. The Assignor and Assignee each agree to hold in trust for the other any such amounts that it receives pursuant to any Revolving Loan Document and to which the other party is entitled.
The Assignee confirms and agrees that in becoming a Lender and in making its Revolving Loans under the Revolving Loan Agreement, such actions have and will be made without recourse to, or representation or warranty by, the Administrative Agent, except for the representations expressly set forth below.
The Assignor represents and warrants that it is legally authorized to enter into and deliver this Assignment Agreement, that its existing aggregate Revolving Loan Commitments, Participation Interests and Revolving Loans are as set forth on Schedule I hereto, that it is the legal and beneficial owner of the Assigned Portion and that it has not created any adverse claim on its interest in the Assigned Portion. Except as set forth in the previous sentence, the Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made pursuant to or in connection with this Assignment Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Assignment Agreement, the Revolving Loan Agreement, any other Revolving Loan Document or any other instrument or document furnished pursuant hereto or thereto, including the financial condition of any CalGen Company or the performance or observance by any Lender or any of the Agents of any of its obligations under the Revolving Loan Agreement, any other Revolving Loan Document or any other instrument or document furnished pursuant hereto or thereto.
The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and that it is legally authorized to enter into and deliver this Assignment Agreement, (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable
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Revolving Loan Commitments or Revolving Loans, as the case may be, (iii) it will make or invest in, as the case may be, its Revolving Loan Commitments or Revolving Loans for its own account in the ordinary course of business and without a view to the distribution of such Revolving Loan Commitments or Revolving Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws and (iv) it has paid to the Administrative Agent, for its account, in connection with the assignment of the Assigned Portion, the $3,500 administrative fee described in Section 12.6(d) of the Revolving Loan Agreement, (b) confirms that it has received a copy of the Revolving Loan Agreement, together with copies of the most recent financial statements delivered pursuant to Section 3.1.18 of the Revolving Loan Agreement and copies of the documents which were required to be delivered under the Revolving Loan Agreement as a condition to the making of Revolving Loans thereunder and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (c) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Revolving Loan Agreement and the other Revolving Loan Documents are required to be performed by it as a Lender, (d) acknowledges that it has received copies of, consented to and approved the Collateral Trust Agreement, and authorizes the Agents to perform their respective obligations thereunder, and (e) attaches the forms prescribed by applicable Governmental Authorities as to the Assignee's status for purposes of determining exemption from withholding taxes with respect to all payments to be made to the Assignee under any of the Revolving Loan Documents or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty. In addition, the Assignee, independently and without reliance upon the Assignor, the Administrative Agent, any other Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, shall continue to make its own credit decisions in taking or not taking action under the Revolving Loan Agreement, the other Revolving Loan Documents and the other instruments and documents delivered in connection therewith. ASSIGNEE HEREBY ACKNOWLEDGES AND AGREES THAT ITS LIEN PRIORITIES, THE DISTRIBUTION OF PROCEEDS OF COLLATERAL, THE EXERCISE OF REMEDIES UNDER THE Revolving LOAN AGREEMENT, AMENDMENTS AND WAIVERS TO THE Revolving LOAN DOCUMENTS, AND OTHER MATTERS RELATED TO THE COLLATERAL ARE SUBJECT TO AND GOVERNED BY THE COLLATERAL TRUST AGREEMENT.
Following the execution of this Assignment Agreement, it will be delivered to the Administrative Agent for recording by the Administrative Agent pursuant to Section 12.6 of the Revolving Loan Agreement, effective as of the Effective Date. The Assignor attaches hereto the Revolving Loan Note held by it, if any, evidencing the Assigned Portion and (i) upon request by the Assignee, will request that the Administrative Agent exchange the attached Revolving Loan Note for a new Revolving Loan Note, payable to the Assignee and (ii) if the Assignor has retained any interest, may request that the Administrative Agent exchange the attached Revolving Loan Note for a new Revolving Loan Note, payable to the Assignor, and in each case in amounts which reflect the assignment being made hereby and after giving effect to any other assignments which have become effective on the Effective Date.
Except as otherwise provided in the Revolving Loan Agreement, effective as of the Effective Date:
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(a) the Assignee:
(i) shall be deemed automatically to have become a party to the Revolving Loan Agreement, have all the rights and obligations of a "Lender" under the Revolving Loan Agreement and the other Revolving Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph of this Assignment Agreement, and hereby expressly confirms its undertakings regarding its appointments and indemnity obligations provided for in Article XII of the Revolving Loan Agreement; and
(ii) agrees to be bound by the terms and conditions set forth in the Revolving Loan Agreement and the other Revolving Loan Documents as if it were an original signatory thereto; and
(b) the Assignor shall be released from its obligations and shall relinquish its rights under the Revolving Loan Agreement and the other Revolving Loan Documents to the extent specified in the second paragraph of this Assignment Agreement, except with regard to those provisions that expressly survive the termination of the Revolving Loan Agreement to the extent such provisions relate to the time prior to the Effective Date.
The Assignee hereby advises each of you of the following administrative details with respect to the assigned Revolving Loan Commitments and Revolving Loans:
(A) Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
(B) Payment Instructions:
[ASSIGNEE TO COMPLETE.]
The Assignee has attached hereto the forms, certificates or other evidence required by Section 2.1.16(e) of the Revolving Loan Agreement no later than the date of acceptance hereof by the Administrative Agent. The Assignee has also attached hereto any powers of attorney or other public or private documents requested by the Collateral Agent which are necessary to enable the Collateral Agent to enforce any of the Security Documents on behalf of the Secured Parties.
The Administrative Agent shall notify the Borrower of any such assignments.
This Assignment Agreement may be executed by the Assignor and Assignee in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same agreement. The
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delivery of an executed signature page of this Assignment Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. The parties hereto hereby agree to execute and deliver such other documents or instruments as shall be necessary to effect the purposes of this Assignment Agreement.
This Assignment Agreement shall be governed by the laws of the State of New York without regard to the conflicts of law provisions thereof, other than sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York.
(signature page follows)
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IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Assignment Agreement as of the date first written above.
[INSERT NAME OF ASSIGNOR]
By:

Name:

Title:
[INSERT NAME OF ASSIGNEE]
By:

Name:

Title:
Accepted and acknowledged
for recording in the Register
this ____ day of ________, ____
THE BANK OF NOVA SCOTIA,
as the Administrative Agent and the LC Bank
By:
 Name:
Title:

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Acknowledged and Agreed:
THE BANK OF NOVA SCOTIA,
as the Administrative Agent and LC Bank
By:
 Name:
Title:
CALPINE GENERATING COMPANY, LLC,
as the Borrower
By:
 Name:
Title:

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SCHEDULE I
to Assignment Agreement

A.  Assigned Portion:

    Revolving Loan Commitments                                                                $________
    and Applicable Percentage with respect thereto                                             ________%
    Participation Interests                                                                   $________
    and Applicable Percentage with respect thereto                                             ________%
    Revolving Loans                                                                           $________
    and Applicable Percentage with respect thereto                                             ________%

B.  Assignor's Adjusted Total Revolving Loan Commitments, Participation Interests and
    Revolving Loans (after giving effect to the assignment contemplated hereby):

    Revolving Loan Commitments                                                                $________
    and Applicable Percentage with respect thereto                                             ________%
    Participation Interests                                                                   $________
    and Applicable Percentage with respect thereto                                             ________%
    Revolving Loans                                                                           $________
    and Applicable Percentage with respect thereto                                             ________%

C.  Assignee's Adjusted Total Revolving Loan Commitments, Participation Interests and
    Revolving Loans (after giving effect to the assignment contemplated hereby):

    Revolving Loan Commitments                                                                $________
    and Applicable Percentage with respect thereto                                             ________%
    Participation Interests                                                                   $________
    and Applicable Percentage with respect thereto                                             ________%
    Revolving Loans                                                                           $________
    and Applicable Percentage with respect thereto                                             ________%	

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EXHIBIT C
TO REVOLVING LOAN AGREEMENT
[LETTERHEAD OF NON-U.S. LENDER]
FORM OF CERTIFICATE RE: NON-BANK STATUS
Certificate Date: _______ __, ____
The Bank of Nova Scotia,
as Administrative Agent
One Liberty Plaza
New York, New York 10006
Attention: Hilma Gabbidon
Loan Administration
Re: Calpine Generating Company, LLC - Non-Bank Status
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Revolving Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, The Bank of Nova Scotia, as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Revolving Loan Agreement and used herein shall have the meanings given to them in the Revolving Loan Agreement.
[INSERT NAME OF NON-U.S. LENDER] (the "Non-U.S. Lender") is providing this certificate pursuant to Section 2.1.16(e) of the Revolving Loan Agreement. The Non-U.S. Lender hereby represents and warrants as follows:
1. The Non-U.S. Lender is the sole record and beneficial owner of the Revolving Loans or the obligations evidenced by the Revolving Loan Notes in respect of which it is providing this certificate.
2. The Non-U.S. Lender is not a "bank" for purposes of Section 871(h) or 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In this regard, the Non-U.S. Lender further represents and warrants that:
(a) the Non-U.S. Lender is not subject to regulatory or other Legal Requirements as a bank in any jurisdiction; and
(b) the Non-U.S. Lender has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental
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Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other Legal Requirements.
3. The Non-U.S. Lender is not a 10 percent shareholder of the Borrower within the meaning of Section 871(h) or 881(c)(3)(B) of the Code.
4. The Non-U.S. Lender is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 871(h) or 881(c)(3)(C) of the Code.
(signature page follows)
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IN WITNESS WHEREOF, the undersigned has duly executed this certificate by its respective authorized representative as of the day and year first above written.
[INSERT NAME OF NON-U.S. LENDER]
By:

Name:

Title:
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EXHIBIT D
TO REVOLVING LOAN AGREEMENT
[LETTERHEAD OF THE BORROWER]
FORM OF
CONTINUATION NOTICE
Date: _____ __, ____
The Bank of Nova Scotia,
as Administrative Agent
One Liberty Plaza
New York, New York 10006
Attention: Hilma Gabbidon
Loan Administration
Re: Calpine Generating Company, LLC - Continuation Notice
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Revolving Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, The Bank of Nova Scotia, as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Revolving Loan Agreement and used herein shall have the meanings given to them in the Revolving Loan Agreement.
The Borrower hereby gives you notice, irrevocably, pursuant to Section 2.1.6 of the Revolving Loan Agreement, that the Borrower hereby requests a
[CONTINUATION] [CONVERSION] of Revolving Loans under the Revolving Loan Agreement and, in connection therewith, sets forth below the information relating to such [CONTINUATION] [CONVERSION] (the "Proposed [CONTINUATION]
[CONVERSION]") as required by Section 2.1.6 of the Revolving Loan Agreement.
(a) The Borrower hereby requests that Revolving Loans be [CONTINUED]
[CONVERTED] as follows:
(i) The first day of the new Interest Period in respect of the Proposed [CONTINUATION] [CONVERSION] shall be ________ __, ____ (which is a Business Day).
D-1
(ii) [IF SUCH REVOLVING LOANS ARE TO BE CONTINUED WITH NO CHANGE IN ANY TYPE OF LOAN(1):] $___________ of the currently outstanding principal amount of Revolving Loans currently being maintained as Revolving Loans with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s), the last day of which is the day immediately preceding the first day of the Proposed Continuation referred to in clause (i) above, should be continued as $__________ of Revolving Loans with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s).
(iii) [IF SUCH REVOLVING LOANS ARE TO BE CONVERTED:] $___________ of the currently outstanding principal amount of Revolving Loans which are [BASE RATE LOANS] [LIBOR RATE LOANS(1)] with an Interest Period of
[ONE] [TWO] [THREE] [SIX] month(s), the last day of which is the day immediately preceding the first day of the Proposed Conversion referred to in clause (i) above, should be converted to [BASE RATE LOANS] [LIBOR RATE LOANS] with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s).
(b) The Borrower hereby certifies that, as of the date hereof, no Default or Event of Default has occurred and is continuing.
(signature page follows)

(1) LIBOR Rate Loans may only be continued in a minimum amount equal to $2,000,000 and in integral multiples of $500,000 in excess of that amount.
(1) LIBOR Rate Loans may only be converted upon the expiration of the Interest Period applicable to such LIBOR Rate Loan
D-2
IN WITNESS WHEREOF, the Borrower has caused this Continuation Notice to be executed and delivered by a duly authorized officer of the Borrower on the date first written above.
CALPINE GENERATING COMPANY, LLC
By:

Name:

Title:
D-3
EXHIBIT E
TO REVOLVING LOAN AGREEMENT
CALPINE GENERATING COMPANY, LLC
50 WEST SAN FERNANDO STREET
SAN JOSE, CALIFORNIA 95113
FORM OF NOTICE OF BORROWING
Certificate Date: _________ __, ____(1)
The Bank of Nova Scotia,
as Administrative Agent
One Liberty Plaza
New York, New York 10006
Attention: Hilma Gabbidon
Loan Administration
Re: Calpine Generating Company, LLC - Notice of Borrowing
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Revolving Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, The Bank of Nova Scotia, as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Revolving Loan Agreement and used herein shall have the meanings given to them in the Revolving Loan Agreement.
The Borrower hereby gives you notice in accordance with
Section 2.1.1 of the Revolving Loan Agreement that the Borrower irrevocably requests that a Revolving Loan be made on [___________], 2004 (which date is a Business Day), each of which shall be a [BASE RATE LOAN] [LIBOR RATE LOAN] in an aggregate principal amount of $[INSERT PRINCIPAL AMOUNT OF EACH REVOLVING LOAN] 
[WITH AN INITIAL INTEREST PERIOD ENDING [_________], [_____]]. [BORROWER TO MODIFY AS NECESSARY IF MORE THAN ONE INTEREST PERIOD, AMOUNT OR TYPE OF LOAN IS BEING SELECTED.]

(1) The Borrower must deliver the Notice of Borrowing to the Administrative Agent (i) in the case of LIBOR Rate Loans, no less than three Business Days prior to the date of the requested Borrowing, (ii) in the case of Base Rate Loans, at least one Business Day prior to the date of the requested Borrowing, and (iii) in all cases, no more than five Business Days prior to the date of the requested making of the Revolving Loans.
E-1
[WITH RESPECT TO ANY REVOLVING LOAN MADE AFTER THE CLOSING
DATE, INSERT THE FOLLOWING:] The Borrower hereby confirms and certifies to the Administrative Agent and each Lender that the following statements are accurate, true and complete as of the date hereof, and will be accurate, true and complete as of the proposed date of the requested making of the Revolving Loans: (i) each of the conditions precedent set forth in Section 3.2 of the Revolving Loan Agreement have been satisfied or waived in accordance with the terms thereof and
(ii) after giving effect to the requested making of Revolving Loans, the sum of
(x) the aggregate principal amount of Revolving Loans plus (y) the aggregate principal amount of outstanding Reimbursement Obligations plus (z) the Stated Amount with respect to all outstanding Letters of Credit is not greater than the amount of the then-current Total Loan Commitment.
(signature page follows)
E-2
IN WITNESS WHEREOF, the Borrower has caused this Notice of Borrowing to be executed and delivered by a duly authorized officer of the Borrower on the date first written above.
CALPINE GENERATING COMPANY, LLC
By:

Name:

Title:
E-3
EXHIBIT F
TO REVOLVING LOAN AGREEMENT
[INSERT LENDER NAME]
LENDER ADDENDUM
__________________ ___, _______
Reference is made to the Amended and Restated Credit Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Revolving Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, The Bank of Nova Scotia, as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Revolving Loan Agreement and used herein shall have the meanings given to them in the Revolving Loan Agreement.
Upon execution and delivery of this Lender Addendum by the parties hereto as provided in Section 12.6(j) of the Revolving Loan Agreement, the undersigned hereby becomes a Lender thereunder having the Revolving Loan Commitments set forth in Schedule 1 hereto, effective as of the Closing Date.
This Lender Addendum shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.
This Lender Addendum may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page hereof by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
(signature pages follow)
F-1
IN WITNESS WHEREOF, the parties hereto have caused this Lender Addendum to be duly executed and delivered by their proper and duly authorized officers as of the date first above written.

Name of Lender

By:

Name:

Title:
Accepted and agreed:
THE BANK OF NOVA SCOTIA,
as Administrative Agent
By:
 Name:
Title:

F-2
REVOLVING LOAN COMMITMENTS AND NOTICE ADDRESS
1. Name of Lender:
Notice Addresses:
Credit Contact
Name:
Title:
Address:
Telephone:
Facsimile:
Operations Contact
Name:
Title:
Address:
Telephone:
Facsimile:
Movement of Funds Information
Bank Name:
City, State:
ABA No.:
Acct Name:
Acct No.:
Attn:
Reference:
2. Revolving Loan Commitment:
F-3
EXHIBIT G
TO REVOLVING LOAN AGREEMENT
FORM OF REVOLVING LOAN NOTE
$____________ __________________, ______
FOR VALUE RECEIVED, the undersigned, Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), hereby unconditionally promises to pay to the order of ________________________ (the "Lender") the principal sum in immediately available funds, of ________________________ or such lesser amount as may be outstanding from time to time hereunder pursuant to the Revolving Loan Agreement (as defined below). The Borrower further agrees to pay interest in like money at the Principal Office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.1.5 of the Revolving Loan Agreement.
The holder of this Revolving Loan Note is authorized to endorse on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, the date and amount of each Revolving Loan made pursuant to the Revolving Loan Agreement and the date and amount of each payment or prepayment of principal hereof, each continuation hereof and the length of each Interest Period with respect thereto. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrower in respect of any Revolving Loan.
This Revolving Loan Note (a) is one of the Revolving Loan Notes referred to in the Amended and Restated Credit Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Revolving Loan Agreement"), among the Borrower, the guarantors from time to time party thereto, the lenders from time to time party thereto, The Bank of Nova Scotia, as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto; (b) is subject to the provisions of the Revolving Loan Agreement and (c) is subject to voluntary and mandatory prepayment in whole or in part as provided in the Revolving Loan Agreement. This Revolving Loan Note is secured and guaranteed as provided in the Revolving Loan Documents. Reference is hereby made to the Revolving Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Revolving Loan Note in respect thereof.
Upon the occurrence of any Event of Default, all principal and all accrued interest then remaining unpaid on this Revolving Loan Note shall become, or may be declared to be, immediately due and payable, all as provided in, and subject to, the Revolving Loan Agreement.
G-1
All parties now and hereafter liable with respect to this Revolving Loan Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.
This Revolving Loan Note is subject to the limitations on recourse set forth in Section 12.22 of the Revolving Loan Agreement.
Repayments of principal, interest and all other amounts due with respect to or in connection with this Revolving Loan Note are subject to the terms of the Collateral Trust Agreement (as defined in the Revolving Loan Agreement).
Unless otherwise defined herein, terms defined in the Revolving Loan Agreement and used herein shall have the meanings given to them in the Revolving Loan Agreement.
This Revolving Loan Note has been delivered in New York, New York and shall be deemed to be a contract made under, governed by and construed in accordance with the laws of the State of New York without regard to the conflict of law provisions thereof (other than sections 5-1401 and 5-1402 of the General Obligations Law of the state of New York).
CALPINE GENERATING COMPANY, LLC
By:

Name:

Title:
G-2
Schedule A to Revolving Loan Note
REVOLVING LOANS AND REPAYMENTS OF REVOLVING LOANS

Date     Amount of Revolving Loans     Type of Loan      Interest Period     Amount of Principal Repaid       Notation Made By
----     -------------------------     ------------      ---------------     --------------------------       ----------------	

EXHIBIT H
TO REVOLVING LOAN AGREEMENT
CALPINE GENERATING COMPANY, LLC
50 WEST SAN FERNANDO STREET
SAN JOSE, CALIFORNIA 95113
FORM OF NOTICE OF LC ACTIVITY
Certificate Date: _________ __, ____(1)
The Bank of Nova Scotia,
as Administrative Agent
One Liberty Plaza
New York, New York 10006
Attention: Hilma Gabbidon
Loan Administration
cc: The Bank of Nova Scotia
as the LC Bank

Attention: __________________
Re: Calpine Generating Company, LLC - Notice of LC Activity
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Revolving Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, The Bank of Nova Scotia, as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and as the LC Bank, and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Revolving Loan Agreement and used herein shall have the meanings given to them in the Revolving Loan Agreement.
[THE BORROWER HEREBY REQUESTS THAT A LETTER OF CREDIT BE
ISSUED FOR THE ACCOUNT OF [THE BORROWER AND] [INSERT SUBSIDIARY OF BORROWER TO WHOM LETTER OF CREDIT IS REQUESTED TO BE ISSUED] WITH RESPECT TO [INSERT APPLICABLE FACILITY] PURSUANT TO [INSERT

(1) The Borrower must deliver the Notice of LC Activity to the Administrative Agent no less than five Business Days prior to the date of the requested issuance, extension or increase, as applicable.
H-1
DESCRIPTION OF PROJECT DOCUMENT PURSUANT TO WHICH THE REQUESTED LETTER OF CREDIT IS BEING ISSUED] FOR THE BENEFIT OF [INSERT COUNTERPARTY TO PROJECT DOCUMENT PURSUANT TO WHICH THE REQUESTED LETTER OF CREDIT IS BEING ISSUED] ("LC BENEFICIARY") AS PROVIDED HEREIN. THE STATED AMOUNT OF THE REQUESTED LETTER OF
CREDIT IS $[_________].]
[THE BORROWER HEREBY REQUESTS THAT THE [EXPIRATION DATE]
[STATED AMOUNT] OF LETTER OF CREDIT NO. [_________], WHICH WAS ISSUED TO
[_________] WITH RESPECT TO [INSERT APPLICABLE FACILITY] PURSUANT TO [INSERT
DESCRIPTION OF PROJECT DOCUMENT PURSUANT TO WHICH THE SUBJECT LETTER OF CREDIT WAS ISSUED] FOR THE BENEFIT OF [INSERT COUNTERPARTY TO PROJECT DOCUMENT PURSUANT TO WHICH THE SUBJECT LETTER OF CREDIT WAS ISSUED] ("LC BENEFICIARY") AND DATED AS OF [_________] BE [EXTENDED TO [INSERT DATE OF REQUESTED EXTENSION, WHICH SHALL BE NO LATER THAN THE MATURITY DATE]] [INCREASED FROM $[_________] TO $[_________]] AS PROVIDED HEREIN.]
THE PROPOSED DATE OF THE REQUESTED [ISSUANCE] [EXTENSION OF THE EXPIRATION DATE] [INCREASE IN THE STATED AMOUNT] OF THE LETTER OF CREDIT IS 
[INSERT DATE WHICH IS ON OR BEFORE THE MATURITY DATE].
[INSERT THE FOLLOWING EXCEPT WHERE THE EXPIRATION DATE IS
SPECIFIED IN THE ABOVE PARAGRAPH:] THE EXPIRATION DATE OF THE REQUESTED LETTER OF CREDIT IS [INSERT DATE WHICH IS ON OR BEFORE THE MATURITY DATE]. [BORROWER TO ADD ANY OTHER DESCRIPTION NECESSARY TO COMPLETE, ISSUE AND DELIVER THE LETTER OF CREDIT.]
LC BANK IS INSTRUCTED TO DELIVER THE [LETTER OF CREDIT]
[NOTICE OF EXTENSION OF THE EXPIRATION DATE OF THE LETTER OF CREDIT] [NOTICE OF INCREASE IN THE STATED AMOUNT OF THE LETTER OF CREDIT] TO [INSERT BENEFICIARY OF LETTER OF CREDIT, AS LC BENEFICIARY] [BORROWER], AT [INSERT APPLICABLE ADDRESS].
The Borrower hereby confirms and certifies to the Administrative Agent, the LC Bank and each Lender that the following statements are accurate, true and complete as of the date hereof, and will be accurate, true and complete as of the proposed date of the requested [ISSUANCE] [EXTENSION OF THE EXPIRATION DATE] [INCREASE IN THE STATED AMOUNT] of the Letter of Credit:
A. The Letter of Credit requested or modified hereby shall only be used in the manner and for the purposes specified and permitted by the Credit Agreement.
B. [THE REQUESTED STATED AMOUNT [AS INCREASED] DOES NOT, TOGETHER WITH THE AGGREGATE LC STATED AMOUNT AND ALL OUTSTANDING REIMBURSEMENT OBLIGATIONS, EXCEED THE AMOUNT EQUAL TO THE EXCESS, IF ANY, OF (i) THE AMOUNT OF THE TOTAL LOAN COMMITMENT MINUS (II) THE AGGREGATE PRINCIPAL AMOUNT OF ALL OUTSTANDING REVOLVING LOANS PLUS THE AGGREGATE LC STATED AMOUNT PLUS ALL OUTSTANDING REIMBURSEMENT OBLIGATIONS.]
C. [THE REQUESTED ISSUANCE OF THE LETTER OF CREDIT IS REQUIRED UNDER, AND WILL SATISFY THE CREDIT SUPPORT AND PAYMENT AND PERFORMANCE SECURITY
H-2
REQUIREMENTS WITH RESPECT TO LC BENEFICIARY CONTAINED IN, [INSERT DESCRIPTION OF APPLICABLE PROJECT DOCUMENT].]
D. Each of the conditions precedent set forth in Section 3.3 of the Revolving Loan Agreement has been satisfied or waived in accordance with the terms thereof.
(signature page follows)
H-3
IN WITNESS WHEREOF, the Borrower has caused this Notice of LC Activity to be executed and delivered by a duly authorized officer of the Borrower on the date first written above.
CALPINE GENERATING COMPANY, LLC
By:

Name:

Title:
H-4
EXHIBIT I
TO REVOLVING LOAN AGREEMENT
FORM OF OPINIONS
[SEE ATTACHED]
I-1
SCHEDULE A
TO REVOLVING LOAN AGREEMENT
THIRD PARTY PROJECT DOCUMENTS
Baytown
1. Energy Services Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents dated as of August 13, 2002.
2. Services Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents, dated as of August 13, 2002.
3. Ground Lease and Easement Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents, dated as of August 13, 2002.
Carville
1. Energy Services Agreement, dated as of December 28, 1999, between Cos-Mar Incorporated and Carville Energy LLC, as amended by Amendment No. 1 to Energy Services Agreement, dated as of April 30, 2000, and Amendment No. 2 to Energy Services Agreement, dated as of June 26, 2001.
2. Agreement for Purchased Power from Qualified Cogeneration Facility, dated as of August 31, 2002, between Entergy Gulf States, Inc. and Carville Energy LLC.
Channel
1. Energy Services Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.).
2. Facility Services Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.).
3. Operating Lease Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment No. 1 to Operating Lease Agreement dated as of March 30, 2001.
4. Amended and Restated Ground Lease and Easement Agreement, dated as of October 30, 2001, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P.
Schedule A-1
Columbia
1. Energy Services Agreement, dated as of August 15, 2000, between Eastman Chemical Company and Columbia Energy LLC, as amended by First Amendment to Energy Services Agreement, dated as of August 1, 2001, and Second Amendment to Energy Services Agreement, dated as of October 1, 2002.
2. Amended and Restated Ground Lease Agreement, dated as of August 1, 2001, between Eastman Chemical Company and Columbia Energy LLC, as amended by First Amendment to Amended and Restated Ground Lease Agreement, dated as of October 22, 2002.
Corpus Christi
1. Energy Services Agreement, dated as of March 23, 1999, between Corpus Christi Cogeneration LP (as assignee of Nueces Bay Energy LLC) and Citgo Refining and Chemicals, L.P., as amended by Amendment No. 1 to Energy Services Agreement, dated as of March 22, 2001, and Second Amendment of Energy Services Agreement, dated as of August 24, 2001.
2. Restated Energy Services Agreement - Steam, dated as of July 26, 2002, between Corpus Christi Cogeneration LP and Elementis Chromium L.P.
3. Energy Services Agreement, dated as of July 24, 2003, between Corpus Christi Cogeneration LP and Flint Hills Resources, LP.
4. Project Site Lease Agreement, dated as of June 21, 1999, between Corpus Christi Cogeneration LP (as assignee of Nueces Bay Energy LLC) and Citgo Refining and Chemicals, L.P., as amended by First Amendment of Project Site Lease Agreement, dated as of August 24, 2001.
Decatur
1. Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001, between Solutia Inc. and Decatur Energy Center, LLC, as amended by First Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of June 28, 2001, Second Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of August 13, 2001, Third Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of October 31, 2001, Fourth Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 28, 2002, and Fifth Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of October 7, 2002.
2. Power Purchase Agreement, dated as of June 21, 2002, between Decatur Energy Center, LLC and Tennessee Valley Authority.
Schedule A-2
Delta
1. Merchant Plant Lease, dated as of April 13, 2000, between The Dow Chemical Company and Delta Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Merchant Plant Lease, dated as of July 31, 2001, Second Amendment to Merchant Plant Lease, dated as of December 14, 2001, Third Amendment to Merchant Plant Lease, dated as of February 20, 2003, and Fourth Amendment to Merchant Plant Lease, dated as of February 20, 2003.
2. Must-Run Service Agreement, dated as of February 10, 2003, between Delta Energy Center LLC and California Independent System Operator Corporation and Offer Letter from Delta Energy Center LLC to California Independent System Operator Corporation for Provision of RMR Services in 2004.
Freestone
None.
Los Medanos
1. Energy Purchase and Sale Agreement, dated as of December 21, 1998, between USS-POSCO Industries and Los Medanos Energy Center LLC (as successor in interest to Pittsburg District Energy Facility, LLC), as amended by Modification Agreement (First Amendment to Energy Purchase and Sale Agreement), dated as of June 30, 1999, and Second Amendment to Energy Purchase and Sale Agreement, dated as of April 30, 2001.
2. Ground Lease Agreement, dated as of October 4, 1999, between USS-POSCO Industries and Los Medanos Energy Center LLC (as successor in interest to Pittsburg District Energy Facility,
LLC), as amended by First Amendment to Ground Lease Agreement, dated as of August 25, 2000, Second Amendment to Ground Lease Agreement, dated as of October 30, 2000, Third Amendment to Ground Lease Agreement, dated as of July 6, 2001, and Fourth Amendment to Ground Lease Agreement dated as of May 31, 2002.
3. Energy Supply Arrangements with Dow comprising: Binding Letter of Intent, dated as of December 10, 2002, among The Dow Chemical Company, Los Medanos Energy Center, LLC, Calpine Pittsburg, LLC, and Delta Energy Center, LLC; Steam Supply Agreement, dated as of December 10, 2002, between Calpine Pittsburg, LLC and Los Medanos Energy Center, LLC; and Agreement Regarding Power and Steam Supply, dated as of December 10, 2002, among Calpine Pittsburg, LLC, Los Medanos Energy Center, LLC, and Delta Energy Center, LLC.
4. Amended and Restated Must-Run Service Agreement, dated June 17, 2003, between Los Medanos Energy Center, LLC and California Independent System Operator Corporation.
Morgan
1. Project Agreement, dated as of June 1, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance
Schedule A-3
Company, L.P.), as amended by First Amendment to Project Agreement, dated as of August 20, 2001.
2. Energy Sales Agreement, dated as of June 1, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Energy Sales Agreement, dated as of August 20, 2001, and Second Amendment to Energy Sales Agreement, dated as of July 31, 2003.
3. Site Interface Agreement, dated as of September 29, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.).
4. Land Lease, dated as of September 29, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment of Land Lease and Memorandum of Lease and Grant of Easements, dated as of August 20, 2001, and Second Amendment of Land Lease and Memorandum of Lease and Grant of Easements, dated as of December 13, 2001.
5. Power Purchase Agreement, dated as of June 19, 2003, between Morgan Energy Center, LLC and Tennessee Valley Authority.
Oneta
None.
Pastoria
1. Ground Lease, dated as of July 19, 2001, between Tejon Ranchcorp and Pastoria Energy Facility L.L.C., as amended by Landlord Non-disturbance and Consent Agreement, dated as of September 28, 2001.
Zion
1. Amended and Restated Fuel Conversion Services Agreement, dated as of April 28, 2003, between Zion Energy LLC and Wisconsin Electric Power Company.
Schedule A-4
SCHEDULE 4.1
TO REVOLVING LOAN AGREEMENT
CAPITAL STRUCTURE
[SEE ATTACHED]
Schedule 4.1-1
SCHEDULE 4.11
TO REVOLVING LOAN AGREEMENT
LITIGATION
We are party from time to time to various litigation matters arising in the normal course of business. On July 22, 2003, PG&E filed with CPUC a complaint and request for immediate issuance of an order to show cause against Calpine, CPN Pipeline Company, CES, Calpine Natural Gas Company and LGS. The complaint requests that CPUC issue an order requiring the defendants to (i) show cause why they should not be ordered to cease and desist from using any direct interconnections between the facilities of CPN Pipeline Company and those of LGS, unless such parties first seek and obtain regulatory approval from CPUC, and (ii) pay to PG&E any underpayments of PG&E's tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS' direct interconnections to any entity other than PG&E. The complaint also seeks an order permanently enjoining LGS and any entity other than PG&E from entering into or utilizing direct interconnections with LGS, and directing defendants to pay to PG&E any underpayments of PG&E's tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS' direct interconnections to any entity other than PG&E. The complaint also alleges that various natural gas consumers, including Calpine-affiliated generation facilities within California, are engaged with defendants in the acts complained of, and that the defendants unlawfully bypass PG&E's system and operate as an unregulated local distribution company within PG&E's service territory. On August 27, 2003, Calpine filed its answer and a motion to dismiss, which was denied on October 16, 2003.
On January 15, 2004, PG&E, the Calpine entities and LGS entered into the Settlement which would resolve all issues raised by the complaint. Although the Settlement became effective as of January 15, 2004, certain of its terms will only become effective upon approval of the Settlement by CPUC, and in the event that CPUC does not approve the Settlement certain of its provisions will become null and void. Upon approval of the Settlement by CPUC, PG&E would be paid $2.7 million and the parties would release all claims relating to prior periods. PG&E also would agree not to pursue any new claim of unauthorized public utility activity against the Calpine entities named in the complaint, except insofar as such new claim raises matters not raised in the complaint, or with respect to a change in the facts and circumstances relating to alleged unauthorized public utility activity from those facts and circumstances existing as of January 15, 2004. As provided by the Settlement. the direct interconnections between CPN Pipeline and LGS have been shut down pending possible future regulatory action.
In accordance with the procedural schedule adopted by the presiding administrative law judge, a settlement meeting was conducted pursuant to CPUC settlement procedures on January 26, 2004. The settling parties filed a motion for approval of the Settlement on February 6. Comments on the Settlement were due March 8, and no party filed comments opposing any provision of the settlement agreement. Reply comments are due March 23.
Schedule 4.11-1
The complaint does not name us or our facilities as defendants. However, if the Settlement is not approved, there can be no assurances that this litigation will not adversely affect CPN Pipeline Company's ability to perform its obligations under the Cotenancy, Operating and Maintenance Agreement among CPN Pipeline Company, Gilroy Energy Center, LLC, the Delta facility and the Los Medanos facility.
On June 11, 2003, the Estate of Darrell Jones and the Estate of Cynthia Jones filed a complaint against Calpine in the U.S. District Court, Western District of Washington. Calpine purchased Goldendale Energy, Inc., a Washington corporation, from Darrell Jones. The agreement provided, among other things, that upon substantial completion of the Goldendale facility, Calpine would pay Mr. Jones (i) $6.0 million and (ii) $18.0 million less $0.2 million per day for each day that elapsed between July 1, 2002 and the date of substantial completion. Substantial completion of the Goldendale facility has not occurred and the daily reduction in the payment amount has reduced the $18.0 million payment to zero. The complaint alleges that by not achieving substantial completion by July 1, 2002, Calpine breached its contract with Mr. Jones, violated a duty of good faith and fair dealing, and caused an inequitable forfeiture. The complaint seeks damages in an unspecified amount in excess of $75,000. On July 28, 2003, Calpine filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The court granted Calpine's motion to dismiss the complaint on March 10, 2004. The plaintiffs may appeal, and could also seek reconsideration of the decision.
The ultimate outcome of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated.
Schedule 4.11-2
SCHEDULE 4.18 (B)
TO REVOLVING LOAN AGREEMENT
QUALIFYING FACILITIES
1. Baytown Energy Center, LP
2. Carville Energy LLC
3. Channel Energy Center, LP
4. Corpus Christi Cogeneration LP
5. Columbia Energy LLC
6. Decatur Energy Center, LLC
7. Los Medanos Energy Center LLC
8. Morgan Energy Center, LLC
Schedule 4.18(b)-1
SCHEDULE 4.18(C)
TO REVOLVING LOAN AGREEMENT
EXEMPT WHOLESALE GENERATORS
1. Delta Energy Center, LLC
2. Goldendale Energy Center, LLC
3. Pastoria Energy Center L.L.C.
4. Freestone Power Generation LP
5. Calpine Oneta Power, L.P.
6. Zion Energy LLC
Schedule 4.18(c)-1
 
EXHIBIT 10.1.2.6
EXECUTION COPY
FOURTH AMENDMENT AND WAIVER
TO AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDMENT AND WAIVER, dated as of November 19, 2003 (this "Amendment and Waiver"), to the Amended and Restated Credit Agreement, dated as of July 16, 2003 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), various lead Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative agent and funding agent (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent have heretofore entered into the Credit Agreement;
WHEREAS, the Borrower, the Lenders and the Agent now desire to amend the Credit Agreement in certain respects, as hereinafter provided; and
WHEREAS, the Borrower has requested that the Agent and the Lenders agree to waive any failure by the Borrower to comply with certain provisions of the Credit Agreement, upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Credit Agreement.
SECTION 2. Amendment to Section 1.1 (Defined Terms). Section 1.1 of the Credit Agreement is hereby amended by:
(a) deleting the definition of "Deeds of Trust" in its entirety and substituting in lieu thereof the following definition:
"Deeds of Trust" means, collectively, (i) in connection with the Domestic Gas Reserves, the Existing Deeds of Trust, as amended and restated by the Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing, dated as of July 16, 2003, and each other mortgage, deed of trust or other real property collateral security instrument with respect to the Domestic Gas Reserves, from the Borrower to the Collateral Trustee (for the benefit of, among others, the Lenders), dated as of July 16, 2003 and delivered pursuant to Article VI hereof, as amended, supplemented, restated
or otherwise modified from time to time, (ii) in connection with the Pledged Power Projects (other than the Fremont Energy Center in Fremont, Ohio), each mortgage, deed of trust or other real property collateral security instrument with respect to a Pledged Power Project, from the Borrower to the Collateral Trustee (for the benefit of, among others, the Lenders), dated as of July 16, 2003 and delivered pursuant to Article VI hereof, as amended, supplemented, restated or otherwise modified from time to time and (iii) in connection with the Pledged Power Project identified in the definition thereof as the Fremont Energy Center in Fremont, Ohio, each mortgage, deed of trust or other real property collateral security instrument with respect to such Pledged Power Project, from the Borrower to the Collateral Trustee (for the benefit of, among others, the Lenders), dated as of November 18, 2003 and delivered pursuant to the Fourth Amendment, as amended, supplemented, restated or otherwise modified from time to time.
(b) deleting the word "and" before the Roman numeral "(vii)" in the definition of "Pledged Power Project" and by adding at the end of such definition the clause "; and (viii) as of November 18, 2003, the Fremont Energy Center in Fremont, Ohio";
(c) by inserting the following new definition in appropriate alphabetical order:
"Fourth Amendment" means the Fourth Amendment and Waiver to the Amended and Restated Credit Agreement, dated as of November 19, 2003, among the Borrower, the Lenders and the Agent.
SECTION 3. Waiver of Section 8.2.3 (Liens). The Agent and the Required Lenders hereby waive any violation of Section 8.2.3 of the Credit Agreement occurring as a result of the granting by Calpine Gilroy of the Gilroy Plant Lien and the Calpine Note Pledge (each as defined in the letter from the Borrower attached hereto as Exhibit A, the "Gilroy Waiver Request Letter").
SECTION 4. Waiver of Section 8.2.13 (Negative Pledges, Restrictive Agreements, etc.). The Agent and the Required Lenders hereby waive any violation of Section 8.2.13 of the Credit Agreement occurring as a result of the undertaking by the Borrower and Calpine Gilroy of the Restrictive Covenants (as defined in the Gilroy Waiver Request Letter).
SECTION 5. Effectiveness. This Amendment and Waiver shall become effective upon fulfillment of the following conditions precedent: (a) the Borrower and each Guarantor shall have delivered to the Agent a duly executed copy of this Amendment and Waiver; (b) the Agent shall have received duly executed copies of this Amendment and Waiver from the Required Lenders; (c) the Agent shall have received, on or before the date hereof, the Deed of Trust (as defined above) for the Fremont Energy Center in Fremont, Ohio, executed and delivered by the Borrower to the Collateral Trustee (for the benefit of, among others, the Lenders), together with any additional supporting documentation as shall be reasonably requested by the Agent, including (i) a certificate from the Borrower's insurance advisor as to the sufficiency of the Borrower's insurance program and compliance with the insurance requirements of the Loan Documents and
(ii) copies of all consents and approvals required in connection with the execution and delivery by the Borrower of such Deed of Trust; (d) the Agent shall have received
an opinion, dated the date hereof and addressed to the Agent and all Lenders, from local counsel with respect to the Deed of Trust for the Fremont Energy Center in Fremont, Ohio, in form and substance satisfactory to the Agent; (e) the Agent shall have received evidence satisfactory to it that ownership of the Fremont Energy Center in Fremont, Ohio (including, without limitation, all power generation property and related equipment at such location) has been conveyed to the Borrower by merger or otherwise; (f) the Agent shall have received such other documents as the Agent shall have reasonably requested; and (g) no Default or Event of Default shall have occurred and be continuing on the date hereof after giving effect to this Amendment and Waiver.
SECTION 6. Representations and Warranties. The Borrower hereby represents and warrants that the representations and warranties contained in the Credit Agreement and the Gilroy Waiver Request Letter will be, after giving effect to this Amendment and Waiver, true and correct in all material respects, as if made on and as of the date hereof, except for representations and warranties which speak as of a certain date, which representations and warranties shall be true and correct in all material respect as of such date.
SECTION 7. Continuing Effect of Credit Agreement. This Amendment and Waiver shall not constitute an amendment or waiver of any other provision of the Credit Agreement or the Loan Documents not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Agent and/or the Lenders. Except as expressly amended or waived hereby, the provisions of the Credit Agreement and the Loan Documents are and shall remain in full force and effect. All references to the Credit Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby.
SECTION 8. Counterparts. This Amendment and Waiver may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Amendment and Waiver by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
SECTION 9. Governing Law. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 10. Expenses. The Borrower agrees to pay or reimburse the Agent for all of its out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amendment and Waiver, including the fees and disbursements of counsel to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.
CALPINE CORPORATION

By: /s/ MICHAEL THOMAS
    ----------------------------------
   Name:
   Title:	

The undersigned Guarantors hereby consent and agree to the foregoing Fourth Amendment and Waiver and agree that their Guarantee as set forth in the Security Agreement remains in full force and effect:
QUINTANA MINERALS (USA), INC.

By: /s/ MICHAEL THOMAS
------------------------------------
Name:
Title:	

JOQ CANADA, INC.

By: /s/ MICHAEL THOMAS
------------------------------------
Name:
Title:	

QUINTANA CANADA HOLDINGS, LLC

By: /s/ MICHAEL THOMAS
------------------------------------
Name:
Title:	

THE BANK OF NOVA SCOTIA,
as Agent

By: /s/ PAUL V. FARRELL
    ------------------------------
    Name: Paul V. Farrell
    Title: Managing Director	

BAYERISCHE LANDESBANK, CAYMAN
ISLANDS BRANCH

By: /s/ OLIVER HILDENBRAND
    ------------------------------
    Name: Oliver Hildenbrand
    Title: Vice President

By: /s/ JAMES H. BOYLE
    ------------------------------
    Name: James H. Boyle
    Title: Vice President	

ING CAPITAL LLC

By: /s/ ERWIN THOMET
   --------------------------------
   Erwin Thomet
   Managing Director

By: /s/ G. DOMINICK BELLAMY, JR.
    -------------------------------
    G. Dominick Bellamy,
    Jr. Director	

UNION BANK OF CALIFORNIA, N.A.

By: /s/ KAREN ELLIOTT
    -------------------------------
    Name: Karen Elliott
    Title: Assistant Vice President	

CREDIT LYONNAIS NEW YORK BRANCH

By: /s/ MARTIN C. LIVINGSTON
    -------------------------------
    Name: Martin C. Livingston
    Title: Vice President	

This FOURTH AMENDMENT AND WAIVER, dated as
 of November [__], 2003 (this "Amendment and
Waiver"), to the Amended and Restated Credit
Agreement, dated as of July 16, 2003 (as the
same may be amended, supplemented or
otherwise modified from time to time, the
"Credit Agreement"), among CALPINE
CORPORATION, a Delaware corporation
(together with its successors, the
"Borrower"), the various financial
institutions as are or may become parties
hereto (collectively, the "Lenders"),
various lead Arrangers (as defined below),
and THE BANK OF NOVA SCOTIA ("Scotia
 Capital"), as administrative agent and
funding agent (in such capacity, the
"Agent").
AURUM CLO 2002-I LTD.
By: Columbia Management Advisors, Inc.,
As Investment Manager

By: /s/ KATHLEEN A ZARN
   -------------------------------
   Name: Kathleen A. Zarn
   Title: Senior Vice President	

This FOURTH AMENDMENT AND WAIVER, dated as
 of November [__], 2003 (this "Amendment and
Waiver"), to the Amended and Restated Credit
Agreement, dated as of July 16, 2003 (as the
same may be amended, supplemented or
otherwise modified from time to time, the
"Credit Agreement"), among CALPINE
CORPORATION, a Delaware corporation
(together with its successors, the
"Borrower"), the various financial
institutions as are or may become parties
hereto (collectively, the "Lenders"),
various lead Arrangers (as defined below),
and THE BANK OF NOVA SCOTIA ("Scotia
 Capital"), as administrative agent and
funding agent (in such capacity, the
"Agent").
STEIN ROE & FARNHAM CLO I LTD.
By: Columbia Management Advisors, Inc.,
As Portfolio Manager

By: /s/ KATHLEEN A ZARN
    ---------------------------------------
    Name: Kathleen A. Zarn
    Title: Senior Vice President	

AMMC CDO I, LTD.
BY: AMERICAN MONEY MANAGEMENT CORP.,
AS COLLATERAL MANAGER

By: /s/ DAVID P. MEYER
    ----------------------------------
    Name: David P. Meyer
    Title: Vice President	

AMMC CDO II, LTD.
BY: AMERICAN MONEY MANAGEMENT CORP.,
AS COLLATERAL MANAGER

By: /s/ DAVID P. MEYER
    ----------------------------------
    Name: David P. Meyer
    Title: Vice President	

GALLATIN FUNDING I LTD.
BY: BEAR STEARNS ASSET MANAGEMENT INC.
AS ITS COLLATERAL MANAGER

By: /s/ JONATHAN BERG
    ---------------------------------------
    Name: Jonathan Berg
    Title: Vice President	

ARES III CLO LTD.
By: ARES CLO Management LLC,
Investment Manager

By: /s/ DAVID A. SACHS
    ------------------------------------
    Name: David A. Sachs
    Title: Vice President	

ARES IV CLO LTD.
By: Ares CLO Management IV, L.P.,
Investment Manager
By: Ares CLO GP IV, LLC,
Its Managing Member

By: /s/ DAVID A. SACHS
    ------------------------------------
    Name: David A. Sachs
    Title: Vice President	

ARES V CLO LTD.
By: Ares CLO Management V, L.P.,
Investment Manager
By: Ares CLO GP V, LLC,
Its Managing Member

By: /s/ DAVID A. SACHS
    ----------------------------------
    Name: David A. Sachs
    Title: Vice President	

ARES VI CLO LTD.
By: Ares CLO Management VI, L.P.,
Investment Manager
By: Ares CLO GP VI, LLC,
Its Managing Member

By: /s/ DAVID A. SACHS
    ----------------------------------
    Name: David A. Sachs
    Title: Vice President	

ARES VII CLO LTD.
By: Ares CLO Management VII, L.P.,
Investment Manager
By: Ares CLO GP VII, LLC,
Its General Partner

By: /s/ DAVID A. SACHS
    ------------------------------------
    Name: David A. Sachs
    Title: Vice President	

ARES VIII CLO LTD.
By: Ares CLO Management VIII, L.P.,
Investment Manager
By: Ares CLO GP VIII, LLC,
Its General Partner

By: /s/ DAVID A. SACHS
    ------------------------------------
    Name: David A. Sachs
    Title: Vice President	

EXHIBIT 10.1.2.7
FIFTH AMENDMENT AND WAIVER
TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIFTH AMENDMENT AND WAIVER, dated as of December 30, 2003 (this "Amendment and Waiver"), to the Amended and Restated Credit Agreement, dated as of July 16, 2003 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), various lead Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative agent and funding agent (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent have heretofore entered into the Credit Agreement;
WHEREAS, the Borrower, the Lenders and the Agent now desire to amend the Credit Agreement in certain respects, as hereinafter provided; and
WHEREAS, the Borrower has requested that the Agent and the Lenders agree to waive any failure by the Borrower to comply with certain provisions of the Credit Agreement, upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Credit Agreement.
SECTION 2. Amendment to Section 1.1 (Defined Terms). Section 1.1 of the Credit Agreement is hereby amended by inserting the following new definition in appropriate alphabetical order:
"Fifth Amendment" means the Fifth Amendment and Waiver to the Amended and Restated Credit Agreement, dated as of December 30, 2003, among the Borrower, the Lenders and the Agent.
"Former Pledged Entity" means each Subsidiary of the Borrower set forth on Annex A to the Fifth Amendment.
"Key Holding Companies" means the following direct Subsidiaries of the Borrower:
Calpine Administrative Services Company, Inc.; Calpine Energy Holdings, Inc.;
2
Calpine Finance
Company; Calpine Fuels Corporation
Calpine Calgary, Inc.;
Calpine Operating Management Company, Inc.; and
Calpine Power Company.
SECTION 3. Amendment to Section 8.1.10 (Ownership Interests). Section 8.1.10 of the Credit Agreement is hereby amended by deleting such Section in its entirety and substituting in lieu thereof the following text:
CCI shall at all times directly or indirectly own 100% of all equity interests of CCEC, which shall, in turn, directly or indirectly own 100% of the equity interests in Saltend and in CCNGP. CCNGP shall at all times own all of the Canadian Gas Reserves. The Borrower shall at all times own 100% of the equity interests of CCI. The Borrower shall at all times own 100% of the equity interests of Calpine Power Company. Calpine Power Company shall, directly or indirectly, at all times own 100% of the equity interests of CCFCI. CCI shall at all times own 100% of the equity interests of QM, JOQ, and QCH; QM, JOQ and QCH shall at all times own 100% of the equity interests of CCEC; CCEC shall at all times own 100% of the equity interests of CCRC and CCNGC; and CCRC and CCNGC shall at all times own 100% of the equity interests of CCNGP. Nothing in this Section 8.1.10 shall, however, be deemed to limit (i) the reorganization of CCNGP's direct ownership such that the partnership interests in CCNGP are owned and held by (A) a Subsidiary of the Borrower formed as a result of the consolidation or merger of CCRC and CCNGC and (B) another Subsidiary of the Borrower or a new Subsidiary of the Borrower formed by the Borrower or one of its Subsidiaries, (ii) the ability of any one or more of QM, JOQ or QCH to merge or consolidate with one or more of the others (subject only to a delivery of a certificate in a form reasonably satisfactory to the Agent to the effect that the merged entity would not be liable for any Obligations of CCEF) or (iii) the ability of the Borrower and its Subsidiaries to enter into transactions that are contemplated by Section 3.1.1(c)(i) through (vii) and permitted under Section 8.2.10.
SECTION 4. Amendment to Section 8.2.1 (Business Activities). Section 8.2.1 of the Credit Agreement is hereby amended by inserting the following new sentence at the end thereof: "The Borrower shall not permit any of its Key Holding Companies, other than Calpine Administrative Services Company, Inc. (which shall engage only in the business of providing services to the Borrower and its Subsidiaries), to engage in any business activity except for (i) owning the capital stock or other similar ownership interests in other Subsidiaries of the Borrower and (ii) non-operating activities incidental thereto."
SECTION 5. Amendment to Section 8.2.2 (Indebtedness). Section 8.2.2 of the Credit Agreement is hereby amended by inserting the following new proviso at the end thereof: "provided further that the Borrower shall not permit any of its Key Holding Companies to incur any Indebtedness other than Indebtedness permitted pursuant to clauses (b), (c), (d)(ii) or (h) above".
3
SECTION 6. Amendment to Section 8.2.3 (Liens). Section 8.2.3 of the Credit Agreement is hereby amended by inserting the following new proviso at the end thereof: "provided further that the Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon the capital stock or other similar ownership interests of any Former Pledged Entities, other than, with respect to those Former Pledged Entities that are owners of Facilities and no other material assets, Liens permitted pursuant to clause (n) above."
SECTION 7. Amendment to Section 8.2.9 (Consolidation, Merger, etc.).
(a) Section 8.2.9(b) of the Credit Agreement is hereby amended by deleting it in its entirety and substituting in lieu thereof the following new text:
"(b) any Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary; provided, however, that if any Subsidiary that is a Pledged Entity shall merge with any other Subsidiary that is not a Pledged Entity, such Pledged Entity shall be the continuing Person following such merger; provided, further, that if any Subsidiary that is a Former Pledged Entity shall merge with any other Subsidiary that is not a Pledged Entity or a Former Pledged Entity, such Former Pledged Entity shall be the continuing Person following such merger; provided, further, that if any Subsidiary that is a Pledged Entity shall liquidate or dissolve voluntarily into, or merge into, the Borrower or any other Subsidiary, or all or substantially all of the assets or stock of any such Subsidiary are purchased or otherwise acquired by the Borrower or any other Subsidiary, such assets of such Subsidiary shall be transferred (whether by means of merger or otherwise) (i) to the Borrower (and pledged by the Borrower as collateral security for the Obligations) or (ii) to another Subsidiary that is a Pledged Entity; and provided, further, that if any Subsidiary that is a Former Pledged Entity shall liquidate or dissolve voluntarily into, or merge into, the Borrower or any other Subsidiary, or all or substantially all of the assets or stock of any such Subsidiary are purchased or otherwise acquired by the Borrower or any other Subsidiary, such assets of such Subsidiary shall be transferred (whether by means of merger or otherwise) (i) to the Borrower (and pledged by the Borrower as collateral security for the Obligations), (ii) to another Subsidiary that is a Pledged Entity or (iii) to another Subsidiary that is a Former Pledged Entity;"
SECTION 8. Waiver of Section 8.2.9 (Consolidation, Merger, etc.). The Agent and the Required Lenders hereby waive any violation of the second proviso to Section 8.2.9(b) of the Credit Agreement occurring as a result of the transfer of all of the outstanding capital stock or other similar ownership interests in any Former Pledged Entity to a Pledged Entity pursuant to the restructuring transactions described in the Restructuring Waiver Request attached hereto as Annex B (the "Restructuring Waiver Request").
SECTION 9. Consent to Transfer. Pursuant to Section 10.9(a)(ii), the Required Lenders hereby consent to the transfer by the Borrower of the capital stock or other similar ownership
4
interests in each Former Pledged Entity to the respective Pledged Entities indicated on Annex A hereto.
SECTION 10. Effectiveness. This Amendment and Waiver shall become effective upon fulfillment of the following conditions precedent: (a) the Borrower and each Guarantor shall have delivered to the Agent a duly executed copy of this Amendment and Waiver; (b) the Agent shall have received duly executed copies of this Amendment and Waiver from the Required Lenders; (c) the Borrower shall have complied with the provisions of Section 8.1.9(b) of the Credit Agreement to the extent that any entity has become a direct Subsidiary of the Borrower as a result of the restructuring transactions described in the Restructuring Waiver Request; (d) the Agent shall have received such other documents as the Agent shall have reasonably requested; and (e) no Default or Event of Default shall have occurred and be continuing on the date hereof after giving effect to this Amendment and Waiver; provided, however, that the amendment hereof to Section 8.1.10 (Ownership Interests) shall not become effective until the Borrower and its Subsidiaries have completed the restructuring transactions described in the Restructuring Waiver Request.
SECTION 11. Representations and Warranties. The Borrower hereby represents and warrants that the representations and warranties contained in the Credit Agreement and the Restructuring Waiver Request will be, after giving effect to this Amendment and Waiver, true and correct in all material respects, as if made on and as of the date hereof, except for representations and warranties which speak as of a certain date, which representations and warranties shall be true and correct in all material respect as of such date.
SECTION 12. Continuing Effect of Credit Agreement. This Amendment and Waiver shall not constitute an amendment or waiver of any other provision of the Credit Agreement or the Loan Documents not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Agent and/or the Lenders. Except as expressly amended or waived hereby, the provisions of the Credit Agreement and the Loan Documents are and shall remain in full force and effect. All references to the Credit Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby.
SECTION 13. Counterparts. This Amendment and Waiver may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Amendment and Waiver by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
SECTION 14. Governing Law. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 15. Expenses. The Borrower agrees to pay or reimburse the Agent for all of its out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amendment and Waiver, including the fees and disbursements of counsel to the Agent.
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.
CALPINE CORPORATION

By:    /s/ MICHAEL THOMAS
     --------------------------------------------
      Name:  Michael Thomas
      Title:  SVP & Corporate Treasurer	

The undersigned Guarantors hereby consent and agree to the foregoing Fifth Amendment and Waiver and agree that their Guarantee as set forth in the Security Agreement remains in full force and effect:
QUINTANA MINERALS (USA), INC.
By: MICHAEL THOMAS Name: Michael Thomas
Title: SVP
JOQ CANADA, INC.
By: MICHAEL THOMAS Name: Michael Thomas
Title: SVP
QUINTANA CANADA HOLDINGS, LLC
By: MICHAEL THOMAS
 Name: Michael Thomas
Title: SVP
THE BANK OF NOVA SCOTIA,
as Agent

By:    /s/ JAMES R. TRIMBLE
     --------------------------------------------
      Name:  James R. Trimble
      Title:  Managing Director	

BAYERISCHE LANDESBANK, CAYMAN ISLANDS BRANCH

By:  /s/ OLIVER HILDENBRAND
     --------------------------------------------
     Name:  Oliver Hildenbrand
     Title: Vice President

By:  /s/ CHRISTOPHER STOLARSKI
     --------------------------------------------
     Name:  Christopher Stolarski
     Title: Vice President	

GALLATIN FUNDING LTD.
By: Bear Stearns Asset Management Inc.
as its Collateral Manager

By:    /s/ JONATHAN BERG
     --------------------------------------------
     Name:  Jonathan Berg
     Title:  Vice President	

ING CAPITAL LLC

By:  /s/ ERWIN THOMET
     --------------------------------------------
     Name:  Erwin Thomet
     Title: Managing Director

By:  /s/ G.D. BELLAMY, JR.
     --------------------------------------------
     Name:  G. D. Bellamy, Jr.
     Title: Director	

PROTECTIVE LIFE INS. CO.

By:    /s/ DIANE S. GRISWOLD
     --------------------------------------------
     Name:  Diane S. Griswold
     Title:  AVP	

SEABOARD CLO 2000 LTD.

By:     /s/ JOHN W. STELWAGON, CFA
     --------------------------------------------
     Name:  John W. Stelwagon, CFA
     Title:  Managing Director	

TORONTO DOMINION (TEXAS), INC.

By:    /s/ LYNN CHASIN
     --------------------------------------------
     Name:  Lynn Chasin
     Title:  Vice President	

UNION BANK OF CALIFORNIA, N.A.

By:    /s/ KAREN ELLIOTT
     --------------------------------------------
     Name:  Karen Elliott
     Title:  Assistant Vice President	

Annex A
Current First Tier Entities and their new holding company after the restructure:

             CURRENT FIRST TIER                               NEW HOLDING COMPANY
---------------------------------------------     -------------------------------------------
Anacapa Land Company LLC                          Calpine Power Company
Anderson Springs Energy Company                   Calpine Power Company

Androscoggin Energy, Inc.                         Not Applicable / Not Moving
Bellingham Cogen, Inc.                            Calpine Power Company
Blue Heron Energy Center, LLC                     Calpine Power Company
Calpine Agnews, Inc.                              Calpine Power Company
Calpine Auburndale Holdings, LLC                  Calpine Power Company

Calpine c*Power, Inc.                             Calpine Administrative Services Company,
                                                  Inc.
Calpine California Holdings, Inc.                 Calpine Power Company
Calpine Calistoga Holdings, LLC                   Merged out as part of new Geysers
                                                  Structure
Calpine CCFC II Holdings, Inc.                    Calpine Power Company
Calpine Central, Inc.                             Calpine Power Company
Calpine Northbrook Corporation of Maine, Inc.     Not Applicable / Not Moving
Calpine Northeast Marketing, Inc.                 Entity renamed Calpine Energy Holdings,
                                                  Inc. - remains a first tier subsidiary
Calpine Operating Management Company, Inc.        Not Applicable / Not Moving
Calpine Pittsburgh, LLC                           Calpine Power Company
Calpine Power Company                             Not Applicable / Not Moving
Calpine Project Holdings, Inc.                    Calpine Power Company

Calpine Rumford I, Inc.                           Calpine Power Company
Calpine Rumford, Inc.                             Calpine Power Company
Calpine Sonoma, Inc.                              Merged out as part of new Geysers
                                                  Structure
Calpine Sonoran Pipeline LLC                      Calpine Fuels Corporation
Calpine Sumas, Inc.                               Calpine Power Company
Calpine Thermal Power, Inc.                       Merged out as part of new Geysers Structure
Calpine Tiverton I, Inc.                          Calpine Power Company
Calpine Tiverton, Inc.                            Calpine Power Company
Calpine Vapor, Inc.                               Calpine Power Company
Chippokes Energy Center, LLC                      Calpine Power Company
Calpine Dighton, Inc.                             Calpine Power Company
Calpine Eastern Corporation                       Calpine Power Company
Calpine Eastern Holdings, Inc.                    Calpine Operating Services Company, Inc.,
                                                  which is a subsidiary of Calpine Operating
                                                  Management Company, Inc.
Calpine Fuels Corporation                         Not Applicable / Not Moving
Calpine Gilroy 1, Inc.                            Calpine Power Company	

3

Calpine Gilroy 2, Inc.                            Calpine Power Company
Calpine Gordonsville, Inc.                        Sold
Calpine King City, Inc.                           Calpine Power Company
Calpine Marketing, LLC                            Calpine Power Company
Calpine Metcalf EPC, Inc.                         Merged into Calpine Development
                                                  Holdings, Inc.
Calpine Natural Gas Holdings, LLC                 Calpine Fuels Corporation
Calpine Natural Gas GP, LLC                       Calpine Fuels Corporation
CPN Blue Spruce Holdings, LLC                     Merged into Calpine Development
                                                  Holdings, Inc.
CPN Cascade, Inc.                                 Calpine Power Company
CPN Energy Services GP, Inc.                      Calpine Energy Holdings, Inc.
CPN Energy Services LP, Inc.                      Calpine Energy Holdings, Inc.
CPN Pipeline Company                              Calpine Fuels Corporation
CPN Telephone Flat, Inc.                          Calpine Power Company
GATX/Calpine-Agnews, Inc.                         Merged as part of Agnews Restructure into
                                                  Calpine Agnews, Inc.
Geysers Finance Company                           Merged out as part of new Geysers
                                                  Structure
Los Esteros Critical Energy Facility, LLC         Calpine Power Company
Modoc Power, Inc.                                 Calpine Power Company
Northwest Cogeneration, Inc.                      Calpine Power Company
Palmetto Energy Center, LLC                       Calpine Power Company
Santa Rosa Energy Company                         Merged out as part of new Geysers
                                                  Structure
Sutter Dryers, Inc.                               Calpine Power Company
Venture Acquisition Company                       Calpine Power Company
WRMS Engineering, Inc.                            Sold	

ENTITIES MOVING CLOSER TO CALPINE CORPORATION AS PART OF RESTRUCTURE:
Geysers Power Company, LLC - See attached chart for restructuring details
Calpine Calgary, Inc. (to be renamed Calpine International Holdings, Inc. ) - See attached chart for restructuring details
Silverado Geothermal Resources, Inc.
Dighton Power Associates, LP
Nissequogue Cogen Partners
TBG Cogen Partners
4
KIAC Partners
Calpine Agnews, Inc.
[FLOW CHART]
 
EXHIBIT 10.1.2.8
December 31, 2003
To: Lenders under the Calpine Corporation Credit Agreement
From: Calpine Corporation
Re: Technical Correction to Fifth Amendment and Waiver Request Concerning Proposed Restructuring Organizational Changes (the "Fifth Amendment and Waiver")
Ladies and Gentlemen:
It has come to our attention that a technical correction needs to be made to the Fifth Amendment and Waiver request dated as of or about December 16, 2003.
Background:
As you know, the proposed organizational changes involved, among other things, contribution of many existing first tier subsidiaries to one of seven Key Holding Companies (as defined in the Fifth Amendment and Waiver). It was intended that Calpine Development Holdings, Inc. be one of such entities. Calpine Development Holdings, Inc. is an owner of certain early stage development projects.
While the graphical post-restructuring organizational chart provided to the Lenders reflected the movement of Calpine Development Holdings, Inc. from being a first tier subsidiary to being a lower tier subsidiary, such entity was left off of Annex A to the Fifth Amendment and Waiver, which contains a list of Former Pledged Entities (as defined in the Fifth Amendment and Waiver).
Accordingly, Annex A to the Fifth Amendment and Waiver will need to be amended to include Calpine Development Holdings, Inc. as one of the Former Pledged Entities, whereby its new holding company will be Calpine Power Company.
Amendment: With the approval of the Required Lenders, Annex A to the Fifth Amendment and Waiver will be deemed amended to (i) add "Calpine Development Holdings, Inc." at the end of the list of entities under the heading "Current First Tier", and (ii) add "Calpine Power Company" at the end of the list of entities under the heading "New Holding Company", as follows:
1
NEW HOLDING COMPANY

Calpine Development Holdings, Inc. Calpine Power Company
The remainder of Annex A will not be modified.
Please provide your institution's acknowledgment and approval to this Technical Correction at your earliest opportunity by sending an e-mail reading as set forth below to Isabel Abella of Scotia Capital at isabel_abella@scotiacapital.com, reaffirming your institution's execution of the Fifth Amendment and Waiver, as amended by this Technical Correction, by 5:00
p.m. (Eastern Time), Friday, January 9, 2004:
"The undersigned Lender to Calpine Corporation (the "Borrower") hereby (a) acknowledges and approves the Technical Correction to Fifth Amendment and Waiver (the "Fifth Amendment") Concerning Proposed Restructuring Organizational changes as set forth in the letter of the Borrower dated December 31, 2003 posted on Intralinks and (b) reaffirms its execution of the Fifth Amendment.
Should you have any questions, please feel free to contact me at 408-792-1107, Dan Yuen, Associate Counsel of Calpine Corporation at 408-794-2509 or Alok Garg of Scotia Capital at 212-225-5463.
Thank you for your cooperation with this request.
Sincerely,
CALPINE CORPORATION

/s/ MICHAEL THOMAS
---------------------------------------
Michael Thomas	

Senior Vice President and Treasurer
2
 
EXHIBIT 10.1.2.9
WAIVER
This WAIVER, dated as of March 5, 2004 (this "Waiver"), to the Amended and Restated Credit Agreement, dated as of July 16, 2003 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), various lead Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative agent and funding agent (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent have heretofore entered into the Credit Agreement; and
WHEREAS, the Borrower has requested that the Agent and the Lenders agree to waive any failure by the Borrower to comply with certain provisions of the Credit Agreement, upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Credit Agreement, other than the terms "Brazos Acquisition" and "Lost Pines Proceeds", which shall have the meanings set forth in the letter from the Borrower attached hereto as Exhibit A (the "Lost Pines/Brazos Waiver Request Letter").
SECTION 2. Waiver of Section 3.1.1 (Payment Terms). The Agent and the Supermajority Lenders hereby waive any violation of Section 3.1.1(c)(ii) of the Credit Agreement occurring as a result of the application by CCFCI of the Lost Pines Proceeds to the Brazos Acquisition rather than to the prepayment of the outstanding Term B Loans and the reduction of the Revolving Loan Commitments.
SECTION 3. Effectiveness. This Waiver shall become effective upon fulfillment of the following conditions precedent: (a) the Borrower and each Guarantor shall have delivered to the Agent a duly executed copy of this Waiver;
(b) the Agent shall have received duly executed copies of this Waiver from the Supermajority Lenders; (c) the Agent shall have received such other documents as the Agent shall have reasonably requested; and (d) no Default or Event of Default shall have occurred and be continuing on the date hereof after giving effect to this Waiver.
SECTION 4. Representations and Warranties. The Borrower hereby represents and warrants that the representations and warranties contained in the Credit Agreement and the statements set forth in Section A (Background) of the Lost Pines/Brazos Waiver Request Letter will be, after giving effect to this Waiver, true and correct in all material respects, as if made on
and as of the date hereof, except for representations and warranties which speak as of a certain date, which representations and warranties shall be true and correct in all material respect as of such date.
SECTION 5. Continuing Effect of Credit Agreement. This Waiver shall not constitute an amendment or waiver of any other provision of the Credit Agreement or the Loan Documents not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Agent and/or the Lenders. Except as expressly waived hereby, the provisions of the Credit Agreement and the Loan Documents are and shall remain in full force and effect.
SECTION 6. Counterparts. This Waiver may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Waiver by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
SECTION 7. Governing Law. THIS WAIVER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 8. Expenses. The Borrower agrees to pay or reimburse the Agent for all of its out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Waiver, including the fees and disbursements of counsel to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.
CALPINE CORPORATION

By: /s/ MICHAEL THOMAS
    --------------------------------
    Name: Michael Thomas
    Title: SVP & Corporate Treasurer	

The undersigned Guarantors hereby agree that their Guarantee as set forth in the Security Agreement remains in full force and effect notwithstanding any provision of this Waiver:
QUINTANA MINERALS (USA), INC.

By: /s/ MICHAEL THOMAS
    ------------------------------
Name: Michael Thomas
Title: SVP	

JOQ CANADA, INC.

By: /s/ MICHAEL THOMAS
    ------------------------------
Name: Michael Thomas
Title: SVP	

QUINTANA CANADA HOLDINGS, LLC

By: /s/ MICHAEL THOMAS
    ------------------------------
Name: Michael Thomas
Title: SVP	

THE BANK OF NOVA SCOTIA,
as Agent

By: /s/ FRANK. F. SANDLER
    --------------------------------
    Name: Frank F. Sandler
    Title: Managing Director	

CREDIT LYONNAISE NEW YORK BRANCH

By: /s/ MARTIN C. LIVINGSTON
    --------------------------------
    Name: Martin C. Livingston
    Title: Vice President	

UNION BANK OF CALIFORNIA, N.A.

By: /s/ KAREN ELLIOTT
    --------------------------------
    Name: Karen Elliott
    Title: Assistant Vice President	

TORONTO DOMINION (TEXAS), INC.

By: /s/ LYNN CHASIN
    --------------------------------
    Name: Lynn Chasin
   Title: Vice President	

ING CAPITAL LLC

By: /s/ ERWIN THOMET
    --------------------------------
    Name: Erwin Thomet
    Title: Managing Director

By: /s/ CHARLES M. O'NEIL
    --------------------------------
    Name: Charles M. O'Neil
    Title: Managing Director	

BAYERISCHE LANDESBANK, CAYMAN
ISLANDS BRANCH

By: /s/ CORNELIA WINTERGERST
    --------------------------------
    Name: Cornelia Wintergerst
    Title: Vice President	

SEABOARD CLO 2000 LTD.
 By: David L. Babson & Company Inc.
as Collateral Manager

By: /s/ JOHN W. STELWAGON, CFA
    --------------------------------
    Name: John W. Stelwagon, CFA
    Title: Managing Director	

KZH PONDVIEW LLC

By: /s/ HI HUA
    --------------------------------
    Name: Hi Hua
    Title: Authorized Agent	

PROTECTIVE LIFE INS. CO.

By: /s/ DIANE S. GRISWOLD
    --------------------------------
    Name: Diane S. Griswold
    Title: AVP	

ORIX FUNDING LLC

By: /s/ ANN E. MORRIS
    --------------------------------
    Name: Ann E. Morris
    Title: Asst Vice President	

FOOTHILL INCOME TRUST, L.P.
By FIT GP, LLC, its General Partner

By: /s/ DENNIS R. ASCHER
    --------------------------------
    Name: Dennis R. Ascher
    Title: Managing Member	

GALLATIN FUNDING I LTD.
 By: Bear Stearns Asset Management
Inc. as its Collateral Manager

By: /s/ JONATHAN BERG
    --------------------------------
    Name: Jonathan Berg
    Title: Vice President	

This WAIVER, dated as of March [ ], 2004 (this "Waiver"), to the Amended and Restated Credit Agreement, dated as of July 16, 2003 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), various lead Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative Agent and funding agent (in such capacity, the "Agent").
AURUM CLO 2002-1 LTD.
BY: COLUMBIA MANAGEMENT ADVISORS,
INC., AS INVESTMENT MANAGER

By: /s/ KATHLEEN A. ZARN
    --------------------------------
    Name: Kathleen A. Zarn
    Title: Senior Vice President	

This WAIVER, dated as of March [ ], 2004 (this "Waiver"), to the Amended and Restated Credit Agreement, dated as of July 16, 2003 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), various lead Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative Agent and funding agent (in such capacity, the "Agent").
STEIN ROE & FARNHAM CLO I LTD.
BY: COLUMBIA MANAGEMENT ADVISORS,
INC., AS PORTFOLIO MANAGER

By: /s/ KATHLEEN A. ZARN
    --------------------------------
    Name: Kathleen A. Zarn
    Title: Senior Vice President	

LANDMARK III CDO LIMITED
BY: ALADDIN CAPITAL MANAGEMENT LLC
AS MANAGER

By: /s/ ANGELA BOZORGMIR
    --------------------------------
    Name: Angela A. Bozorgmir
    Title: Director	

LANDMARK II CDO LIMITED
BY: ALADDIN CAPITAL MANAGEMENT LLC
AS MANAGER

By: /s/ ANGELA BOZORGMIR
    --------------------------------
    Name: Angela A. Bozorgmir
    Title: Director	

LANDMARK CDO LIMITED
BY: ALADDIN CAPITAL MANAGEMENT LLC
AS MANAGER

By: /s/ ANGELA BOZORGMIR
    --------------------------------
    Name: Angela A. Bozorgmir
    Title: Director	

CARLYLE HIGH YIELD PARTNERS II, LTD.

By: /s/ MARK ALTER
    --------------------------------
    Name: Mark Alter
    Title: Managing Director	

CARLYLE HIGH YIELD PARTNERS III, LTD.

By: /s/ MARK ALTER
    ---------------------------------
    Name: Mark Alter
    Title: Managing Director	

CARLYLE HIGH YIELD PARTNERS IV, LTD.

By: /s/ MARK ALTER
    --------------------------------
    Name: Mark Alter
    Title: Managing Director	

CARLYLE HIGH YIELD PARTNERS, L.P.

By: /s/ MARK ALTER
    --------------------------------
    Name: Mark Alter
    Title: Managing Director	

CARLYLE LOAN OPPORTUNITY FUND

By: /s/ MARK ALTER
    --------------------------------
    Name: Mark Alter
    Title: Managing Director	

EXHIBIT 10.1.7.2
AMENDMENT NO.1 TO THE
SECOND AMENDMENT PLEDGE AGREEMENT
THIS AMENDMENT NO.1, dated as of November 18, 2003 (this "Amendment"), to the Second Amendment Pledge Agreement, dated as of July 16, 2003, (as the same may be amended, supplemented or otherwise modified from time to time, the "Pledge Agreement"), made by Calpine Corporation, a Delaware corporation (the "Company"), in favor of The Bank of New York, as Collateral Trustee (together with any successor(s) thereto in such capacity, the "Collateral Trustee") for the benefit of the Secured Parties.
WITNESSETH:
WHEREAS, the Company may, from time to time, eliminate and restructure its Subsidiaries in connection with ordinary course corporate reorganization, provided that the assets held by any such subsidiaries are transferred to the Company or otherwise remain a part of the Collateral, subject to the terms and conditions of the Secured Debt Documents;
WHEREAS, the pledge of the stock interest of WRMS Engineering, Inc. was released in connection with certain restructurings by the Company;
WHEREAS, pursuant to Section 4.2 of the Pledge Agreement, the Company has delivered to the Collateral Trustee a share certificate evidencing its interest in Calpine Development Holdings, Inc., along with an executed undated blank stock power; and
WHEREAS, the Company now wishes to amend the Pledge Agreement in certain respects, as hereinafter provided.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including in its preamble and recitals, have the respective meanings assigned to such terms in the Collateral Trust Agreement dated as of July 16, 2003, among the Company, Quintana Minerals (USA), Inc., JOQ Canada, Inc., Quintana Canada Holdings, LLC, The Bank of Nova Scotia, as Agent under the Credit Agreement, Wilmington Trust Company, as Trustee under the 2007 Indenture, the 2010 Indenture and the 2013 Indenture, Goldman Sachs Credit Partners L.P., as Administrative Agent under the Term Loan Agreement, and the Collateral Trustee.
2. Amendment to Attachment 1 to the Pledge Agreement. Attachment 1 to the Pledge Agreement is hereby amended as follows:
(a) deleting therefrom WRMS Engineering, Inc. as a Pledged Share Issuer; and
(b) adding therein Calpine Development Holdings, Inc.
The fully amended and restated Attachment 1 is attached hereto.
3. Representations and Warranties. The Company hereby represents and warrants to the Collateral Trustee that (a) this Amendment has been duly authorized, executed and delivered by the Company and constitutes its valid and legally binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (b) the execution and delivery of this Amendment (i) does not require any consent, approval, authorization or order of, or filing with, any governmental agency or body or any court, except such as have been obtained or made and are in full force and effect as of the date hereof and (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or any order of any governmental agency or body, or breach or conflict with any material agreement to which the Company is a party or by which the Company is bound.
4. Effectiveness. This Amendment shall become effective upon fulfillment of the following conditions precedent: (a) receipt by the Collateral Trustee of the duly executed signature page of this Amendment signed on behalf of the Company and (b) receipt by the Collateral Trustee of an Officer's Certificate and an Opinion of Company Counsel, dated the date hereof, in accordance with section 7.1 of the Collateral Trust Agreement.. This Amendment may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
5. Continuing Effect of the Pledge Agreement. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Secured Parties, the Collateral Trustee or the Company under the Pledge Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Pledge Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Company to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Pledge Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Pledge Agreement specifically referred to herein. After this Amendment becomes effective in accordance with Section 4 hereof, any reference to the Pledge Agreement shall mean the Pledge Agreement as amended and modified hereby.
6. Applicable Law. This Amendment and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
-2-
7. Headings. Headings herein are include herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written.
CALPINE CORPORATION
By: ANN B. CURTIS

Name: Ann B. Curtis Title: Executive Vice President
THE BANK OF NEW YORK, NOT IN ITS
INDIVIDUAL CAPACITY, BUT SOLELY AS COLLATERAL
TRUSTEE
By: MICHAEL PITFICK

Name: Michael Pitfick Title: Assistant Vice President
ATTACHMENT 1
TO
AMENDMENT NO.1 TO THE
SECOND AMENDMENT PLEDGE AGREEMENT
PLEDGED SHARES

                                                   Common
                                                    Stock
                                                 -----------     % of
                                                 Outstanding    Pledged
            Pledged Share Issuer:                  Shares       Shares
---------------------------------------------    -----------    -------
CPN Energy Services, GP, Inc.                         1000        100%
CPN Energy Services, LP, Inc.                         1000        100%
Calpine CCFC II Holdings, Inc.                        1000        100%
Calpine Central, Inc.                                 1000        100%
Calpine Eastern Corporation                           1000        100%
Calpine Dighton, Inc.                                 1000        100%
CPN Auburndale, Inc. [*]                              1000        100%
Calpine Auburndale, Inc.[*]                           1000        100%
Calpine Gordonsville, Inc.                            1000        100%
Calpine Rumford, Inc.                                  100        100%
Calpine Rumford I, Inc.                               1000        100%
Calpine Tiverton, Inc.                                 100        100%
Calpine Tiverton I, Inc.                               100        100%
Calpine Northeast Marketing, Inc.                      100        100%
Venture Acquisition Company                           1000        100%
Calpine Northbrook Corporation of Maine, Inc.         1000        100%
Androscoggin Energy, Inc.                             1000        100%
Calpine Project Holdings, Inc.                        1000        100%
Calpine Sumas, Inc.                                   1000        100%
Northwest Cogeneration, Inc.                          1000        100%
Calpine King City, Inc.                               1000        100%
Calpine Gilroy 1, Inc.                                1000        100%
Calpine Gilroy 2, Inc.                                1000        100%
Sutter Dryers, Inc.                                   1000        100%
Calpine Metcalf EPC, Inc.                             1000        100%
Bellingham Cogen, Inc.                                1000        100%
GATX/Calpine-Agnews, Inc.                             3000        100%
Calpine Agnews, Inc.                                  1000        100%
Calpine Power Company                                 1000        100%	

Calpine Vapor, Inc.                                   1000        100%
Modoc Power, Inc.                                     1000        100%
Santa Rosa Energy Company                             1000        100%
Geysers Finance Company                            100,000        100%
Calpine Thermal Power, Inc.                           1000        100%
Calpine Operations Management Company, Inc.           1000        100%
Calpine Fuels Corporation                             1000        100%
CPN Pipeline Company                                  1000        100%
Calpine Eastern Holdings, Inc.                        1000        100%
Calpine c*Power, Inc.                                 1000        100%
CPN Cascade, Inc.                                     1000        100%
CPN Telephone Flat, Inc.                              1000        100%
Anderson Springs Energy Company                       1000        100%
Calpine Sonoma, Inc.                                  1000        100%
Calpine California Holdings, Inc.                     1000        100%
Calpine Development Holdings, Inc.                    1000        100%	

[*] On August 7, 2003, (i) Calpine Auburndale, Inc. was merged into CPN Auburndale, Inc. and (ii) CPN Auburndale, Inc. was converted into a Delaware limited liability company, changing its name to "Calpine Auburndale Holdings, LLC".
 
EXHIBIT 10.1.8.2
AMENDMENT NO.1 TO THE
SECOND AMENDMENT PLEDGE AGREEMENT (MEMBERSHIP INTERESTS)
THIS AMENDMENT NO.1, dated as of November 18, 2003 (this "Amendment"), to the Second Amendment Pledge Agreement (Membership Interests), dated as of July 16, 2003, (as the same may be amended, supplemented or otherwise modified from time to time, the "Pledge Agreement"), made by Calpine Corporation, a Delaware corporation (the "Company"), in favor of The Bank of New York, as Collateral Trustee (together with any successor(s) thereto in such capacity, the "Collateral Trustee") for the benefit of the Secured Parties.
WITNESSETH:
WHEREAS, the Company may, from time to time, eliminate and restructure its Subsidiaries in connection with ordinary course corporate reorganization, provided that the assets held by any such subsidiaries are transferred to the Company or otherwise remain a part of the Collateral, subject to the terms and conditions of the Secured Debt Documents;
WHEREAS, the pledge of the equity interests of South Point Energy Center LLC was released and the pledge of the equity interests of Calpine Auburndale Holdings, LLC was created in connection with certain restructurings by the Company; and
WHEREAS, the Company now wishes to amend the Pledge Agreement in certain respects, as hereinafter provided.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including in its preamble and recitals, have the respective meanings assigned to such terms in the Collateral Trust Agreement dated as of July 16, 2003, among the Company, Quintana Minerals (USA), Inc., JOQ Canada, Inc., Quintana Canada Holdings, LLC, The Bank of Nova Scotia, as Agent under the Credit Agreement, Wilmington Trust Company, as Trustee under the 2007 Indenture, the 2010 Indenture and the 2013 Indenture, Goldman Sachs Credit Partners L.P., as Administrative Agent under the Term Loan Agreement, and the Collateral Trustee.
2. Amendment to Attachment 1 to the Pledge Agreement. Attachment 1 to the Pledge Agreement is hereby amended as follows:
(a) deleting therefrom South Point Energy Center LLC as a Pledged Interest Issuer; and
(b) adding therein Calpine Auburndale Holdings, LLC as a Pledged Interest Issuer.
The fully amended and restated Attachment 1 is attached hereto.
3. Representations and Warranties. The Company hereby represents and warrants to the Collateral Trustee that (a) this Amendment has been duly authorized, executed and delivered by the Company and constitutes its valid and legally binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (b) the execution and delivery of this Amendment (i) does not require any consent, approval, authorization or order of, or filing with, any governmental agency or body or any court, except such as have been obtained or made and are in full force and effect as of the date hereof and (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or any order of any governmental agency or body, or breach or conflict with any material agreement to which the Company is a party or by which the Company is bound.
4. Effectiveness. This Amendment shall become effective upon fulfillment of the following conditions precedent: (a) receipt by the Collateral Trustee of the duly executed signature page of this Amendment signed on behalf of the Company and (b) receipt by the Collateral Trustee of an Officer's Certificate and an Opinion of Company Counsel, dated the date hereof, in accordance with section 7.1 of the Collateral Trust Agreement. This Amendment may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
5. Continuing Effect of the Pledge Agreement. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Secured Parties, the Collateral Trustee or the Company under the Pledge Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Pledge Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Company to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Pledge Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Pledge Agreement specifically referred to herein. After this Amendment becomes effective in accordance with Section 4 hereof, any reference to the Pledge Agreement shall mean the Pledge Agreement as amended and modified hereby.
6. Applicable Law. This Amendment and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
7. Headings. Headings herein are include herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
-2-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written.
CALPINE CORPORATION
By: ANN B. CURTIS

Name: Ann B. Curtis Title: Executive Vice President
THE BANK OF NEW YORK, NOT IN ITS
INDIVIDUAL CAPACITY, BUT SOLELY AS COLLATERAL
TRUSTEE
By: MICHAEL PITFICK

Name: Michael Pitfick Title: Assistant Vice President
ATTACHMENT 1
TO
AMENDMENT NO.1 TO THE
SECOND AMENDMENT PLEDGE AGREEMENT
 (MEMBERSHIP INTEREST)
PLEDGED MEMBERSHIP INTERESTS

                                                             % OF
                                                          MEMBERSHIP
                                                           INTEREST
       PLEDGED INTEREST ISSUER:                             PLEDGED
---------------------------------------                   ----------
Calpine Natural Gas Holdings, LLC                            100%

Calpine Marketing, LLC                                       100%

Anacapa Land Company LLC                                     100%

Calpine Pittsburgh, LLC                                      100%

CPN Blue Spruce Holdings, LLC                                100%

Calpine Calistoga Holdings, LLC                              100%

Chippokes Energy Center, LLC                                 100%

Palmetto Energy Center, LLC                                  100%

Blue Heron Energy Center, LLC                                100%

Calpine Sonoran Pipeline, LLC                                100%

Los Esteros Critical Energy Center, LLC                      100%

Calpine Natural Gas GP, LLC                                  100%

Calpine Auburndale Holdings, LLC                             100%	

Exhibit 10.1.10.2
FIRST AMENDMENT TO
COLLATERAL TRUST AGREEMENT
THIS FIRST AMENDMENT TO THE COLLATERAL TRUST AGREEMENT (this
"Amendment") is made as of the 18th day of November, 2003, by and among Calpine Corporation, a Delaware corporation (the "Company"), Quintana Minerals (USA), Inc., a Delaware corporation ("Quintana Minerals"), JOQ Canada, Inc., a Delaware corporation ("JOQ Canada"), Quintana Canada Holdings LLC, a Delaware limited liability company ("Quintana Canada, and together with Quintana Minerals and JOQ Canada, the "Canadian Guarantors"), The Bank of Nova Scotia, as Credit Agreement Agent (together with its successors in such capacity, the "Credit Agreement Agent"), Wilmington Trust Company, as Trustee under the 2007 Indenture (together with its successors in such capacity, the "2007 Trustee"), Wilmington Trust Company, as Trustee under the 2010 Indenture (together with its successors in such capacity, the "2010 Trustee"), Wilmington Trust Company, as Trustee under the 2013 Indenture (together with its successors in such capacity, the "2013 Trustee"), Goldman Sachs Credit Partners L.P., as Term Loan Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"), and The Bank of New York, as Collateral Trustee (together with its successors in such capacity, the "Collateral Trustee")
RECITALS
WHEREAS, the Company, the Canadian Guarantors, the Credit Agreement Agent, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, the Term Loan Administrative Agent and the Collateral Trustee have entered into the Collateral Trust Agreement, dated as of July 16, 2003 (as amended and as may be further amended from time to time, the "Collateral Trust Agreement");
WHEREAS, the Company, the Canadian Guarantors and the Collateral Trustee now wish to amend the Collateral Trust Agreement in certain respects, as hereinafter provided.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including in its preamble and recitals, shall have the respective meanings assigned to such terms in the Collateral Trust Agreement.
2. Amendment to Section 1.1 (Defined Terms). Section 1.1 of the Collateral Trust Agreement is hereby amended by deleting the word "and" before the number "(7)" in the definition of "Pledged Power Project"; by deleting the period at the end of the number "(7)" and by adding at the end of such definition the clause "; and (8) from and after November 18, 2003, the Fremont Energy Center in Fremont, Ohio."
3. Representations and Warranties. The Company and each Guarantor hereby represents and warrants to the Collateral Trustee that (a) this Amendment has been duly
authorized, executed and delivered by the Company or Guarantor, as applicable, and constitutes its valid and legally binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and
(b) the execution and delivery of this Amendment (i) does not require any consent, approval, authorization or order of, or filing with, any governmental agency or body or any court, except such as have been obtained or made and are in full force and effect as of the date hereof and (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or Guarantor, as applicable, or any order of any governmental agency or body, or breach or conflict with any material agreement to which the Company or Guarantor, as applicable, is a party or by which the Company or Guarantor, as applicable, is bound.
4. Effectiveness. This Amendment shall become effective upon fulfillment of the following conditions precedent: (a) each of the Company, the Canadian Guarantors and the Collateral Trustee shall have delivered a duly executed counterpart of this Amendment, and (b) the Collateral Trustee shall have received an Officer's Certificate and an Opinion of Company Counsel, dated the date hereof, in accordance with Section 7.1 of the Collateral Trust Agreement.
5. Continuing Effect of the Collateral Trust Agreement. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Collateral Trustee, the Company or the Canadian Guarantors under the Collateral Trust Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Collateral Trust Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Company or the Canadian Guarantors to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Collateral Trust Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Collateral Trust Agreement specifically referred to herein. After this Amendment becomes effective in accordance with Section 4 hereof, any reference to the Collateral Trust Agreement shall mean the Collateral Trust Agreement as amended and modified hereby.
6. Governing Law. This Amendment and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles.
7. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
8. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written.
COMPANY:
CALPINE CORPORATION
By: ROBERT D. KELLY

Name: Robert D. Kelly Title: Executive Vice President and Chief Financial Officer
CANADIAN GUARANTORS:
The undersigned Canadian Guarantors hereby consent and agree to the foregoing Amendment and agree that their Guarantee as set forth in the Guarantee and Collateral Agreement, dated as of July 16, 2003, by the Company and the Canadian Guarantors in favor of the Collateral Trustee, remains in full force and effect:
QUINTANA MINERALS (USA), INC.
By: ROBERT D. KELLY
 Name: Robert D. Kelly
Title:
JOQ CANADA, INC.
By: ROBERT D. KELLY
 Name: Robert D. Kelly
Title:
QUINTANA CANADA HOLDINGS LLC
By: ROBERT D. KELLY
 Name: Robert D. Kelly
Title:
COLLATERAL TRUSTEE:
THE BANK OF NEW YORK,
as Collateral Trustee
By: MICHAEL PITFICK

Name: Michael Pitfick Title: Assistant Vice President
 
EXHIBIT 10.1.25
EXECUTION COPY

CALPINE CORPORATION
DESIGNATED ASSET SALE PROCEEDS ACCOUNT CONTROL AGREEMENT
Dated as of July 16, 2003

TABLE OF CONTENTS

                                                                                                                      PAGE
                                                                                                                      ----
                                                        ARTICLE I
                                                       DEFINITIONS

SECTION 1.01.         Definitions...............................................................................        2

SECTION 1.02.         Rules of Interpretation...................................................................        3

                                                       ARTICLE II
                                          DESIGNATED ASSET SALE PROCEEDS ACCOUNT

SECTION 2.01.         Designated Asset Sale Proceeds Account....................................................        3

SECTION 2.02.         Permitted Investments.....................................................................        6

SECTION 2.03.         Monies Received by the Company............................................................        7

SECTION 2.04.         Books of Designated Asset Sale Proceeds Account; Statements...............................        7

                                                      ARTICLE III
                               SECURITY AND RELATED PROVISIONS; SECURITIES INTERMEDIARY

SECTION 3.01.         Securities Designated Asset Sale Proceeds Account.........................................        8

SECTION 3.02.         Certain Rights and Powers in Respect of Designated Asset Sale Proceeds Account and Funds..        9

SECTION 3.03.         Security Interest.........................................................................       10

SECTION 3.04.         Duties and Certain Rights of Depositary Agent.............................................       12

SECTION 3.05.         Remedies..................................................................................       17

                                                       ARTICLE IV
                                                 TERMINATION OF AGREEMENT

SECTION 4.01.         Rights and Obligations of Collateral Trustee and Depositary Agent.........................       18

SECTION 4.02.         Secured Obligations.......................................................................       18

                                                         ARTICLE V
                                                       MISCELLANEOUS

SECTION 5.01.         Notices...................................................................................       19	

SECTION 5.02.         Benefit of Agreement......................................................................       19

SECTION 5.03.         No Waiver; Remedies Cumulative............................................................       20

SECTION 5.04.         Severability..............................................................................       20

SECTION 5.05.         Amendments................................................................................       20

SECTION 5.06.         Headings..................................................................................       20

SECTION 5.07.         Governing Law.............................................................................       20

SECTION 5.08.         CONSENT TO JURISDICTION...................................................................       20

SECTION 5.09.         WAIVER OF JURY TRIAL......................................................................       21

SECTION 5.10.         Successors and Assigns....................................................................       22

SECTION 5.11.         Entire Agreement..........................................................................       22

SECTION 5.12.         Survival of Agreements....................................................................       22

SECTION 5.13.         Further Information.......................................................................       22

SECTION 5.14.         Additional Depositary Agent Provisions....................................................       22

SECTION 5.15.         Counterparts..............................................................................       23

SECTION 5.16.         Effectiveness.............................................................................       23

SECTION 5.17.         Collateral Trustee's Obligations..........................................................       23	

EXHIBIT A: Remittance Instruction Form
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This DESIGNATED ASSET SALE PROCEEDS ACCOUNT CONTROL AGREEMENT, dated as of July 16, 2003 (this "Agreement"), is entered into by and among CALPINE CORPORATION, a Delaware corporation (the "Company"), Union Bank of California, N.A., as the bank and the securities intermediary (together with its permitted successors in such capacity, the "Depositary Agent"), and THE BANK OF NEW YORK, as Collateral Trustee (together with its successors in such capacity, the "Collateral Trustee").
RECITALS:
WHEREAS, Calpine Corporation (the "Company") intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder;
WHEREAS, the Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent");
WHEREAS, the Company and certain of its Subsidiaries have entered into a Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among, inter alia, the Company, certain Subsidiaries and the Collateral Trustee which sets forth the terms on which the Company and such Subsidiaries have appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute the Security Documents, including this Agreement, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof;
WHEREAS, it is a condition precedent to the obligation of the lenders to make their respective extensions of credit to the Company under each of the Credit Agreement and the Term Loan Agreement, and condition precedent to the obligation of the purchasers to purchase
each of the 2007 Notes, the 2010 Notes and the 2013 Notes, that the Company shall have executed and delivered this Agreement; and
WHEREAS, The Depositary Agent has agreed to act as depositary agent and, with respect to any securities entitlements held by it pursuant to this Agreement, as securities intermediary pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. Capitalized terms used in this Agreement that are defined in the Collateral Trust Agreement and not otherwise defined herein shall have the meanings set forth in the Collateral Trust Agreement. All capitalized terms used in this Agreement that are defined in Article 9 of the UCC, as in effect on the date of this Agreement in the State of New York, and not otherwise defined herein shall have the meanings therein set forth. In addition, the following term when used in this Agreement shall have the following meaning:
"Cash Equivalents" means:
(1) the lawful currency of any country where the Company owns or operates a Facility;
(2) securities issued or directly and fully guaranteed or insured by the United States government or any state thereof (or any agency or instrumentality thereof), by the Canadian government (or any agency or instrumentality thereof), or by the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch or successor rating agency rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
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(5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P and maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition.
"Designated Collateral" means Designated Assets other than Canadian Gas Assets.
"Secured Parity Lien Parties" means any Person who is holding a Parity Lien Obligation (including any Parity Debt Representative), at any time.
"Secured Parties" means any Person who is holding a Secured Obligation (including any Secured Debt Representative), at any time.
"Secured Priority Lien Parties" means any Person who is holding a Priority Lien Obligation (including any Priority Lien Agent), at any time.
SECTION 1.02 Rules of Interpretation. The rules of interpretation or construction set forth in Section 1.2 of the Collateral Trust Agreement shall apply with like effect to this Agreement.
ARTICLE II
DESIGNATED ASSET SALE PROCEEDS ACCOUNT
SECTION 2.01 Designated Asset Sale Proceeds Account.
(a) Establishment of Designated Asset Sale Proceeds Account. The Company hereby directs the Depositary Agent to establish and maintain an account in the name of the Company (as the entitlement holder) entitled "Designated Asset Sale Proceeds Blocked Account Subject to the Security Interest of The Bank of New York, as Collateral Trustee" and numbered 6711713800 (the "Designated Asset Sale Proceeds Account"). The Designated Asset Sales Proceeds Account shall at all times be under the sole and exclusive dominion and control of the Collateral Trustee, subject to the terms and provisions of this Agreement.
(b) Deposits of Net Sale Consideration. The Collateral Trustee and the Company shall promptly deposit or cause to be deposited into the Designated Asset Sale Proceeds Account all Net Proceeds (including all amounts and proceeds (including instruments) received by the Company or the Collateral Trustee (as loss payee or additional insured) under any insurance policy maintained by the Company or any other Person in respect of the Designated Collateral (the "Insurance Proceeds") or any amounts and proceeds (including instruments) received by the Company by reason of any compulsory transfer or taking by condemnation, eminent domain or exercise of a similar power, or transfer under threat of such compulsory transfer or taking, of any part of the Designated Collateral, other than an immaterial portion thereof, by any agency, department, authority, commission, board, instrumentality or
3
political subdivision of the state in which such Designated Collateral is located, the United States or another governmental authority having jurisdiction which is not rescinded or revoked within 60 days after the date of such transfer or taking (the "Eminent Domain Proceeds" and, together with the Insurance Proceeds, the "Loss Proceeds")).
(c) Withdrawals.
(i) General Provisions Regarding Release of Net Proceeds. Subject to the terms and provisions of this Agreement, deposits of Net Proceeds in the Designated Asset Sales Proceeds Account, and income therefrom, may be withdrawn only upon order of the Collateral Trustee. Upon the Collateral Trustee's receipt of an Officer's Certificate from the Company stating:
(A) that a specified amount of the funds on deposit in the Designated Asset Sale Proceeds Account (x) will be used, promptly upon withdrawal from the Designated Asset Sale Proceeds Account, to (1) purchase other assets that would constitute Designated Assets or (2) repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt and, if such Priority Lien Debt is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto, in each case in accordance with the applicable provisions of each Secured Debt Document or (y) to the extent that any such funds are not applied as provided in clause (x), have been offered to the holders of Parity Lien Obligations in compliance with the applicable provisions of each Parity Lien Debt Document in Asset Sale Offers that were not accepted and have been released from the Collateral Trustee's Liens and are required to be released to the Company pursuant to such applicable provisions; and
(B) no Secured Debt Default has occurred and is continuing;
then, if the conditions set forth in Section 4.1(a) and (b) of the Collateral Trust Agreement are satisfied, the Collateral Trustee promptly shall instruct the Depositary Agent in writing using the form attached hereto as Exhibit A, to remit such amount to the Company as directed in any remittance instruction delivered to the Collateral Trustee by the Company. The Depositary Agent shall comply with such instructions.
(ii) General Provisions Regarding a Major Loss. Provided that the conditions set forth in clauses (A) or (B) below have been satisfied or have been waived by the Collateral Trustee, if there shall occur any damage, destruction, condemnation or other similar taking of Designated Collateral or other event with respect to which Loss Proceeds for any single loss in excess of $25,000,000 are payable (a "Major Loss") such Loss Proceeds shall be released by the Collateral Trustee to the Company in accordance with clauses (A) and (B) below.
(A) Release with no Provision for Repair, Replacement or Restoration. If there shall occur any Major Loss and upon the Collateral Trustee's
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receipt of an Officer's Certificate from the Company (in addition to such other statements and certifications required pursuant to Section 2.01(c)(i)):
(1) certifying that the Company has determined in its good faith judgment not to repair, restore or replace the property subject to a Major Loss; and
(2) stating that no Secured Debt Default has occurred and is continuing,
then, such Loss Proceeds shall be released by the Collateral Trustee to the Company in accordance with Section 2.01(c)(i).
(B) Repair and Restoration Procedures. In regard to a Major Loss, the Collateral Trustee shall instruct the Depositary Agent, in writing using the form attached hereto as Exhibit A, to remit to the Company, from the Designated Asset Sales Proceeds Account, such amounts as directed in any remittance instruction delivered to the Collateral Trustee by the Company, and, upon such remittance, the Collateral Trustee's Liens thereon shall be released, for application to such Major Loss, only in accordance with the following requirements, and the Depository Agent shall comply with such instructions:
(1) the Company will cause any restoration or replacement to be commenced and completed promptly and diligently;
(2) disbursements of Loss Proceeds for application toward repair, restoration or replacement shall be instructed by the Collateral Trustee upon the Company's written request and the presentation to the Collateral Trustee of an Officer's Certificate:
(I) describing in reasonable detail the nature of the proposed repair, restoration or replacement to be effected with such release;
(II) if the entity or entities that are required to pay Loss Proceeds to the Company are not collectively required to pay for all costs and expenses associated with completing any repair, restoration or replacement, without limitation, then providing a project budget for the proposed repair, restoration or replacement (which shall include a 10% contingency allowance) prepared in good faith and upon reasonable assumptions by the Company; and
(III) stating (A) the reasonably estimated overall cost of the proposed project, (B) the specific amount requested to be released from the Designated Asset Sales Proceeds Account and
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(C) that such amount promptly will be applied to pay the costs associated with such proposed project and, if clause (II) above is applicable, in accordance with the budget referred to in clause (II) above;
(IV) stating that no Secured Debt Default has occurred and is continuing.
(iii) General Provisions Regarding a Minor Loss. If there shall occur any damage, destruction, condemnation or other similar taking of Collateral or other event with respect to which Loss Proceeds for any single loss less than $25,000,000 are payable (a "Minor Loss"), such Loss Proceeds, and related income, shall be released by the Collateral Trustee to the Company in accordance with Section 2.01(c)(i).
(iv) Collateral Trustee Releases. The Collateral Trustee agrees that it shall execute (with such acknowledgements and/or notarizations as are required) and deliver such releases required under this Section 2.01(c) to the Company on or before the fifth business day after receiving all documents required by this Section 2.01(c) for such a release.
SECTION 2.02. Permitted Investments.
(a) [Reserved]
(b) Application of Permitted Investments. So long as no Actionable Default has occurred and is continuing, the Depositary Agent shall, if and to the extent that the Company directs, make such investments in Cash Equivalents at the direction of the Company; provided that in the absence of any such direction by the Company all amounts in the Designated Asset Sale Proceeds Account shall be invested in those Cash Equivalents set forth in clause (6) of the definition thereof. Cash Equivalents, if any, purchased upon the direction of the Company under the provisions of this Agreement shall be deemed at all times to be a part of the Designated Asset Sale Proceeds Account from which funds were withdrawn in order to acquire such Cash Equivalents and shall be deemed to constitute funds on deposit in and credited to the Designated Asset Sale Proceeds Account, and all such Cash Equivalents and the income or interest earned and gains realized in excess of losses suffered by the Designated Asset Sale Proceeds Account due to the investment of funds deposited therein shall be credited and retained in the Designated Asset Sale Proceeds Account, except as otherwise expressly provided by the terms hereof.
(c) Earnings. All earnings, if any, on funds in the Designated Asset Sale Proceeds Account maintained hereunder shall be credited to the Company for tax reporting purposes. The Depositary Agent shall provide to the Company a statement with respect to all interest earned on the Designated Asset Sale Proceeds Account as of the close of each calendar year for which income is earned on the Designated Asset Sale Proceeds Account. The Company shall provide the Depositary Agent with its taxpayer identification number, documented, to the extent necessary, by an appropriate executed Form W-9, upon execution of this Agreement. This form shall, to the extent necessary, be renewed as required by the Internal Revenue Service and
6
provided to the Depositary Agent. The Depositary Agent shall be entitled to rely on an opinion of legal counsel (which may be counsel to the Company) in connection with the reporting of any earnings with respect hereto.
(d) Liquidation of Investments for Distributions. The Collateral Trustee is hereby authorized (so long as no Actionable Default has occurred and is continuing, upon the written direction of the Company) to direct the Depositary Agent, in writing using the form attached hereto as Exhibit A, to liquidate or direct the liquidation of any Cash Equivalents (without regard to maturity) in order to make or cause to be made any application required by any
Section of this Article 2. In furtherance, and not in limitation, of any other indemnity or limitation of liability with respect to the Collateral Trustee contained herein or in any other Secured Debt Document, the Collateral Trustee and the Depositary Agent shall in no way be liable for any losses suffered by the Company, including losses due to early liquidation or market risk, which are a result of the Collateral Trustee's exercise of its authority under this provision.
(e) Value of Permitted Investments. Cash Equivalents, if any, credited to the Designated Asset Sale Proceeds Account shall be valued at their current market value.
SECTION 2.03. Monies Received by the Company. In the event that the Company receives any cash or Cash Equivalents constituting Net Proceeds (including any Loss Proceeds) or other amounts required by the terms hereof to be deposited into the Designated Asset Sale Proceeds Account, the Company shall hold the same in precisely the form received in trust for and on behalf of the Secured Parties, segregated from other funds of the Company, and without any notice or demand whatsoever, shall promptly deliver the same to the Depositary Agent for application in accordance with the terms of this Agreement. No balance in, or financial asset or other asset credited to, the Designated Asset Sale Proceeds Account pursuant to the terms hereof and maintained hereunder shall be disbursed or transferred by the Depositary Agent, except in accordance with the provisions hereof.
SECTION 2.04. Books of Designated Asset Sale Proceeds Account; Statements. The Depositary Agent shall maintain books of account on a cash basis and record therein all deposits into and transfers to and from the Designated Asset Sale Proceeds Account and all investment transactions effected by the Depositary Agent pursuant to the terms hereof, and any such recordation shall constitute prima facie evidence of the information recorded. Not later than the tenth Business Day of each month or as soon as practicable thereof, but in no event later than the twentieth calendar day of each month, commencing with the first month to occur after the earliest of the receipt of Net Proceeds into the Designated Asset Sale Proceeds Account in accordance with the terms hereof, the Depositary Agent shall deliver to the Company a statement setting forth the transactions in the Designated Asset Sale Proceeds Account during the preceding month (including deposits, withdrawals and transfers from and to the Designated Asset Sale Proceeds Account) and specifying the Net Proceeds, Cash Equivalents and other amounts held in or credited to the Designated Asset Sale Proceeds Account at the close of business on the last Business Day of the preceding month. In addition, the Depositary Agent shall promptly respond (during normal business hours) to requests by the Company for
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information regarding deposits, investments and transfers into, in respect of the Designated Asset Sale Proceeds Account.
ARTICLE III
SECURITY AND RELATED PROVISIONS; SECURITIES INTERMEDIARY
SECTION 3.01. Securities Designated Asset Sale Proceeds Account.
(a) Acknowledgement. The Depositary Agent hereby agrees and confirms that the Depositary Agent has established the Designated Asset Sale Proceeds Account as set forth and defined in this Agreement.
(b) Agreement. Each of the parties hereto agrees that:
(i) the Designated Asset Sale Proceeds Account will be maintained, to the extent that "financial assets" (within the meaning of
Section 8-102(a)(9) of the UCC, and as so defined the term financial asset is so used throughout this Agreement) are deposited therein or credited thereto, as a "securities account" (within the meaning of Section 8-501 of the UCC), and, to the extent that credit balances not constituting financial assets are credited thereto, as a "deposit account" (within the meaning of Section 9-102(a)(29) of the UCC);
(ii) the Company is an "entitlement holder" (within the meaning of Section 8-102(a)(7) of the UCC) in respect of any "financial assets" credited to the Designated Asset Sale Proceeds Account and the "customer" (within the meaning of Section 9-104 of the UCC) to the extent that credit balances not constituting financial assets are credited thereto;
(iii) all Cash Equivalents and all other property (including a security, security entitlement, investment property, instrument or obligation, share, participation, interest, cash or other property whatsoever) delivered to the Depositary Agent will be promptly credited by the Depositary Agent to the Designated Asset Sale Proceeds Account by an appropriate entry in its records in accordance with this Agreement;
(iv) all financial assets and other assets in registered form or payable to or to order and credited to the Designated Asset Sale Proceeds Account shall be registered in the name of, payable to or to the order of, or specially endorsed to, the Depositary Agent or in blank, or credited to another securities account maintained in the name of the Depositary Agent, and in no case will any such financial asset or other asset be credited to the Designated Asset Sale Proceeds Account at any time, if, at such time, such asset is registered in the name of, payable to or to the order of, or endorsed to, the Collateral Trustee (in such capacity) or the Company, except to the extent the foregoing have been subsequently endorsed by the Collateral Trustee (in such capacity) or the Company to the Depositary Agent or in blank;
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(v) the Depositary Agent is acting as "securities intermediary" (within the meaning of Section 8-102(a)(14) of the UCC) with respect to the Designated Asset Sale Proceeds Account and financial assets deposited therein or credited thereto and as a "bank" (within the meaning of Section 9-304 of the UCC) with respect to the Designated Asset Sale Proceeds Account and credit balances not constituting financial assets credited thereto; and
(vi) the Depositary Agent shall not change the name or account number of the Designated Asset Sale Proceeds Account without the prior written consent of the Company and the Collateral Trustee, which consents shall not be unreasonably withheld.
SECTION 3.02. Certain Rights and Powers in Respect of Designated Asset Sale Proceeds Account and Funds.
(a) Rights to Designated Asset Sale Proceeds Account. The Company shall not make, attempt to make or consent to the making of any withdrawal or transfer from the Designated Asset Sale Proceeds Account except in strict adherence to the terms and conditions of this Agreement. The Company shall not have any rights or powers with respect to the remittance of amounts credited to, the disbursement of credited amounts out of, or the investment of credited amounts in, the Designated Asset Sale Proceeds Account, except to have amounts credited thereto remitted, applied, disbursed or invested in accordance with this Agreement; provided, however, that the parties hereto acknowledge and agree that the foregoing provisions of this Section 3.02(a) shall not be deemed to divest the Company of its interest as an "entitlement holder" under the UCC, as provided in this Agreement.
(b) Certain Powers of the Collateral Trustee and the Depositary Agent. The Collateral Trustee and, where appropriate, the Depositary Agent will have the right, but not the obligation, to (i) refuse any item for credit to the Designated Asset Sale Proceeds Account except as required by the terms of this Agreement and (ii) refuse to honor any request for transfer on the Designated Asset Sale Proceeds Account which is not consistent with this Agreement. If the Company fails to perform any agreement contained herein and such failure to perform is continuing for a period of 30 days, the Collateral Trustee may (but shall not be obligated to) itself perform, or cause the performance of, such agreement, and the expenses of the Collateral Trustee incurred in connection therewith shall be payable by the Company upon written demand. The Company hereby irrevocably appoints the Collateral Trustee as the Company's attorney-in-fact, with full authority in the place and stead of the Company, and in the name of the Company or otherwise from time to time, if an Actionable Default shall have occurred and be continuing, to take any action and to execute any instrument which is necessary or advisable to accomplish the purposes of this Agreement, including:
(i) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Designated Asset Sale Proceeds Account or the proceeds of financial assets or other assets held therein or credited thereto;
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(ii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (i) above;
(iii) to file any claims or take any action or institute any proceedings which is necessary or desirable for the collection of any of the Designated Asset Sale Proceeds Account or the proceeds of financial assets or other assets held therein or credited thereto or otherwise to enforce the rights of the Collateral Trustee with respect to the Designated Asset Sale Proceeds Account or the proceeds of financial assets or other assets held therein or credited thereto, provided that, with respect to this clause (iii), such rights shall be exercised in accordance with
Section 3.05; and
(iv) to perform the affirmative obligations of the Company hereunder if, and to the extent that, the Company fails to perform such obligations and such failure to perform is continuing for a period of 30 days.
The Company hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section 3.02(b) is irrevocable and coupled with an interest. The powers conferred on the Collateral Trustee hereunder are solely to protect its interest (on behalf of the applicable Secured Parties) in the Designated Asset Sale Proceeds Account and the proceeds of financial assets and other assets held therein or credited thereto and shall not impose any duty on the Collateral Trustee to exercise any such powers. Except for the reasonable care of the Designated Asset Sale Proceeds Account in its possession or under its control (as the case may be) and the accounting for moneys actually received by it hereunder, neither the Depositary Agent nor the Collateral Trustee shall have any duty as to the Designated Asset Sale Proceeds Account or the proceeds of financial assets or other assets held therein or credited thereto, or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to the Designated Asset Sale Proceeds Account or proceeds. Each of the Depositary Agent and the Collateral Trustee is required to exercise reasonable care in the custody and preservation of the Designated Asset Sale Proceeds Account and the financial assets and other assets held therein or credited thereto in its possession or under its control (as the case may be); provided, however, that the Collateral Trustee in any event shall be deemed to have exercised reasonable care in the custody and preservation of the Designated Asset Sale Proceeds Account if it takes such action for that purpose as the Company reasonably requests in writing at times other than upon the occurrence and during the continuance of any Actionable Default.
SECTION 3.03. Security Interest.
(a) Grant. To secure (i) the timely payment in full in cash and performance in full of the Secured Priority Lien Obligations of the Company, the Company does hereby assign, grant, hypothecate and pledge to, and grant a first priority security interest in favor of the Collateral Trustee, on behalf of and for the sole and exclusive benefit of the Secured Priority Lien Parties and (ii) the timely payment in full in cash and performance in full of the Secured Parity Lien Obligations of the Company, the Company does hereby assign, grant, hypothecate and pledge to, and grant a second priority security interest in favor of the Collateral Trustee, on behalf of and for the sole and exclusive benefit of the Secured Parity Lien Parties, in the case of
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each of clauses (i) and (ii) on all the estate, right, title, interest and security entitlements of the Company, whether now owned or hereafter acquired, in the Designated Asset Sale Proceeds Account and in all cash, cash equivalents, instruments, investments, other securities, financial assets and other assets held therein or credited thereto and all proceeds thereof, including all rights of the Company to receive moneys due in respect of such Designated Asset Sale Proceeds Account, all claims with respect to such Designated Asset Sale Proceeds Account, all income or gain earned in respect of the financial assets and other assets held in or credited to such Designated Asset Sale Proceeds Account, and all proceeds receivable or received when any financial asset or other asset held in or credited to an Designated Asset Sale Proceeds Account is collected, exchanged or otherwise disposed of, whether voluntarily or involuntarily.
This Agreement and the security interests and Liens granted and created herein secures the payment and performance of all Secured Obligations of the Company now or hereafter, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, fees, premiums, penalties, indemnifications, expenses or otherwise, and including all amounts that constitute part of the Secured Obligations and would be owed by the Company but for the fact that they are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the foregoing, it is the intent of the parties that (i) the Priority Lien Obligations are superior in right of payment to all the Parity Lien Obligations, in the manner and to the extent as set forth in Section 3.4 of the Collateral Trust Agreement and (ii) this Agreement creates two separate and distinct Liens:
the first Lien securing the payment and performance of the Priority Lien Obligations and the second Lien securing the payment and performance of the Parity Lien Obligations.
(b) Acknowledgment. The Depositary Agent hereby acknowledges the first priority security interest in, and the pledge by the Company to the Collateral Trustee for the benefit of, the Secured Parties of all of the Company's assets held in or credited to the Designated Asset Sale Proceeds Account and all proceeds thereof, and will so indicate on the records maintained by the Depositary Agent with respect to the Designated Asset Sale Proceeds Account. The Depositary Agent agrees to hold all such assets for the purposes of, and on the terms set forth in, this Agreement.
(c) Other Liens; Adverse Claim.
(i) The Company represents and warrants that:
(A) it has not assigned any of its rights under the Designated Asset Sale Proceeds Account;
(B) it has not executed and is not aware of any effective financing statement, security agreement, control agreement or other instrument similar in effect covering all or any part of the Designated Asset Sale Proceeds Account except in favor of the Collateral Trustee; and
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(C) it has full power and authority to grant a security interest in and assign its right, title and interest in the Designated Asset Sale Proceeds Account and all financial assets and other assets held therein or credited thereto and all proceeds thereof hereunder.
(ii) The Company represents, warrants and covenants that it has not granted, and shall not grant, to any Person other than the Collateral Trustee any interest in Designated Asset Sale Proceeds Account and that it has kept, and shall keep, the Designated Asset Sale Proceeds Account free from all Liens other than Permitted Prior Liens.
(iii) The Depositary Agent represents and warrants that it has no knowledge (without having conducted an independent investigation) of any Lien on the Designated Asset Sale Proceeds Account other than the claims and interest of the parties hereto as provided herein. In the event that the Depositary Agent has or subsequently obtains by agreement, operation of law or otherwise a security interest in the Designated Asset Sale Proceeds Account or any financial asset or other asset credited thereto, the Depositary Agent hereby agrees that such security interest shall be subordinate to the security interest of the Collateral Trustee for the benefit of the Secured Parties.
(iv) The Depositary Agent represents and warrants that it has no notice (without having conducted an independent investigation) of any adverse claim to the financial assets or other assets deposited in or credited to the Designated Asset Sale Proceeds Account or to security entitlements with respect thereto.
(v) The financial assets and other assets credited to the Designated Asset Sale Proceeds Account shall not be subject to deduction, set-off, banker's lien, or any other right in favor of any Person other than the Collateral Trustee, except as set forth in clause (vi) below.
(vi) All usual and customary fees, costs or expenses of the Depositary Agent in connection with this Agreement and any transactions carried out hereunder shall be paid by the Company. In the event that any such fees, costs or expenses shall remain unpaid in excess of 30 days from their applicable due date, and after sufficient notice has been given to the Company, the Depositary Agent may deduct such unpaid amounts from the Designated Asset Sale Proceeds Account; provided that in such event the Company shall be obligated to promptly pay an amount of cash equal to such deducted amounts back into the Designated Asset Sale Proceeds Account.
SECTION 3.04. Duties and Certain Rights of Depositary Agent.
(a) General. The duties of the Depositary Agent shall be determined solely by the express provisions of this Agreement and by applicable law and no duties, implied covenants or obligations shall be read into this Agreement against the Depositary Agent as depositary agent, securities intermediary and bank.
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(b) Acceptance of Appointment. The Depositary Agent hereby agrees to act as depositary agent and securities intermediary with respect to the Designated Asset Sale Proceeds Account and pursuant to this Agreement. The other parties hereto hereby acknowledge that the Depositary Agent shall act as depositary agent, securities intermediary and bank with respect to the Designated Asset Sale Proceeds Account and pursuant to this Agreement.
(c) Financial Assets Election. The Depositary Agent hereby agrees that each item of property (including a security, security entitlement, investment property, instrument or obligation, share or participation) credited to the Designated Asset Sale Proceeds Account shall be treated as a financial asset under Article 8 of the UCC other than cash from time to time and at any time deposited in the Designated Asset Sale Proceeds Account, and interest accrued or paid thereon.
(d) Negative Pledge. Subject to the terms of this Agreement, the Depositary Agent hereby agrees that it shall not grant any Lien in the financial assets and other assets that it is obligated to maintain under this Agreement.
(e) Entitlement Orders, Instructions. If at any time that an Actionable Default shall have occurred and be continuing the Depositary Agent shall receive any entitlement order, instruction or any other order from the Collateral Trustee directing the transfer or redemption of any financial asset or other asset relating to the Designated Asset Sale Proceeds Account, or directing the disposition of any funds in the Designated Asset Sale Proceeds Account, the Depositary Agent shall comply with such entitlement order, instruction or other order without further consent by the Company or any other Person. The parties hereto agree that until the Depositary Agent's obligations under this Agreement shall terminate in accordance with the terms hereof, the Collateral Trustee shall have control of each of the Company's security entitlements with respect to the financial assets and other assets credited to the Designated Asset Sale Proceeds Account; provided, however, that the Company, as the entitlement holder with respect to the financial assets credited to the Designated Asset Sale Proceeds Account and the Person for whom the Designated Asset Sale Proceeds Account are maintained, is entitled, subject to Section 2.02 and the other provisions of this Agreement, to make substitutions for the security entitlements with respect to the financial assets credited to the Designated Asset Sale Proceeds Account; provided, further, that until an Actionable Default shall have occurred and be continuing, the Collateral Trustee shall so act upon the written direction of the Company. The Depositary Agent hereby represents that it has not entered into, and agrees that, until the termination of this Agreement and the other Secured Debt Documents in accordance their terms, it will not enter into, any agreement with any other Person in respect such Designated Asset Sale Proceeds Account pursuant to which it would agree to comply with entitlement orders made by such Person.
(f) Degree of Care. The Depositary Agent shall exercise due care in accordance with reasonable commercial standards in administering the Designated Asset Sale Proceeds Account, accounting for assets credited to the Designated Asset Sale Proceeds Account and performing its duties as a bank with respect to the Designated Asset Sale Proceeds Account, and to the extent that any "investment property" is on deposit, accounting for financial assets and
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other assets credited to the Designated Asset Sale Proceeds Account and performing its duties as securities intermediary with respect to the Designated Asset Sale Proceeds Account and, in each case, such assets deposited therein or credited thereto and the credit balances credited thereto under this Agreement.
(g) Action Upon Notices; Exercise of Judgment. The Depositary Agent shall be permitted to conclusively rely and act upon any notice, entitlement order, instruction, request, waiver, consent, receipt or other paper or document whether in its original or facsimile form reasonably believed by the Depositary Agent to be signed by the Collateral Trustee, the Company or any other authorized Person. The Depositary Agent shall not be liable for any error of judgment or for any act done or step taken or omitted by it in good faith or for any mistake of fact or law or for anything which the Depositary Agent may do or refrain from doing in connection herewith, except its own gross negligence or willful misconduct. The Depositary Agent shall have duties only to the Collateral Trustee (on behalf of the Secured Parties).
(h) Indemnification and Liability. In consideration of the appointment of Depositary Agent, the Company agrees:
(i) to fully indemnify and hold the Depositary Agent and each Affiliate, officer, director, shareholder, employee and agent of the Depositary Agent (each, an "Indemnified Person") harmless from and against any and all claim, loss, liability, damage, cost or expense (including reasonable legal fees and expenses) incurred by the Indemnified Person by reason of or resulting from this Agreement (including its having accepted such appointment or by reason of its carrying out of any of the terms of this Agreement); and
(ii) to reimburse each Indemnified Person for all its expenses, including reasonable fees and expenses of counsel and court costs incurred by reason of any position or action taken by the Indemnified Person pursuant to this Agreement or in connection with any action brought to interpret or enforce the provisions of this Agreement or any part thereof;
except, with respect to each of clauses (i) and (ii), to the extent that any such claim, loss, liability, damage, cost or expense is determined by a court of competent jurisdiction in a final non-appealable judgment to have been caused by the Indemnified Person's gross negligence or willful misconduct. The parties hereto hereby agree that no Indemnified Person shall be liable to such parties for any actions taken by any Indemnified Person pursuant to and in compliance with the terms hereof except in respect of any liability or expenses incurred by the Indemnified Person arising from its gross negligence or willful misconduct. Any Indemnified Person may consult with legal counsel of its selection in the event of any dispute or question as to the construction of this Agreement or the Indemnified Person's duties hereunder, and the Indemnified Person shall incur no liability and shall be fully protected in acting in accordance with the opinion and instructions of such counsel.
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(i) Court Orders. The Depositary Agent is hereby authorized, in its exclusive discretion, to obey and comply with all writs, orders, judgments or decrees issued by any court or administrative agency affecting the Designated Asset Sale Proceeds Account or any financial asset credited to the Designated Asset Sale Proceeds Account. The Depositary Agent shall not be liable to any of the parties hereto, their successors or assigns by reason of the Depositary Agent's compliance with such writs, orders, judgments or decrees, notwithstanding that such writ, order, judgment or decree may later be reversed, modified, set aside or vacated.
(j) Resignation and Termination.
(i) The Depositary Agent may at any time resign by giving notice to each other party to this Agreement, such resignation to be effective upon the appointment of a successor Depositary Agent as provided below. The Company may remove the Depositary Agent at any time by giving notice to each other party to this Agreement, such removal to be effective upon the appointment of a successor Depositary Agent as provided below.
(ii) In the event of any removal of the Depositary Agent, a successor Depositary Agent, which shall be a bank or trust company organized under the laws of the United States of America or any state thereof capable of acting as a "securities intermediary" (within the meaning of Section 8-102(a)(14) of the UCC) and a "bank" (within the meaning of Section 9-102(a)(8) of the UCC), having a capital and surplus of not less than $50,000,000, shall be appointed by the Company. If a successor Depositary Agent shall not have been appointed and accepted its appointment as Depositary Agent within 45 days after such notice of removal of the Depositary Agent, the Depositary Agent, the Collateral Trustee or the Company may apply to any court of competent jurisdiction at the expense of the Company to appoint a successor Depositary Agent to act until such time, if any, as a successor Depositary Agent shall have accepted its appointment as provided above. Any such successor Depositary Agent shall deliver to each party to this Agreement a written instrument accepting such appointment and thereupon:
(A) the Company or the Collateral Trustee (as directed by an Act of Secured Debtholders) shall deliver an entitlement order, instruction or any other order to the predecessor Depositary Agent directing it to transfer to the successor Depositary Agent all balances deposited in and all financial assets and other assets credited to, the Designated Asset Sale Proceeds Account;
(B) the successor Depositary Agent shall establish and maintain the Designated Asset Sale Proceeds Account and deposit in and credit to the Designated Asset Sale Proceeds Account all financial assets and other assets from the Designated Asset Sale Proceeds Account maintained by the predecessor Depositary Agent transferred by the predecessor Depositary Agent to the successor Depositary Agent; and
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(C) the successor Depositary Agent shall succeed to all the rights and duties of the Depositary Agent under this Agreement and under applicable law.
(iii) In the event of any resignation of the Depositary Agent, a successor Depositary Agent, which shall be a bank or trust company organized under the laws of the United States of America or of any state thereof capable of acting as a "securities intermediary" (within the meaning of Section 8-102(a)(14) of the UCC) and a "bank" (within the meaning of Section 9-102(a)(8) of the UCC) and having a capital and surplus of not less than $50,000,000, shall be appointed by the Company. Any such successor Depositary Agent shall deliver to each party to this Agreement a written instrument accepting such appointment and thereupon:
(A) the Company or the Collateral Trustee (as directed by an Act of Secured Debtholders) shall deliver an entitlement order, instruction or any other order to the predecessor Depositary Agent directing it to transfer to the Collateral Trustee all balances deposited in and all financial assets credited to, the Designated Asset Sale Proceeds Account;
(B) the successor Depositary Agent shall establish and maintain at its New York office the Designated Asset Sale Proceeds Account and deposit in and credit to the Designated Asset Sale Proceeds Account all financial assets and other assets from the Designated Asset Sale Proceeds Account maintained by the predecessor Depositary Agent transferred by the predecessor Depositary Agent to the successor Depositary Agent; and
(C) the successor Depositary Agent shall succeed to all the rights and duties of the Depositary Agent under this Agreement and under applicable law.
(iv) In the event that a successor Depositary Agent is not appointed after such notice of resignation of the Depositary Agent, the then current Depositary Agent shall fulfill its obligations hereunder until a successor Depositary Agent meeting the requirements of this Section 3.04 has accepted its appointment as Depositary Agent and the provisions of this
Section 3.04 have been satisfied.
In the event of the resignation or termination of the Depositary Agent, the Depositary Agent shall be entitled to its fees and expenses in accordance with the terms hereof up to the time such resignation becomes effective in accordance with this Section 3.04(j).
(k) General.
(i) No provision of this Agreement shall require the Depositary Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers (except to the extent resulting from the gross negligence or willful misconduct of
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the Depositary Agent) and unless it has been furnished with an indemnity reasonably satisfactory to it.
(ii) All written directions and instructions (which may be provided by facsimile transmission) by the Company or the Collateral Trustee to the Depository Agent pursuant to this Agreement shall be executed by an authorized signatory of the Company or the Collateral Trustee, as applicable.
(iii) The Depository Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, or any other evidence of indebtedness or other paper or document, but the Depositary Agent, in its discretion, may make further inquiry or investigation into such facts or matters as it may see fit.
(iv) The Depository Agent shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement.
(v) The Depositary Agent shall not be deemed to have notice of any Actionable Default unless a Responsible Officer of the Depositary Agent has actual knowledge thereof or unless written notice thereof is received by the Depositary Agent.
(vi) The Depositary Agent shall be under no obligation to notify the Collateral Trustee of any Actionable Default or any other event except for those events for which this Agreement specifically provides that such notice is required.
(vii) If any checks, drafts or other items deposited in the Designated Asset Sale Proceeds Account are returned or unpaid or otherwise dishonored, the Depositary Agent shall have the right to charge any and all such returned or dishonored items against the Designated Asset Sale Proceeds Account or to demand reimbursement therefor directly from the Company.
(viii) In no event shall the Depositary Agent be liable for losses or delays resulting from computer malfunction, interruption of communication facilities, labor difficulties, in each case, that are beyond the Depositary Agent's reasonable control or other causes beyond the Depositary Agent's reasonable control or for indirect, special or consequential damages.
SECTION 3.05. Remedies. If an Actionable Default shall have occurred and be continuing:
(i) the Collateral Trustee may exercise in respect of the Designated Asset Sale Proceeds Account, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under
17
the UCC at that time and consistent with the provisions of the other Secured Debt Documents, including the right to proceed to protect and enforce the rights vested in it by this Agreement, to sell, liquidate or otherwise dispose of the Designated Asset Sale Proceeds Account, and to cause the Designated Asset Sale Proceeds Account to be sold, liquidated or otherwise disposed of, in each case in such manner as the Collateral Trustee may elect; and
(ii) the proceeds of any financial assets and other assets credited to or held in the Designated Asset Sale Proceeds Account and all cash proceeds received by the Collateral Trustee in respect of any sale of, collection from or other realization upon all or any part of the Designated Asset Sale Proceeds Account shall be applied in accordance with the provisions of Section 3.4 of the Collateral Trust Agreement.
No right, power or remedy herein conferred upon or reserved to the Collateral Trustee is intended to be exclusive of any other right, power or remedy and every such right, power and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right, power and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder or otherwise shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Resort to any or all security now or hereafter held by the Collateral Trustee may be taken concurrently or successively and in one or several consolidated or independent judicial actions or lawfully taken nonjudicial proceedings, or both.
ARTICLE IV
TERMINATION OF AGREEMENT
SECTION 4.01. Rights and Obligations of Collateral Trustee and Depositary Agent. The rights and powers granted herein to the Collateral Trustee have been granted in order, among other things, to perfect its security interests in the Designated Asset Sale Proceeds Account, are powers coupled with an interest, and will neither be affected by the bankruptcy of the Company nor by the lapse of time. Except as otherwise provided herein, the obligations of the Depositary Agent hereunder shall continue in effect until the security interests of the Collateral Trustee in the Designated Asset Sale Proceeds Account have been terminated pursuant to the terms of this Agreement and the other Secured Debt Documents, and the Collateral Trustee has notified the Depositary Agent of such termination in writing.
SECTION 4.02. Secured Obligations. When each of the Secured Debt Documents has expired or has otherwise terminated, all Secured Obligations of the Company to the Secured Parties under each of the Secured Debt Documents have been paid in full and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt have been terminated, all right, title and interest of the Collateral Trustee in the Designated Asset Sale Proceeds Account shall be released in accordance with the Collateral Trust Agreement. At such time, the Collateral Trustee shall notify the Depositary Agent in writing using the form attached hereto as Exhibit A to, and upon such notification the Depositary Agent
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shall, pay any amounts (including Cash Equivalents) then remaining in the applicable Designated Asset Sale Proceeds Account to the Company. No termination of any interest of a Secured Party hereunder shall affect the rights of any other Secured Party hereunder.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Notices. Any communications, including notices and instructions, between the parties hereto or notices provided herein to be given may be given to the following addresses:

If to the Collateral Trustee:     The Bank of New York
                                  101 Barclay Street, Floor 8 West
                                  New York, NY 10286
                                  Attention: Corporate Trust
                                  Administration
                                  Fax: 212-815-5704

If to the Company:                Calpine Corporation
                                  50 West San Fernando Street
                                  San Jose, CA 95113
                                  Attention: Corporate Treasurer
                                  Fax: 408-995-0505

If to the Depositary Agent:       Union Bank of California, N.A.
                                  120 South San Pedro Street, Suite 400
                                  Los Angeles, CA
                                  Attention: Corporate Trust
                                  Administration
                                  Fax: 213-972-5694	

Each notice hereunder shall be in writing and may be personally served or sent by facsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of facsimile, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. Any party shall have the right to change its address for notice hereunder to any other location within the continental United States by giving of 30 days' notice to the other parties in the manner set forth hereinabove.
SECTION 5.02. Benefit of Agreement. Nothing in this Agreement, expressed or implied, shall give or be construed to give to any Person other than the parties hereto, the Secured Parties, any legal or equitable right, remedy or claim under this Agreement, or under any covenants and provisions of this Agreement, each such covenant and provision being for the sole benefit of the parties hereto and the Secured Parties.
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SECTION 5.03. No Waiver; Remedies Cumulative. No failure or delay on the part of the Collateral Trustee or the Depositary Agent in the exercise of any power, right or privilege hereunder or under any other Secured Debt Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to the Collateral Trustee and the Depositary Agent hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Secured Debt Documents. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
SECTION 5.04. Severability. In case any provision in or obligation hereunder shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 5.05. Amendments. This Agreement may not be amended, modified or supplemented, except in a writing signed by each of the parties hereto and in accordance with Section 7.1 of the Collateral Trust Agreement.
SECTION 5.06. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
SECTION 5.07. Governing Law. This Agreement, including all matters of construction, validity, performance and the creation, validity, enforcement or priority of the lien of, and security interests created by, this Agreement in or upon the Designated Asset Sale Proceeds Account shall be governed by the laws of the State of New York, without reference to conflicts of law (other than Section 5-1401 of the New York General Obligations Law), except as required by mandatory provisions of law and except to the extent that the validity or perfection of the lien and security interest hereunder, or remedies hereunder, in respect of the Designated Asset Sale Proceeds Account are governed by the laws of a jurisdiction other than the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, the jurisdiction of the Depositary Agent as securities intermediary (under Section 8-110(e) of the UCC) and as bank (under Section 9-304(b) of the UCC) with respect to the Designated Asset Sale Proceeds Account is the State of New York.
SECTION 5.08. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING HERETO OR ANY OTHER SECURED DEBT DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY
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HERETO, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE OBLIGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 5.01; (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE OBLIGOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES AGENTS AND SECURED PARTIES RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 5.09. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER TERM LOAN DOCUMENTS OR NOTE DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS CONTROL AGREEMENT OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER SECURED DEBT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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SECTION 5.10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, provided that (a) the Company may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Collateral Trustee (which consent may be withheld in its sole discretion) and (b) the Depositary Agent may only assign or otherwise transfer any of its rights or obligations hereunder in accordance with the terms of this Agreement.
SECTION 5.11. Entire Agreement. This Agreement and any agreement, document or instrument attached hereto or referred to herein among the parties hereto integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral negotiations and prior writings in respect of the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and any such agreement, document or instrument, the terms, conditions and provisions of this Agreement shall prevail. In the event of any conflict between this Agreement (or any portion hereof) and any other agreement now existing or hereafter entered into with respect to the Designated Asset Sale Proceeds Account, the terms of this Agreement shall prevail.
SECTION 5.12. Survival of Agreements. The provisions regarding the payment of expenses and indemnification obligations, including Section 3.04(h) and the provisions set forth in Sections 3.04(j) and 5.14, and in the event that the Depositary Agent resigns in accordance with Section 3.04(j)(iii) or 3.04(j)(iv), Article 2 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the expiration or termination of each of the Secured Debt Documents, the payment in full of all Secured Obligations of the Company to the Secured Parties under each of the Secured Debt Documents and the termination or expiration of all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt.
SECTION 5.13. Further Information. The Depositary Agent shall promptly provide the Collateral Trustee and the Company with any information reasonably requested by the Collateral Trustee or the Company concerning balances in the Designated Asset Sale Proceeds Account and payments from the Designated Asset Sale Proceeds Account.
SECTION 5.14. Additional Depositary Agent Provisions. The Depositary Agent may engage or be interested in any financial or other transactions with any party to this Agreement and may act on, or as depositary, trustee or agent for, any committee or body of holders of obligations of such Persons as freely as if it were not the Depositary Agent hereunder. The Depositary Agent shall act as an agent only and shall not be responsible or liable in any manner for soliciting any funds or for the sufficiency, correctness, genuineness or validity of any funds or securities deposited with or held by it, except in the case of its gross negligence or willful misconduct. The Depositary Agent shall not be liable for any error of judgment or for any act done or step taken or omitted except in the case of its gross negligence or willful misconduct. In the event of any dispute as to the construction or interpretation of any provision of this Agreement, the Depository Agent may consult with counsel of its own selection and the opinion
22
of such counsel shall be full and complete authorization and protection in respect of any action taken suffered or omitted by it hereunder in good faith and reliance thereon.
SECTION 5.15. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
SECTION 5.16. Effectiveness. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Company, the Depositary Agent and the Collateral Trustee of written notification of such execution and authorization of delivery thereof.
SECTION 5.17. Collateral Trustee's Obligations. Notwithstanding anything to the contrary contained in this Agreement, in acting under and by virtue of this Agreement, the Collateral Trustee shall be entitled to all of the rights, privileges and immunities provided to it under the Collateral Trust Agreement, and the performance by the Collateral Trustee of its obligations under this Agreement and the exercise of its rights hereunder is subject in all respects to the provisions of the Collateral Trust Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
IN WITNESS WHEREOF, the parties hereto, by their officers duly authorized, intending to be legally bound, have caused this Depositary Agreement to be duly executed and delivered as of the date first above written.
CALPINE CORPORATION

By:     /s/ ANN B. CURTIS
      --------------------------------------------
      Name: Ann B. Curtis
      Title: Executive Vice President, Secretary
      and Co-Chairman of the Board	

THE BANK OF NEW YORK, not in its individual capacity, but solely as the Collateral Trustee

By:     /s/ MICHAEL PITFICK
      --------------------------------------------
      Name: Michael Pitfick
      Title: Assistant Vice President	

UNION BANK OF CALIFORNIA, N.A.,
as Depositary Agent

By:     /s/ LORRAINE MCINTIRE
      --------------------------------------------
      Name: Lorraine McIntire
      Title: Vice President	

[Depositary Agreement Signature Page]
EXHIBIT A
DATE: _____________________
UNION BANK OF CALIFORNIA, N.A.
ADDRESS: 120 SOUTH SAN PEDRO STREET,
SUITE 400
 LOS ANGELES, CALIFORNIA
ATTENTION: CORPORATE TRUST DEPARTMENT
 PHONE: 213-972-5675
FAX: 213-972-5694
RE: DESIGNATED ASSET SALE PROCEEDS ACCOUNT
CONTROL AGREEMENT DATED JULY 16, 2003;
DESIGNATED ASSET SALE PROCEEDS ACCOUNT
LADIES AND GENTLEMEN:
REFERENCE IS MADE TO THE DESIGNATED ASSET SALE PROCEEDS ACCOUNT CONTROL AGREEMENT DATED JULY 16, 2003 (THE "AGREEMENT"; CAPITALIZED TERMS USED HEREIN SHALL HAVE THE MEANINGS ASSIGNED THERETO IN THE AGREEMENT) AMONG THE BANK OF NEW YORK (THE "COLLATERAL TRUSTEE"), UNION BANK OF CALIFORNIA, N.A. (THE "DEPOSITARY AGENT") AND CALPINE CORPORATION (THE "COMPANY"). THIS LETTER CONSTITUTES AN INSTRUCTION UNDER THE AGREEMENT.
You are hereby instructed and authorized to remit: Written $ Amount US _________

                                                   Numeric $ Amount    $________
VIA WIRE TRANSFER TO:       ACCOUNT #:      __________   ABA # _________________
                            ACCOUNT NAME:   ____________________________________
                            ATTENTION:      ____________________________________

FROM THE DESIGNATED ASSET SALES PROCEEDS                MAINTAINED AT UNION
ACCOUNT # 6711713800                        __________  BANK OF CALIFORNIA, N.A.	

THE UNDERSIGNED REPRESENTS AND WARRANTS TO THE DEPOSITARY AGENT THAT
THE UNDERSIGNED IS AN AUTHORIZED SIGNATORY OF COLLATERAL TRUSTEE.
COLLATERAL TRUSTEE
BY: __________________________________ NAME: __________________________________ TITLE: __________________________________
 
EXHIBIT 10.2.2.3
AMENDMENT NO. 2 UNDER
CREDIT AND GUARANTEE AGREEMENT
THIS AMENDMENT NO. 2 UNDER CREDIT AND GUARANTEE AGREEMENT (this "Amendment") is made as of the 13th day of January, 2004, by and among CALPINE CONSTRUCTION FINANCE COMPANY, L.P., a Delaware limited partnership (the "Company"), CALPINE HERMISTON, LLC, a Delaware limited liability company ("Calpine LLC"), CPN HERMISTON, LLC, a Delaware limited liability company ("CPN LLC"), and HERMISTON POWER PARTNERSHIP, an Oregon general partnership (the "Hermiston Partnership" and, together with Calpine LLC and CPN LLC, the "Guarantors"), the lenders party hereto (the "Lenders"), and GOLDMAN SACHS CREDIT PARTNERS L.P., as administrative agent (together with its successors in such capacity, the "Administrative Agent") and as sole lead arranger, sole bookrunner and syndication agent (in such capacity, the "Sole Lead Arranger").
RECITALS
WHEREAS, the Company, the Guarantors, the Lenders, the Administrative Agent and the Sole Lead Arranger entered into a Credit and Guarantee Agreement, dated as of August 14, 2003 (as amended on September 12, 2003, and as may be further amended from time to time, the "Credit Agreement"), pursuant to which the Company borrowed, on a non-recourse basis as described in the Credit Agreement, $385,000,000 in aggregate principal amount of First Priority Senior Secured Institutional Term Loans due 2009 (the "Term Loans");
WHEREAS, the Company, the Guarantors, the Lenders and the Administrative Agent now wish to amend the Credit Agreement in certain respects, as hereinafter provided.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, terms used herein which are defined in the Credit Agreement shall have the respective meanings assigned to such terms in the Credit Agreement.
2. Amendment to Section 5.08 (Asset Sales). Section 5.08 (Asset Sales) of the Agreement is hereby amended to insert the following sentence at the end of the second full paragraph of such section:
Notwithstanding anything herein to the contrary, the Company is authorized to take the following actions:
(i) to place in an account (the "Lost Pines Proceeds Account") maintained with the Collateral Agent the Net Proceeds of the sale of the Company's 50% undivided ownership interest in the Lost Pines facility (the "Lost Pines Interest"), which Lost Pines Proceeds Account and the Net Proceeds held therein shall constitute Collateral;
(ii) the Collateral Agent and the Company may execute an escrow and exchange agreement with respect to the Lost Pines Proceeds Account, in such form as they may agree, containing customary terms and conditions intended to assure that the Lost Pines Proceeds Account is a "qualified escrow account," and the Collateral Agent is acting either as an "escrow holder" or a "qualified intermediary" with respect thereto, in each case for purposes of Section 1031 of the Internal Revenue Code of 1986, as amended; provided that nothing in this clause
(ii) shall modify the Company's obligation to maintain valid and perfected security interest in the Collateral as provided in this Agreement;
(iii) on or before the 181st day (or, if such date is not a Business Day, the first Business Day thereafter) following the consummation of the sale of the Lost Pines Interest (the "Latest Replacement Facility Closing Date"), and subject to obtaining the consent of the Requisite Lenders, to use such Net Proceeds to purchase an additional natural gas-fired combined cycle power generating facility (the "Replacement Facility");
provided, however, that if the purchase of such Replacement Facility is not consummated on or before the Latest Replacement Facility Closing Date (or, if earlier, the Company notifies the Administrative Agent in writing that the Company is no longer pursuing the acquisition of a Replacement Facility), then the Company shall apply the Net Proceeds of such sale as otherwise provided in this Section 5.08 as if the date of the sale of the Lost Pines Interest were the first Business Day after the Latest Replacement Facility Closing Date (or such earlier date as the Company notifies the Administrative Agent in writing that the Company is no longer pursuing the acquisition of a Replacement Facility).
3. Current Lenders. The Administrative Agent agrees and acknowledges that Appendix A hereto correctly identifies, as of the date this Amendment becomes effective in accordance with Section 5 hereof, all of the Lenders and the aggregate outstanding Term Loans held by each Lender.
4. Representations and Warranties. The Company and each Guarantor hereby represents and warrants to each Lender and the Administrative Agent that (a) this Amendment has been duly authorized, executed and delivered by the Company or Guarantor, as applicable, and constitutes its valid and legally binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of generally applicability relating to or affecting creditors' rights and to general equity principles; (b) no Default or Event of Default has occurred and is continuing under the Credit Agreement; and (c) the execution and delivery of this Amendment (i) does not require any consent, approval, authorization or order of, or filing with, any governmental agency or body or any court, except such as have been obtained or made and are in full force and effect as of the date hereof and (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or Guarantor, as applicable, or any order of any
-2-
governmental agency or body, or breach or conflict with any material agreement to which the Company or Guarantor, as applicable, is a party or by which the Company or Guarantor, as applicable, is bound.
5. Effectiveness. This Amendment shall become effective upon receipt by the Administrative Agent of duly executed counterparts of this Amendment signed on behalf of the Company, the Guarantors and the Requisite Lenders.
6. Continuing Effect of the Credit Agreement. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Administrative Agent, the Company or the Guarantors under the Credit Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Company or the Guarantors to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein. After this Amendment becomes effective in accordance with
Section 5 hereof, any reference to the Credit Agreement shall mean the Credit Agreement as amended and modified hereby.
7. Applicable Law. This Amendment and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
8. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
9. Headings. Headings herein are include herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.

By:  /s/ ERIC N. PRYOR
    ----------------------------------------
    Name:  Eric N. Pryor
    Title:  Senior Vice President	

CALPINE HERMISTON, LLC

By:  /s/ ERIC N. PRYOR
    ----------------------------------------
    Name:  Eric N. Pryor
    Title:  Senior Vice President	

CPN HERMISTON, LLC

By:  /s/ ERIC N. PRYOR
    ----------------------------------------
    Name:  Eric N. Pryor
    Title:  Senior Vice President	

HERMISTON POWER PARTNERSHIP

By:  /s/ ERIC N. PRYOR
    ----------------------------------------
    Name:  Eric N. Pryor
    Title:  Senior Vice President	

[EXECUTIONS CONTINUED]
GOLDMAN SACHS CREDIT PARTNERS L.P.,
 as Administrative Agent, Sole Lead Arranger,
Syndication Agent and a Lender

By:  /s/ ELIZABETH FISCHER
    ----------------------------------------
    Name:  Elizabeth Fischer
    Title: Authorized Signatory	

SANKATY HIGH YIELD PARTNERS II, L.P.
as a Lender

By:  /s/ DIANE J. EXTER
    ----------------------------------------
    Name:  Diane J. Exter
    Title: Managing Director
           Portfolio Manager	

SANKATY ADVISORS, LLC as Collateral Manager for Castle Hill III CLO, Limited as Term Lender as a Lender

By:  /s/ DIANE J. EXTER
    ----------------------------------------
    Name:  Diane J. Exter
    Title: Managing Director
           Portfolio Manager	

CITIBANK N.A.
as a Lender

By:  /s/ JAMES B. MAXWELL
    ----------------------------------------
    Name:  James B. Maxwell
    Title: Attorney-in-Fact	

FRANKLIN MUTUAL ADVISORS, LLC
as a Lender

By:  /s/ BRADLEY TAKAHASI
    ----------------------------------------
    Name:  Bradley Takahashi
    Title: Vice President	

SEMINOLE FUNDING LLC
as a Lender

By:  /s/ ANN E. MORRIS
    ----------------------------------------
    Name:  Ann E. Morris
    Title: Asst Vice President	

COLONIAL FUNDING LLC
as a Lender

By:  /s/ ANN E. MORRIS
    ----------------------------------------
    Name:  Ann E. Morris
    Title: Asst Vice President	

ING SENIOR INCOME FUND
 By: Aeltus Investment Management, Inc.
as its investment manager

By:  /s/ CHARLES E. LEMIEUX, CFA
    ---------------------------------------
    Name:  Charles E. LeMieux, CFA
    Title: Vice President	

ING PRIME RATE TRUST
 By: Aeltus Investment Management, Inc.
as its investment manager

By:  /s/ CHARLES E. LEMIEUX, CFA
    ---------------------------------------
    Name:  Charles E. LeMieux, CFA
    Title: Vice President	

HBK INVESTMENTS, L.P.
as a Lender

By:  /s/ DAVID HALEY
    ----------------------------------------
    Name:  David Haley
    Title: Managing Director	

MANCHESTER SECURITIES CORPORATION
as a Lender

By:  /s/ ELLIOT GREENBERG
    ----------------------------------------
    Name:  Elliot Greenberg
    Title: Vice President	

PERRY PRINCIPALS INVESTMENTS, L.L.C.
as a Lender

By:  /s/ NATHANIEL J. KLIPPER
    ----------------------------------------
    Name:  Nathaniel J. Klipper
    Title: Managing Director	

CITADEL CREDIT TRADING LTD.
 By: Citadel Limited Partnership, its
Portfolio Manager
By: GLB Partners, L.P., its General Partner
By: Citadel Investment Group, L.L.C., its
General Partner as a Lender

By:  /s/ LEVOYD E. ROBINSON, CFA
    ----------------------------------------
    Name:  Levoyd E. Robinson, CFA
    Title: Managing Director	

CITADEL EQUITY FUND, LTD.
 By: Citadel Limited Partnership, its
Portfolio Manager
By: GLB Partners, L.P., its General Partner
By: Citadel Investment Group, L.L.C., its
General Partner as a Lender

By:  /s/ LEVOYD E. ROBINSON, CFA
    ----------------------------------------
    Name:  Levoyd E. Robinson, CFA
    Title: Managing Director	

CSAM FUNDING I
as a Lender

By:  /s/ DAVID H. LERNER
    ----------------------------------------
    Name:  David H. Lerner
    Title: Authorized Signatory	

CSAM FUNDING II
as a Lender

By:  /s/ DAVID H. LERNER
    ----------------------------------------
    Name:  David H. Lerner
    Title: Authorized Signatory	

CSAM FUNDING III
as a Lender

By:  /s/ DAVID H. LERNER
    ---------------------------------------
    Name:  David H. Lerner
    Title: Authorized Signatory	

FIRST DOMINION FUNDING II
as a Lender

By:  /s/ DAVID H. LERNER
    ----------------------------------------
    Name:  David H. Lerner
    Title: Authorized Signatory	

ATRIUM CDO
as a Lender

By:  /s/ DAVID H. LERNER
    ----------------------------------------
    Name:  David H. Lerner
    Title: Authorized Signatory	

WATERSHED CAPITAL PARTNERS, L.P.
 By: WS Partners, L.L.C.
Its General Partner

By:  /s/ MERIDEE MOORE
    ----------------------------------------
    Name:  Meridee Moore
    Title: Senior Managing Member	

WATERSHED CAPITAL INSTITUTIONAL
PARTNERS, L.P.
 By: WS Partners, L.L.C.
Its General Partner

By:  /s/ MERIDEE MOORE
    ----------------------------------------
    Name:  Meridee Moore
    Title: Senior Managing Member	

FOOTHILL INCOME TRUST, L.P.
 By: FIT GP, LLC Its General Partner
as a Lender

By:  /s/ DENNIS R. ASCHER
    ----------------------------------------
    Name:  Dennis R. Ascher
    Title: Managing Member	

STONEHILL OFFSHORE PARTNERS, LLC
 as a Lender
By: Stonehill Advisors LLC

By:  /s/ WAYNE TEETSEL
    ----------------------------------------
    Name:  Wayne Teetsel
    Title: Managing Member	

STONEHILL INSTITUTIONAL PARTNERS, L.P.
as a Lender

By:  /s/ WAYNE TEETSEL
    ----------------------------------------
    Name:  Wayne Teetsel
    Title: General Partner	

APPENDIX A
TO AMENDMENT NO. 2 UNDER CREDIT AND GUARANTEE AGREEMENT
LENDERS AND TERM LOAN HOLDINGS
See attached.
 
EXHIBIT 10.2.2.4
AMENDMENT NO. 3 UNDER
CREDIT AND GUARANTEE AGREEMENT
THIS AMENDMENT NO. 3 UNDER CREDIT AND GUARANTEE AGREEMENT (this "Amendment") is made as of the 5th day of March, 2004, by and among CALPINE CONSTRUCTION FINANCE COMPANY, L.P., a Delaware limited partnership (the "Company"), CALPINE HERMISTON, LLC, a Delaware limited liability company ("Calpine LLC"), CPN HERMISTON, LLC, a Delaware limited liability company ("CPN LLC"), and HERMISTON POWER PARTNERSHIP, an Oregon general partnership (the "Hermiston Partnership" and, together with Calpine LLC and CPN LLC, the "Guarantors"), the lenders party hereto (the "Lenders"), and GOLDMAN SACHS CREDIT PARTNERS L.P., as administrative agent (together with its successors in such capacity, the "Administrative Agent") and as sole lead arranger, sole bookrunner and syndication agent (in such capacity, the "Sole Lead Arranger").
RECITALS
WHEREAS, the Company, the Guarantors, the Lenders, the Administrative Agent and the Sole Lead Arranger entered into a Credit and Guarantee Agreement, dated as of August 14, 2003 (as amended on September 12, 2003 and on January 13, 2004, and as may be further amended from time to time, the "Credit Agreement"), pursuant to which the Company borrowed, on a non-recourse basis as described in the Credit Agreement, $385,000,000 in aggregate principal amount of First Priority Senior Secured Institutional Term Loans due 2009 (the "Term Loans");
WHEREAS, the Company, the Guarantors, the Lenders and the Administrative Agent now wish to amend the Credit Agreement in certain respects, as hereinafter provided.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used herein that are not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement.
2. Amendments. (a) Section 5.07 (Incurrence of Indebtedness and Issuance of Preferred Equity) of the Agreement is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (x) of subsection (b) of such Section;
(ii) by deleting the period and adding "; and" at the end of clause (xi) of subsection (b) of such Section;
(iii) by adding the following new clause (xii) to the end of subsection (b) of such Section:
"(xii) the incurrence by the Company of Indebtedness under the Calpine Credit Agreement as of the date of its execution and delivery by the parties thereto";
(b) Section 5.09 (Transactions with Affiliates) of the Agreement is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (xii) of subsection (b) of such Section;
(ii) changing the number of the old clause (xiii) of subsection (b) of such Section from (xiii) to (xiv);
(iii) by adding the following new clause (xiii) to subsection (b) of such Section:
"(xiii) transactions contemplated under the Affiliate Purchase Agreement, the Calpine Credit Agreement and the Calpine Pledge Agreement; and";
(c) Section 5.17 (Additional Subsidiaries) of the Agreement is hereby amended to insert a new subsection (c) at the end of such Section, as follows:
"(c) Notwithstanding anything to the contrary in this Section 5.17, (i) the Acquisition Companies and the Brazos Subsidiaries shall not be required to comply with the provisions of the first paragraph of this Section 5.17 and (ii) the Company shall not be required to comply with the provisions of the first paragraph of this Section 5.17 with respect to the Acquisition Companies and the Brazos Subsidiaries; provided that (x) the Acquisition Companies and the Brazos Subsidiaries shall become Guarantors if, in the good faith determination of the Company, the limitations imposed by the debt instruments of Calpine Corporation and its Subsidiaries on the ability of the Acquisition Companies and the Brazos Subsidiaries to become Guarantors are no longer applicable, (y) all of the Equity Interests in each of the Acquisition Companies, other than such Equity Interests pledged to Calpine Corporation pursuant to the Calpine Pledge Agreement, shall be required to become part of the Collateral within 30 days of the date of acquisition of such Acquisition Companies by the Company, and (z) 100% of the Equity Interests in each of the Acquisition Companies shall be required to become part of the Collateral (in accordance with the terms and provisions of the Pledge and Security Agreement) promptly following the termination of the Calpine Pledge Agreement in accordance with its terms."
-2-
3. Amendments to Defined Terms. The Lenders acknowledge and agree that (i) the terms "Acquisition Companies," "Affiliate Purchase Agreement," "Calpine Credit Agreement" and "Calpine Pledge Agreement" as used in the Credit Agreement have the meanings provided in the Third Supplemental Indenture, dated as of March 5, 2004 (the "Third Supplemental Indenture"), to the Indenture, a copy of which Third Supplemental Indenture is attached as Appendix A hereto, and (ii) the terms "Excess Cash Flow," "Excluded Assets" and "Permitted Liens" as used in the Credit Agreement have the meanings provided in the Indenture, including as amended by the Third Supplemental Indenture.
4. Current Lenders. The Administrative Agent agrees and acknowledges that Appendix B hereto correctly identifies, as of the date this Amendment becomes effective in accordance with Section 5 hereof, all of the Lenders and the aggregate outstanding Term Loans held by each Lender.
5. Representations and Warranties. The Company and each Guarantor hereby represents and warrants to each Lender and the Administrative Agent that (a) this Amendment has been duly authorized, executed and delivered by the Company or Guarantor, as applicable, and constitutes its valid and legally binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of generally applicability relating to or affecting creditors' rights and to general equity principles; (b) no Default or Event of Default has occurred and is continuing under the Credit Agreement; and (c) the execution and delivery of this Amendment (i) does not require any consent, approval, authorization or order of, or filing with, any governmental agency or body or any court, except such as have been obtained or made and are in full force and effect as of the date hereof and (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or Guarantor, as applicable, or any order of any governmental agency or body, or breach or conflict with any material agreement to which the Company or Guarantor, as applicable, is a party or by which the Company or Guarantor, as applicable, is bound.
6. Effectiveness. Subject to the immediately succeeding sentence, this Amendment shall become effective upon receipt by the Administrative Agent of duly executed counterparts of this Amendment signed on behalf of the Company, the Guarantors and the Requisite Lenders. The operative effect of this Amendment is conditioned upon the occurrence of the consummation of the transactions contemplated by the Purchase Agreement, dated as of February 18, 2004, between Calpine Brazos Valley Energy Center GP, LLC and Calpine Brazos Valley Energy Center LP, LLC, as purchasers, and Brazos Valley Special Purpose GP Limited Partnership and Brazos Valley Special Purpose LP Limited Partnership, as sellers.
7. Continuing Effect of the Credit Agreement. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Administrative Agent, the Company or the Guarantors under the Credit Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Company or the Guarantors to a consent to, or a waiver, amendment, modification or other change of, any of the terms,
-3-
conditions, obligations, covenants or agreements contained in the Credit Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein. After this Amendment becomes effective in accordance with Section 5 hereof, any reference to the Credit Agreement shall mean the Credit Agreement as amended and modified hereby.
8. Applicable Law. This Amendment and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
9. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
10. Headings. Headings herein are include herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.

By:  /s/ ERIC N. PRYOR
    --------------------------------------
    Name: Eric N. Pryor
    Title: Senior Vice President	

CALPINE HERMISTON, LLC

By:  /s/ ERIC N. PRYOR
    --------------------------------------
    Name: Eric N. Pryor
    Title: Senior Vice President	

CPN HERMISTON, LLC

By:  /s/ ERIC N. PRYOR
    --------------------------------------
    Name: Eric N. Pryor
    Title: Senior Vice President	

HERMISTON POWER PARTNERSHIP

By:  /s/ ERIC N. PRYOR
    --------------------------------------
    Name: Eric N. Pryor
    Title: Senior Vice President	

GOLDMAN SACHS CREDIT PARTNERS L.P.,
 as Administrative Agent, Sole Lead
Arranger, Syndication Agent and a Lender

By:  /s/ STEVE HICKEY
    --------------------------------------
    Name: Steve Hickey
    Title:	

CYPRESS POINT FUNDING LLC
as a Lender

By:  /s/ ANN E. MORRIS
    --------------------------------------
    Name: Ann E. Morris
    Title: Asst Vice President	

CITADEL HILL 2000 LTD
as a Lender

By:  /s/ S. LOCKHART
    --------------------------------------
    Name: S. Lockhart
    Title: Authorized Signatory	

MEDTRONIC INC. - RETIREMENT PLAN
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

NEW JERSEY TRANSIT
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

THE NORTHERN CALIFORNIA NEWSPAPER
GUILD RETIREMENT PLAN
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

THE SEEING EYE, INC.
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

ADVENTIST HEALTH SYSTEM
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

STATE UNIVERSITIES RETIREMENT
SYSTEM OF ILLINOIS
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

METROPOLITAN WEST TOTAL RETURN FUND
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

METROPOLITAN WEST HIGH YIELD BOND FUND
as a Lender

By:  /s/ DAVID LIPPMAN
    --------------------------------------
    Name: David Lippman
    Title: Managing Director	

CITADEL CREDIT TRADING LTD.
 By: Citadel Limited Partnership, its
Portfolio Manager
By: GLB Partners, L.P., its General Partner
By: Citadel Investment Group, L.L.C., its
General Partner

By:  /s/ LEVOYD E. ROBINSON, CFA
    --------------------------------------
    Name: Levoyd E. Robinson, CFA
    Title: Managing Director	

CITADEL EQUITY FUND, LTD.
 By: Citadel Limited Partnership, its
Portfolio Manager
By: GLB Partners, L.P., its General Partner
By: Citadel Investment Group, L.L.C., its
General Partner

By:  /s/ LEVOYD E. ROBINSON, CFA
    --------------------------------------
    Name: Levoyd E. Robinson, CFA
    Title: Managing Director	

STONEHILL INSTITUTIONAL PARTNERS, L.P.
as a Lender

By:  /s/ WAYNE TEETSEL
    --------------------------------------
    Name: Wayne Teetsel
    Title: General Partner	

STONEHILL OFFSHORE PARTNERS, LLC
 as a Lender
By: Stonehill Advisors LLC

By:  /s/ WAYNE TEETSEL
    --------------------------------------
    Name: Wayne Teetsel
    Title: Managing Member	

SATELLITE SENIOR INCOME FUND II, LLC
as a Lender
By: Satellite Asset Management, L.P.,
its Manager

By:  /s/ DAVID FORD
    --------------------------------------
    Name: David Ford
    Title: Principal	

SATELLITE SENIOR INCOME FUND, LLC
 as a Lender
By: Satellite Asset Management, L.P.,
its Manager

By:  /s/ DAVID FORD
    --------------------------------------
    Name: David Ford
    Title: Principal	

PERRY PRINCIPALS INVESTMENTS, L.L.C.
as a Lender

By:  /s/ NATHANIEL J. KLIPPER
    --------------------------------------
    Name: Nathaniel J. Klipper
    Title: Managing Director	

ATRIUM CDO
as a Lender

By:  /s/ ANDREW H. MARSHAK
    --------------------------------------
    Name: Andrew H. Marshak
    Title: Authorized Signatory	

FIRST DOMINION FUNDING II
as a Lender

By:  /s/ ANDREW H. MARSHAK
    --------------------------------------
    Name: Andrew H. Marshak
    Title: Authorized Signatory	

CSAM FUNDING I
as a Lender

By:  /s/ ANDREW H. MARSHAK
    --------------------------------------
    Name: Andrew H. Marshak
    Title: Authorized Signatory	

CSAM FUNDING II
as a Lender

By:  /s/ ANDREW H. MARSHAK
    --------------------------------------
    Name: Andrew H. Marshak
    Title: Authorized Signatory	

CSAM FUNDING III
as a Lender

By:  /s/ ANDREW H. MARSHAK
    --------------------------------------
    Name: Andrew H. Marshak
    Title: Authorized Signatory	

OPPENHEIMER SENIOR FLOATING RATE FUND
as a Lender

By:  /s/ LISA CHAFFEE
    --------------------------------------
    Name: Lisa Chaffee
    Title: Manager	

HARBOURVIEW CLO IV, LTD.
as a Lender

By:  /s/ LISA CHAFFEE
    --------------------------------------
    Name: Lisa Chaffee
    Title: Manager	

HARBOURVIEW CLO V, LTD.
as a Lender

By:  /s/ LISA CHAFFEE
    --------------------------------------
    Name: Lisa Chaffee
    Title: Manager	

HBK MASTER FUND L.P.
 as a Lender
By: HBK Investments L.P.
Investment Advisor

By:  /s/ DAVID C.HALEY
    --------------------------------------
    Name: David C. Haley
    Title: Authorized Signatory	

MANCHESTER SECURITIES CORP
as a Lender

By:  /s/ ELLIOT GREENBERG
    --------------------------------------
    Name: Elliot Greenberg
    Title: Vice President	

LONGHORN CDO II, LTD.
 By: Merrill Lynch Investment Managers, L.P.
as Investment Advisor

By:  /s/ JAIMIN PATEL
    --------------------------------------
    Name: Jaimin Patel
    Title: Authorized Signatory	

LONGHORN CDO III, LTD.
 By: Merrill Lynch Investment Managers, L.P.
as Investment Advisor

By:  /s/ JAIMIN PATEL
    --------------------------------------
    Name: Jaimin Patel
    Title: Authorized Signatory	

SEMINOLE FUNDING LLC
as a Lender

By:  /s/ ANN E. MORRIS
    --------------------------------------
    Name: Ann E. Morris
    Title: Asst Vice President	

COLONIAL FUNDING LLC
as a Lender

By:  /s/ ANN E. MORRIS
    --------------------------------------
    Name: Ann E. Morris
    Title: Asst Vice President	

FOOTHILL INCOME TRUST, L.P.
 as a Lender
By: FIT GP, LLC its general partner

By:  /s/ DENNIS R. ASCHER
    --------------------------------------
    Name: Dennis Ascher
    Title: Managing Member	

APPENDIX A
TO AMENDMENT NO. 3 UNDER
CREDIT AND GUARANTEE AGREEMENT
THIRD SUPPLEMENTAL INDENTURE
See attached.
THIRD SUPPLEMENTAL INDENTURE
Dated as of March 5, 2004
among
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.
CCFC FINANCE CORP.
THE GUARANTORS NAMED HEREIN
and
WILMINGTON TRUST FSB,
as Trustee
Supplementing the Indenture
Dated as of August 14, 2003
and
Amended as of September 18, 2003 and January 14, 2004
THIRD SUPPLEMENTAL INDENTURE, dated as of March 5, 2004 (the "Third Supplemental Indenture"), among Calpine Construction Finance Company, L.P., a Delaware limited partnership (the "Company"), CCFC Finance Corp., a Delaware corporation ("Finance Corp."), the Guarantors and Wilmington Trust FSB, as trustee (the "Trustee").
WHEREAS, the Company, Finance Corp., the Guarantors and the Trustee have executed that certain Indenture, dated as of August 14, 2003, as supplemented by that certain Supplemental Indenture, dated as of September 18, 2003, and as further supplemented by that certain Second Supplemental Indenture, dated as of January 14, 2004 (as supplemented, the "Indenture"), in connection with the co-issuance by the Company and Finance Corp. of certain Second Priority Senior Secured Floating Rate Notes due 2011 (the "Notes");
WHEREAS, pursuant to a Consent Solicitation dated as of February 20, 2004 (the "Consent Solicitation"), the Company and Finance Corp. have proposed to supplement and amend certain Sections of the Indenture as provided herein (the "Proposed Amendments");
WHEREAS, pursuant to Section 9.02 of the Indenture, the Holders of at least a majority in aggregate principal amount of the Notes have consented to the Proposed Amendments; and
WHEREAS, the Company and Finance Corp. have directed the Trustee to execute and deliver this Third Supplemental Indenture in accordance with the terms of the Indenture;
NOW THEREFORE, for and in consideration of the premises and mutual covenants herein contained, the Company, Finance Corp., the Guarantors and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definition of Terms.
Unless the context otherwise requires, capitalized terms used herein that are not otherwise defined herein shall have the meaning assigned to such terms in the Indenture.
ARTICLE II
AMENDMENTS TO THE INDENTURE
Section 2.1 Amendments. (a) Section 1.01 (Definitions) of the Indenture is hereby amended to insert the following new definitions in alphabetical order in such Section:
"Acquisition Companies" means each of Calpine Brazos Valley Energy Center GP, LLC, a Delaware limited liability company, and Calpine Brazos Valley Energy Center LP, LLC, a Delaware limited liability company.
"Affiliate Purchase Agreement" means that certain Purchase Agreement, dated as of February 18, 2004, by and between the Company and Calpine Power Corporation, a Delaware corporation.
"Brazos Subsidiaries" means each of Brazos Valley Energy LP, a Delaware limited partnership, and Brazos Valley Technology LP, a Delaware limited partnership.
"Calpine Pledge Agreement" means that certain Pledge Agreement by and between Calpine Corporation and the Company related to the pledge by the Company to Calpine of certain Equity Interests in the Acquisition Subsidiaries.
"Calpine Credit Agreement" means that certain Credit Agreement by and between Calpine Corporation and the Company, relating to Indebtedness incurred by the Company to complete the acquisition, indirectly through the acquisition of the Acquisition Subsidiaries, of the Brazos Subsidiaries, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.
(b) The definition of "Excess Cash Flow" in Section 1.01 (Definitions) of the Indenture is hereby amended by inserting the phrase "other than Fixed Charges relating to the Calpine Credit Agreement," immediately following "for such period," at the end of clause (2)(C) of such definition.
(c) The definition of "Excluded Assets" in Section 1.01 (Definitions) of the Indenture is hereby amended, as follows:
(i) by deleting the word "and" at the end of clause (4) under such definition;
(ii) by deleting the period and adding "; and" at the end of clause (5) of such definition; and
(iii) by adding the following new clause (6) to the end of such definition:
(6) (A) that portion of the Capital Stock of each of the Acquisition Companies pledged by the Company to Calpine Corporation in accordance with the terms and provisions of the Calpine Pledge Agreement, until such time as all amounts outstanding under the Calpine Credit Agreement have been paid in full and the Calpine Pledge Agreement has been terminated, (B) the Equity Interests of the Brazos Subsidiaries and
(C) the real and personal property (i) of the Acquisition Companies, (ii) of the Brazos Subsidiaries and (iii) constituting the Brazos Valley electric generating facility located in Thompsons, Texas.
2
(d) The definition of "Permitted Liens" in Section 1.01 (Definitions) of the Indenture is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (13) of such definition;
(ii) by deleting the period and adding "; and" at the end of clause (14) of such definition;
(iii) by adding the following new clause (15) to the end of such definition:
(15) the pledge by the Company of the Capital Stock of each of the Acquisition Companies to Calpine Corporation in accordance with the terms and provisions of the Calpine Pledge Agreement.
(e) Section 4.09 (Incurrence of Indebtedness and Issuance of Preferred Equity) of the Indenture is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (10) of the second paragraph of such Section;
(ii) by deleting the period and adding "; and" at the end of clause (11) of the second paragraph of such Section;
(iii) by adding the following new clause (12) to the end of such definition:
(12) the incurrence by the Company of Indebtedness under the Calpine Credit Agreement as of the date of its execution and delivery by the parties thereto;
(f) Section 4.11 (Transactions with Affiliates) of the Indenture is hereby amended, as follows:
(i) by deleting the "and" at the end of clause (12) of the second paragraph of such Section;
(ii) changing the number of the old clause (13) of the second paragraph of such Section from (13) to (14);
(iii) by adding the following new clause (13) to the second paragraph of such Section:
"(13) transactions contemplated under the Affiliate Purchase Agreement, the Calpine Credit Agreement and the Calpine Pledge Agreement; and"
3
(g) Section 4.21 (Additional Subsidiaries) of the Indenture is hereby amended to insert a new third paragraph at the end of such Section, as follows:
"Notwithstanding anything to the contrary in this Section 4.21, (i) the Acquisition Companies and the Brazos Subsidiaries shall not be required to comply with the provisions of the first paragraph of this Section 4.21 and (ii) the Company shall not be required to comply with the provisions of the first paragraph of this Section 4.21 with respect to the Acquisition Companies and the Brazos Subsidiaries; provided that (x) the Acquisition Companies and the Brazos Subsidiaries shall become Guarantors if, in the good faith determination of the Company, the limitations imposed by the debt instruments of Calpine Corporation and its Subsidiaries on the ability of the Acquisition Companies and the Brazos Subsidiaries to become Guarantors are no longer applicable, (y) all of the Equity Interests in each of the Acquisition Companies, other than such Equity Interests pledged to Calpine Corporation pursuant to the Calpine Pledge Agreement, shall be required to become part of the Collateral within 30 days of the date of acquisition of such Acquisition Companies by the Company, and (z) 100% of the Equity Interests in each of the Acquisition Companies shall be required to become part of the Collateral (in accordance with the terms and provisions of the Pledge and Security Agreement) promptly following the termination of the Calpine Pledge Agreement in accordance with its terms."
ARTICLE III
MISCELLANEOUS
Section 3.1 Condition to Operative Effect. The operative effect of this Third Supplemental Indenture is conditioned upon the occurrence of the consummation of the transactions contemplated by the Purchase Agreement, dated as of February 18, 2004, between Calpine Brazos Valley Energy Center GP, LLC and Calpine Brazos Valley Energy Center LP, LLC, as purchasers, and Brazos Valley Special Purpose GP Limited Partnership and Brazos Valley Special Purpose LP Limited Partnership, as sellers.
Section 3.2 Interpretation.
Upon execution and delivery of this Third Supplemental Indenture, and subject to Section 3.1, the Indenture shall be modified and amended in accordance with this Third Supplemental Indenture, and all the terms and conditions of both shall be read together as though they constitute one instrument, except that, in case of conflict, the provisions of this Third Supplemental Indenture will control. The Indenture, as modified and amended by this Third Supplemental Indenture, is hereby ratified and confirmed in all respects and shall bind every holder of Notes. In case of conflict between the terms and conditions contained in the Notes and those contained in the Indenture, as modified and amended by this Third Supplemental
4
Indenture, the provisions of the Indenture, as modified and amended by this Third Supplemental Indenture, shall control.
Section 3.3 The Trustee.
The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Third Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and Finance Corp.
Section 3.4 Certain Duties and Responsibilities of the Trustee.
In entering into this Third Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.
Section 3.5 Counterparts.
This Third Supplemental Indenture may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature of this Third Supplemental Indenture by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
Section 3.6 Applicable Law.
This Third Supplemental Indenture and the right and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
* * *
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the day and year first above written.
CALPINE CONSTRUCTION FINANCE COMPANY, L.P.

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

CCFC FINANCE CORP.

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

CALPINE HERMISTON, LLC, as a Guarantor

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

CPN HERMISTON, LLC, as a Guarantor

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

HERMISTON POWER PARTNERSHIP, as a Guarantor
By: Calpine Hermiston, LLC, its General Partner

By:  /s/ ERIC N. PRYOR
   --------------------------------------------
   Name:  Eric N. Pryor
   Title: Senior Vice President	

WILMINGTON TRUST FSB, as Trustee

By:  /s/ W. CHRIS SPONENBERG
   --------------------------------------------
   Name:  W. Chris Sponenberg
   Title:  Authorized Signatory	

APPENDIX B
TO AMENDMENT NO. 3 UNDER
CREDIT AND GUARANTEE AGREEMENT
LENDERS AND TERM LOAN HOLDINGS
See attached.
 
EXHIBIT 10.2.3
EXECUTION VERSION

$600,000,000
FIRST PRIORITY SECURED INSTITUTIONAL TERM LOANS DUE 2009
CREDIT AND GUARANTEE AGREEMENT
Dated as of March 23, 2004
among
CALPINE GENERATING COMPANY, LLC
The Borrower
THE GUARANTORS PARTY HERETO FROM TIME TO TIME
The Guarantors
THE LENDERS PARTY HERETO FROM TIME TO TIME
The Lenders
MORGAN STANLEY SENIOR FUNDING, INC.
Administrative Agent
and
MORGAN STANLEY SENIOR FUNDING, INC.
Sole Lead Arranger and Sole Bookrunner

TABLE OF CONTENTS

                                                                                                   PAGE
                                               ARTICLE I.
                                 DEFINITIONS AND RULES OF CONSTRUCTION

SECTION 1.01.     Definitions........................................................................3
SECTION 1.02.     Rules of Construction.............................................................47

                                              ARTICLE II.
                                     THE FIRST PRIORITY TERM LOANS

SECTION 2.01.     First Priority Term Loans.........................................................48
SECTION 2.02.     Amount of First Priority Term Loans; Availability of Funds........................48
SECTION 2.03.     Use of Proceeds...................................................................49
SECTION 2.04.     Evidence of Debt; Register; Lenders' Books and Records; Notes.....................49
SECTION 2.05.     Interest..........................................................................50
SECTION 2.06.     Continuation Notice...............................................................51
SECTION 2.07.     Default Interest..................................................................52
SECTION 2.08.     Fees..............................................................................53
SECTION 2.09.     Payments..........................................................................53
SECTION 2.10.     Voluntary Prepayments.............................................................53
SECTION 2.11.     Mandatory Repayment Offers........................................................54
SECTION 2.12.     General Provisions Regarding Payments.............................................55
SECTION 2.13.     Ratable Sharing...................................................................56
SECTION 2.14.     Making or Maintaining First Priority Term Loans...................................57
SECTION 2.15.     Increased Costs; Capital Adequacy.................................................59
SECTION 2.16.     Taxes; Withholding, etc...........................................................60
SECTION 2.17.     Removal or Replacement of a Lender................................................63

                                              ARTICLE III.
                                          CONDITIONS PRECEDENT

SECTION 3.01.     Resolutions.......................................................................64
SECTION 3.02.     Incumbency........................................................................64
SECTION 3.03.     Formation Documents...............................................................64
SECTION 3.04.     Good Standing Certificates........................................................64
SECTION 3.05.     Financial Officer's Certificate...................................................64
SECTION 3.06.     Security..........................................................................65
SECTION 3.07.     Consummation of Notes Offering, Second Priority Term Loan Agreement, Revolving
                      Loan Agreement and First Priority Term Loan Documents.........................67
SECTION 3.08.     Ratings...........................................................................67
SECTION 3.09.     No Material Adverse Change........................................................67
SECTION 3.10.     Third Party Approvals.............................................................68	

i

SECTION 3.11.     Opinions..........................................................................68
SECTION 3.12.     Officer's Certificates............................................................68
SECTION 3.13.     Title Policies....................................................................68
SECTION 3.14.     Evidence of Insurance.............................................................69
SECTION 3.15.     Other Financing Documents.........................................................69
SECTION 3.16.     No Default........................................................................69
SECTION 3.17.     Fees..............................................................................69
SECTION 3.18.     Funding Notice....................................................................69
SECTION 3.19.     Delivery of Financials............................................................69
SECTION 3.20.     Site Assessment Reports...........................................................70
SECTION 3.21.     Major Project Documents...........................................................70

                                              ARTICLE IV.
                                     REPRESENTATIONS AND WARRANTIES

SECTION 4.01.     Organization......................................................................70
SECTION 4.02.     Financing Documents and Major Project Documents...................................71
SECTION 4.03.     Collateral........................................................................71
SECTION 4.04.     Governmental Approvals............................................................71
SECTION 4.05.     Compliance with Law...............................................................72
SECTION 4.06.     Ownership of Property; Liens......................................................72
SECTION 4.07.     Governmental Authorizations; Permits..............................................72
SECTION 4.08.     Labor Disputes....................................................................72
SECTION 4.09.     Intellectual Property Rights......................................................72
SECTION 4.10.     Hazardous Substances..............................................................73
SECTION 4.11.     Litigation........................................................................73
SECTION 4.12.     Financial Information.............................................................73
SECTION 4.13.     Disclosure; Projections...........................................................73
SECTION 4.14.     Adverse Change....................................................................74
SECTION 4.15.     Taxes.............................................................................74
SECTION 4.16.     Investment Company Act............................................................74
SECTION 4.17.     ERISA.............................................................................75
SECTION 4.18.     Governmental Regulation...........................................................75
SECTION 4.19.     Margin Stock, Etc.................................................................76
SECTION 4.20.     No Violations or Defaults.........................................................76
SECTION 4.21.     Solvency..........................................................................76
SECTION 4.22.     Capitalization....................................................................76
SECTION 4.23.     Other Indebtedness................................................................77

                                               ARTICLE V.
                                               COVENANTS

SECTION 5.01.     Reports...........................................................................77
SECTION 5.02.     Compliance Certificate............................................................77
SECTION 5.03.     Stay, Extension and Usury Laws....................................................78
SECTION 5.04.     Restricted Payments...............................................................78	

ii

SECTION 5.05.     Dividend and Other Payment Restrictions Affecting Subsidiaries....................79
SECTION 5.06.     Incurrence of Indebtedness and Issuance of Preferred Equity.......................81
SECTION 5.07.     Asset Sales; Application of Net Proceeds..........................................84
SECTION 5.08.     Transactions with Affiliates......................................................86
SECTION 5.09.     Liens.............................................................................88
SECTION 5.10.     Business Activities...............................................................88
SECTION 5.11.     Payments for Consent..............................................................88
SECTION 5.12.     Offer to Prepay Upon Change of Control............................................89
SECTION 5.13.     Restrictions on Activities of CalGen Finance......................................89
SECTION 5.14.     Additional Subsidiaries...........................................................89
SECTION 5.15.     Limitation on Issuances and Sales of Equity Interests in Subsidiaries.............90
SECTION 5.16.     Deposit of Revenues...............................................................90
SECTION 5.17.     Maintenance of Insurance..........................................................90
SECTION 5.18.     Coverage Ratio; Kilowatt Test.....................................................90
SECTION 5.19.     Further Assurances; Ratings.......................................................90
SECTION 5.20.     Suspension of Certain Covenants...................................................91

                                              ARTICLE VI.
                                               SUCCESSORS

SECTION 6.01.     Merger, Consolidation, or Sale of Assets..........................................91
SECTION 6.02.     Successor Corporation Substituted.................................................92

                                              ARTICLE VII.
                                         DEFAULTS AND REMEDIES

SECTION 7.01.     Events of Default.................................................................92
SECTION 7.02.     Acceleration......................................................................93
SECTION 7.03.     Other Remedies....................................................................94
SECTION 7.04.     Waiver of Past Defaults; Rescission...............................................94
SECTION 7.05.     Control by Majority...............................................................94
SECTION 7.06.     Collection Suit by Administrative Agent...........................................94
SECTION 7.07.     Priorities........................................................................95

                                             ARTICLE VIII.
                                                 AGENTS

SECTION 8.01.     Appointment of Agents.............................................................95
SECTION 8.02.     Powers and Duties.................................................................96
SECTION 8.03.     General Immunity..................................................................96
SECTION 8.04.     Agents Entitled to Act as Lender..................................................97
SECTION 8.05.     Lenders' Representations, Warranties and Acknowledgment...........................97
SECTION 8.06.     Right to Indemnity................................................................97
SECTION 8.07.     Successor Administrative Agent....................................................98
SECTION 8.08.     Withholding Tax...................................................................98	

iii

                                              ARTICLE IX.
                                        COLLATERAL AND SECURITY

                                               ARTICLE X.
                                RANKING OF LIENS AND COLLATERAL SHARING

                                              ARTICLE XI.
                                   FIRST PRIORITY TERM LOAN GUARANTEE

SECTION 11.01.    Guarantee........................................................................100
SECTION 11.02.    Right of Contribution............................................................101
SECTION 11.03.    Subordination....................................................................101
SECTION 11.04.    No Subrogation...................................................................102
SECTION 11.05.    Amendments, etc. with respect to the First Priority Term Loan Obligations........102
SECTION 11.06.    Guarantee Absolute and Unconditional.............................................102
SECTION 11.07.    Waiver...........................................................................105
SECTION 11.08.    Bankruptcy.......................................................................106
SECTION 11.09.    Reinstatement....................................................................107
SECTION 11.10.    Payments.........................................................................108

                                              ARTICLE XII.
                                             MISCELLANEOUS

SECTION 12.01.    Notices..........................................................................108
SECTION 12.02.    Expenses.........................................................................108
SECTION 12.03.    Indemnity........................................................................109
SECTION 12.04.    Set-Off..........................................................................110
SECTION 12.05.    Amendments and Waivers...........................................................110
SECTION 12.06.    Successors and Assigns; Participations...........................................112
SECTION 12.07.    Independence of Covenants........................................................116
SECTION 12.08.    Survival of Representations, Warranties and Agreements...........................116
SECTION 12.09.    No Waiver; Remedies Cumulative...................................................116
SECTION 12.10.    Marshalling; Payments Set Aside..................................................117
SECTION 12.11.    Severability.....................................................................117
SECTION 12.12.    First Priority Term Loan Obligations Several; Independent Nature of Lenders'
                      Rights.......................................................................117
SECTION 12.13.    Headings.........................................................................117
SECTION 12.14.    Applicable Law...................................................................117
SECTION 12.15.    Consent to Jurisdiction..........................................................117
SECTION 12.16.    Waiver Of Jury Trial.............................................................118
SECTION 12.17.    Confidentiality..................................................................119
SECTION 12.18.    Usury Savings Clause.............................................................119
SECTION 12.19.    Counterparts; Execution by Facsimile.............................................120
SECTION 12.20.    Effectiveness....................................................................120
SECTION 12.21.    Statements Required in Certificate or Opinion....................................120
SECTION 12.22.    No Recourse Against the Borrower or the Guarantors...............................120	

iv
 
APPENDICES:

Appendix A:       Initial First Priority Term Loan Commitments
Appendix B:       Notice Addresses

EXHIBITS:
Exhibit A:        Subordination Terms
Exhibit B:        Assignment and Assumption Agreement
Exhibit C:        Certificate Re Non-Bank Status
Exhibit D:        Continuation Notice
Exhibit E:        Funding Notice
Exhibit F:        First Priority Term Loan Note
Exhibit G:        Form of Opinions

SCHEDULES:
Schedule A:       Third Party Project Documents
Schedule 2.09:    Amortization Schedule
Schedule 4.01:    Capital Structure
Schedule 4.11:    Litigation
Schedule 4.18(b): Qualifying Facilities
Schedule 4.18(c): Exempt Wholesale Generators	

v
CREDIT AND GUARANTEE AGREEMENT
This CREDIT AND GUARANTEE AGREEMENT, dated as of March 23, 2004 (this "Agreement"), is entered into by and among CALPINE GENERATING COMPANY, LLC, a Delaware limited liability company (the "Borrower"), the GUARANTORS party hereto from time to time, the LENDERS party hereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as administrative agent (together with its successors and permitted assigns in such capacity, the "Administrative Agent"), and MORGAN STANLEY SENIOR FUNDING, INC., as sole lead arranger and sole bookrunner.
RECITALS
WHEREAS, the Borrower intends to borrow, on a non-recourse basis as described in Section 12.22 (No Recourse), $600,000,000 in aggregate principal amount of first priority secured institutional term loans due 2009 (the "First Priority Term Loans") under this Agreement;
WHEREAS, the Borrower:
(a) intends to issue, together with CalGen Finance Corp., a Delaware corporation and a Wholly Owned Subsidiary of the Borrower ("CalGen Finance"), as co-issuer, on a non-recourse basis:
(i) $235,000,000 in aggregate principal amount of its First Priority Secured Floating Rate Notes due 2009 (the "First Priority Notes"), pursuant to the Indenture, dated as of the date hereof (the "First Priority Indenture"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "First Priority Indenture Trustee");
(ii) $640,000,000 in aggregate principal amount of its Second Priority Secured Floating Rate Notes due 2010 (the "Second Priority Notes"), pursuant to the Indenture, dated as of the date hereof (the "Second Priority Indenture"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "Second Priority Indenture Trustee"); and
(iii) (A) $680,000,000 in aggregate principal amount of its Third Priority Secured Floating Rate Notes due 2011
(the "Third Priority Floating Rate Notes"), and (B) $150,000,000 in aggregate principal amount of its 11.50% Third Priority Secured Notes due 2011 (the "Third Priority Fixed Rate Notes" and, together with the First Priority Notes, the Second Priority Notes and the Third Priority Floating Rate Notes, the "Notes"), pursuant to the Indenture, dated as of the date hereof (the "Third Priority Indenture" and, together with the First Priority Indenture and the Second Priority Indenture, the "Indentures"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "Third Priority Indenture Trustee");
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(b) intends to borrow, on a non-recourse basis, $100,000,000 in aggregate principal amount of second priority secured institutional term loans due 2010 (the "Second Priority Term Loans" and, together with the First Priority Term Loans, the "Term Loans"), pursuant to a Credit and Guarantee Agreement, dated as of the date hereof (the "Second Priority Term Loan Agreement" and, together with this Agreement, the "Term Loan Agreements"), among the Borrower, the Guarantors party thereto from time to time, Morgan Stanley Senior Funding, Inc., as the administrative agent (together with its successors and permitted assigns in such capacity, the "Second Priority Term Loan Administrative Agent"), Morgan Stanley Senior Funding, Inc., as sole lead arranger, Morgan Stanley Senior Funding, Inc., as sole book-runner, and the lenders party thereto from time to time; and
(c) has entered into that certain Amended and Restated Credit Agreement, dated as of the date hereof (the "Revolving Loan Agreement"), among the Borrower, the Guarantors party thereto from time to time, the lenders party thereto from time to time, The Bank of Nova Scotia, as administrative agent (together with its successors and permitted assigns in such capacity, the "Revolver Administrative Agent"), and each of the other agents and arrangers party thereto, which provides for the borrowing on a non-recourse basis of up to $200,000,000 in aggregate principal amount of first priority secured revolving loans (the "Revolving Loans");
WHEREAS, each Guarantor is a Wholly Owned Subsidiary of the Borrower and each Guarantor will receive substantial direct and indirect benefit from the making of the First Priority Term Loans and the use of proceeds therefrom;
WHEREAS, the Guarantors shall guarantee, on a non-recourse basis as described in Section 12.22 (No Recourse), payment of the First Priority Term Loans and all other First Priority Term Loan Obligations pursuant to the terms hereof;
WHEREAS, the Borrower and the Guarantors intend to secure the First Priority Term Loans, the Second Priority Term Loans, all other First Priority Term Loan Obligations, all other Second Priority Term Loan Obligations, the Notes, all other Note Obligations and all other First Priority Lien Obligations (including the Revolving Loan Obligations), Second Priority Lien Obligations and Third Priority Lien Obligations with a lien on all present and future Collateral; and
WHEREAS, Calpine CalGen Holdings, Inc., a Delaware corporation ("Holdings"), CalGen Finance, the Borrower, the Guarantors, the Administrative Agent, the Second Priority Term Loan Administrative Agent, the Revolver Administrative Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, and Wilmington Trust Company as collateral agent (together with its successors and permitted assigns, the "Collateral Agent") have entered into the Collateral Trust Agreement (as defined below), which sets forth the terms on which the Borrower and the Guarantors, among others, have appointed the Collateral Agent as trustee for the present and future holders of the Secured Obligations to (a) receive, hold, maintain, administer, and enforce (i) all Security Documents and (ii) all interests, rights, powers and remedies of the Collateral Agent thereunder, and
(b)
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distribute the proceeds of the Collateral in a manner consistent with the priority of liens established by the Collateral Trust Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01. Definitions.
Unless the context otherwise requires, the following capitalized terms, when used in this Agreement, including in its preamble and recitals, shall have the following meanings:
"Acquired Debt" means, with respect to any specified Person:
(a) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(b) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Adjusted LIBOR Rate" means, with respect to the relevant Interest Period, the greater of (a) 1.25% and (b) the quotient of (i) the LIBOR Rate applicable to such Interest Period, divided by (ii) one minus the Applicable Reserve Requirement (expressed as a decimal) applicable to such Interest Period.
"Administrative Agent" is defined in the Preamble hereto.
"Administrative Services Agreement" means that certain Master Administrative Services Agreement, dated as of the date hereof, among the Borrower, CalGen Finance, each of the Subsidiaries of the Borrower from time to time party thereto and Calpine Administrative Services Company, Inc.
"Affected Lender" is defined in Section 2.14 (Making or Maintaining First Priority Term Loans).
"Affected Loans" is defined in Section 2.14 (Making or Maintaining First Priority Term Loans).
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified
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Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Affiliate Subordinated Indebtedness" means Indebtedness incurred by the Borrower pursuant to any arrangement with an Affiliate of the Borrower; provided, that such Indebtedness (a) is contractually subordinated in right of payment and in all other respects to the First Priority Term Loan Obligations and all other Secured Obligations on the terms described in Exhibit A, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date and is not secured other than by unperfected security interests, (b) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the First Priority Term Loans, (c) provides for payment of interest thereon in the form of cash or additional Affiliate Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., pay-in-kind), and
(d) is otherwise in the form set forth in Exhibit A.
"Affiliate Transaction" is defined in Section 5.08 (Transactions With Affiliates).
"Agents" means the Administrative Agent, the Collateral Agent and the Sole Lead Arranger.
"Aggregate Amounts Due" is defined in Section 2.13 (Ratable Sharing).
"Agreement" is defined in the Preamble hereto.
"Applicable Reserve Requirement" means, at any time, the maximum rate, expressed as a decimal, at which reserves (including any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the applicable Adjusted LIBOR Rate or any other interest rate of a First Priority Term Loan is to be determined, or (b) any category of extensions of credit or other assets which include First Priority Term Loans. Each First Priority Term Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on First Priority Term Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.
"Asset Sale" means:
(a) the sale, lease, conveyance or other disposition of any assets or rights by the Borrower or any of its Subsidiaries; provided, that the sale, conveyance or other
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disposition of all or substantially all of the assets of the Borrower and its Subsidiaries taken as a whole will be governed by the provisions of Section 6.01 (Merger, Consolidation or Sale of Assets) and not by the provisions of Section 5.07 (Asset Sales; Application of Net Proceeds); and
(b) the issuance of Equity Interests in any of the Borrower's Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(a) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $25,000,000 (other than any transaction which involves the sale of an undivided interest, participation or Equity Interest in any Facility or any Subsidiary of the Borrower, each of which shall constitute an Asset Sale);
(b) a transfer of assets between or among the Borrower and the Guarantors,
(c) an issuance of Equity Interests by a Subsidiary to the Borrower or to a Guarantor;
(d) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(e) the sale or other disposition of cash or Cash Equivalents;
(f) a Restricted Payment that does not violate the covenant in
Section 5.04 (Restricted Payments) or a Permitted Investment;
(g) an issuance of Equity Interests in the Borrower in accordance with the terms of this Agreement; and
(h) the sale of the Columbia Facility pursuant to the Columbia FILOT Arrangement.
"Assignment Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit B with such amendments or modifications thereto as may be approved by the Administrative Agent.
"Bank Book" means that certain confidential information memorandum titled "Calpine Generating Company, LLC, $600,000,000 First Priority Secured Term Loan B, $100,000,000 Second Priority Secured Term Loan B" dated March 2004.
"Bankruptcy Case" means any case under the Bankruptcy Law commenced voluntarily or involuntarily against the Borrower or any other Obligor.
"Bankruptcy Event" shall be deemed to occur, with respect to any Person, if that Person shall institute a voluntary case seeking liquidation or reorganization under the Bankruptcy Law,
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or shall consent to the institution of an involuntary case thereunder against it; or such Person shall file a petition or consent or otherwise institute any similar proceeding under any other applicable Federal or state law, or shall consent thereto; or such Person shall apply for, or consent or acquiesce to, the appointment of, a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other officer with similar powers for itself or any substantial part of its assets; or such Person shall make a general assignment for the benefit of its creditors; or such Person shall admit in writing its inability to pay its debts generally as they become due; or if an involuntary case shall be commenced seeking liquidation or reorganization of such Person under the Bankruptcy Law or any similar proceedings shall be commenced against such Person under any other applicable Federal or state law and (a) the petition commencing the involuntary case is not timely controverted, (b) the petition commencing the involuntary case is not dismissed within 90 days of its filing,
(c) an interim trustee is appointed to take possession of all or a portion of the property, and/or to operate all or any part of the business of such Person and such appointment is not vacated within 90 days, or (d) an order for relief shall have been issued or entered therein; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other officer having similar powers, over such Person or all or a part of its property shall have been entered; or any other similar relief shall be granted against such Person under any applicable Bankruptcy Law.
"Bankruptcy Law" means Title 11, United States Code, and any other state or federal insolvency, reorganization, moratorium or similar law for the relief of debtors, or any successor statute.
"Base Rate" means, for any day, a fluctuating rate of interest per annum equal to the higher of (a) the Prime Rate for such day and (b) the sum of
(i) the Federal Funds Effective Rate for such day and (ii) one half of one percent (0.50%) per annum.
"Base Rate Loan" means a First Priority Term Loan bearing interest at a rate determined by reference to the Base Rate.
"Beck Report" is defined in Section 3.05(d) (Financial Officer's Certificate).
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(a) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
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(b) with respect to a partnership, the Board of Directors of the general partner of the partnership or any committee duly authorized and empowered to take action on behalf of such partnership by the partnership agreement of such partnership;
(c) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(d) with respect to any other Person, the board or committee of such Person serving a similar function.
"Borrower" is defined in the Preamble hereto.
"Business Day" shall mean any day other than a Saturday, Sunday or day on which commercial banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a LIBOR Rate Loan (including with respect to all notices and determinations in connection therewith and any payments of principal, interest or other amounts thereon), the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
"CalGen Companies" means the Borrower and the Subsidiaries of the Borrower.
"CalGen Expansion Company" means CalGen Expansion Company, LLC, a Delaware limited liability company.
"CalGen Finance" is defined in the Recitals hereto.
"Calpine" means Calpine Corporation, a Delaware corporation.
"Calpine Performance Guaranty" means that certain Affiliated Party Guaranty, dated as of the date hereof, by Calpine in favor of the Borrower and each of the Facility Owners.
"Calpine Project Undertaking" means that certain Project Undertaking and Agreement, dated as of the date hereof, among the Borrower, each of the Facility Owners and Calpine.
"Capital Lease Obligations" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(a) in the case of a corporation, corporate stock;
(b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
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(c) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Cash Equivalents" means:
(a) United States dollars;
(b) securities issued or directly and fully guaranteed or insured by the United States government (or any agency or instrumentality thereof), the Canadian government (or any agency or instrumentality thereof) or the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(c) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Facilities or any domestic commercial bank having capital and surplus in excess of $500,000,000 and a Thomson Bank Watch (or successor rating agency) Rating of "B" or better;
(d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (b) and (c) above entered into with any financial institution meeting the qualifications specified in clause (c) above;
(e) overnight deposits with entities whose unsecured commercial paper or other unsecured short-term debt obligations have, at the time of such investment, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P; and
(e) investments in money market funds or money market mutual funds which have, at the time of such investments, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P.
"Casualty Event" means any damage to or destruction of a Facility in excess of $20,000,000.
"Certificate re Non-Bank Status" means a certificate substantially in the form of Exhibit C.
"CES" means Calpine Energy Services, L.P., a Delaware limited partnership.
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"Change of Control" means the occurrence of any of the following:
(a) the adoption of a plan relating to the liquidation or dissolution of the Borrower;
(b) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as that term is used in Section 13(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Calpine, measured by voting power rather than number of shares; or
(c) the first day on which Calpine fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests (other than Perpetual Preferred Stock) of the Borrower (other than as a result of the issuance of Perpetual Preferred Stock by any direct or indirect parent of the Borrower).
"Closing Date" means the date on which all of the conditions precedent set forth in Article III shall have been satisfied or waived in accordance with
Section 12.05 (Amendments and Waivers).
"Closing Date Facilities" means the electric generating facilities (including any electric generating facilities under construction) owned by Baytown Energy Center, LP; Carville Energy LLC; Channel Energy Center, LP; Columbia Energy LLC; Corpus Christi Cogeneration LP; Decatur Energy Center, LLC; Delta Energy Center, LLC, Freestone Power Generation LP; Goldendale Energy Center, LLC, Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Calpine Oneta Power, L.P.; Pastoria Energy Facility L.L.C. and Zion Energy LLC.
"Closing Date Mortgages" is defined in Section 3.13 (Title Policies).
"Closing Date Mortgage Policies" is defined in Section 3.13 (Title Policies).
"Closing Date Mortgaged Properties" means all of the real property interests owned or leased by any of the Guarantors, and "Closing Date Mortgaged Property" means all of the real property interests owned or leased by a Guarantor.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Collateral" means (a) all of the Capital Stock of the Borrower held by Holdings, (b) all of the Capital Stock of CalGen Expansion Company held by the Borrower, and (c) all assets and properties of the Borrower and each of the Guarantors (other than the Excluded Assets and the Excluded Subsidiaries), in each case as more particularly provided for in the Security Documents.
"Collateral Agent" has the meaning provided in the Recitals hereto.
"Collateral Trust Agreement" means that certain Collateral Trust and Intercreditor Agreement, dated as of the date hereof, by and among Holdings, the Borrower, the Guarantors, the Administrative Agent, the Second Priority Term Loan Administrative Agent, the Revolver
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Administrative Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, the Collateral Agent and each other party from time to time a party thereto.
"Columbia Facility" means the Facility owned by Columbia Energy LLC.
"Columbia FILOT Arrangement" means a fee-in-lieu-of-taxes arrangement pursuant to which the Columbia Facility will be sold to Calhoun County, South Carolina, or a Person acting on its behalf, and leased to Columbia Energy LLC for a nominal annual amount in lieu of certain ad valorem taxes that would otherwise be owed to Calhoun County in connection with the Columbia Facility, together with the payment of a fee to Calhoun County in lieu of such ad valorem taxes; provided, that (a) Columbia Energy LLC has the right under such arrangement to repurchase the Columbia Facility for nominal consideration upon completion or termination of the lease agreement, (b) the leasehold interest held by Columbia Energy LLC is part of the Collateral, (c) the arrangement is not reasonably expected to have a material adverse effect on the operation or financial condition of the Columbia Facility and (d) the arrangement does not impair the Columbia Facility's status as a QF.
"Condemnation Event" means any Facility (or any portion thereof in excess of $20,000,000) is condemned, confiscated, requisitioned, captured, seized or subjected to forfeiture, or title thereto is taken, by any governmental authority (or any Person acting under color of governmental authority).
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(a) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(b) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(c) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(d) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(e) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP.
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"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus (a) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of (i) any and all interest expense for such period, including, without limitation, Consolidated Interest Expense and any interest expense attributable to Affiliate Subordinated Indebtedness, (ii) consolidated income tax expense for such period, (iii) all amounts attributable to depreciation and amortization for such period, (iv) any extraordinary or non-recurring non-cash charges (other than the write-down of current assets) for such period (including any such non-cash charges for such period relating to the application of fresh start accounting principals), (v) any non-cash goodwill or other intangible asset impairment charges incurred after the date hereof resulting from the application of Statement Number 142 of the Financial Accounting Standards Board, (vi) any non-recurring expenses incurred in connection with the transactions contemplated by the Financing Documents and (vii) any non-cash compensation charges, including any such charges arising from stock options, restricted stock grants and other equity incentive programs (provided that, to the extent all or any portion of the income of any Subsidiary of the Borrower or other Person is excluded from Consolidated Net Income pursuant to the definition thereof for all or any portion of such period, any amounts set forth in the preceding clauses (i) through (vii) that are attributable to such Subsidiary or other Person shall be not be included for purposes of this clause (a) for such period or portion thereof), plus (b) without duplication, the cash amount of (i) prepayments received by the Borrower or any of its Subsidiaries under any Major Project Document during such period and (ii) any distributions received by the Borrower or any of its Subsidiaries pursuant to the Index Hedge during such period, and minus (c) without duplication (i) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net Income pursuant to clause (a) above in a previous period and
(ii) to the extent included in determining such Consolidated Net Income, any extraordinary gains and all non-cash items of income for such period, all determined on a consolidated basis in accordance with GAAP; provided that, if the Borrower has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the sum of (1) the consolidated net income
(loss) of such Subsidiary (to the extent included in Consolidated Net Income) and (2) the amounts set forth in clause (a)(i)-(vii) above attributable to such Subsidiary multiplied by (B) the percentage of Equity Interests in such Subsidiary not directly or indirectly owned by the Borrower on the last day of such period. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated EBITDA will be calculated on a Pro Forma basis as if all transactions entered into by the Borrower on the Closing Date were entered into on the first day of the period for which Consolidated EBITDA is being measured.
"Consolidated Interest Coverage Ratio" means, on any date, the ratio of
(a) Consolidated EBITDA of the Borrower and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended on or prior to such date, taken as one accounting period, to (b) Consolidated Interest Expense of the Borrower and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended on or prior to such date, taken as one accounting period.
"Consolidated Interest Expense" means, for any period, (a) the sum of, without duplication, (i) the interest expense (including imputed interest expense in respect of Capital
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Lease Obligations and Synthetic Lease Obligations but excluding any interest expense attributable to Affiliate Subordinated Indebtedness) of the Borrower and its Subsidiaries for such period (including all commissions, discounts and other fees and charges owed by the Borrower and its Subsidiaries with respect to letters of credit and bankers' acceptance financing), net of interest income, in each case determined on a consolidated basis in accordance with GAAP, plus (ii) any interest accrued (other than interest accrued with respect to Affiliate Subordinated Indebtedness) during such period in respect of Indebtedness of the Borrower or any Subsidiary of the Borrower that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP, minus (b) to the extent included in such consolidated interest expense for such period, amounts attributable to the amortization of financing costs and non-cash amounts attributable to the amortization of debt discounts. For purposes of this definition, interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any Subsidiary of the Borrower with respect to interest rate Hedging Obligations. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated Interest Expense will be calculated on a Pro Forma basis as if all transactions entered into by the Borrower on the Closing Date were entered into on the first day of the period for which Consolidated Interest Expense is being measured.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that:
(a) the Net Income of any Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; and
(b) the cumulative effect of a change in accounting principles will be excluded.
"Continuation Notice" means a Continuation Notice substantially in the form of Exhibit D.
"Credit Facilities" means one or more debt facilities or commercial paper facilities (including the debt facilities provided under this Agreement, the Second Priority Term Loan Agreement and the Revolving Loan Agreement) in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
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"Default Rate" is defined in Section 2.07 (Default Interest).
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the Stated Maturity of the First Priority Term Loans. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Borrower to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Borrower may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 5.04 (Restricted Payments). The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Borrower and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Dollars" and the sign "$" mean the lawful money of the United States of America.
"Eligible Assignee" means (a) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (b) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses.
"Environmental Consultants" means E Cubed, Inc., ENSR Corporation, Environmental Consulting & Technology, Inc., STS Consultants, Ltd and Separation Systems Consultants, Inc.
"Environmental Law" is defined in Section 4.10 (Hazardous Substances).
"Equally and Ratably" is defined in the Collateral Trust Agreement.
"Equity Contributions" means contributions of cash or Cash Equivalents to the common equity capital of the Borrower by Persons other than the Borrower and its Subsidiaries.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with Borrower or any of its Subsidiaries under Section 52 or 414 of the Code or Title IV of ERISA.
"ERISA Plan" means any employee benefit plan (including any Multiemployer Plan) under Section 3(3) of ERISA (a) maintained by Borrower or its Subsidiaries or any ERISA
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Affiliate, or to which any of them contributes or is obligated to contribute, or has contributed or been obligated to contribute, or has any liability, and (b) covered by Title IV of ERISA or to which Section 302 of ERISA, Section 412 of the Code or Subtitle J of the Code applies.
"Estimated Peak Capacity" means, with respect to a Facility, the nominal, as-tested new and clean capacity of such Facility, as corrected to average ambient conditions, plus all incremental peaking capability of such Facility derived from duct firing, power augmentation, steam injection or other means.
"Event of Default" is defined in Section 7.01 (Events of Default).
"EWG" is defined in Section 4.18 (Governmental Regulation).
"Excess Cash Flow" means, for any period:
(a) the sum of:
(i) all revenues (excluding (A) non-cash revenues and (B) any payments received from contract monetizations, contract buy-outs and similar transactions) received by the Borrower and its Subsidiaries during such period,
(ii) all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events, and all net proceeds from the sale, lease, conveyance or other disposition of any assets or rights not constituting "Asset Sales," in each case received by the Borrower and its Subsidiaries during such period and remaining after application of such proceeds to a Mandatory Repayment Offer pursuant to Section 2.11 (Mandatory Repayment Offers) and Section 5.07 (Asset Sales; Application of Net Proceeds), and
(iii) all Excess Expansion Asset Financing Proceeds received by the Borrower and its Subsidiaries during such period; less
(b) the sum of:
(i) all costs, expenses, fees and other charges
(including liquidated damages or other damages or penalties) incurred by the Borrower and its Subsidiaries during such period in connection with the ownership, operation, maintenance and use of the Facilities, including all payments under Major Project Documents and other agreements relating to the Facilities (other than Major Maintenance Expenses),
(ii) all trustee fees, collateral agent fees and other similar administrative fees and expenses paid by the Borrower and its Subsidiaries during such period,
(iii) the Fixed Charges of the Borrower and its Subsidiaries during such period (other than Fixed Charges of the kind referred to in clause (d) of the definition of Fixed Charges and Fixed Charges relating to Subordinated
14
Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the First Priority Term Loan Obligations),
(iv) all payments of principal of Indebtedness of the Borrower and its Subsidiaries required to be made (whether or not actually made) during such period, other than payments of principal of Subordinated Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the First Priority Term Loan Obligations, and
(v) all amounts paid by the Borrower and its Subsidiaries for capital expenditures to the Facilities during such period, other than Excluded CapEx Amounts.
"Excess Expansion Asset Financing Proceeds" means the excess of (a) the aggregate amount of proceeds of Expansion Debt incurred to finance costs associated with Expansion Assets in accordance with Section 5.06(b)(iii) and Equity Contributions made in connection therewith, over (b) the amount of such proceeds and Equity Contributions required to finance costs associated with such Expansion Assets in compliance with the conditions set forth in Section 5.06(b)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" means
(a) the fixtures and equipment relating to any Facility if, to the extent that and for so long as (i) the ownership or operation of such Facility is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (A) such fixtures and equipment will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (a) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (B) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the security documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section
5.07 (Asset Sales; Application of Net Proceeds);
(b) with respect to personal property, any contract, agreement, lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the
15
grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such contract, agreement, lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such contract, agreement, lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable Legal Requirement (including the United States bankruptcy code); provided, that (A) such contract, agreement, lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (b) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (B) the proceeds of any sale, lease or other disposition of any such contract, agreement, lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section 5.07 (Asset Sales; Application of Net Proceeds);
(c) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for as long as the condition set forth above is and remains satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section 5.07 (Asset Sales; Application of Net Proceeds);
(d) any Excluded Subsidiary Securities;
(e) any property or assets owned by the Excluded Subsidiary;
(f) any Expansion Assets; provided, that any Expansion Assets will be Excluded Assets only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on the ability to grant a Lien on such Expansion Assets to secure the Secured Obligations continue to be applicable, as determined in good faith by the Borrower; and
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(g) the Borrower's rights under or with respect to the Working Capital Facility.
"Excluded CapEx Amounts" means amounts paid by the Borrower and its Subsidiaries for capital expenditures to the Facilities using funds derived from either of the following funding sources:
(a) Equity Contributions, other than Equity Contributions made to comply with Section 5.06(b)(iii); and
(b) proceeds of Expansion Debt incurred in accordance with
Section 5.06(b)(iii).
"Excluded Subsidiary" means Goldendale Energy Center, LLC, only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on Goldendale Energy Center, LLC's ability to be a Guarantor and grant a Lien on its property and assets to secure the Secured Obligations continue to be applicable to Goldendale Energy Center, LLC, as determined in good faith by the Borrower.
"Excluded Subsidiary Securities" means Capital Stock or other securities of any Subsidiary of the Borrower, other than the Equity Interests in CalGen Expansion Company.
"Existing Credit Administrative Agent" means Credit Suisse First Boston, acting through its New York Branch, as the administrative agent under the Existing Senior Secured Credit Facility.
"Existing Purchase Option" means an Asset Sale required in accordance with any of the following, without giving effect to any amendments or other modifications thereto after the Closing Date:
(a) the exercise by Eastman Chemical Company (or its successors and permitted assigns) of any of its purchase options under the Energy Services Agreement, dated as of August 15, 2000, and as amended to the Closing Date, between Columbia Energy LLC and Eastman Chemical Company;
(b) the exercise by Solutia, Inc. (or its successors and permitted assigns) of its purchase option upon an event of default under the Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001, and as amended to the Closing Date, between Decatur Energy Center, LLC and Solutia, Inc.;
(c) the exercise by Bayer Corporation (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of January 12, 2000, and as amended to the Closing Date, between Baytown Energy Center, LP and Bayer Corporation;
(d) the exercise by Lyondell-CITGO Refining L.P. (or its successors and permitted assigns) of any of its options to acquire certain property under the Amended and Restated Ground Lease and Easement Agreement, dated as of March 30, 2001, and
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as amended to the Closing Date, between Channel Energy Center, LP and Lyondell-CITGO Refining L.P.;
(e) the exercise by CITGO Refining and Chemicals Company L.P. (or its successors and permitted assigns) of its right of first offer under the Energy Services Agreement, dated as of March 23, 1999, and as amended to the Closing Date, between Corpus Christi Cogeneration, LP and CITGO Refining and Chemicals Company L.P.; and
(f) the exercise by Flint Hills Resources, L.P. (or its successors and permitted assigns) its purchase option under the Energy Services Agreement, dated as of July 24, 2003, and as amended to the Closing Date, between Corpus Christi Cogeneration, LP and Flint Hills Resources, L.P.
"Existing Senior Secured Credit Facility" means the Credit Agreement, dated as of October 16, 2000, among the Borrower, the Existing Credit Administrative Agent, the financial institutions thereto from time to time as lenders and the other agents and arrangers party thereto.
"Expansion Assets" means the assets (including real property rights, contractual rights, rights under permits, other general intangibles and other ancillary rights) added to a Facility in connection with the addition of capacity to, or other expansion of, such Facility; provided, that such Expansion Assets are not necessary for the operation of such Facility or any other Facility (other than the Expansion Assets themselves), are readily distinguishable from such Facility and can be removed or separated from such Facility, dismantled or operated independently of the operation of the Facility without impairing the Facility or any other Facility in any material respect.
"Expansion Debt" means Indebtedness incurred for the purpose of financing the development, construction or purchase of, or repairs, improvements or additions to, Expansion Assets relating to one or more Facilities, including any Indebtedness existing at the time such Expansion Assets are acquired, whether or not such Indebtedness is incurred in connection with, or in contemplation of, the acquisition of such Expansion Assets; provided, that such Indebtedness was incurred to finance the development, construction or purchase of, or repairs, improvements or additions to, such Expansion Assets.
"Facilities" means the Closing Date Facilities and any other electric generating facilities acquired or constructed after the Closing Date in accordance with the terms hereof; provided that any Facility disposed of in accordance with the terms hereof shall from and after the date of any such disposition be deemed not to be a Facility hereunder from and after the date of such disposition.
"Facility Owners" means Baytown Energy Center, LP; Carville Energy LLC; Channel Energy Center, LP; Columbia Energy LLC; Corpus Christi Cogeneration LP; Decatur Energy Center, LLC; Delta Energy Center, LLC, Freestone Power Generation LP; Goldendale Energy Center, LLC, Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Calpine Oneta Power, L.P.; Pastoria Energy Facility L.L.C. and Zion Energy LLC.
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"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, (a) determined in good faith by an Officer of the Borrower and evidenced by an Officer's Certificate delivered to the Administrative Agent, if such value is less than or equal to $10,000,000, or (b) determined in good faith by the Board of Directors of the Borrower and evidenced by a resolution delivered to the Administrative Agent, if such value is greater than $10,000,000.
"Federal Funds Effective Rate" means for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent, in its capacity as a Lender, on such day on such transactions as determined by the Administrative Agent.
"FERC" is defined in Section 4.18 (Governmental Regulation).
"Financing Documents" means this Agreement, the Second Priority Term Loan Agreement, the Revolving Loan Agreement, the Purchase Agreement, the Indentures, the Notes, the Registration Rights Agreement, the Security Documents and all other security documents and intercreditor agreements entered into by Holdings, the Borrower or any Subsidiary thereof (on the one hand) and any Agent or any Lender (on the other hand) in connection therewith.
"Financing Statements" is defined in Section 3.06 (Security).
"First Priority Debt Representative" is defined in the Collateral Trust Agreement.
"First Priority Indenture" is defined in the Recitals hereto.
"First Priority Indenture Trustee" is defined in the Recitals hereto.
"First Priority Lien" means a Lien granted by the Borrower or any Guarantor under a Security Document to the Collateral Agent upon any assets or property of the Borrower or any Guarantor to secure First Priority Lien Obligations.
"First Priority Lien Cap" means as of any date, (a) the principal amount of First Priority Notes, plus (b) the principal amount of all Indebtedness outstanding under this Agreement on the Closing Date, plus the Indebtedness outstanding under any other Credit Facility (including the Revolving Loan Agreement), all in an aggregate principal amount not to exceed the amount provided for in Section 5.06(b)(i)(A), less (c) the amount of Second Priority Lien Debt and Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay First Priority Lien Debt, plus (d) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (a) and (b), plus (e) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to other First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority
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Lien Debt, $500,000,000. For purposes of this definition of First Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"First Priority Lien Debt" means, collectively, (a) the First Priority Notes, (b) the Indebtedness under this Agreement, (c) the Indebtedness under the Revolving Loan Agreement, (d) Hedging Obligations incurred to hedge or manage interest rate risk with respect to other First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500,000,000, (e) Indebtedness under any other Credit Facility that is secured by a First Priority Lien, and (f) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other First Priority Lien Debt; provided, however, such Indebtedness shall constitute First Priority Lien Debt only if, in the case of clauses (d), (e) or (f) of this definition, (i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document), (ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each First Priority Debt Representative and the Collateral Agent, as First Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other First Priority Lien Documents; (iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation and an agreement by the holder of such Indebtedness and the applicable First Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and (iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is First Priority Lien Debt).
"First Priority Lien Documents" means this Agreement, the First Priority Notes, the Guarantees related thereto, the First Priority Indenture, the Revolving Loan Agreement, each agreement governing any other series of First Priority Lien Debt and all other agreements governing, securing or relating to any First Priority Lien Obligations.
"First Priority Lien Obligations" means the First Priority Lien Debt and all other Obligations in respect of First Priority Lien Debt.
"First Priority Notes" is defined in the Recitals hereto.
"First Priority Notes Indenture" is defined in the Recitals hereto.
"First Priority Secured Parties" shall mean the holders of the First Priority Lien Obligations (including the holders of the First Priority Notes, the Lenders, the Administrative Agent and the lenders under the Revolving Loan Agreement).
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"First Priority Term Loan Commitment" means the commitment of a Lender to make or otherwise fund a First Priority Term Loan and "First Priority Term Loan Commitments" means such commitments of all Lenders in the aggregate. The aggregate amount of the First Priority Term Loan Commitments as of the Closing Date is $600,000,000.
"First Priority Term Loan Documents" means this Agreement and the Security Documents which relate to any of the First Priority Term Loan Obligations and all other agreements related thereto.
"First Priority Term Loan Guarantees" means the Guarantees by the Guarantors of the Borrower's and the other Guarantors' obligations with respect to First Priority Term Loan Obligations under this Agreement, as set forth in Article XI hereof.
"First Priority Term Loan Note" means a promissory note in the form of Exhibit F, evidencing a First Priority Term Loan.
"First Priority Term Loan Obligations" means the First Priority Term Loans and all other Obligations under the First Priority Term Loan Documents relating to such loans.
"First Priority Term Loan Secured Obligations Termination Date" means the date on which all First Priority Term Loan Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the First Priority Term Loan Documents even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash and all commitments to extend credit hereunder have been terminated.
"First Priority Term Loan Secured Parties" means the Administrative Agent, the Collateral Agent and the Lenders.
"First Priority Term Loans" is defined in the Recitals hereto.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred equity subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving Pro Forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
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(a) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries acquired by the specified Person or any of its Subsidiaries, and including any related financing transactions and including increases in ownership of Subsidiaries, during the applicable reference period or subsequent to such reference period and on or prior to the Calculation Date will be given Pro Forma effect as if they had occurred on the first day of such reference period;
(b) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(c) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date;
(d) any Person that is a Subsidiary on the Calculation Date will be deemed to have been a Subsidiary at all times during such reference period;
(e) any Person that is not a Subsidiary on the Calculation Date will be deemed not to have been a Subsidiary at any time during such reference period; and
(f) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire reference period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(a) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases, but excluding the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, under any Affiliate Subordinated Indebtedness; plus
(b) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, but excluding the consolidated capitalized interest of such Person and its Subsidiaries for such period under any Affiliate Subordinated Indebtedness; plus
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(c) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(d) the product of (i) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred equity of such Person or any of its Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of CalGen (other than Disqualified Stock) or to CalGen or a Subsidiary of CalGen, times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal,
in each case, on a consolidated basis and determined in accordance with GAAP.
"FPA" is defined in Section 4.18 (Governmental Regulation).
"Funding Notice" means a notice substantially in the form of Exhibit E.
"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the applicable date of determination.
"Goldendale Facility" means the Facility owned by Goldendale Energy Center, LLC.
"Governmental Authority" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"Governmental Rule" means any law, rule, regulation, ordinance, order, code interpretation, treaty, judgment, decree, directive, guidelines, policy or similar form of decision of any Governmental Authority.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantors" means
(a) CalGen Expansion Company; CPN Freestone, LLC; Calpine Freestone, LLC; Freestone Power Generation LP; Calpine Freestone Energy GP, LLC; Calpine Freestone Energy, LP; Calpine Power Equipment LP; Calpine Channel Energy Center LP, LLC; Calpine Channel Energy Center
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GP, LLC; Channel Power GP, LLC; Channel Power, LP; Channel Energy Center, LP; CalGen Equipment Finance Holdings, LLC; CalGen Project Equipment Finance Company One, LLC; CalGen Project Equipment Finance Company Three LLC; CalGen Equipment Finance Company, LLC; Nueces Bay Energy LLC; Calpine Northbrook Southcoast Investors, LLC; Calpine Corpus Christi Energy GP, LLC; Calpine Corpus Christi Energy, LP; Corpus Christi Cogeneration LP; Zion Energy LLC; Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Carville Energy LLC; Decatur Energy Center, LLC; Calpine Oneta Power I, LLC; Calpine Oneta Power II, LLC; Calpine Oneta Power, L.P.; Calpine Baytown Energy Center LP, LLC; Calpine Baytown Energy Center GP, LLC; Baytown Energy Center, LP; Baytown Power GP, LLC; Baytown Power, LP; Columbia Energy LLC; Delta Energy Center, LLC; CalGen Project Equipment Finance Company Two, LLC; Pastoria Energy Facility L.L.C.; and Calpine Pastoria Holdings, LLC; and
(b) any other Subsidiary of the Borrower that becomes a Guarantor in accordance with the provisions of this Agreement;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the Obligations of such Person under:
(a) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(b) other agreements or arrangements designed to manage interest rate risk; and
(c) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.
"Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
"Holding Companies" means
(a) Calpine Baytown Energy Center LP, LLC; Calpine Baytown Energy Center GP, LLC; Baytown Power GP, LLC; Baytown Power, LP; Channel Power, LP; Calpine Channel Energy Center LP, LLC; Calpine Channel Energy Center GP, LLC; Channel Power GP, LLC; Calpine Corpus Christi Energy GP, LLC; Calpine Corpus Christi Energy, LP; Nueces Bay Energy LLC; Calpine Northbrook Southcoast Investors, LLC; CPN Freestone, LLC; Calpine Freestone, LLC; Calpine Freestone Energy GP, LLC; Calpine Freestone Energy, LP; Calpine Oneta Power I, LLC; Calpine Oneta Power II, LLC; CalGen Equipment Finance Holdings, LLC; and Calpine Pastoria Holdings, LLC; and
24
(b) any other Subsidiary of the Borrower that becomes a Holding Company in accordance with the provisions of this Agreement;
and their respective successors and assigns.
"Holdings" is defined in the Recitals hereto.
"Increased-Cost Lender" is defined in Section 2.17 (Removal Replacement of a Lender).
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(a) in respect of borrowed money;
(b) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(c) in respect of bankers' acceptances;
(d) representing Capital Lease Obligations;
(e) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
(f) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(i) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(ii) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(iii) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(A) the Fair Market Value of such asset at the date of determination, and
(B) the amount of the Indebtedness of the other Person.
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Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation.
"Indemnified Liabilities" has the meaning assigned to it in the Collateral Trust Agreement.
"Indemnitee" is defined in Section 12.03 (Indemnity).
"Indentures" is defined in the Recitals hereto.
"Independent Engineer" means R.W. Beck or any other independent engineering company of national standing selected by the Borrower and reasonably acceptable to the Administrative Agent.
"Index Based Gas Sale and Power Purchase Agreement" means that certain Index Based Gas Sale and Power Purchase Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and CES.
"Index Hedge" means, collectively, (a) that certain ISDA Master Agreement (MULTICURRENCY-CROSS BORDER), dated as of March 12, 2004, between the Borrower and MSCG, as supplemented by that certain Schedule to the Master Agreement, dated as of March 12, 2004, between the Borrower and MSCG and by that certain Amended and Restated Confirmation, dated as of March 12, 2004, between the Borrower and MSCG, and (b) that certain Guaranty, dated as of March 12, 2004, by Morgan Stanley for the benefit of the Borrower.
"Insolvency Proceeding" means
(a) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Borrower or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Borrower or any other Obligor or any similar case or proceeding relative to the Borrower or any other Obligor or its creditors, as such, in each case whether or not voluntary;
(b) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Borrower or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or
(c) any other proceeding of any type or nature in which substantially all claims of creditors of the Borrower or any other Obligor are determined and any payment or distribution is or may be made on account of such claims.
"intellectual property rights" is defined in Section 4.09 (Intellectual Property Rights).
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"Interest Payment Date" means (a) July 1, 2004, (b) each October 1, January 1, April 1 and July 1 thereafter, and (c) in all cases, upon prepayment of any First Priority Term Loans (to the extent thereof and including any optional or mandatory prepayments or redemptions), upon conversion from a Base Rate Loan to a LIBOR Rate Loan or a LIBOR Rate Loan to a Base Rate Loan, and on the Maturity Date.
"Interest Period" means the period of one, two, three or six months, as selected by the Borrower in the applicable Continuation Notice commencing on the day on which the immediately preceding Interest Period expires; provided, (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) of this definition, end on the last Business Day of such calendar month; (c) no Interest Period shall extend beyond the Maturity Date; and (d) the first Interest Period is deemed to begin on the Closing Date and expire on March 31, 2004.
"Interest Rate Determination Date" means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period.
"Investment Company Act" is defined in Section 4.16 (Investment Company Act).
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Borrower or any of its Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Borrower such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Borrower, the Borrower will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Borrower's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of Section 5.04 (Restricted Payments). Except as otherwise provided in this Agreement, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
"Legal Requirements" means, as to any Person, the articles of incorporation, bylaws or other organizational or governing documents of such Person, and any requirement under a Permit, and any Governmental Rule in each case applicable to or binding upon such Person or any of its properties or to which such Person or any of its property is subject.
"Lender" means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.
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"LIBOR Rate" means, with respect to any LIBOR Rate Loan for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the applicable Interest Rate Determination Date by reference to the British Bankers' Association Interest Settlement Rates for deposits in dollars (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "LIBOR Rate" shall be the rate per annum at which the Administrative Agent or one of its affiliate banks offers to place deposits in Dollars with first-class banks in the London interbank market in London, England for such relevant Interest Period at approximately 11:00 a.m. (London time) on the applicable Interest Rate Determination Date, in amounts equal to $1,000,000.
"LIBOR Rate Loan" means a First Priority Term Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Lien Priority Confirmation" is defined in the Collateral Trust Agreement.
"Loan Agreements" means this Agreement, the Second Priority Term Loan Agreement and the Revolving Loan Agreement.
"Major Maintenance Expenses" means all costs, expenses, fees and other charges (including liquidated damages or other damages or penalties) incurred by the Borrower and its Subsidiaries during a period for major maintenance of the Facilities under the Master Maintenance Services Agreement or otherwise.
"Major Project Documents" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, the Index Based Gas Sale and Power Purchase Agreement, the Index Hedge, the Working Capital Facility, the Master Operation and Maintenance Agreement, the Master Maintenance Services Agreement, the Calpine Performance Guaranty, the Master Construction Management Agreement, the Calpine Project Undertaking and the Administrative Services Agreement.
"Mandatory Repayment Offer" is defined in Section 2.11 (Mandatory Repayment Offers).
"Master Construction Management Agreement" means that certain Master Construction Management Agreement, dated as of the date hereof, among the Borrower, Columbia Energy LLC, Goldendale Energy Center, LLC, Pastoria Energy Facility, LLC and Calpine Construction Management Company, Inc.
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"Master Maintenance Services Agreement" means that certain Master Maintenance Services Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and Calpine Operating Services Company, Inc.
"Master Operation and Maintenance Agreement" means that certain Master Operation and Maintenance Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and Calpine Operating Services Company, Inc.
"Material Adverse Effect" means a material adverse effect on (a) the current or reasonably anticipated business, property, results of operation or financial condition of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower and its Subsidiaries to perform their obligations under this Agreement and the other First Priority Term Loan Documents or (c) the value of, or the validity or priority of the Collateral Agent's security interests in, the Collateral taken as a whole.
"Materially Adverse" means, with respect to an event or circumstance, that such event or circumstance has had or is reasonably expected to have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole; it being understood that an event or circumstance would have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole, if the Excess Cash Flow for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event or circumstance occurred or commenced to exist, as applicable, would have decreased by more than 5.0%, determined on a Pro Forma basis.
"Maturity Date" means the earlier of (a) April 1, 2009 and (b) the date that all First Priority Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Mortgages" means each of the mortgages and deeds of trust encumbering any of the properties of any of the Guarantors including the Closing Date Mortgages and the mortgages and/or deeds of trust entered into pursuant to
Section 5.14 (Additional Subsidiaries).
"MSCG" means Morgan Stanley Capital Group, Inc.
"MSSF" means Morgan Stanley Senior Funding, Inc.
"Multiemployer Plan" means any "Multiemployer Plan" (as such term is defined in Section 3(37) or 4001(a)(3) of ERISA).
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(a) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale or (b) the
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disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and
(b) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means:
(a) the aggregate cash proceeds received by the Borrower or any of its Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, sales commissions, any relocation expenses incurred as a result of the Asset Sale, and any taxes paid or payable by the Borrower, any of its Subsidiaries or Calpine as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of the Asset Sale (other than Secured Obligations), and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP;
(b) all proceeds of any insurance, indemnity, warranty or guaranty payable from time to time with respect to any Casualty Event that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, other than business interruption insurance proceeds, net of the direct costs relating to the collection of such proceeds; and
(c) all payments (in any form whatsoever) made or due and payable from time to time in connection with any Condemnation Event by any governmental authority (or any Person acting under color of governmental authority) that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, net of the direct costs relating to the collection of such proceeds.
"Non-Consenting Lender" is defined in Section 2.17 (Removal or Replacement of a Lender).
"Non-U.S. Lender" is defined in Section 2.16 (Taxes; Withholding, etc.).
"Note Documents" means the Indentures, the Notes, the Note Guarantees, the Collateral Trust Agreement, each Sharing Confirmation, the other Security Documents which relate to any of the Note Obligations and all other agreements related thereto.
"Note Guarantee" means the Guarantee by each Guarantor of the Borrower's obligations under each Indenture and on the Notes issued in connection therewith, including the payment, when due and payable, of principal, interest and premium, if any, thereunder, executed pursuant to the provisions of each Indenture.
"Note Obligations" means the Notes, the Note Guarantees and all other Obligations of any Obligor under the Note Documents.
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"Notes" is defined in the Recitals hereto.
"Obligations" means any principal (including reimbursement obligations with respect to letters of credit whether or not drawn), interest, premium (if any), fees, indemnifications, reimbursements, expenses and other liabilities payable under the documentation governing or securing any Indebtedness.
"Obligor" means Holdings, the Borrower, the Guarantors and each other Subsidiary of the Borrower that has granted the Collateral Agent a Lien upon any of the Collateral as security for any Secured Obligations.
"Offer Amount" is defined in Section 2.11 (Mandatory Repayment Offers).
"Offer Period" is defined in Section 2.11 (Mandatory Repayment Offers).
"Offering Memorandum" means the Offering Memorandum dated March 17, 2004 of the Borrower and CalGen Finance, as amended or supplemented.
"Officer" means, with respect to any Person, the chairman of the board, the chief executive officer, the president, the chief operating officer, the chief financial officer, the treasurer, any assistant treasurer, the controller, the secretary or any vice-president of such Person.
"Officer's Certificate" means a certificate signed on behalf of the Borrower by one Officer of the Borrower that meets the requirements of Section 12.21.
"Other Taxes" means any and all present and future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any of the First Priority Term Loan Documents or from the execution, delivery or enforcement of, or otherwise with respect to, any of the First Priority Term Loan Documents.
"Payment Default" is defined in Section 7.01 (Events of Default).
"Payout Amount" is defined in Section 3.06(a)(iv) (Security).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
"Permitted Business" means the ownership, construction, operation and maintenance of the Closing Date Facilities and any substantially similar electric generating facilities located in the United States, together with any related assets or facilities, including gas pipelines supplying natural gas to such generating facilities, electric transmission lines carrying energy generated from such generating facilities, and any related gas or electric interconnection facilities.
"Permitted Counterparty Lien" means a Lien in favor of a counterparty under a PPA; provided, that the following conditions are satisfied:
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(a) the counterparty is not an Affiliate of the Borrower;
(b) the Lien does not secure any Indebtedness and (i) is granted solely to secure the performance obligations of the Borrower or the applicable Subsidiary under the PPA and/or any obligation of the Borrower or the applicable Subsidiary to make a termination payment under the PPA upon the occurrence of the event described in clause
(c)(iii)(A) below or the termination by the counterparty upon the occurrence of any of the events described in clause (c)(iii)(B) below, or (ii) creates rights designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA;
(c) the counterparty can exercise its rights with respect to the Lien only (i) for so long as the counterparty remains current with respect to all of its payment obligations under the PPA and is not otherwise in a continuing default under the PPA, (ii) if the counterparty continues to acknowledge the existence of the Liens securing the Secured Obligations (unless and until Liens securing the Secured Obligations are eliminated in connection with a foreclosure of the Permitted Counterparty Liens as contemplated by clause (d) of this definition), and (iii) if either (A) the Borrower or the applicable Subsidiary has terminated, rejected or repudiated the PPA (including any rejection or similar act by or on behalf of the Borrower or the applicable Subsidiary in connection with any bankruptcy proceeding) or (B) the Borrower or the applicable Subsidiary has intentionally breached its obligations under the PPA; provided, that the following actions will be considered an intentional breach by the Borrower or the applicable Subsidiary under the PPA: (1) the Borrower or the applicable Subsidiary provides or delivers capacity or energy to a third party if the Borrower or the applicable Subsidiary is required under the PPA to provide or deliver such capacity or energy to the counterparty; (2) the Borrower or the applicable Subsidiary of the Borrower fails to operate or attempt to operate one or more of the relevant Facilities at a time when the Borrower or the applicable Subsidiary of the Borrower was required, under the PPA, to operate or attempt to operate such Facility or Facilities and such operation or attempted operation is not prevented by force majeure, forced outage or other events or circumstances outside the reasonable control of the Person responsible therefor; (3) any failure by the Borrower or the applicable Subsidiary to comply with any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise take actions necessary to continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA, in each case to the extent the Borrower or the applicable Subsidiary is then capable of complying with such provisions; or (4) any failure by the Borrower or the applicable Subsidiary to pay to the counterparty any amount due and payable in accordance with the terms and conditions of the PPA; and
(d) the counterparty's exercise of its rights with respect to the Lien is limited to (i) the taking of actions pursuant to any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise necessary to continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA or
(i) the recovery of any termination
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payment due under the PPA upon the occurrence of the event described in clause (c)(iii)(A) above or the termination by the counterparty upon the occurrence of any of the events described in clause (c)(iii)(B) above.
"Permitted Debt" is defined in Section 5.06 (Incurrence of Indebtedness and Issuance of Preferred Equity).
"Permitted Investment" means:
(a) any Investment in the Borrower or in a Guarantor;
(b) (i) any Investment in the Goldendale Facility to finance the construction and completion of the Goldendale Facility and any other repairs, improvements or other capital expenditures necessary to operate and maintain such Facility in accordance with prudent industry practice, and (ii) any other Investment in the Goldendale Facility made with the proceeds of Equity Contributions, Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(c) any Investment in Cash Equivalents;
(d) any Investment by the Borrower or any Guarantor in a Person, if as a result of such Investment:
(i) such Person becomes a Wholly Owned Subsidiary of the Borrower and a Guarantor; or
(ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Borrower or a Guarantor;
(e) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 5.07 (Asset Sales; Application of Net Proceeds);
(f) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Borrower;
(g) any Investments received in compromise or resolution of
(i) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Borrower or any of its Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (ii) litigation, arbitration or other disputes with Persons who are not Affiliates;
(h) Investments represented by Hedging Obligations;
(i) repurchases of the Notes and other Secured Obligations;
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(j) negotiable instruments held for deposit or collection in the ordinary course of business; and
(k) other Investments in any Person other than an Affiliate of the Borrower having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (k) that are at the time outstanding, not to exceed $30,000,000.
"Permitted Liens" means:
(a) Liens in favor of the Collateral Agent Equally and Ratably securing the First Priority Notes, the First Priority Term Loans, the Revolving Loans and all other First Priority Lien Debt, all in an aggregate principal amount not exceeding the First Priority Lien Cap, and all related First Priority Lien Obligations;
(b) Liens in favor of the Collateral Agent Equally and Ratably securing the Second Priority Notes, the Second Priority Term Loans and all other Second Priority Lien Debt, all in an aggregate principal amount not exceeding the Second Priority Lien Cap, and all related Second Priority Lien Obligations;
(c) Liens in favor of the Collateral Agent Equally and Ratably securing the Third Priority Notes and all other Third Priority Lien Debt and all related Third Priority Lien Obligations;
(d) Liens in favor of the Borrower or the Guarantors;
(e) pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or operating leases to which such Person is a party;
(f) Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
(g) (i) Liens to secure Expansion Debt that encumber the Expansion Assets financed with the proceeds of such Expansion Debt and other Expansion Assets owned by the Person incurring such Expansion Debt (including any rights of such Person under Shared Facilities Arrangements), (ii) Liens to secure Expansion Debt that encumber the Capital Stock of CalGen Expansion Company; provided, that any such Capital Stock must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and (iii) if such Expansion Assets are not Excluded Assets and are part of the Collateral, Liens to secure Expansion Debt on the other property and assets of such Person; provided, that any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust
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Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(h) obligations under Shared Facilities Arrangements, to the extent such obligations constitute Liens, and Liens on Shared Facilities securing the Borrower's or the applicable Subsidiary's obligations under Shared Facilities Arrangements;
(i) Liens which constitute bankers' liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract;
(j) Liens existing on the Closing Date;
(k) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided, that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(l) Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the ordinary course of business; or Liens arising out of judgments that do not constitute a Default or an Event of Default;
(m) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(n) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Agreement; provided, however, that:
(i) the new Lien shall be limited to all or part of the same property and assets that secured the original Lien (plus repairs, improvements and additions to such property or assets); and
(ii) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (B) an amount necessary to pay any fees and expenses, including premiums, related to such Indebtedness;
(o) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to operating leases incurred in the ordinary course of business and not otherwise prohibited by this Agreement;
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(p) Liens not in respect of Indebtedness consisting of the interest of the lessor under any operating lease entered into in the ordinary course of business and not otherwise prohibited by this Agreement;
(q) Permitted Counterparty Liens;
(r) to the extent constituting Liens, obligations of the Borrower or its Subsidiaries under or restrictions imposed by any PPA Recognition Agreement;
(s) Liens on property and assets of the Borrower to secure Third Party Subordinated Indebtedness; provided, that all such property and assets must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to the Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of any Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(t) unperfected security interests to secure (i) intercompany Indebtedness permitted to be incurred under Section 5.06(b)(v) or (ii) Affiliate Subordinated Indebtedness permitted to be incurred under Section 5.06(b)(ix); and
(u) Liens incurred in the ordinary course of business of the Borrower or any Subsidiary of the Borrower with respect to obligations that do not exceed $50,000,000 at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Borrower or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Borrower or any of its Subsidiaries (other than intercompany Indebtedness); provided, that:
(a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);
(b) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(c) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the First Priority Term Loan Obligations, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the First Priority Term Loan Obligations on terms at least as favorable to the holders of the First Priority Term Loan Obligations as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
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(d) such Indebtedness is incurred either by the Borrower or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means without duplication as to amounts and as long as the Borrower is a pass-through entity for U.S. federal income tax purposes, payments to Calpine in an amount equal to the federal, state, local and foreign taxes (including any penalties and interest) that the Borrower would owe if the Borrower were a corporation for U.S. federal income tax purposes filing a consolidated or combined return with its Subsidiaries.
"Perpetual Preferred Stock" means, with respect to any Person, preferred Capital Stock of such Person that is not subject to mandatory redemption and is not Voting Stock.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"PPA" means an agreement (including a tolling agreement, fuel conversion services agreement or other similar agreement) entered into by the Borrower or any of its Subsidiaries for the sale of capacity or energy (and services ancillary or related thereto) from one or more of the Facilities.
"PPA Recognition Agreement" means an agreement by the Collateral Agent, on behalf of the holders of Secured Obligations, (a) to assume the rights and obligations of the Borrower or any of its Subsidiaries under the WECC Fixed Price Gas Sale and Power Purchase Agreement in the event of a foreclosure under any Financing Documents and (b) not to reject the WECC Fixed Price Gas Sale and Power Purchase Agreement in a Bankruptcy Case (subject to applicable law and the discretion of the bankruptcy court) so long as CES is not then in default under WECC Fixed Price Gas Sale and Power Purchase Agreement or the Index Based Gas Sale and Power Purchase Agreement, provided that such Recognition Agreement is substantially in the form attached as an exhibit to the Collateral Trust Agreement.
"preferred stock" means, with respect to any Person, any Capital Stock of such Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of the other Capital Stock issued by such Person.
"Prime Rate" means the prime lending rate published from time to time in the eastern edition of the Wall Street Journal. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged by the Administrative Agent or any Lender to any customer. The Administrative Agent or any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.
"Principal Office" means, for the Administrative Agent, its "Principal Office" as set forth on Appendix B, or such other office as the Administrative Agent (or any permitted successor or thereof) may from time to time designate in writing to the Borrower, the Collateral Agent and each Lender.
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"Pro Forma" means, with respect to a calculation, that such calculation is made in accordance with Regulation S-X under the Securities Act and gives effect to all relevant modifications to Major Project Documents and other contractual arrangements that have been made prior to, or are being made on, the calculation date and, in the case of a calculation for any period commencing prior to the Closing Date, all Major Project Documents and other contractual arrangements in effect on the Closing Date shall be deemed to have been in effect for the entirety of such period.
"Pro Rata Share" means, with respect to the First Priority Term Loans of any Lender, the percentage set forth after such Lender's name on Appendix A (as the same may be updated or adjusted from time to time to reflect any assignments made by any Lender hereunder).
"Projections" is defined in Section 3.19 (Delivery of Financials).
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"PURPA" is defined in Section 4.18 (Governmental Regulation).
"Purchase Agreement" means the Purchase Agreement, dated March 12, 2004, among the Borrower, CalGen Finance, the Guarantors and Morgan Stanley & Co. Incorporated as the initial purchaser.
"QF" means a "qualifying cogeneration facility" as defined under the FPA, as amended by PURPA and Subpart B of Part 292 of the FERC's regulations.
"Register" is defined in Section 2.04(b)(Evidence of Debt; Register).
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date hereof, among the Borrower, CalGen Finance, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, and the other Persons from time to time party thereto.
"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Related Fund" means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans similar to the First Priority Term Loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
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"Repayment Date" is defined in Section 2.11 (Mandatory Repayment Offers).
"Replacement Lender" is defined in Section 2.17 (Removal or Replacement of a Lender).
"Requisite Lenders" means one or more Lenders holding more than 50% of the sum of the aggregate outstanding First Priority Term Loans (or, at any time prior to the funding of the First Priority Term Loans, the First Priority Term Loan Commitments). For this purpose only, First Priority Term Loans registered in the name of, or beneficially owned by, the Borrower or any Affiliate of the Borrower shall be deemed not to be outstanding.
"Restricted Investments" means an Investment other than a Permitted Investment.
"Restricted Payment" is defined in Section 5.04 (Restricted Payments).
"Revenue Account" means account number A/C 65572-1 (short title: CALGEN REV A/C SUB SEC INT of WTC AS CA) in the name of the Borrower maintained at Wilmington Trust Company and any successor account or accounts.
"Revolver Administrative Agent" is defined in the Recitals hereto.
"Revolving Loan Agreement" is defined in the Recitals hereto.
"Revolving Loan Documents" means the Revolving Loan Agreement, any letters of credit issued thereunder, the Security Documents which relate to the Revolving Loan Obligations and all other agreements related thereto.
"Revolving Loan Guarantee" means the Guarantee made by each Guarantor of the Borrower's obligations under the Revolving Loan Agreement.
"Revolving Loan Obligations" means the Revolving Loans and all other Obligations related thereto under the Revolving Loan Documents.
"Revolving Loans" is defined in the Recitals hereto.
"R.W. Beck" means R.W. Beck, Inc.
"S&P" means Standard & Poor's Ratings Group.
"Second Priority Debt Representative" is defined in the Collateral Trust Agreement.
"Second Priority Indenture" is defined in the Recitals hereto.
"Second Priority Indenture Trustee" is defined in the Recitals hereto.
"Second Priority Lien" means a Lien granted by the Borrower or any Guarantor under a Security Document to the Collateral Agent upon any assets or property of the Borrower or any Guarantor to secure Second Priority Lien Obligations.
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"Second Priority Lien Cap" means as of any date, (a) the principal amount of Second Priority Notes, plus (b) the principal amount of all Indebtedness outstanding under the Second Priority Term Loan Agreement on the Closing Date, plus the Indebtedness outstanding under any other Credit Facility, all in an aggregate principal amount not to exceed the amount provided for in
Section 5.06(b)(i)(B), less (c) the amount of Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay Second Priority Lien Debt, plus (d) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses
(a) and (b), plus (e) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to other Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500,000,000. For purposes of this definition of Second Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"Second Priority Lien Debt" means, collectively, (a) the Second Priority Notes, (b) the Indebtedness under the Second Priority Term Loan Agreement, (c) Hedging Obligations incurred to hedge or manage interest rate risk with respect to other Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500,000,000, (d) Indebtedness under any other Credit Facility that is secured by a Second Priority Lien, and (e) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Second Priority Lien Debt or any First Priority Lien Debt; provided, however, in the case of clauses (c), (d) or (e) of this definition, such Indebtedness shall constitute Second Priority Lien Debt only if
(i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document), (ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each Second Priority Debt Representative and the Collateral Agent, as Second Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other Second Priority Lien Documents; (iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the applicable Second Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and (iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is Second Priority Lien Debt).
"Second Priority Lien Documents" means the Second Priority Notes, the Guarantees related thereto, the Second Priority Indenture, the Second Priority Term Loan Agreement, each agreement relating to any other series of Second Priority Lien Debt and all other agreements governing, securing or relating to any Second Priority Lien Obligations.
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"Second Priority Lien Obligations" means the Second Priority Lien Debt and all other Obligations in respect of Second Priority Lien Debt.
"Second Priority Notes" is defined in the Recitals hereto.
"Second Priority Secured Parties" shall mean the holders of the Second Priority Lien Obligations (including the holders of the Second Priority Notes, the Second Priority Term Loan Administrative Agent and the lenders under the Second Priority Term Loan Agreement).
"Second Priority Term Loan Administrative Agent" is defined in the Recitals hereto.
"Second Priority Term Loan Agreement" is defined in the Recitals hereto.
"Second Priority Term Loan Documents" means the Second Priority Term Loan Agreement and any security documents which relate to any of the Second Priority Term Loan Obligations and all other agreements related thereto.
"Second Priority Term Loan Obligations" means the Second Priority Term Loans and all other Obligations related thereto under the Second Priority Term Loan Documents.
"Second Priority Term Loans" is defined in the Recitals hereto.
"Secured Debt" means, collectively, First Priority Lien Debt, Second Priority Lien Debt and Third Priority Lien Debt.
"Secured Obligations" means, collectively, First Priority Lien Obligations, Second Priority Lien Obligations and Third Priority Lien Obligations.
"Secured Obligations Termination Date" means the date on which all Secured Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the First Priority Lien Documents, Second Priority Lien Documents or Third Priority Lien Documents, as applicable, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Financing Documents), all commitments to extend credit under all Financing Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Financing Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Secured Parties" means the First Priority Secured Parties, the Second Priority Secured Parties and the Third Priority Secured Parties.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Documents" means the Collateral Trust Agreement, and all security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, control agreements, deeds of trust or other grants or transfers for security executed and delivered by Holdings, the Borrower or any Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Agent with respect to the First Priority Term Loan Obligations.
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"SEC" means the Securities and Exchange Commission.
"SERC" means the Southeastern Electric Reliability Council and any successor organization.
"Shared Facilities" means equipment, facilities, pipelines, permits, real estate rights, entitlements or other property that are shared or jointly used, owned or operated by the Borrower or any of its Subsidiaries and any owner of Expansion Assets.
"Shared Facilities Arrangement" means any arrangement that provides for the sharing, joint operation or use, common ownership, leasing or contingent use of Shared Facilities between the Borrower or any of its Subsidiaries and any owner of Expansion Assets or Toll Party (as defined below), and/or their respective lenders, including (a) agreements for the sharing or joint use or operation of Shared Facilities, (b) ownership of undivided interests in Shared Facilities as tenants in common or other similar forms of joint ownership, (c) leasing of Shared Facilities by the Borrower or any of its Subsidiaries to an owner of Expansion Assets, (d) ownership of Shared Facilities by a single purpose entity formed solely to own the Shared Facilities and owned by the Borrower or any of its Subsidiaries or jointly owned by the Borrower or any of its Subsidiaries and the owner of the Expansion Assets, (e) tolling agreements between the Borrower or any of its Subsidiaries and any other Person (the "Toll Party") with respect to a Facility's steam turbine, (f) granting of conditional or unconditional real estate rights for the construction, installation or use of Shared Facilities, (g) Liens on the Shared Facilities or interests therein to secure any such arrangement; provided, that the Borrower shall deliver to the Collateral Agent an Officer's Certificate to the effect that, and, with respect to items (c) and (d) below, a nationally-recognized independent engineer will deliver a report concluding that (subject to customary assumptions and qualifications):
(a) the ownership, operation, leasing or use of such Shared Facilities by the owner of Expansion Assets (including the use of the steam turbine by the Toll Party) cannot unreasonably interfere with or otherwise materially adversely affect the operation of the Facility;
(b) the owner of the Facility (or another entity on such owner's behalf) continues to operate and maintain the Facility and the Shared Facilities;
(c) the costs of operating and maintaining the Shared Facilities are shared by the owner of the Facility and the owner of the Expansion Assets or the Toll Party, as applicable, on an equitable basis;
(d) the Shared Facilities and the entitlements related thereto are sufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, or, to the extent the Shared Facilities or the entitlements related thereto are insufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, the Facility will have priority with respect to such Shared Facilities or entitlements, so
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long as the Facility is operated within the requirements, operating restrictions and other limitations associated with such Shared Facilities or entitlements;
(e) the holder of the Expansion Assets or the Toll Party, as applicable, will not have any rights with respect to the sale or other disposition of, or exercise of remedies with respect to, the Facility, so long as the Shared Facilities remain subject to the Shared Facilities Arrangements;
(f) each party waives the defense that an adequate remedy exists at law and affords the other party (and its lenders or agents on behalf of such lenders) the right to specifically enforce the agreement; and
(g) the owner of the Expansion Assets or the Toll Party, as applicable, cannot prevent a dismantling of the Facility and the receipt by the holders of the Secured Debt of the proceeds of the sale thereof, so long as (i) such owner or Toll Party, as applicable, is given an option to purchase the Shared Facilities at their Fair Market Value, as determined by appraisal, prior to dismantling of the Facility, (ii) such owner or Toll Party, as applicable, is given a right of first refusal to acquire the Shared Facilities in the event they are offered for sale in connection with the dismantling of the Facility, and (iii) the owner of the Facility cooperates with the owner of the Expansion Assets or the Toll Party, as applicable, in accommodating the continued use and operation of the Expansion Assets and the Shared Facilities to the maximum extent reasonably possible notwithstanding the dismantling of the Facility, including providing reasonable periods for and cooperating in the modification of the Shared Facilities.
"Sharing Confirmation" means, as the context requires, First Priority Debt Sharing Confirmation, Second Priority Debt Sharing Confirmation or Third Priority Debt Sharing Confirmation, in each case as defined in the Collateral Trust Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof.
"Sole Lead Arranger" means MSSF.
"Stated Maturity" means, with respect to any installment of interest or principal on any Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Affiliate Subordinated Indebtedness, Working Capital Facility Indebtedness or Third Party Subordinated Indebtedness.
"Subsidiary" means, with respect to any specified Person,
(a) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the
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occurrence of any contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(b) any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
"Synthetic Lease Obligations" means all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease or (b) an agreement for the use or possession of any property (whether real, personal or mixed) creating obligations which do not appear on the balance sheet of such Person, but which, upon the insolvency or bankruptcy of such Person, would be characterized as Indebtedness of such Person (without regard to accounting treatment).
"Tax" means any present or future tax, levy, impost, charge, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed by a taxing authority other than a "Tax on the overall net income" of any Person. A "Tax on the overall net income" of a Person shall be construed as a reference to a tax (including U.S. backup withholding taxes) imposed by the jurisdiction in which that Person is organized or in which that Person's applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).
"Terminated Lender" is defined in Section 2.17 (Removal or Replacement of a Lender).
"Term Loan Agreements" is defined in the Recitals hereto.
"Term Loans" is defined in the Recitals hereto.
"Third Party Project Documents" means the agreements listed on Schedule A.
"Third Party Subordinated Indebtedness" means Indebtedness loaned to the Borrower by a Person other than an Affiliate of the Borrower; provided, that such Indebtedness (a) is contractually subordinated in right of payment to the First Priority Term Loans and all other Secured Obligations on the terms described in Exhibit A, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (b) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the First Priority Term Loans, (c) provides for payment of interest thereon in the form of cash or additional Third Party Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and
(d) is otherwise in the form set forth in Exhibit A.
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"Third Priority Debt Representative" is defined in the Collateral Trust Agreement.
"Third Priority Fixed Rate Notes" is defined in the Recitals hereto.
"Third Priority Floating Rate Notes" is defined in the Recitals hereto.
"Third Priority Indenture" is defined in the Recitals hereto.
"Third Priority Indenture Trustee" is defined in the Recitals hereto.
"Third Priority Lien Debt" means, collectively, (a) the Third Priority Floating Rate Notes and the Third Priority Fixed Rate Notes; (b) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire First Priority Lien Debt, Second Priority Lien Debt or other Third Priority Lien Debt; and (c) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Third Priority Lien Debt having a notional amount not to exceed the aggregate principal amount of outstanding Third Priority Lien Debt; provided, that, in the case of any Indebtedness referred to in clause (b) or (c) of this definition:
(i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document);
(ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each Third Priority Debt Representative and the Collateral Agent, as Third Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other Third Priority Lien Documents;
(iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation and an agreement by the holder of such Indebtedness and the applicable Third Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and
(iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is Third Priority Lien Debt).
"Third Priority Lien Documents" means the Third Priority Floating Rate Notes and the Third Priority Fixed Rate Notes, the Guarantees related thereto, the Third Priority Indenture, each agreement governing any other series of Third Priority Lien Debt and all other agreements governing, securing or relating to any Third Priority Lien Obligations.
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"Third Priority Lien Obligations" means the Third Priority Lien Debt and all other Obligations in respect of Third Priority Lien Debt.
"Third Priority Secured Parties" shall mean the holders of the Third Priority Lien Obligations (including the holders of the Third Priority Fixed Rate Notes and the holders of the Third Priority Floating Rate Notes).
"Title Company" means Stewart Title Guaranty Company.
"TPUC" is defined in Section 4.18(d).
"Type of Loan" means, with respect to any First Priority Term Loan, a Base Rate Loan or a LIBOR Rate Loan.
"U.S." means the United States of America.
"UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"WECC" means the Western Electricity Coordinating Council and any successor organization.
"WECC Fixed Price Gas Sale and Power Purchase Agreement" means that certain WECC Fixed Price Gas Sale and Power Purchase Agreement, dated as of the date hereof, among the Borrower, certain Facility Owners and CES.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(a) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(b) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) will at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means that certain Working Capital Facility, dated as of the date hereof, among the Borrower, Holdings and Calpine.
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"Working Capital Facility Indebtedness" means Indebtedness incurred by the Borrower under the Working Capital Facility; provided, that such Indebtedness (a) is contractually subordinated in right of payment and in all other respects to the First Priority Term Loans and all other Secured Obligations on the terms described in Exhibit A including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (b) does not provide for mandatory redemption thereof until at least six months after the Maturity Date, (c) provides for payment of interest thereon in the form of cash or by capitalizing the interest to principal, and (d) is otherwise in the form set forth in Exhibit A.
SECTION 1.02. Rules of Construction.
Unless the context otherwise requires:
(a) An accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.
(b) Any of the terms used or defined herein may be used in the singular or the plural, depending on the reference.
(c) Except as expressly provided in any First Priority Term Loan Document, any reference to any agreement or instrument shall be deemed to include a reference to such agreement or instrument as assigned, amended, amended and restated, supplemented, otherwise modified from time to time or replaced in accordance with the terms of this Agreement.
(d) The use in this Agreement or any of the First Priority Term Loan Documents of the word "include" or "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. The word "will" shall be construed to have the same meaning and effect as the word "shall."
(e) References to "Articles", "Sections" and "clauses" shall be to Articles, Sections and clauses, respectively, of this Agreement unless otherwise specifically provided.
(f) References to "Exhibits", "Appendices" and "Schedules" shall be to Exhibits, Appendices and Schedules, respectively, to this Agreement unless otherwise specifically provided.
(g) The use in this Agreement of the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof.
(h) This Agreement, the other First Priority Term Loan Documents and any documents or instruments delivered pursuant hereto or thereto shall be construed without regard to the identity of the party who drafted the various provisions of the same. Each and every provision of this Agreement, the other First Priority Term Loan Documents and instruments and
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documents entered into and delivered in connection therewith shall be construed as though the parties participated equally in the drafting of the same. Consequently, each of the parties acknowledges and agrees that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or the other First Priority Term Loan Documents and instruments and documents entered into and delivered in connection therewith.
ARTICLE II.
THE FIRST PRIORITY TERM LOANS
SECTION 2.01. First Priority Term Loans.
(a) First Priority Term Loan Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, a First Priority Term Loan to the Borrower in an amount equal to such Lender's First Priority Term Loan Commitment. The Borrower may make only one borrowing under the First Priority Term Loan Commitment, which shall be on the Closing Date. Any amount borrowed under this Section and subsequently repaid or prepaid may not be reborrowed. All amounts owed hereunder with respect to the First Priority Term Loans shall be paid in full no later than the Maturity Date. Each Lender's First Priority Term Loan Commitment shall terminate immediately and without further action upon the funding by such Lender of its First Priority Term Loan Commitment.
(b) Borrowing Mechanics for First Priority Term Loans.
(i) On or before the date which is three Business Days prior to the Closing Date, the Borrower shall deliver to the Administrative Agent a fully executed Funding Notice, which Funding Notice shall be in the form of Exhibit E. Promptly upon receipt by the Administrative Agent of such Funding Notice, the Administrative Agent shall notify each Lender of the proposed borrowing.
(ii) Each Lender shall make each First Priority Term Loan to be made by it hereunder available to the Administrative Agent not later than 12:00 noon (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at the Principal Office. Upon satisfaction or waiver of the conditions precedent specified in Article III and subject to Section 2.02(b) (Pro Rata Shares; Availability of Funds) below, the Administrative Agent shall make the proceeds of the First Priority Term Loans available to the Borrower on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such First Priority Term Loans received by the Administrative Agent from the Lenders to be credited to one or more accounts as may be designated in writing to the Administrative Agent by the Borrower.
SECTION 2.02. Amount of First Priority Term Loans; Availability of Funds.
(a) Amount of First Priority Term Loans. All First Priority Term Loans shall be made by the Lenders simultaneously in the amount of their respective First Priority Term Loan Commitments, it being understood that no Lender shall be responsible for any default by any
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other Lender in such other Lender's obligation to make a First Priority Term Loan hereunder nor shall any First Priority Term Loan Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a First Priority Term Loan hereunder.
(b) Availability of Funds. Unless the Administrative Agent shall have been notified by any Lender prior to the Closing Date that such Lender does not intend to make available to the Administrative Agent the amount of such Lender's First Priority Term Loan, the Administrative Agent may assume that such Lender has made and will make such amount available to the Administrative Agent on the Closing Date and the Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to the Borrower a corresponding amount on the Closing Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from the Closing Date until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent together with interest thereon, for each day from the Closing Date until the date such amount is paid to the Administrative Agent, at the rate payable hereunder for First Priority Term Loans. Nothing in this Section 2.02(b) shall be deemed to relieve any Lender from its obligation to fulfill its First Priority Term Loan Commitments hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder.
SECTION 2.03. Use of Proceeds. The proceeds of the First Priority Term Loans shall be applied (together with the net proceeds from the making of the Second Priority Term Loans and the issuance of the Notes) by the Borrower to prepay and retire the Existing Senior Secured Credit Facility and to pay certain fees and expenses due under this Agreement and the other Financing Documents in connection therewith. No portion of the proceeds of any First Priority Term Loans shall be used in any manner that causes or might cause the funding of the First Priority Term Loans or the application of such proceeds to violate Regulation T, Regulation U or Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act.
SECTION 2.04. Evidence of Debt; Register; Lenders' Books and Records; Notes.
(a) Lenders' Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of the Borrower to such Lender, including the amounts of the First Priority Term Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on the Borrower, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's Obligations in respect of any First Priority Term Loan; and provided further, that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern.
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(b) Register. The Administrative Agent shall maintain at the Principal Office a register for the recordation of the names and addresses of the Lenders and the First Priority Term Loans made by each Lender from time to time (the "Register"). The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall record in the Register the First Priority Term Loans, and each repayment or prepayment in respect of the principal amount of the First Priority Term Loans, and any such recordation shall be conclusive and binding on the Borrower and each Lender, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's Obligations in respect of any First Priority Term Loan. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent solely for purposes of maintaining the Register as provided in this Section 2.04, and the Borrower hereby agrees that, to the extent the Administrative Agent serves in such capacity, the Administrative Agent and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees" under Section 12.03 (Indemnity).
(c) First Priority Term Loan Notes. If so requested by any Lender by written notice to the Borrower (with a copy to the Administrative Agent) at any time, the Borrower shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 12.06 (Successors and Assigns; Participations)) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after the Borrower's receipt of such notice), a First Priority Term Loan Note to evidence such Lender's First Priority Term Loan.
SECTION 2.05. Interest.
(a) Except as otherwise set forth herein, the First Priority Term Loans shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:
(i) if a Base Rate Loan, at the Base Rate plus 2.75% per annum; or
(ii) if a LIBOR Rate Loan, at the Adjusted LIBOR Rate plus 3.75% per annum.
Notwithstanding anything contained herein to the contrary, during the period from the Closing Date through March 31, 2004, the First Priority Term Loans shall bear interest on the unpaid principal amount thereof at 5.00% per annum.
(b) The Type of Loan, and the Interest Period with respect to any LIBOR Rate Loan, shall be selected by the Borrower and notified to the Administrative Agent and the Lenders pursuant to the applicable Continuation Notice. If on any day a First Priority Term Loan is outstanding with respect to which a Funding Notice or Continuation Notice has not been delivered to the Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such First Priority Term Loan shall be a Base Rate Loan. Notwithstanding the foregoing, during the period from the Closing Date through March 31, 2004, the First Priority Term Loans shall be deemed to be
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LIBOR Rate Loans and shall have the "Interest Period" contemplated by clause (d) of the definition thereof.
(c) In connection with LIBOR Rate Loans there shall be no more than five Interest Periods outstanding at any time. In the event that the Borrower fails to specify the Type of Loan in the applicable Funding Notice or Continuation Notice, such First Priority Term Loan (if outstanding as a LIBOR Rate Loan) will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such First Priority Term Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan). In the event that the Borrower fails to specify an Interest Period for any LIBOR Rate Loan in the applicable Funding Notice or Continuation Notice, the Borrower shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Rate Loans for which an interest rate is then being determined for the applicable Interest Period and, upon the request of the Borrower, shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and each Lender.
(d) Interest payable pursuant to Section 2.05(a) shall be computed (i) in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of LIBOR Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any First Priority Term Loan, the date of the making of such First Priority Term Loan or the first day of an Interest Period applicable to such First Priority Term Loan or, with respect to a Base Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such First Priority Term Loan or the expiration date of an Interest Period applicable to such First Priority Term Loan or, with respect to a Base Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such Base Rate Loan to such LIBOR Rate Loan, as the case may be, shall be excluded; provided, if a First Priority Term Loan is repaid on the same day on which it is made, one day's interest shall be paid on that First Priority Term Loan.
(e) Except as otherwise set forth herein, interest on each First Priority Term Loan shall be payable in arrears on and to each Interest Payment Date applicable to that First Priority Term Loan.
SECTION 2.06. Continuation Notice.
(a) Subject to Section 2.15 (Increased Costs; Capital Adequacy) and so long as no Default or Event of Default shall have occurred and then be continuing, the Borrower shall have the option:
(i) to convert at any time all or any part of any First Priority Term Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a LIBOR Rate Loan
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may only be converted on the expiration of the Interest Period applicable to such LIBOR Rate Loan unless the Borrower shall pay all amounts due under Section 2.14 (Making or Maintaining First Priority Term Loans) in connection with any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any LIBOR Rate Loan, to continue all or any portion of such First Priority Term Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount as a LIBOR Rate Loan.
(b) The Borrower shall deliver a Continuation Notice to the Administrative Agent no later than 10:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBOR Rate Loan). Except as otherwise provided herein, a Continuation Notice for conversion to, or continuation of, any LIBOR Rate Loans shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to effect a conversion or continuation in accordance therewith. In the event that the Borrower shall have failed to provide a Continuation Notice as required by this Section 2.06(b) to continue any LIBOR Rate Loan into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.06(b) to convert such LIBOR Rate Loan into a Base Rate Loan), then such LIBOR Rate Loan shall, at the end of the applicable Interest Period, automatically be converted into a Base Rate Loan.
(c) Any Continuation Notice shall be executed by an Officer of the Borrower in a writing delivered to the Administrative Agent. In lieu of delivering a written notice, the Borrower may give the Administrative Agent telephonic notice by the required time of any continuation; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Continuation Notice to the Administrative Agent on or before the applicable date of continuation. Neither the Administrative Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer or other Person authorized on behalf of the Borrower or otherwise acting in good faith
SECTION 2.07. Default Interest. Notwithstanding anything to the contrary herein, upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all First Priority Term Loans and, to the extent permitted by applicable Legal Requirements, any accrued but unpaid interest payments thereon and any accrued but unpaid fees and other amounts hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under applicable Bankruptcy Laws) payable upon demand at a rate that is (a) 2% per annum in excess of the interest rate then otherwise payable under this Agreement with respect to the applicable First Priority Term Loans or (b) in the case of any such fees and other amounts, at a rate that is 2% per annum in excess of the interest rate then otherwise payable under this Agreement for Base Rate Loans (the "Default Rate"); provided that if an Event of Default has occurred and is continuing on the expiration date of the Interest Period for any LIBOR Rate Loans, then such LIBOR Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate that is 2% per annum in excess of the interest rate then otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.07 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or
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otherwise prejudice or limit any rights or remedies of the Administrative Agent, the Collateral Agent or any Lender.
SECTION 2.08. Fees. The Borrower agrees to pay to each Agent such fees in the amounts and at the times separately agreed upon by the Borrower and such Agent in writing.
SECTION 2.09. Payments. The principal amounts of the First Priority Term Loans (reduced in connection with any voluntary or mandatory prepayments of the First Priority Term Loans, in accordance with Sections 2.10 (Voluntary Prepayments) and 2.11 (Mandatory Repayment Offers), as applicable) shall be repaid by the Borrower in accordance with the repayment schedule set forth on Schedule 2.09, with any remaining unpaid principal, interest, fees and costs due and payable in full on the Maturity Date.
SECTION 2.10. Voluntary Prepayments.
(a) Voluntary Prepayments.
(i) The Borrower may not voluntarily prepay First Priority Term Loans except as provided in clause (b) below. In the event of any voluntary prepayment in accordance with clause (b), the Borrower may prepay any such First Priority Term Loans on any Business Day in whole or in part, in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 (or the remaining amount outstanding) in excess of that amount.
(ii) All such prepayments shall be made:
(A) upon not less than one Business Day's prior written, email or telephonic notice in the case of Base Rate Loans; and
(B) upon not less than three Business Days' prior written, email or telephonic notice in the case of LIBOR Rate Loans;
in each case given to the Administrative Agent by 1:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to the Administrative Agent (and the Administrative Agent will promptly transmit such telephonic or original notice, by telefacsimile or telephone to each Lender). Upon the giving of any such notice, the principal amount of the First Priority Term Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any prepayment of any First Priority Term Loan pursuant to this Section shall be applied in inverse order of maturities and otherwise in accordance with Section 2.12 (General Provisions Regarding Payments).
(b) First Priority Term Loan Call Protection.
(i) The First Priority Term Loans may not be voluntarily prepaid at any time on or prior to April 1, 2007;
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(ii) The Borrower may, at its option, upon notice as provided in clause (a) above, prepay at any time all, or from time to time any part of, the First Priority Term Loans, if such prepayment is after April 1, 2007 but on or before April 1, 2008, in an amount equal to 102.5% of the principal amount so prepaid, plus all other amounts owed hereunder in connection with such prepayment, including amounts payable under Sections 2.05 (Interest) and 2.14 (Making or Maintaining First Priority Term Loans) hereof; and
(iii) Subject to clause (a) above, First Priority Term Loans may be prepaid at any time without premium or penalty after April 1, 2008.
SECTION 2.11. Mandatory Repayment Offers.
(a) In the event that, pursuant to Section 5.07 (Asset Sales; Application of Net Proceeds) or Section 5.12 (Offer to Prepay Upon Change of Control), the Borrower shall elect to repay or be required to offer to prepay First Priority Term Loans, then the Borrower shall make an offer to each Lender (a "Mandatory Repayment Offer") in accordance with the following the procedures specified below:
(i) The Mandatory Repayment Offer shall be made by the Borrower within 30 days following (A) the receipt by the Borrower or any of its Subsidiaries of Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event or (B) a Change of Control, as applicable, and shall remain open until 5:00 p.m. (New York City time) on the date specified in such Mandatory Repayment Offer, which date shall be no earlier than 30 days and no later than 60 days from the date such Mandatory Repayment Offer was made, except to the extent that a longer period is required by applicable law (the "Offer Period");
(ii) The Borrower shall make the Mandatory Repayment Offer by sending a notice to the Administrative Agent (for delivery to each Lender). The notice shall contain all instructions and materials necessary to enable the Lenders to accept the Mandatory Repayment Offer for all of their First Priority Term Loans pursuant to the Mandatory Repayment Offer. The Mandatory Repayment Offer shall be made to all Lenders. The notice, which shall govern the terms of the Mandatory Repayment Offer, shall state:
(A) that the Mandatory Repayment Offer is being made pursuant to this Section 2.11 and Section 5.07 (Asset Sales; Application of Net Proceeds) or Section 5.12 (Offer to Prepay Upon Change of Control), as applicable, and the date on which the Mandatory Repayment Offer shall end;
(B) the total amount the Borrower is offering to prepay (the "Offer Amount") and the Repayment Date therefor;
(C) that, unless the Borrower defaults in making such payment, any First Priority Term Loan with respect to which a Lender accepts the Mandatory Repayment Offer shall cease to accrue interest from and after the Repayment Date;
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(D) that a Lender that accepts a Mandatory Repayment Offer must accept such Mandatory Repayment Offer with respect to all (but not part) of its First Priority Term Loans (up to the amount of such Lender's First Priority Term Loans that the Borrower is offering to prepay);
(E) that the Lenders shall be entitled to withdraw their acceptance of a Mandatory Repayment Offer if the Borrower and the Administrative Agent receive, not later than the expiration of the Offer Period, a notice setting forth the name of the Lender, the principal amount of the First Priority Term Loans for which the Lender previously accepted such Mandatory Repayment Offer and a statement that such Lender is rescinding its acceptance of such Mandatory Repayment Offer; and
(F) in the case of a Mandatory Repayment Offer being made pursuant to Section 5.07 (Asset Sales; Application of Net Proceeds), that if the aggregate principal amount of First Priority Term Loans for which the Mandatory Repayment Offer is accepted by the Lenders exceeds the Offer Amount, then the Administrative Agent shall select the First Priority Term Loans to be purchased in accordance with Section 2.12(c) (General Provisions Regarding Payments).
(iii) On or before the fifth day after the termination of the Offer Period (the "Repayment Date"), the Borrower shall (A) to the extent lawful, pay, in accordance with Section 2.12(c) (General Provisions Regarding Payments), the amount of First Priority Term Loans with respect to which the Mandatory Repayment Offer was accepted, and
(B) deliver to the Administrative Agent (for delivery to the Lenders) an Officer's Certificate stating the amount of the First Priority Term Loans to be repaid in accordance with the terms of this Section 2.11. The Administrative Agent shall promptly forward the appropriate amount to each Lender being repaid.
(b) In the event that one or more, but not all, Lenders have not elected to participate in any Mandatory Repayment Offer made pursuant to Section
5.07 (Asset Sales; Application of Net Proceeds), the Borrower shall, upon the end of the Offer Period, immediately commence a second Mandatory Repayment Offer in accordance with the procedure provided in clause (a) of this Section 2.11, provided that such subsequent offer shall only be made to Lenders who elected to participate in the initial Mandatory Repayment Offer and, provided, further, that the Borrower shall not be required to make more than one such subsequent offer with respect to each initial Mandatory Repayment Offer.
SECTION 2.12. General Provisions Regarding Payments.
(a) All payments by the Borrower or any Guarantor of principal, interest, fees and other First Priority Term Loan Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to the Administrative Agent not later than 1:00 p.m. (New York City time) on the date due at the Administrative Agent's Principal Office for the account of the Administrative Agent or the Lenders, as the case may be. Funds received by the Administrative Agent after that time on such
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due date shall be deemed to have been paid by the Borrower or the applicable Guarantor on the next succeeding Business Day.
(b) All payments in respect of the principal amount of any First Priority Term Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any First Priority Term Loan on a date when interest is due and payable with respect to such First Priority Term Loan) shall be applied to the payment of interest before application to principal.
(c) The Administrative Agent shall promptly distribute to each Lender, at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, except that prepayment offers accepted by Lenders pursuant to Section 2.11 (Mandatory Repayment Offer), and in respect of the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event, shall be allocated to the accepting Lenders ratably in proportion to the principal amount of First Priority Term Loans outstanding to each accepting Lender (and not to all Lenders based on Pro Rata Shares), together with all other amounts due thereon, including all fees payable with respect thereto, to the extent received by the Administrative Agent.
(d) Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be due on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder.
(e) The Borrower hereby authorizes the Administrative Agent to charge the Borrower's accounts (if any) with the Administrative Agent in order to cause timely payment to be made to the Administrative Agent of all principal, interest, fees and expenses due hereunder (to the extent there are funds available in its accounts for that purpose) upon the occurrence and during the continuation of any Event of Default in respect of its payment obligations hereunder.
(f) The Administrative Agent shall deem any payment by or on behalf of the Borrower hereunder that is not made in same day funds prior to 1:00 p.m. (New York City time) on the date therefor to be a non-conforming payment. Any such payment shall not be deemed to have been received by the Administrative Agent until the later of (i) the time such funds become available funds, and
(ii) the applicable next Business Day. The Administrative Agent shall give prompt telephonic notice to the Borrower and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 7.01 (Events of Default). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.07 (Default Interest) from the date such amount was due and payable until the date such amount is paid in full.
SECTION 2.13. Ratable Sharing. The Lenders hereby agree among themselves that, except in the case of prepayments pursuant to Section 2.11 (Mandatory Repayment Offers), if any of them shall, whether by voluntary payment (other than a voluntary prepayment of First Priority Term Loans made and applied in accordance with the terms hereof), through the exercise
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of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the First Priority Term Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Law, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other First Priority Term Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify the Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each Lender that is deemed to be the seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders, so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to each of them, respectively; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of the Borrower or otherwise, the foregoing purchases of participations shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender(s) ratably to the extent of such recovery, but without interest. The Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Borrower to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.
SECTION 2.14. Making or Maintaining First Priority Term Loans.
(a) Inability to Determine Applicable Interest Rate. In the event that the Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto absent manifest error), on any Interest Rate Determination Date with respect to any First Priority Term Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such First Priority Term Loans on the basis provided for in the definition of Adjusted LIBOR Rate, the Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and each Lender of such determination, whereupon (i) no First Priority Term Loans may be made or maintained with an interest rate based on the Adjusted LIBOR Rate, and instead will be made and maintained with an interest rate equal to the Base Rate plus 2.75% per annum, until such time as the Administrative Agent notifies the Borrower and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Continuation Notice given by the Borrower with respect to the First Priority Term Loans in respect of which such determination was made shall be deemed to be rescinded by the Borrower.
(b) Illegality or Impracticability of using the Adjusted LIBOR Rate. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with the Borrower and the Administrative Agent) that the making, maintaining or continuation of its First Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate (i) has become unlawful as
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a result of compliance by such Lender in good faith with any Legal Requirement or would conflict with any treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful, or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and on that day it shall give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (A) the obligation of the Affected Lender to make or maintain First Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate shall be suspended until such notice shall be withdrawn by the Affected Lender, (B) to the extent such determination by the Affected Lender relates to a First Priority Term Loan then being requested by the Borrower pursuant to a Funding Notice or a Continuation Notice, the Affected Lender shall make such First Priority Term Loan as (or continue such First Priority Term Loan as) a First Priority Term Loan with an interest rate equal to the Base Rate plus 2.75% annum, (C) the Affected Lender's obligation to maintain its outstanding First Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (D) the Affected Loans shall automatically convert into First Priority Term Loans with an interest rate equal to the Base Rate plus 2.75% per annum on the date of such termination. Except as provided in the immediately preceding sentence, nothing in this Section 2.14(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain First Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate in accordance with the terms hereof.
(c) Compensation for Breakage or Non-Commencement of Interest Periods. The Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its First Priority Term Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits (such anticipated profits being the 3.75% spread over the Adjusted LIBOR Rate) which such Lender may sustain within an Interest Period: (i) if any prepayment or other principal payment of any of its First Priority Term Loans occurs on a date prior to the last day of an Interest Period applicable to that First Priority Term Loan (including pursuant to Section 2.10 (Voluntary Prepayments), 2.11 (Mandatory Repayment Offers), 5.07 (Asset Sales; Application of Net Proceeds) and 5.12 (Offer to Prepay Upon Change of Control); or (ii) if any prepayment of any of its First Priority Term Loans is not made on any date specified in a notice of prepayment given by the Borrower.
(d) Booking of First Priority Term Loans. Any Lender may make, carry or transfer First Priority Term Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
(e) Assumptions Concerning Funding of First Priority Term Loans. Calculation of all amounts payable to a Lender under this Section 2.14 and under
Section 2.15 (Increased Costs; Capital Adequacy) shall be made as though such Lender had actually funded each of its relevant
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First Priority Term Loans through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to clause (b) of the definition of Adjusted LIBOR Rate in an amount equal to the amount of such First Priority Term Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such LIBOR deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, each Lender may fund each of its First Priority Term Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.14 and under
Section 2.15 (Increased Costs; Capital Adequacy).
SECTION 2.15. Increased Costs; Capital Adequacy.
(a) Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.16 (Taxes; Withholding, etc.) (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any Legal Requirement, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new Legal Requirement), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law):
(i) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to any First Priority Term Loans that are reflected in the definition of Adjusted LIBOR Rate); or
(ii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining First Priority Term Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Borrower shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.15(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
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(b) Capital Adequacy Adjustment. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any Legal Requirement (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's First Priority Term Loans, or participations therein or other obligations hereunder with respect to the First Priority Term Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by the Borrower from such Lender of the statement referred to in the next sentence, the Borrower shall pay to such Lender such additional amount or amounts as shall compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.15(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
SECTION 2.16. Taxes; Withholding, etc.
(a) Payments to Be Free and Clear. Except as otherwise provided in this
Section 2.16, all sums payable by or on behalf of any Obligor hereunder and under the other First Priority Term Loan Documents shall (except to the extent required by any applicable Legal Requirement) be paid free and clear of, and without any deduction or withholding on account of, any Tax imposed, levied, collected, withheld or assessed by or within the U.S. or any political subdivision in or of the U.S. or any other jurisdiction from or to which a payment is made by or on behalf of any Obligor.
(b) Withholding of Taxes. If any Obligor or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by or on behalf of any Obligor to the any Agent or any Lender under any of the First Priority Term Loan Documents:
(i) the Borrower shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as the Borrower becomes aware of it;
(ii) the Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Obligor) for its own account or (if that liability is imposed on such Agent or such Lender, as the case may be) on behalf of and in the name of such Agent or such Lender;
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(iii) the sum payable by such Obligor in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of all deductions, withholding or payments for or with respect to Taxes, such Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and
(iv) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any tax which it is required by clause (ii) above to pay, the Borrower shall deliver to the Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in either the imposition of deduction, withholding or payment or an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender.
(c) Other Taxes. The Borrower shall pay any Other Taxes to the relevant taxing or other authority in accordance with applicable Legal Requirements, and shall comply with the requirements of Section 2.16(b)(iv) with respect to such payments.
(d) Indemnification. Subject to the requirements of Section 2.16(e), the Borrower shall indemnify each Agent and each Lender for the full amount of Taxes (to the extent the Borrower would be required to pay additional amounts with respect to such Taxes pursuant to Section 2.16(b)) or Other Taxes arising in connection with payments made under any of the First Priority Term Loan Documents (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Agent or Lender and any penalties, additions to tax, interest and expenses arising from or with respect to such Taxes or Other Taxes, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 10 days from the date any Agent or any Lender makes written demand therefor.
(e) Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax purposes (a "Non-U.S. Lender") shall deliver to the Administrative Agent for transmission to the Borrower, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of the Borrower or the Administrative Agent (each in the reasonable exercise of its discretion):
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(i) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the First Priority Term Loan Documents or is subject to such deduction or withholding at a reduced rate; or
(ii) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Code and is claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Certificate Re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the First Priority Term Loan Documents.
Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this
Section 2.16(e) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to the Administrative Agent for transmission to the Borrower two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the First Priority Term Loan Documents or is subject to such deduction or withholding at a reduced rate, or notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence. The Borrower shall not be required to pay any additional amount to any Non-U.S. Lender under Section 2.16(b)(iii) or to indemnify the Non-U.S. Lender under Section 2.16(d) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this Section 2.16(e), or (2) to notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided, if such Lender shall have satisfied the requirements of the first sentence of this Section 2.16(e) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of this Section 2.16(e) shall relieve the Borrower of its obligation to pay any additional amounts pursuant to Section 2.16(b) or to indemnify the Non-U.S. Lender under
Section 2.16(d) in the event that, as a result of any change in any applicable Legal Requirement, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein. For the avoidance of doubt, to the extent the form provided by a Lender at the time such
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Lender first becomes a party to this Agreement indicates a U.S. withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes.
SECTION 2.17. Removal or Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that:
(a) (i) any Lender (an "Increased-Cost Lender") shall give notice to the Borrower that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.14 (Making or Maintaining First Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy) or 2.16 (Taxes; Withholding, etc), (ii) the circumstances which have caused such Lender to be an Increased-Cost Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after the Borrower's request for such withdrawal; or
(b) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 12.05(b) (Amendments and Waivers), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "Non-Consenting Lender") whose consent is required shall not have been obtained;
then, with respect to each such Increased-Cost Lender or Non-Consenting Lender (the "Terminated Lender"), the Borrower may, by giving written notice to the Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding First Priority Term Loans in full to one or more Eligible Assignees (each a "Replacement Lender") in accordance with the provisions of Section 12.06 (Successors and Assigns; Participations); provided,
(i) on the date of such assignment, the Replacement Lender shall pay to such Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding First Priority Term Loans of the Terminated Lender, and (B) an amount equal to all accrued, but theretofore unpaid, fees owing to such Terminated Lender pursuant to Section 2.08 (Fees);
(ii) on the date of such assignment, the Borrower shall pay any amounts payable to such Terminated Lender pursuant to Section
2.14(c) (Making or Maintaining First Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy) or 2.16 (Taxes; Withholding, etc.); provided that no premium on such amounts shall be required to be paid; and
(iii) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender.
Upon the prepayment of all amounts owing to any Terminated Lender, such Terminated Lender shall no longer constitute a "Lender" under any of the First Priority Term Loan Documents; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender.
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ARTICLE III.
CONDITIONS PRECEDENT
The obligation of any Lender to make a First Priority Term Loan on the Closing Date is subject to the satisfaction, or waiver in accordance with
Section 12.05 (Amendments and Waivers), of the following conditions precedent on or before the Closing Date:
SECTION 3.01. Resolutions. The Administrative Agent shall have received a copy of one or more resolutions or other authorizations of Holdings, the Borrower and each Guarantor authorizing, as applicable and among other things, the granting of the Liens under the Security Documents and the execution, delivery and performance of this Agreement and the other Financing Documents, in each case certified by an Officer of each such Person as being (a) in full force and effect as of the Closing Date and (b) true, correct and complete copies of all of the resolutions or other authorizations of such Person relating to the transactions contemplated by this Agreement and the other Financing Documents as of the Closing Date.
SECTION 3.02. Incumbency. The Administrative Agent shall have received a certificate from each of Holdings, the Borrower and each Guarantor, signed by the appropriate authorized officer of such Person and dated as of the Closing Date, as to the incumbency of the natural persons authorized to execute and deliver the First Priority Term Loan Documents to which such Person is a party.
SECTION 3.03. Formation Documents. The Administrative Agent shall have received
(a) a copy of the certificate of formation, articles of incorporation or other comparable constituent documents of Holdings, the Borrower and each Subsidiary of the Borrower, in each case certified by the Secretary of State of the state of such Person's formation or incorporation (as applicable) and (b) a copy of the limited liability company operating agreement, bylaws or other comparable constituent documents of such Person, in each case certified by an Officer of such Person as being true, correct and complete as of the Closing Date.
SECTION 3.04. Good Standing Certificates. The Administrative Agent shall have received certificates issued by the Secretary of State of the state in which each of Holdings, the Borrower, and each Subsidiary of the Borrower is formed or organized (as applicable), (a) dated no more than five days prior to the Closing Date and (b) certifying that such Person is in good standing and is qualified to do business in, and has paid all franchise taxes or similar taxes due to the applicable state.
SECTION 3.05. Financial Officer's Certificate. The chief financial officer of the Borrower shall have furnished a certificate, dated the Closing Date, in form and substance satisfactory to the Administrative Agent, stating to the effect that:
(a) The present fair saleable value of the assets of each of the Borrower and each Subsidiary of the Borrower (other than CalGen Finance) exceeds the amount required to pay the probable liability on its existing debts, respectively (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent), as they become
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absolute and matured, and as a result of the consummation of the transactions contemplated herein and in the Bank Book, will continue to exceed such amount;
(b) Each of the Borrower and each Subsidiary of the Borrower (other than CalGen Finance) does not, and, as a result of the consummation of the transactions contemplated in this Agreement, the other Financing Documents and the Bank Book, will not, have unreasonably small capital for it to carry on its business as proposed to be conducted;
(c) Neither the Borrower nor any Subsidiary of the Borrower (other than CalGen Finance) is incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted; and
(d) Nothing has come to the Borrower's attention to cause it to believe that: (i) R.W. Beck is not qualified to pass on questions relating to the technical, environmental and economic aspects of the projects operated by the CalGen Companies as such projects are described in the Bank Book; (ii) the assumptions included in R.W. Beck's report dated March 15, 2004, entitled "Independent Engineer's Report, Calpine Generating Company, LLC Facilities" (the "Beck Report"), are not reasonable; (iii) the information provided by the CalGen Companies to R.W. Beck in connection with the Beck Report was not prepared in good faith by the CalGen Companies; and (iv) the factual information or the conclusions contained in the Beck Report are inaccurate in any material adverse respect.
SECTION 3.06. Security.
(a) Release. The Collateral Agent shall have received:
(i) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Administrative Agent, dated a date reasonably near to the Closing Date, listing all effective Financing Statements which name Holdings, the Borrower or any Subsidiary thereof (under its present names or any previous name) as the debtor, together with copies of such Financing Statements (none of which shall cover any Collateral, other than Financing Statements that evidence (A) Liens granted in connection with the Existing Senior Secured Credit Facility or (B) Liens permitted to exist hereunder after the Closing Date);
(ii) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of each UCC Financing Statement Amendment (Form UCC-3) termination statement, if any, necessary to release all Liens of any Person in any Collateral previously granted by the Borrower or any of its Subsidiaries to the extent not permitted under the First Priority Term Loan Documents after the Closing Date (including (A) Liens granted in connection with the Existing Senior Secured Credit Facility and (B) other existing Liens which are not permitted hereunder after the Closing Date);
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(iii) such releases, reconveyances, satisfactions or other instruments as it may reasonably request to confirm the release, satisfaction and discharge in full of all mortgages and deeds of trust at any time delivered by the Borrower or any of its Subsidiaries to secure any Obligations in respect of the Existing Senior Secured Credit Facility, duly executed, delivered and acknowledged in recordable form by the grantee named therein or its of record successors or assigns; and
(iv) a letter or letters (in form and substance reasonably satisfactory to the Administrative Agent) addressed to the Collateral Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, the Administrative Agent, the Second Priority Term Loan Administrative Agent and the Revolver Administrative Agent executed and delivered by the Existing Credit Administrative Agent, stating the amount (the "Payout Amount") required to pay in full in cash at the Closing Date all outstanding Obligations under or in respect of the Existing Senior Secured Credit Facility.
(b) Security. The Collateral Agent shall have received (with a copy to the Administrative Agent):
(i) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of Uniform Commercial Code Financing Statements or fixture filings naming Holdings, the Borrower, or each of the Guarantors (as applicable) as a debtor and the Collateral Agent as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the reasonable opinion of the Administrative Agent and its counsel, desirable to perfect the security interests of the First Priority Term Loan Secured Parties pursuant to the Security Documents;
(ii) (A) certificates (which certificates shall be accompanied by irrevocable undated stock powers or transfer documents, duly endorsed in blank and otherwise satisfactory in form and substance to the Administrative Agent) representing all Capital Stock pledged pursuant to the Security Documents and (B) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner reasonably satisfactory to the Administrative Agent) evidencing any Collateral; and
(iii) such other documents and instruments as the Administrative Agent or the Collateral Agent may reasonably request in order to grant and perfect the security interests contemplated by the Security Documents
(c) Filing. All Uniform Commercial Code Financing Statements (Forms UCC-1) or other similar Financing Statements and UCC Financing Statement Amendments (Forms UCC-3) required pursuant to clauses (a) and
(b) above (collectively, the "Financing Statements") shall have been filed or recorded or delivered to the Collateral Agent for filing or recording.
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SECTION 3.07. Consummation of Notes Offering, Second Priority Term Loan Agreement, Revolving Loan Agreement and First Priority Term Loan Documents.
(a) The Borrower and CalGen Finance shall have consummated the offering of the Notes, and such Notes shall have been issued and sold prior to, or shall be issued and sold simultaneously with, the Closing Date on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
(b) The Borrower and each Guarantor shall have executed and delivered the Second Priority Term Loan Agreement and the Revolving Loan Agreement and each such agreement shall be in full force and effect prior to, or shall become in full force and effect simultaneously with, the Closing Date, on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
(c) Holdings, the Borrower and each Guarantor shall have delivered to the Lenders, each of the First Priority Term Loan Documents to be entered into as of the Closing Date, each duly executed and delivered by the party or parties thereto and, unless otherwise noted, dated the Closing Date.
(d) The Borrower shall have received cash proceeds from the sale of the Notes (net of underwriting discounts and commissions) in an amount sufficient, when added to the cash proceeds from the borrowings hereunder and under the Second Priority Term Loan Agreement (in each case, net of applicable expenses and fees), to pay in full in cash the Payout Amount and all other fees, costs and expenses payable by the Borrower in connection with the closing of the transactions contemplated herein and in the Bank Book and shall have authorized disbursement of such cash proceeds directly to pay the Payout Amounts and such fees, costs and expenses pursuant to a disbursement authorization letter (in form and substance reasonably satisfactory to the Administrative Agent) executed and delivered by the Borrower.
SECTION 3.08. Ratings. The First Priority Term Loans shall have received a rating by S&P.
SECTION 3.09. No Material Adverse Change. There shall not have occurred (a) since December 31, 2003, any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Borrower and its Subsidiaries, taken as a whole, which, in the judgment of the Administrative Agent, is material and adverse and makes it impractical or inadvisable to proceed with making of the First Priority Term Loans; (b) since March 12, 2004, any suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of Calpine on any exchange or in the over-the-counter market; (c) since March 12, 2004, a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States which, in the judgment of the Administrative Agent, makes it impracticable or inadvisable to proceed with the making of the First Priority Term Loans; or (d) since March 12, 2004, any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of the Administrative Agent, the effect of any such outbreak, escalation, declaration, calamity or
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emergency makes it impractical or inadvisable to proceed with the making of the First Priority Term Loans.
SECTION 3.10. Third Party Approvals. All consents, exemptions, authorizations, or other actions by, or notices to, or filings with, governmental authorities and other Persons in respect of all applicable Legal Requirements, necessary or desirable in connection with the execution, delivery or performance by each of Holdings, the Borrower and each Guarantor of the First Priority Term Loan Documents to which it is a party (including all federal, state and local regulatory filings, consents and approvals necessary or desirable in connection therewith) shall have been obtained and be in full force and effect, and the Administrative Agent shall have been furnished with appropriate evidence thereof, and all waiting periods related thereto shall have lapsed or expired without extension or the imposition of any conditions or restrictions.
SECTION 3.11. Opinions. The Administrative Agent shall have received one or more opinions addressed to the Administrative Agent and each of the Lenders from time to time party to this Agreement, in form and substance reasonably satisfactory to the Administrative Agent and its counsel, dated as of the Closing Date and in the form of Exhibit G.
SECTION 3.12. Officer's Certificates. The Administrative Agent shall have received a certificate, dated as of the Closing Date, of the president or any vice president and a principal financial or accounting officer of the Borrower and each of the Guarantors, in which such officer, to the best of his or her knowledge after reasonable investigation, shall state that (a) the representations and warranties of such CalGen Company in this Agreement and the other First Priority Term Loan Documents are true and correct in all material respects; (b) such CalGen Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and (c) subsequent to December 31, 2003, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of such CalGen Company or its respective subsidiaries taken as a whole except as set forth in or contemplated by the Bank Book or otherwise disclosed in writing to the Administrative Agent prior to the Closing Date.
SECTION 3.13. Title Policies.
(a) Mortgages. The Collateral Agent shall have received (with a copy to the Administrative Agent) a fully executed and notarized mortgage or deed of trust from each Guarantor (each a "Closing Date Mortgage") encumbering all of such Guarantor's Closing Date Mortgaged Property as security for the payment and performance of the Secured Obligations. Each Closing Date Mortgage shall be in proper form for recording in all applicable jurisdictions where the property encumbered thereby is located.
(b) Title Insurance Policies. The Collateral Agent shall have received CLTA mortgagee policies of title insurance or unconditional commitments therefor (the "Closing Date Mortgage Policies") issued by the Title Company with respect to the Closing Date Mortgaged Properties, providing coverage in an amount equal to $50,000,000 per Closing Date Mortgaged Property and assuring the Collateral Agent that the applicable Closing Date Mortgages create
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valid and enforceable perfected mortgage Liens on the respective Closing Date Mortgaged Properties encumbered thereby. The Closing Date Mortgage Policies shall (i) include endorsements providing mechanics' lien coverage and such other coverages as are reasonably requested by the Administrative Agent, and (ii) provide for such affirmative insurance, gap coverage and reinsurance as the Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to the Administrative Agent.
SECTION 3.14. Evidence of Insurance. The Collateral Agent shall have received a certificate from the Borrower's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to this Agreement is in full force and effect and that Collateral Agent on behalf of the Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this Agreement.
SECTION 3.15. Other Financing Documents. The Administrative Agent shall have received true, correct and complete copies of each Financing Document (other than the First Priority Term Loan Documents) and each shall be in full force and effect as of the Closing Date, as certified to the Administrative Agent by an Officer of the Borrower as of the Closing Date
SECTION 3.16. No Default. No Default or Event of Default shall have occurred and be continuing (or would occur or would be continuing immediately after giving effect to the making of the First Priority Term Loans).
SECTION 3.17. Fees. The Borrower shall have paid all fees and reasonable out-of-pocket costs and expenses (including reasonable legal fees and expenses of counsel) and other compensation contemplated hereby payable to the Agents and the Lenders.
SECTION 3.18. Funding Notice. The Administrative Agent shall have received a fully executed and delivered Funding Notice from the Borrower at least three Business Days prior to the Closing Date.
SECTION 3.19. Delivery of Financials. The Administrative Agent and each Lender, at least four Business Days prior to the Closing Date, shall have received copies of (a) the consolidated financial statements for the Borrower and its Subsidiaries (covering the fiscal year ended December 31, 2003) as audited by PricewaterhouseCoopers LLP, and such consolidated financial statements shall be reasonably satisfactory to the Administrative Agent, (b) the unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries as of the Closing Date giving effect to (i) the consummation of the transactions contemplated hereby, (ii) the issuance of the Notes, the making of the loans under the Second Priority Term Loan Agreement and the use of proceeds thereof, and (iii) the payment of fees and expenses in connection with the foregoing, and
(c) the forecasted operating results of the Borrower and its Subsidiaries (the "Projections"), giving effect to the consummation of the transactions contemplated by this Agreement, the making of the loans under the Second Priority Term Loan Agreement and the issuance of the Notes, covering the period from the Closing Date until December 31, 2010 and in form and substance substantial similar to the draft Projections provided to the Lenders on March 16, 2004. The Administrative Agent is entitled, but not obligated to, request and receive, prior to the making of any First Priority Term Loan, additional information reasonably satisfactory to the Administrative Agent confirming the satisfaction of
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any of the foregoing if, in the good faith judgment of the Administrative Agent, such request is warranted under the circumstances.
SECTION 3.20. Site Assessment Reports. The Administrative Agent shall have received (a) a copy of one or more environmental site assessment reports from each of the Environmental Consultants relating to the Closing Date Facilities (in the form provided to counsel to the Administrative Agent prior to the Closing Date) and (b) a reliance letter from each of the Environmental Consultants, dated within three Business Days of the Closing Date, permitting the Lenders to rely on such environmental site assessment reports as if addressed to them (in form and substance reasonably satisfactory to the Administrative Agent).
SECTION 3.21. Major Project Documents. The Borrower and each applicable Guarantor shall have executed and delivered the Major Project Documents to which it is a party and each such Major Project Document shall be in full force and effect prior to, or shall become in full force and effect simultaneously with, the Closing Date, on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Each of the Borrower and each Guarantor makes the following representations and warranties to and in favor of the Sole Lead Arranger, the Administrative Agent and the Lenders as of the Closing Date.
SECTION 4.01. Organization.
(a) The Borrower has been duly formed and is an existing limited liability company in good standing under the laws of the State of Delaware, with power and authority under such laws to own or lease its properties and conduct its business as described in the Bank Book; and the Borrower is duly qualified to do business as a foreign limited liability company, and is in good standing, in all other jurisdictions in which its ownership or leasing of property or the conduct of its business requires such qualification.
(b) Each Subsidiary of the Borrower either (i) has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with the corporate power and authority to own or lease its properties and conduct its business; or (ii) is a general partnership, limited partnership or a limited liability company, has been duly formed and is validly existing as a general partnership, limited partnership or limited liability company, as the case may be, is in good standing under the laws of the jurisdiction of its formation, and has full partnership or limited liability company power and authority, as the case may be, to own or lease its properties and conduct its business.
(c) Each Subsidiary of the Borrower is duly qualified to do business as a foreign corporation, general or limited partnership or limited liability company, as the case may be,
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and is in good standing, in all other jurisdictions in which its ownership or leasing of property or the conduct of its business requires such qualification.
(d) All of the issued and outstanding Capital Stock in each Subsidiary of the Borrower has been duly authorized and validly issued and is fully paid and nonassessable, and the Capital Stock of each Subsidiary owned by the Borrower, directly or through Subsidiaries, is owned free from liens, encumbrances and defects except for those to be terminated at the Closing Date with respect to the Existing Senior Secured Credit Facility and Permitted Liens.
(e) The capital structure of Holdings and the Borrower and its Subsidiaries is accurately set forth on Schedule 4.01.
SECTION 4.02. Financing Documents and Major Project Documents. Each of the Financing Documents, Major Project Documents and Third Party Project Documents to which the Borrower or any of its Subsidiaries is a party has been duly authorized by such CalGen Company. Each of the Financing Documents, Major Project Documents and Third Party Project Documents has been validly executed and delivered by such CalGen Company and constitutes a valid and legally binding obligation of such CalGen Company, enforceable against such CalGen Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
SECTION 4.03. Collateral.
(a) The Security Documents grant and create, in favor of the Collateral Agent (for the benefit of the Secured Parties as security for the Secured Obligations), a valid security interest in the personal property Collateral defined in each of such instruments to the extent contemplated thereby.
(b) Each Mortgage grants and creates, in favor of the Collateral Agent (for the benefit of the Secured Parties as security for the Secured Obligations), a valid mortgage lien and/or security interest in the Collateral defined in each of such Mortgage to the extent contemplated thereby.
(b) All pledged Collateral is represented by certificated securities and all such certificated securities and all promissory notes and other instruments evidencing or representing any Collateral have been delivered to the Collateral Agent in pledge for the benefit of the Secured Parties as security for all of the Secured Obligations, duly endorsed by an effective endorsement.
SECTION 4.04. Governmental Approvals. No consent, approval, authorization, or order of, or filing with, any Governmental Authority is required for the consummation of the transactions contemplated by this Agreement, the other Financing Documents, the Major Project Documents or the Third Party Project Documents or otherwise in connection with the transactions contemplated by any such documents or the grant and perfection of the security interests in the Collateral pursuant to the Security Documents, except (a) such consents, approvals, authorizations and orders as have already been obtained, (b) filings required pursuant to Section 3.06 (Security) to perfect the Collateral Agent's security interests granted pursuant to
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the Security Documents, (c) such consents, approvals, authorizations and orders as may be required under state securities or blue sky laws and (d) such other consents approvals, authorizations and orders as would not, in the aggregate, have a Material Adverse Effect.
SECTION 4.05. Compliance with Law. The execution, delivery and performance of this Agreement, the other Financing Documents, the Major Project Documents and the Third Party Project Documents by the Borrower and its Subsidiaries party thereto, as applicable; the making of the First Priority Term Loans hereunder; the grant and perfection of the security interests in the Collateral pursuant to the Security Documents; compliance with the terms and provisions of each of the foregoing by the CalGen Companies, as applicable; and the consummation by such CalGen Companies of the transactions contemplated herein and therein, in each case, will not result in a breach or violation of any of the terms and provisions of, or conflict with or constitute a default under, or result in the imposition or creation of (or the obligation to create or impose) a Lien (other than in favor of the Collateral Agent for the benefit of the Secured Parties) under, any Legal Requirement applicable to any such CalGen Company, or any agreement or instrument to which any of the CalGen Companies is a party or by which any of the CalGen Companies is bound or to which any of the properties of any of the CalGen Companies is subject, except to the extent that the foregoing would not, in the aggregate, have a Material Adverse Effect.
SECTION 4.06. Ownership of Property; Liens. Except as disclosed in the Closing Date Mortgage Policies, each of the Borrower and each Guarantor has good and marketable title to all real properties owned by it, and good title to all other properties and assets owned by it, in each case except for Permitted Liens, free from Liens that would materially affect the value thereof or materially interfere with the use made or to be made thereof by it; and, except for Permitted Liens or as disclosed in the Closing Date Mortgage Policies, each of the Borrower and each Guarantor holds any leased real or personal property under valid and enforceable leases with no exceptions to title that would materially interfere with the use made or to be made thereof by it. No Financing Statements in respect of any property or assets of any of the Borrower or any Guarantor is on file in favor of any Person other than those in respect of Permitted Liens and those to be terminated at the Closing Date with respect to the Existing Senior Secured Credit Facility.
SECTION 4.07. Governmental Authorizations; Permits. Each of the Borrower and its Subsidiaries possesses adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it and has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect.
SECTION 4.08. Labor Disputes. No labor dispute with the employees of any of the Borrower or its Subsidiaries exists or, to the knowledge of the Borrower or any Guarantor, is imminent that might have a Material Adverse Effect.
SECTION 4.09. Intellectual Property Rights. Each of the Borrower and its Subsidiaries owns, possesses or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the
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business now operated by it, or presently employed by it, and has not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect.
SECTION 4.10. Hazardous Substances. None of the Borrower and its Subsidiaries is in violation of any Legal Requirement relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Borrower is not aware of any pending investigation which might lead to such a claim.
SECTION 4.11. Litigation. Except as set forth on Schedule 4.11, there are no pending actions, suits or proceedings against the Borrower or any of its Subsidiaries or any of their respective properties that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of such CalGen Company to perform its or their obligations under, or contemplated by, this Agreement, the other Financing Documents, the Major Project Documents or the Third Party Project Documents, in each case to which such CalGen Company is a party, or which are otherwise material in the context of the transactions contemplated by the Financing Documents.
SECTION 4.12. Financial Information. The financial information delivered pursuant to clauses (a) and (b) of Section 3.19 (Delivery of Financials) presents fairly the financial position of the Borrower and its Subsidiaries on a combined or consolidated basis, as the case may be, as of the dates shown therein and their results of operations and cash flows for the periods shown therein, and, except as otherwise disclosed in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, such financial statements have been prepared in conformity with GAAP applied on a consistent basis. None of the Borrower or any of its Subsidiaries has any material liabilities, direct or contingent, which are required to be shown on such financial statements under GAAP, except as has been disclosed in such financial statements.
SECTION 4.13. Disclosure; Projections.
(a) The Borrower has delivered to each Lender a copy of the Bank Book. The Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, fairly describes, in all material respects, the general nature of the business of the Borrower and its Subsidiaries, the transactions contemplated by the Financing Documents and the principal assets of the Borrower and its Subsidiaries. None of this Agreement, the Bank Book, the documents, certificates or other writings delivered to or the Administrative Agent or any Lender by or on behalf of the Borrower or any Guarantor in connection with the transactions contemplated hereby, taken as a
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whole, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made (other than any information that was corrected or updated in writing by the Borrower to the Administrative Agent and the Lenders prior to the Closing Date).
(b) The Projections are based on good faith estimates and assumptions believed by management of the Borrower to be reasonable as of the date of the Projections, and there are no statements or conclusions in any of the Projections which are based upon or include information known to the Borrower to be misleading in any material respect or which fail to take into account material information regarding the matters reported therein. The Borrower believes that the Projections are reasonable on the Closing Date, it being acknowledged and agreed by the Administrative Agent and the Lenders, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by the Projections may differ from the projected results and such differences may be material.
(c) Except as expressly set forth in this Section 4.13, neither the Borrower nor any Guarantor makes any representation with respect to any information, projections, forecasts, statements of opinion, expectations or beliefs of any party contained in the Bank Book or delivered in connection with the transactions contemplated under this Agreement.
SECTION 4.14. Adverse Change. Except as has been disclosed in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, since December 31, 2003 there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Borrower and its Subsidiaries taken as a whole, and, except as has been disclosed in writing to the Administrative Agent, no long-term indebtedness has been incurred (other than long-term indebtedness that is expressly contemplated by the Bank Book), and no dividend or distribution of any kind has been declared, paid or made by Borrower on any class of its equity interests.
SECTION 4.15. Taxes. Each of the Borrower, each Subsidiary of the Borrower and Holdings has timely filed (or caused to be filed timely) all federal, material state and material local tax returns and reports that are required to be filed by it. All material taxes, assessments, utility charges, fees and other governmental charges imposed on it have been timely paid (other than those taxes that it is contesting in good faith and by appropriate proceedings). All such tax returns are complete and accurate in all material respects. Except for Permitted Liens, no material tax Lien has been filed, and to the knowledge of the Borrower and each Guarantor, no claim is being asserted, with respect to any such taxes, assessments, charges or fees. To the extent any taxes, assessments, charges and fees are being contested, the Borrower or the applicable Guarantor has established reserves that are adequate for the payment thereof in conformity with GAAP.
SECTION 4.16. Investment Company Act. None of the Borrower or any of its Subsidiaries is an open-end investment company, unit investment trust or face-amount certificate company
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that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940, as amended (the "Investment Company Act"); none of the Borrower or any of its Subsidiaries is or, after giving effect to the transactions contemplated by this Agreement, the other First Priority Term Loan Documents and the Major Project Documents, will be an "investment company" as defined in the Investment Company Act of 1940.
SECTION 4.17. ERISA. Either (a) there are no ERISA Plans or Multiemployer Plans for the Borrower or any ERISA Affiliate thereof or (b)(i) each of the Borrower and each ERISA Affiliate thereof has fulfilled its obligations (if any) under the minimum funding standards of ERISA and the Code for each ERISA Plan, (ii) each such Plan is in compliance in all material respects with the currently applicable provisions of ERISA and the Code and (iii) neither the Borrower nor any ERISA Affiliate thereof has incurred any liability to the PBGC or an ERISA Plan or Multiemployer Plan under Title IV of ERISA (other than liability for premiums due in the ordinary course). None of the assets of the Borrower or any ERISA Affiliate thereof, constitute assets of an employee benefit plan within the meaning of 29 C.F.R. Section 2510.3-101. Neither the Borrower nor any Subsidiary thereof maintains, or has at any point of its existence maintained, any employee-benefit plans that were subject to ERISA.
SECTION 4.18. Governmental Regulation.
(a) None of the Borrower or any "subsidiary company," as that term is defined in PUHCA, of the Borrower is, or after giving effect to the borrowing of any First Priority Term Loans will be, subject to regulation (i) as a "holding company," a "subsidiary company" of a holding company or a "public-utility company," as those terms are defined in PUHCA; (ii) under the Federal Power Act, as amended (the "FPA"), other than (A) as an "exempt wholesale generator" ("EWG") as that term is defined in PUHCA, that is subject to regulation as a "public utility" under the FPA, other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, or (B) as a QF under the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), as contemplated by 18 C.F.R. Section 292.601(c); or (iii) under any state law or regulation with respect to rates or the financial or organizational regulation of electric utilities, other than, with respect to Subsidiaries of the Borrower that are QFs, as contemplated by 18 C.F.R. Section 292.602(c).
(b) Other than as described in the Bank Book, each of the power generation projects in which the Borrower's Subsidiaries listed on Schedule 4.18(b) have an interest meets the requirements under PURPA and the regulations of the Federal Energy Regulatory Commission (the "FERC") promulgated thereunder, as amended from time to time, necessary to be a "qualifying cogeneration facility" and/or a "qualifying small power generation production facility".
(c) Each of the Borrower's Subsidiaries listed on Schedule 4.18(c) (i) own and/or operate Eligible Facilities within the meaning of Section 32 of PUHCA, and each such Subsidiary has received a determination from the FERC, not subject to any pending challenge or appeal, that it is an EWG, within the meaning of Section 32 of PUHCA; and (ii) other than as described in the Bank Book, together with the other documents, certificates and other writings
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delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, has validly issued orders from the FERC, not subject to any pending challenge, investigation, or proceeding (other than the FERC's generic proceeding initiated in Docket No. EL01-118-000), (A) authorizing such Subsidiary to engage in wholesale sales of electricity, ancillary services and, to the extent permitted under its market-based rate tariff, other services at market-based rates, and (B) granting such waivers and blanket authorizations as are customarily granted to entities with market-based rate authority; with respect to each such Subsidiary, the FERC has not imposed any rate caps or mitigation measures other than rate caps and mitigation measures generally applicable to similarly situated marketers or generators selling electricity, ancillary services or other services at wholesale in the geographic market where such Subsidiary conducts its business.
(d) Each of the Borrower's Subsidiaries that are participating in the Texas wholesale electric market has registered with the Texas Public Utilities Commission ("TPUC"), and the TPUC has not imposed on the Borrower any specific rate cap or mitigation measures.
(e) Other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, there are no pending complaints filed with the FERC seeking abrogation or modification of a contract for the sale of power by the Borrower or any of its Subsidiaries.
SECTION 4.19. Margin Stock, Etc. None of the transactions contemplated by this Agreement or the other First Priority Term Loan Documents (including the use of the proceeds received as a result of such transactions) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including Regulations T, U, and X of the Board of Governors of the Federal Reserve System.
SECTION 4.20. No Violations or Defaults. Neither the Borrower nor any Subsidiary of the Borrower is in violation of its organizational documents or in default in the performance or observance of any material obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other material agreement or instrument to which it is a party or by which it or any of its properties may be bound.
SECTION 4.21. Solvency. The present fair saleable value of the assets of each of the Borrower and each Subsidiary of the Borrower exceeds the amount required to pay the probable liability on its existing debts, respectively (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent), as they become absolute and matured, and as a result of the consummation of the transactions contemplated herein and in the Bank Book, will continue to exceed such amount.
SECTION 4.22. Capitalization. Each of the Borrower and each Subsidiary of the Borrower does not, and, as a result of the consummation of the transactions contemplated in this Agreement, the other First Priority Term Loan Documents and the Bank Book, will not, have unreasonably small capital for it to carry on its business as proposed to be conducted.
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SECTION 4.23. Other Indebtedness. Neither the Borrower nor any Subsidiary of the Borrower is incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted.
ARTICLE V.
COVENANTS
SECTION 5.01. Reports.
(a) Whether or not required by the rules and regulations of the SEC, so long as any First Priority Term Loan Obligations are outstanding, the Borrower shall furnish to the Administrative Agent (for delivery to each Lender), within the time periods specified in the SEC's rules and regulations:
(i) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the Borrower were required to file such reports; and
(ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Borrower were required to file such reports.
(b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Borrower's consolidated financial statements by the Borrower's certified independent accountants.
SECTION 5.02. Compliance Certificate.
(a) The Borrower shall deliver to the Administrative Agent (for delivery to each Lender), within 90 days after the end of each fiscal year, an Officer's Certificate stating that a review of the activities of the Borrower and its Subsidiaries during the preceding fiscal year, as applicable, has been made under the supervision of the signing Officer with a view to determining whether the Borrower has kept, observed, performed and fulfilled its obligations under this Agreement, and further stating, as to the Officer signing such certificate, that to the best of his or her knowledge the Borrower has kept, observed, performed and fulfilled each and every covenant contained in this Agreement and is not in default in the performance or observance of any of the terms, provisions and conditions of this Agreement (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Borrower is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the First Priority Term Loans borrowed under this Agreement is prohibited or if such event has occurred, a description of the event and what action the Borrower is taking or proposes to take with respect thereto. Such certificate shall include information (i) demonstrating compliance by the Borrower with Section 5.18 (Coverage Ratio; Kilowatt Test) and (ii) calculating Excess Cash Flow for such fiscal quarter or such fiscal year.
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(b) So long as not contrary to the then-current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 5.01(a) (Reports) above shall be accompanied by a written statement of the Borrower's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Borrower has violated any provisions of Article V or Article VI hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the First Priority Term Loan Obligations are outstanding, the Borrower shall deliver to the Administrative Agent, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Borrower is taking or proposes to take with respect thereto.
SECTION 5.03. Stay, Extension and Usury Laws. Each of the Borrower and each Guarantor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Agreement; and each of the Borrower and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but shall suffer and permit the execution of every such power as though no such law has been enacted.
SECTION 5.04. Restricted Payments.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly:
(i) (A) declare or pay any dividend or make any other payment or distribution on account of the Borrower's Equity Interests (including any payment in connection with any merger or consolidation involving the Borrower) or to the direct or indirect holders of the Borrower's Equity Interests in their capacity as such, including Permitted Tax Payments (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Borrower or dividends or distributions payable to the Borrower or a Guarantor) or (B) pay any Major Maintenance Expenses;
(ii) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Borrower) any Equity Interests of the Borrower;
(iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated
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to the Secured Obligations (excluding any intercompany Indebtedness between or among the Borrower and any of the Guarantors);
(iv) make any Restricted Investment;
(all such payments and other actions set forth in these clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"), unless:
(A) such Restricted Payment is made from Excess Cash Flow generated since the Closing Date;
(B) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and
(C) at the time of making any such Restricted Payment that is not a payment on or with respect to, or a purchase, redemption, defeasance or other acquisition or retirement for value of, Subordinated Indebtedness, all amounts then due under all Subordinated Indebtedness have been paid in full; or
(v) use the proceeds of any Indebtedness under any revolving Credit Facility which is First Priority Lien Debt to prepay, repay or redeem the principal of any Second Priority Lien Debt or Third Priority Lien Debt.
SECTION 5.05. Dividend and Other Payment Restrictions Affecting Subsidiaries.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to:
(i) pay dividends or make any other distributions on its Capital Stock to the Borrower or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Borrower or any of its Subsidiaries;
(ii) make loans or advances to the Borrower or any of its Subsidiaries; or
(iii) transfer any of its properties or assets to the Borrower or any of its Subsidiaries.
However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of:
(A) this Agreement;
(B) the Second Priority Term Loan Agreement, the Revolving Loan Agreement, the Indentures and the Notes and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or
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refinancings of the Second Priority Term Loan Agreement, the Revolving Loan Agreement, the Indentures and the Notes; provided, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Second Priority Term Loan Agreement, the Revolving Loan Agreement, the Indentures and the Notes on the Closing Date;
(C) any applicable Legal Requirements;
(D) customary non-assignment provisions in contracts, agreements, leases, permits or licenses entered into or issued in the ordinary course of business and consistent with past practices;
(E) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clauses (i) and (iii) of the preceding paragraph;
(F) any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending the sale or other disposition;
(G) Permitted Refinancing Indebtedness; provided, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(H) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 5.06
(Incurrence of Indebtedness and Issuance of Preferred Equity)
hereof that limit the right of the debtor to dispose of the assets subject to such Liens or to use the proceeds of any such disposition;
(I) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Borrower's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements;
(J) provisions restricting cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business; and
(K) provisions restricting or encumbering the sale or other disposition of Expansion Assets or the payment of dividends, distributions or similar payments made from cash flow derived exclusively from Expansion Assets, in each case pursuant to the terms of any Expansion Debt incurred pursuant to clause (iv) of the definition of Permitted Debt; provided, that such encumbrance or restriction will not materially adversely affect the Borrower's ability to meet its
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obligations under this Agreement, and, in the written opinion of the president, chief operating officer or chief financial officer of the Borrower, is required in order to obtain such Expansion Debt and is customary for financings of such type.
SECTION 5.06. Incurrence of Indebtedness and Issuance of Preferred Equity.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise with respect to (collectively, "incur"), any Indebtedness (including Acquired Debt), and the Borrower shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred equity.
(b) Section 5.06(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"):
(i) (A) the incurrence by the Borrower (and the guarantee by its Subsidiaries) of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (i)(A) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Borrower and its Subsidiaries thereunder) not to exceed $800,000,000 less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events or Condemnation Events applied by the Borrower or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facilities or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facilities and effect a corresponding commitment reduction thereunder, and (B) the incurrence by the Borrower (and the guarantee by its Subsidiaries) of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount outstanding under this clause (i)(B) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Borrower and its Subsidiaries thereunder) not to exceed $100,000,000 less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events applied by the Borrower or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder;
(ii) the incurrence by the Borrower, CalGen Finance and the Guarantors of Indebtedness represented by the Notes, the related Note Guarantees and the other Note Obligations incurred on the Closing Date, and the exchange notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement;
(iii) the incurrence by the Borrower or any of its Subsidiaries of Expansion Debt; provided, that:
(A) any Expansion Debt incurred by the Excluded Subsidiary is recourse only to the Expansion Assets financed with such Expansion Debt and to
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other Expansion Assets owned by the Excluded Subsidiary (including any rights of the Excluded Subsidiary under Shared Facilities Arrangements);
(B) if the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved), at least 25% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(C) if the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been less than 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved);
(1) at least 40% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness; and
(2) after giving effect to such incurrence, the amount of Expansion Debt incurred pursuant to this clause (iii), together with the aggregate amount of all other Expansion Debt then outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Expansion Debt incurred pursuant to this clause (iii), does not exceed $250,000,000;
(iv) the incurrence by the Borrower or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that was permitted by this Agreement to be incurred under clauses (ii), (iii), (iv) or (x) of this Section 5.06(b);
(v) the incurrence by the Borrower or any Guarantor of intercompany Indebtedness between or among the Borrower and any Guarantors that is subordinated in right of payment to all Secured Obligations on the terms set forth on Exhibit A hereto and is not secured other than by unperfected security interests; provided, however, that (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Borrower or a Guarantor and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Borrower
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or a Guarantor will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Borrower or such Guarantor, as the case may be, that was not permitted by this clause (v); and provided, further, that any such intercompany Indebtedness must be included in the Collateral.
(vi) the incurrence by the Borrower or any of its Subsidiaries of Hedging Obligations, in connection with Permitted Debt or otherwise, in the ordinary course of business and not for speculative purposes; provided, that (A) such Hedging Obligations will have tenors that expire on or prior to the maturity date (or other expiration) of the underlying Obligation being hedged, and (B) any such Hedging Obligations hedging or managing interest rate risk with respect to a particular series of Notes or loans under this Agreement, the Second Priority Term Loan Agreement or the Revolving Loan Agreement will have tenors that expire on or prior to the Stated Maturity of the applicable Notes or loans;
(vii) the incurrence by the Borrower or any of its Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, and performance and surety bonds in the ordinary course of business;
(viii) the incurrence by the Borrower or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days;
(ix) the incurrence by the Borrower of (a) Affiliate Subordinated Indebtedness in an aggregate principal amount not to exceed $250,000,000 at any one time outstanding and (b) Working Capital Facility Indebtedness in an aggregate principal amount not to exceed $750,000,000 at any one time outstanding; and
(x) the incurrence by the Borrower of Third Party Subordinated Indebtedness; provided, that:
(A) the Net Proceeds of the Third Party Subordinated Indebtedness are applied:
(1) to acquire all or substantially all of the assets of, or any Equity Interests in, a business that constitutes a Permitted Business, provided, that in the case of an acquisition of Equity Interests, the business is or becomes a Subsidiary of the Borrower and a Guarantor concurrently with such acquisition;
(2) to make a capital expenditure;
(3) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business; or
(4) any combination of the foregoing; and
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(B) the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Third Party Subordinated Indebtedness is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Third Party Subordinated Indebtedness had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved).
(c) The Borrower shall not incur, and shall not permit any Subsidiary to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Borrower or such Subsidiary unless such Indebtedness is also contractually subordinated in right of payment to the First Priority Term Loans, the applicable First Priority Term Loan Guarantees and the other First Priority Term Loan Obligations on substantially identical terms or on terms that are more favorable to the Lenders hereunder; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Borrower or any of its Subsidiaries solely by virtue of being unsecured or by virtue of being secured on a junior basis.
(d) For purposes of determining compliance with this Section 5.06, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) of
Section 5.06(b), the Borrower will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section
5.06. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 5.06. Notwithstanding any other provision of this Section 5.06, the maximum amount of Indebtedness that the Borrower or any Subsidiary may incur pursuant to this Section 5.06 shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
SECTION 5.07. Asset Sales; Application of Net Proceeds.
(a) Asset Sales. The Borrower shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless:
(i) except with respect to an Asset Sale made pursuant to the Existing Purchase Option, the Borrower (or any of its Subsidiaries, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;
(ii) at least 90% of the consideration received in the Asset Sale by the Borrower or such Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash:
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(A) any liabilities, as shown on the Borrower's most recent consolidated balance sheet, of the Borrower or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the First Priority Term Loans and the First Priority Term Loan Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Borrower or such Subsidiary from further liability;
(B) any securities, notes or other obligations received by the Borrower or any such Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Borrower or such Subsidiary into cash, to the extent of the cash received in that conversion; and
(C) in connection with the exercise by a purchaser of an Existing Purchase Option, any amount owed by the Borrower or the applicable Subsidiary to the purchaser under the agreement containing such Existing Purchase Option that is set off by the purchaser against the purchase price;
(iii) if the assets disposed of in such Asset Sale include any component of a Facility that is necessary for the operation of such Facility, the Asset Sale involves the disposition of such Facility as a whole; and
(iv) if the Asset Sale involves the sale of a Facility or all or substantially all the assets of a Facility, (A) such Asset Sale is to a Person other than an Affiliate of the Borrower, and (B) all necessary and appropriate amendments are made to those Major Project Documents applicable to such Facility to remove such Facility from the scope of such Major Project Documents.
(b) Application of Net Proceeds. The Borrower (or the applicable Subsidiary, as the case may be) shall apply the Net Proceeds from each Asset Sale, Casualty Event or Condemnation Event, as follows:
(i) to the Lenders under this Agreement and all other holders of the First Priority Lien Obligations (to the extent required under the applicable First Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such First Priority Lien Obligations that may be purchased, prepaid or redeemed out of such Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of First Priority Lien Obligations required under any First Priority Lien Document);
(ii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of First Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations) in accordance with clause (i) above, to all holders of the Second Priority Lien Obligations (to the extent required under the applicable Second Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Second Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account
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any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations required under any Second Priority Lien Document); and
(iii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of Second Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations) in accordance with clauses (i) and (ii) above, to all holders of the Third Priority Lien Obligations (to the extent required under the applicable Third Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Third Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Third Priority Lien Obligations required under any Third Priority Lien Document).
(c) Mandatory Repayment Offer. The Borrower is required to and shall effectuate each repayment of the First Priority Term Loans by commencing a Mandatory Repayment Offer as described in Section 2.11 (Mandatory Repayment Offers).
(d) Excess Proceeds; Pro Rata Basis. In the event that any Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event remain after the Borrower has made a Mandatory Repayment Offer (and, if applicable, reoffer) in accordance with Section 2.11 (Mandatory Repayment Offers) and such Net Proceeds have otherwise been applied in accordance with clause (b) above, then the Borrower may use such remaining Net Proceeds for any purpose not otherwise prohibited by the Financing Documents, including the making of Restricted Payments. If the aggregate principal amount of all Secured Obligations having the same priority that are to be prepaid under clause (b) above exceeds the amount of Net Proceeds available therefor, then the Borrower will select the Secured Obligations to be purchased, pro rata based on the aggregate principal amount of all of such Secured Obligations to be prepaid.
SECTION 5.08. Transactions with Affiliates.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Borrower (each, an "Affiliate Transaction"), unless:
(i) the Affiliate Transaction, taken as a whole with all other related Affiliate Transactions, is on terms that are no less favorable to the Borrower and its Subsidiaries, taken as a whole, than those that would have been obtained in a comparable transaction by the Borrower or such Subsidiary with an unrelated Person; and
(ii) the Borrower delivers to the Administrative Agent (other than with respect to a Shared Facilities Arrangement between or among only the Borrower and/or any of its Subsidiaries):
(A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10,000,000 but less than or equal to $25,000,000, a resolution of the Board of Directors set
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forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this Section 5.08 and that such Affiliate Transaction has been approved by a majority of the Board of Directors; and
(B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25,000,000, a positive opinion as to the Fair Market Value of such Affiliate Transaction issued by an accounting, appraisal or investment banking firm of national standing.
(b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 5.08(a):
(i) any employment agreement, employee benefit plan, officer and director indemnification agreement or any similar arrangement entered into by the Borrower or any of its Subsidiaries in the ordinary course of business;
(ii) transactions between or among the Borrower and/or any of the Guarantors (other than Shared Facilities Arrangements);
(iii) transactions with a Person that is an Affiliate of the Borrower (but not a Subsidiary of the Borrower) solely because the Borrower owns, directly or through a Subsidiary, an Equity Interest in, or controls, such Person;
(iv) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Borrower;
(v) any issuance of Equity Interests (other than Disqualified Stock) of the Borrower to Affiliates of the Borrower; provided that such Equity Interests are included in the Collateral;
(vi) Restricted Payments that do not violate the provisions of this Agreement as described in Section 5.04 (Restricted Payments);
(vii) loans or advances to employees in the ordinary course of business not to exceed $1,000,000 in the aggregate at any one time outstanding;
(viii) Permitted Tax Payments;
(ix) transactions under or pursuant to written agreements with Affiliates of the Borrower in place as of the date of this Agreement or any amendment or modification thereto, so long as any such amendment or modification meets the requirements of clause (x) or (xi) of this
Section 5.08(b);
(x) any amendments or modifications of, or waivers under, any written agreement described under clause (ix) of this 5.08(b) that is not a Major Project Document; provided that no such amendment, modification or waiver alters any such agreement in a manner than is materially adverse to the interests of the Lenders;
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(xi) any amendments or modifications of, or waivers under, any Major Project Document, which are permitted by Section 5.10(b) (Business Activities) and are on terms that are no less favorable to the Borrower or its relevant Subsidiary (as certified to the Administrative Agent in an Officer's Certificate) than those that would have been obtained in a comparable transaction by the Borrower or such Subsidiary with an unrelated Person; and
(xii) any agreement to do any of the foregoing.
SECTION 5.09. Liens. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens.
SECTION 5.10. Business Activities.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Borrower and its Subsidiaries taken as a whole.
(b) The Borrower shall, and shall cause its Subsidiaries to, perform all their obligations under the Major Project Documents, and the Borrower shall not, and shall not permit any of its Subsidiaries to, terminate, amend or otherwise modify, or consent to any termination, amendment or modification of, or grant any waiver under, any Major Project Document, unless any failure to so perform or any such termination, amendment, modification or waiver would not, when taken together with all other such failures to perform, terminations, amendments, modifications and waivers since the Closing Date, be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Borrower; provided, however, that the provisions of this paragraph will not apply to any amendment, modification or termination of any Major Project Document required under this Agreement in connection with an Asset Sale.
(c) The Borrower shall, and shall cause its Subsidiaries to, obtain and maintain all permits and approvals necessary for the construction and operation of the Facilities, including applicable exemptions from PUHCA, unless the failure to do so would not reasonably be expected to have a Material Adverse Effect.
(d) The Borrower shall not, and shall not permit any of its Subsidiaries to, use or dispose of any hazardous materials or allow any hazardous materials to be brought onto or stored or used on or transported to or released from the Facilities, other than in accordance with prudent industry practices and in compliance with all applicable Environmental Laws, except to the extent such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
SECTION 5.11. Payments for Consent. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of any First Priority Term Loan or as an inducement to any consent, waiver or
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amendment of any of the terms or provisions of any First Priority Term Loan Document unless such consideration is offered to be paid and is paid to all Lenders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
SECTION 5.12. Offer to Prepay Upon Change of Control.
(a) If a Change of Control occurs, the Borrower shall make a Mandatory Repayment Offer on the terms set forth herein and in Section 2.11 (Mandatory Repayment Offers). In such Mandatory Repayment Offer, the Borrower shall offer to prepay each Lender's First Priority Term Loans in an amount equal to (i) with respect to any such Mandatory Prepayment Offer made on or before April 1, 2008, 101% of the aggregate principal amount of First Priority Term Loans then outstanding, (ii) with respect to any such Mandatory Prepayment Offer made after April 1, 2008, 100% of the aggregate principal amount of First Priority Term Loans then outstanding, plus, in each case, accrued and unpaid interest thereon, to but excluding the date of repayment, plus, in each case, any other amount then required to be paid hereunder.
(b) The provisions of this Section 5.12 and of Section 2.11 (Mandatory Repayment Offers) that require the Borrower to make a Mandatory Repayment Offer following a Change of Control shall be applicable whether or not any other provisions of this Agreement are applicable; provided that, the Borrower shall not be required to make a Mandatory Repayment Offer upon a Change of Control if a third party makes the Mandatory Repayment Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Agreement applicable to a Mandatory Repayment Offer required upon a Change of Control and repays all First Priority Term Loans (and the other amounts required to be paid pursuant to clause (a) above).
SECTION 5.13. Restrictions on Activities of CalGen Finance. The Borrower shall not permit CalGen Finance to hold any material assets, become liable for any material obligations or engage in any significant business activities; provided that, notwithstanding anything to the contrary contained herein, CalGen Finance may be a co-obligor or guarantor with respect to Indebtedness if the Borrower is an obligor on such Indebtedness and the net proceeds of such Indebtedness are received by the Borrower, CalGen Finance or one or more of the Borrower's other Subsidiaries.
SECTION 5.14. Additional Subsidiaries. If the Borrower or any of its Subsidiaries acquires or creates another Subsidiary after the Closing Date, then
(a) that newly acquired or created Subsidiary will (i) become a Guarantor hereunder, (ii) if such Subsidiary's assets and property consist solely of its ownership interests in any Guarantor, become a Holding Company hereunder and
(iii) deliver or cause to be delivered an opinion of counsel reasonably satisfactory to the Administrative Agent within 30 days of the date on which it was acquired or created, and (b) all real and personal property of that Subsidiary will become part of the Collateral within 30 days of the date on which that Subsidiary was acquired or created pursuant to documentation (including security documents, financing statements, opinions and other documents) reasonably satisfactory to the Administrative Agent and the Collateral Agent.
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SECTION 5.15. Limitation on Issuances and Sales of Equity Interests in Subsidiaries.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Subsidiary of the Borrower to any Person (other than the Borrower or a Guarantor), unless:
(i) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Subsidiary; and
(ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Sections 2.11 (Mandatory Offers) and 5.07 (Asset Sales; Application of Net Proceeds).
(b) The Borrower shall not permit any of its Subsidiaries to issue any Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Borrower or a Guarantor.
SECTION 5.16. Deposit of Revenues. The Borrower shall, and shall cause its Subsidiaries to, deposit all revenues received by the Borrower and its Subsidiaries, within 10 Business Days of receipt thereof, in the Revenue Account.
SECTION 5.17. Maintenance of Insurance. The Borrower shall, and shall cause its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance on their property, including the Collateral, in at least such amounts, with such deductibles and against at least such risks as is customary for companies of the same or similar size engaged in the same or similar businesses as those of the Borrower and its Subsidiaries and furnish to the Administrative Agent, upon written request, full information as to such Persons' property and liability insurance carriers. The Borrower shall, and shall cause its Subsidiaries to, cause all their insurance policies to name the Lenders, as a class, as additional insureds with waiver of subrogation and shall cause all its, and its Subsidiaries', property and casualty policies to name the Collateral Agent as loss payee (together with other lien holders as their interests may appear), with the right to receive 30 days notice of any cancellation of or material change in such insurance policies.
SECTION 5.18. Coverage Ratio; Kilowatt Test.
(a) Consolidated Interest Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall cause the Consolidated Interest Coverage Ratio of the Borrower and its Subsidiaries to be equal to or greater than 1.05:1.0.
(b) Consolidated First and Second Priority Lien Debt to Kilowatt Test. As of the last day of each fiscal quarter of the Borrower, the Borrower shall cause the ratio of (a) the aggregate outstanding principal amount of First Priority Term Loans, First Priority Notes, Revolving Loans, Second Priority Term Loans and Second Priority Notes, to (b) the combined Estimated Peak Capacity of all the Facilities (including all Facilities in operation and under construction) owned by the Borrower and its Subsidiaries (expressed in kilowatts) to be equal to or less than $235 per kilowatt.
SECTION 5.19. Further Assurances; Ratings. The Borrower and each Guarantor shall perform such reasonable acts as may be necessary to carry out the intent of this Agreement and
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the other First Priority Term Loan Documents promptly after written request by the Administrative Agent. The Borrower shall, as promptly as practical after the date hereof, perform all reasonable acts as may be necessary to cause Moody's to issue a credit rating in respect of the First Priority Term Loans.
SECTION 5.20. Suspension of Certain Covenants. In the event that, from time to time, after giving effect to the suspension of covenants and the event of default provided for in this Section 5.20, the Third Priority Fixed Rate Notes and the Third Priority Floating Rate Notes are rated Baa3 or better by Moody's and BBB- or better by S&P, then the covenants contained in Section 5.04 (Restricted Payments), Section 5.05 (Dividend and Other Payment Restrictions Affecting Subsidiaries), Section 5.06 (Incurrence of Indebtedness and Issuance of Preferred Equity), Section 5.10 (Business Activities), Section 5.16 (Deposit of Revenues) and Section 7.01(i) shall be suspended. In the event that, at any time, neither the Third Priority Fixed Rate Notes nor the Third Priority Floating Rate Notes are rated Baa3 or better by Moody's and BBB- or better by S&P, the covenants and event of default contained in such Sections shall be reinstated.
ARTICLE VI.
SUCCESSORS
SECTION 6.01. Merger, Consolidation, or Sale of Assets.
(a) The Borrower shall not, directly or indirectly: (i) consolidate or merge with or into another Person (whether or not the Borrower is the surviving entity); (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Borrower and its Subsidiaries taken as a whole, in one or more related transactions, to another Person; or (iii) lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person; provided, however, that the foregoing shall not apply to:
(i) a merger of the Borrower with an Affiliate solely for the purpose of reconstituting the Borrower in another jurisdiction; or
(ii) any sale, transfer, assignment, conveyance, lease or other disposition of assets between or among the Borrower and the Guarantors.
(b) Notwithstanding the foregoing, the Borrower is permitted to reorganize as a corporation or a limited liability company in accordance with the procedures established in this Agreement, provided that the Borrower shall have delivered to the Administrative Agent an Opinion of Counsel in the United States reasonably acceptable to the Administrative Agent confirming that such reorganization is not adverse to the Lenders (it being recognized that such reorganization shall not be deemed adverse to the Lenders solely because (i) of the accrual of deferred tax liabilities resulting from such reorganization or
(ii) the successor or surviving corporation (A) is subject to income tax as a corporate entity or (B) is considered to be an "includable corporation" of an affiliated group of corporations within the meaning of the Code or any similar state or local law).
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SECTION 6.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Borrower in a transaction that is subject to, and that complies with the provisions of,
Section 6.01 (Merger, Consolidation, or Sale of Assets), the successor corporation formed by such consolidation or into or with which the Borrower is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Agreement referring to the "Borrower" shall refer instead to the successor corporation and not to the Borrower), and may exercise every right and power of the Borrower under this Agreement with the same effect as if such successor Person had been named as the Borrower herein; provided, however, that the predecessor Borrower shall not be relieved from the obligation to pay the principal of and interest on or other amounts in respect of the First Priority Term Loans.
ARTICLE VII.
DEFAULTS AND REMEDIES
SECTION 7.01. Events of Default.
Each of the following is an "Event of Default":
(a) default for 30 days in the payment when due of interest on the First Priority Term Loans;
(b) default in payment when due of the principal of, or premium, if any, on the First Priority Term Loans;
(c) failure by the Borrower or any of its Subsidiaries to comply with
Section 5.07 (Asset Sales; Application of Net Proceeds), 5.12 (Offer to Prepay Upon Change of Control) or 5.16 (Deposit of Revenues);
(d) failure by Holdings, the Borrower or any of its Subsidiaries for 30 days after written notice from the Administrative Agent or the Lenders holding at least 50% in outstanding aggregate principal amount of the First Priority Term Loans then outstanding to comply with any of the agreements in this Agreement or the other First Priority Term Loan Documents;
(e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Borrower or any of its Subsidiaries (or the payment of which is guaranteed by the Borrower or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Agreement, if that default:
(i) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
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(ii) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25,000,000 or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Borrower or the applicable Subsidiary becoming aware of such default;
(f) failure by the Borrower or any of its Subsidiaries to pay final judgments aggregating in excess of $25,000,000 (excluding those covered by insurance), which judgments are not paid, discharged or stayed for a period of 60 days;
(g) the repudiation by Holdings, the Borrower or any of its Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against Holdings, the Borrower or any of its Subsidiaries for any reason; provided that such repudiation or unenforceability relates to Collateral having a Fair Market Value of $25,000,000 or more;
(h) except as permitted by this Agreement, any First Priority Term Loan Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its First Priority Term Loan Guarantee, and such condition shall not have been cured within 30 days after written notice from the trustee or the holders of at least 50% in aggregate principal amount of outstanding First Priority Term Loans;
(i) breach by any Person (other than the Borrower or any of its Subsidiaries) of its obligations under, or termination or failure to be in full force and effect of, a Major Project Document (unless such breach, termination or failure to be in full force and effect would not, when taken together with all other such breaches, terminations or failures since the date of this Agreement (other than those that have been cured as contemplated below, including by entering into a replacement agreement), be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Borrower), unless with respect to any Major Project Document such breach is cured, or such Major Project Document is replaced with a substantially similar agreement (it being understood that (a) an agreement will be considered substantially similar if it would not be Materially Adverse and (b) the use of an Affiliate of the Borrower as the counterparty under an agreement replacing the Index Hedge will not by itself be considered Materially Adverse), within 60 days thereafter (or 120 days with respect to the Interest Hedge); and
(j) the Borrower, any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary, suffer a Bankruptcy Event.
SECTION 7.02. Acceleration. In the case of an Event of Default specified in clause (j) of Section 7.01 (Events of Default), with respect to the Borrower or any of its Subsidiaries, the
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outstanding First Priority Term Loans shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Administrative Agent or the Requisite Lenders may declare all the First Priority Term Loans to be due and payable immediately. Upon any such declaration, the First Priority Term Loans shall become due and payable immediately.
SECTION 7.03. Other Remedies.
(a) Subject to the Collateral Trust Agreement, if an Event of Default occurs and is continuing, the Administrative Agent may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the First Priority Term Loan Obligations or to enforce the performance of this Agreement and any other First Priority Term Loan Document.
(b) The Administrative Agent may maintain a proceeding even if it does not possess any of the First Priority Term Loan Obligations. A delay or omission by the Administrative Agent or any Lender in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 7.04. Waiver of Past Defaults; Rescission. The Requisite Lenders by notice to the Administrative Agent may on behalf of the Lenders waive an existing Default or Event of Default and its consequences hereunder. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Agreement; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. The Requisite Lenders, by written notice to the Administrative Agent, may on behalf of all of the Lenders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived.
SECTION 7.05. Control by Majority. The Requisite Lenders may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Administrative Agent or exercising any trust or power conferred on it. However, the Administrative Agent may refuse to follow any direction that conflicts with law, this Agreement, the other First Priority Term Loan Documents, that the Administrative Agent determines may be unduly prejudicial to the rights of other Lenders, that may involve the Administrative Agent in personal liability, or that is inconsistent with the Collateral Trust Agreement.
SECTION 7.06. Collection Suit by Administrative Agent. If an Event of Default specified in Section 7.01(a) or (b) (Events of Default) occurs and is continuing, the Administrative Agent is authorized to recover judgment in its own name and as trustee of an express trust against the Borrower for the whole amount of principal of, premium, if any, and interest remaining unpaid on the First Priority Term Loans and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Administrative Agent, its agents and counsel.
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SECTION 7.07. Priorities.
Subject to the Collateral Trust Agreement, if the Administrative Agent collects any money pursuant to this Article VII, it shall pay out the money in the following order:
First: to the Administrative Agent and the Lenders on a pro rata basis, their respective agents and attorneys for amounts due under this Agreement and the other First Priority Term Loan Documents, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Administrative Agent or any of the Lenders and the costs and expenses of collection;
Second: to the Lenders for amounts due and unpaid on the First Priority Term Loan Obligations for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the First Priority Term Loan Obligations for principal, premium, if any and interest, respectively; and
Third: to the Borrower or to such party as a court of competent jurisdiction shall direct.
The Administrative Agent may fix a record date and payment date for any payment to the Lenders pursuant to this Section 7.07.
ARTICLE VIII.
AGENTS
SECTION 8.01. Appointment of Agents. The Borrower and the Lenders acknowledge and agree that MSSF has acted and shall be credited as sole lead arranger of the First Priority Term Loans. The Borrower and the Lenders acknowledge and agree that MSSF has acted and shall be credited as sole bookrunner of the First Priority Term Loans and that MSSF is hereby appointed Administrative Agent hereunder and under the other First Priority Term Loan Documents. The Borrower and each Lender hereby authorizes the Collateral Agent to act as the Collateral Agent with respect to the First Priority Term Loan Obligations, and each Lender authorizes the Collateral Agent and the Administrative Agent to enter into and perform their respective obligations under the Collateral Trust Agreement. Each Lender hereby authorizes the Administrative Agent to act as its agent in accordance with the terms hereof and the other First Priority Term Loan Documents. The Administrative Agent hereby agrees to act upon the express conditions contained herein and the other First Priority Term Loan Documents, as applicable. The provisions of this Article VIII are solely for the benefit of the Agents and the Lenders and no Obligor shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, the Administrative Agent shall act solely as an agent of the Lenders and no Agent does or shall assume or be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower or any of its Subsidiaries. MSSF in its capacity as the sole lead arranger and bookrunner, shall not have any duties, liabilities or obligations under the First Priority Term Loan Documents but shall be entitled to all benefits of this Article VIII.
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SECTION 8.02. Powers and Duties. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other First Priority Term Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and in the other First Priority Term Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other First Priority Term Loan Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other First Priority Term Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other First Priority Term Loan Documents except as expressly set forth herein or therein.
SECTION 8.03. General Immunity.
(a) No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency hereof or any other First Priority Term Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to the Lenders or by or on behalf of any Obligor to any Agent or any Lender in connection with the First Priority Term Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Obligor or any other Person liable for the payment of any First Priority Term Loan Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the First Priority Term Loan Documents or as to the use of the proceeds of the First Priority Term Loans or as to the existence or possible existence of any Material Adverse Effect, Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding First Priority Term Loans or the component amounts thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by any Agent under or in connection with any of the First Priority Term Loan Documents except to the extent caused by such Agent's bad faith, gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other First Priority Term Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 12.05 (Amendments and Waivers)) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall
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be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Borrower and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other First Priority Term Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 12.05 (Amendments and Waivers)).
SECTION 8.04. Agents Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the First Priority Term Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with the Borrower or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection herewith and otherwise without having to account for the same to the Lenders.
SECTION 8.05. Lenders' Representations, Warranties and Acknowledgment.
(a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with its First Priority Term Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of the CalGen Companies. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the First Priority Term Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders.
(b) Each Lender, by delivering its signature page to this Agreement and funding its First Priority Term Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each First Priority Term Loan Document and each other document required to be approved by any Agent, Requisite Lenders or the Lenders, as applicable on the Closing Date.
SECTION 8.06. Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Obligor, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements)
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or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other First Priority Term Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other First Priority Term Loan Documents; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's bad faith, gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.
SECTION 8.07. Successor Administrative Agent. The Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to the Lenders and the Borrower, and the Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Borrower and the Administrative Agent and signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, the Requisite Lenders shall have the right, upon five Business Days' notice to the Borrower, to appoint a successor Administrative Agent; provided, that the Borrower shall have the right to approve any such successor Administrative Agent (such approval not to be unreasonably withheld or delayed) so long as no Default or Event of Default shall have occurred and be continuing. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall promptly transfer to such successor Administrative Agent all sums, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent under the First Priority Term Loan Documents, whereupon such retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder.
SECTION 8.08. Withholding Tax.
(a) To the extent required by any applicable Legal Requirement, the Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to any applicable withholding tax, including any withholding tax resulting from any Lenders' failure to deliver the forms or other documentation as required by Section 2.16(e) (Taxes; Withholding, etc). Nothing in this Section 8.08 shall relieve the Borrower of its obligation with respect to Taxes and Other Taxes provided in Section 2.16 (Taxes; Withholding, etc.).
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(b) If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
ARTICLE IX.
COLLATERAL AND SECURITY
The Collateral Agent's Liens upon the Collateral shall no longer secure the First Priority Term Loan Obligations outstanding under this Agreement, and the right of the Lenders to the benefits and proceeds of the Collateral Agent's Liens on Collateral shall terminate and be discharged:
(a) on the First Priority Term Loan Secured Obligations Termination Date; or
(b) with the prior written consent of each Lender whose consent is required under Section 12.05.
Nothing in this Article IX shall be deemed to restrict the Collateral Agent's rights to release liens on Collateral in accordance with the terms of the Collateral Trust Agreement or as otherwise permitted pursuant to the terms of this Agreement.
ARTICLE X.
RANKING OF LIENS AND COLLATERAL SHARING
EACH LENDER AND EACH AGENT HEREBY ACKNOWLEDGES AND AGREES THAT THE THEIR RESPECTIVE LIEN PRIORITIES, THE DISTRIBUTION OF PROCEEDS OF COLLATERAL, THE EXERCISE OF REMEDIES UNDER THE FIRST PRIORITY TERM LOAN DOCUMENTS, AMENDMENTS AND WAIVERS TO THE FIRST PRIORITY TERM LOAN DOCUMENTS, AND OTHER MATTERS RELATED TO THE COLLATERAL ARE SUBJECT TO AND GOVERNED BY THE COLLATERAL TRUST AGREEMENT. Each Lender and each Agent, by delivering its signature page hereto, funding its First Priority Term Loan on the Closing Date and/or executing an Assignment Agreement (as the case may be), shall be deemed to have
(a) acknowledged receipt of, consented to and approved the Collateral Trust Agreement and (b) authorized the Agents to perform their respective obligations thereunder. Each Lender and each Agent further acknowledges that, in certain circumstances related to intercreditor and security matters, the Collateral Trust Agreement provides that, where lenders and/or noteholders hold the same series of Obligations (such as the First Priority Term Loan Obligations and the Obligations under the First Priority Notes), such lenders and noteholders will vote as a single class, and the agent or trustee for such lenders or noteholders, as
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applicable, will vote the obligations of such lenders or noteholders, as applicable, as a class (and not by percentage of lenders or noteholders voting for or against the applicable intercreditor or security matter). Accordingly, in such circumstances under the Collateral Trust Agreement, if the Requisite Lenders hereunder do (or do not) consent, approve, waive or otherwise provide direction to the Administrative Agent with respect to any request, decision, action, or otherwise, then the Administrative Agent shall vote 100% of the First Priority Term Loan Obligations in favor of such consent, approval or waiver (or rejection thereof), as applicable, all in accordance with the terms of the Collateral Trust Agreement.
ARTICLE XI.
FIRST PRIORITY TERM LOAN GUARANTEE
SECTION 11.01. Guarantee.
(a) Subject to the limitations set forth in Section 12.22 (No Recourse Against the Borrower or the Guarantors) and in Section 11.01(b), the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Administrative Agent, for the benefit of the Lenders making the First Priority Term Loans and their respective successors, endorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower and each other Guarantor when due (whether at the stated maturity, by acceleration or otherwise) of the First Priority Term Loan Obligations;
(b) Each Guarantor, and by its making of a First Priority Term Loan on the Closing Date, each Lender, hereby confirms that it is the intention of all such parties that the First Priority Term Loan Guarantee(s) of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any First Priority Term Loan Guarantee. To effectuate the foregoing intention, the Administrative Agent, the Lenders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article XI, result in the obligations of such Guarantor under its First Priority Term Loan Guarantee not constituting a fraudulent transfer or conveyance.
(c) Each Guarantor agrees that the First Priority Term Loan Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor under this Article XI without impairing the guarantee of such Guarantor to the extent provided in this Article XI or affecting the rights and remedies of the Administrative Agent or any other Secured Party hereunder.
(d) The guarantee provided in this Article XI shall remain in full force and effect until the First Priority Term Loan Secured Obligations Termination Date.
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(e) With respect to each Guarantor, no payment made by the Borrower, any of the other Guarantors or any other Person, or received or collected by the Administrative Agent or any other Secured Party from the Borrower, any of the other Guarantors or any other Person, by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of any First Priority Term Loan Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of such Guarantor hereunder, which Guarantor shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the First Priority Term Loan Obligations or any payment received or collected from such Guarantor in respect of the First Priority Term Loan Obligations), remain liable for the First Priority Term Loan Obligations outstanding from time to time hereunder up to the maximum amount of such Guarantor's liability hereunder until the First Priority Term Loan Secured Obligations Termination Date.
SECTION 11.02. Right of Contribution.
(a) Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 11.04 (No Subrogation).
(b) The provisions of this Section 11.02 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the other First Priority Term Loan Secured Parties, and each Guarantor shall remain liable to the Administrative Agent and the other First Priority Term Loan Secured Parties for the full amount guaranteed by such Guarantor hereunder.
SECTION 11.03. Subordination. Except as otherwise specifically provided in this Article XI, (a) all existing and future indebtedness of, or other obligations owed by, the Borrower or any of its subsidiaries to any Guarantor is hereby subordinated to all First Priority Term Loan Obligations, and (b) without the prior written consent of the Administrative Agent, such subordinated indebtedness (including interest thereon) shall not be paid or withdrawn in whole or in part, nor shall any Guarantor accept any payment of or on account of any such indebtedness while the guarantee provided hereunder is in effect. Any payment by the Borrower or any subsidiary thereof in violation of this Section 11.03 shall be received by the relevant Guarantor in trust for the Administrative Agent and the First Priority Term Loan Secured Parties, and such Guarantor shall cause the same to be paid to the Administrative Agent for the benefit of the First Priority Term Loan Secured Parties immediately upon demand by the Administrative Agent on account of the First Priority Term Loan Obligations. No Guarantor shall assign all or any portion of such indebtedness while the guarantee provided hereunder remains in effect except upon prior written notice to the Administrative Agent and pursuant to an agreement by which the assignee of any such indebtedness agrees that the assignment is made subject to the terms of this Agreement, and that any attempted assignment of such indebtedness in violation of the provisions hereof shall be void. Nothing in this Section 11.03 shall apply to any repayment of existing or future indebtedness or obligation, distribution, withdrawal of capital or any other payment of any kind or nature whether in cash, in kind, or otherwise, that is permitted to be
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made to the Guarantor or any of its Affiliates pursuant to and in accordance with the Financing Documents.
SECTION 11.04. No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Administrative Agent or any other Secured Party, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any other Secured Party against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Administrative Agent or any other Secured Party for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until the First Priority Term Loan Secured Obligations Termination Date. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the First Priority Term Loan Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the other First Priority Term Loan Secured Parties, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly endorsed by such Guarantor to the Administrative Agent, if required), to be applied against the First Priority Term Loan Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine, subject to the terms and provisions of the Collateral Trust Agreement.
SECTION 11.05. Amendments, etc. with respect to the First Priority Term Loan Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the First Priority Term Loan Obligations made by the Administrative Agent or any other Secured Party may be rescinded by the Administrative Agent or such other Secured Party and any of the First Priority Term Loan Obligations continued, and the First Priority Term Loan Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any other Secured Party, and any of the First Priority Term Loan Documents may be amended, modified, supplemented or terminated, in whole or in part, as the requisite parties thereto deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any other Secured Party for the payment of the First Priority Term Loan Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the First Priority Term Loan Obligations or for the guarantee contained in this Article XI or any property subject thereto.
SECTION 11.06. Guarantee Absolute and Unconditional.
(a) Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the First Priority Term Loan Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guarantee contained in this Article XI or
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acceptance of the guarantee contained in this Article XI. Each Guarantor agrees that the First Priority Term Loan Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the First Priority Term Loan Guarantees. Each Guarantor agrees that all dealings between the Borrower and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Article XI. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the First Priority Term Loan Obligations.
(b) The obligations of each Guarantor hereunder are primary obligations of such Guarantor and are an absolute, unconditional, continuing and irrevocable guaranty of payment and performance of the First Priority Term Loan Obligations and the other obligations of Guarantor hereunder and not of collectibility, and are in no way conditioned on or contingent upon any attempt to enforce in whole or in part Holdings', the Borrower's or any CalGen Company's liabilities and obligations to the Secured Parties. Each failure by a Guarantor to pay or perform, as the case may be, a First Priority Term Loan Obligation or any other obligation hereunder shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises.
(c) The First Priority Term Loan Secured Parties may, at any time and from time to time (whether or not after revocation or termination of the guarantee contained in this Article XI) without the consent of or notice to any Guarantor, except such notice as may be required by the First Priority Term Loan Documents or applicable law which cannot be waived, without incurring responsibility to any Guarantor, without impairing or releasing the obligations of any Guarantor hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place and terms of payment or performance of, or renew or alter, any First Priority Term Loan Obligation or any obligations and liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, or in any manner modify, amend or supplement the terms of the First Priority Term Loan Documents or any documents, instruments or agreements executed in connection therewith, in each case with the consent of Holdings, the Borrower, the CalGen Companies and any Guarantor (in each case, as and to the extent required by this Agreement or the relevant Security Document, as applicable), and the agreements and guarantees herein made shall apply to the First Priority Term Loan Obligations or such other obligations as changed, extended, renewed, modified, amended, supplemented or altered in any manner;
(ii) exercise or refrain from exercising any rights against the Borrower, Holdings, any CalGen Company, or others (including any Guarantor) or otherwise act or refrain from acting;
(iii) add or release any other guarantor from its obligations without affecting or impairing the obligations of any Guarantor hereunder;
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(iv) settle or compromise any First Priority Term Loan Obligations or any obligations and liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment or performance of all or any part thereof to the payment or performance of any obligations and liabilities which may be due to the Secured Parties or others;
(v) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner or in any order any property by whomsoever pledged or mortgaged to secure or securing the First Priority Term Loan Obligations or any liabilities or obligations (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof and/or any offset there against;
(vi) apply any sums by whomsoever paid or howsoever realized to any obligations and liabilities of Holdings, the Borrower or any CalGen Company to the First Priority Term Loan Secured Parties under the First Priority Term Loan Documents in the manner provided therein regardless of what obligations and liabilities remain unpaid, except that sums paid by any Guarantor hereunder shall be deemed to have been paid in respect of the applicable obligation of such Guarantor hereunder;
(vii) consent to or waive any breach of, or any act, omission or default under, the First Priority Term Loan Documents or otherwise amend, modify or supplement (with the consent of the Guarantors, Holdings, the Borrower and the CalGen Companies, as and to the extent required by the First Priority Term Loan Documents) the First Priority Term Loan Documents or any of such other instruments or agreements; and/or
(viii) act or fail to act in any manner referred to in this Agreement which may deprive any Guarantor of its right to subrogation against the Borrower or any CalGen Company to recover full indemnity for any payments or performances made pursuant to this Agreement or of its right of contribution against any other party.
(d) No invalidity, irregularity or unenforceability of the First Priority Term Loan Obligations or invalidity, irregularity, unenforceability or non-perfection of any collateral therefor, shall affect, impair or be a defense to the guarantee contained in this Article XI, which is a primary obligation of each Guarantor.
(e) The guarantee provided hereunder is a continuing guarantee and all obligations to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. In the event that, notwithstanding the provisions of Section 11.06(b) above, the guarantee provided by any Guarantor hereunder shall be deemed revocable in accordance with applicable law, then any such revocation shall become effective only upon receipt by Administrative Agent of written notice of revocation signed by such Guarantor. To the extent permitted by applicable law, no revocation or termination hereof shall affect, in any manner, rights arising under hereunder with respect to First Priority Term Loan Obligations arising prior to receipt by Administrative Agent of written notice of such revocation or termination. Any such revocation or termination shall be deemed to be an Event of Default.
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SECTION 11.07. Waiver. Each Guarantor hereby unconditionally and irrevocably waives and relinquishes, to the maximum extent permitted by applicable Legal Requirements, all rights and remedies accorded to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies, including:
(a) any right to require Administrative Agent or the other Secured Parties to proceed against the Borrower, any CalGen Company or any other Person or to proceed against or exhaust any security held by Administrative Agent or any other Secured Party at any time or to pursue any other remedy in Administrative Agent's or any other Secured Party's power before proceeding against such Guarantor;
(b) any defense that may arise by reason of the incapacity, lack of power or authority, death, dissolution, merger, termination or disability of such Guarantor, the Borrower, any other CalGen Company or any other Person or the failure of the Administrative Agent or any other Secured Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of such Guarantor, Holdings, the Borrower, any CalGen Company or any other Person;
(c) promptness, diligence, demand, presentment, protest and notice of any kind, including notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Holdings, the Borrower, any CalGen Company, the Administrative Agent, the other Secured Parties, any endorser or creditor of the foregoing or on the part of any other Person under this or any other instrument in connection with any obligation or evidence of indebtedness held by the Administrative Agent or the other Secured Parties as collateral or in connection with any First Priority Term Loan Obligation;
(d) any defense based upon an election of remedies by the Administrative Agent or the other Secured Parties, including an election to proceed by non-judicial rather than judicial foreclosure, which destroys or otherwise impairs the subrogation rights of such Guarantor, the right of such Guarantor to proceed against Holdings, the Borrower, any CalGen Company or another Person for reimbursement, or both;
(e) any defense based on any offset against any amounts which may be owed by any Person to such Guarantor for any reason whatsoever;
(f) any defense based on any act, failure to act, delay or omission whatsoever on the part of Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates or the failure by Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates to do any act or thing or to observe or perform any covenant, condition or agreement to be observed or performed by it under the Financing Documents;
(g) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
(h) any defense setoff or counterclaim which may at any time be available to or asserted by Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates
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thereof against the Administrative Agent, the other Secured Parties or any other Person under the Financing Documents;
(i) any duty on the part of the Administrative Agent or any other Secured Party to disclose to such Guarantor any facts any Secured Party may now or hereafter know about Holdings, the Borrower, any CalGen Company or the Facilities, regardless of whether the Administrative Agent or any other Secured Party has reason to believe that any such facts materially increase the risk beyond that which such Guarantor intends to assume, or have reason to believe that such facts are unknown to such Guarantor, or have a reasonable opportunity to communicate such facts to such Guarantor, since such Guarantor acknowledges that such Guarantor is fully responsible for being and keeping informed of the financial condition of the Borrower and of all circumstances bearing on the risk of non-payment or non-performance of any First Priority Term Loan Obligation;
(j) any defense based on any change in the time, manner or place of any payment or performance under, or in any other term of, this Agreement or any other Financing Document, or any other amendment, renewal, extension, acceleration, compromise or waiver of or any consent or departure from the terms of this Agreement or any other Financing Document;
(k) any right to assert the bankruptcy or insolvency of Holdings, the Borrower, any CalGen Company or any other Person as a defense hereunder or as the basis for rescission hereof and any defense arising because of the Administrative Agent's or any other Secured Party's election, in any proceeding instituted under the Bankruptcy Law, of the application of Section 1111(b)(2) of the Bankruptcy Law;
(l) any defense based upon any borrowing or grant of a security interest under Section 364 of the Bankruptcy Law; and
(m) any other circumstance (including any statute of limitations), any act or omission by Holdings, the Borrower, any CalGen Company, or any existence of or reliance on any representation by the Administrative Agent, Holdings, the Borrower, any CalGen Company or any Secured Party that might otherwise constitute a defense available to, or discharge of, any guarantor or surety (other than, subject to Section 11.08 (Bankruptcy), the defense of payment or performance of the applicable Obligations guaranteed hereunder).
SECTION 11.08. Bankruptcy.
(a) The obligations of any Guarantor under the guarantee provided in this Article XI shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement of Holdings, the Borrower, any other Guarantor or any Affiliate thereof, or by any defense which Holdings, the Borrower, any Guarantor or any Affiliate thereof may have by reason of any order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor shall file, in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law, all claims which such Guarantor may have against Holdings, the Borrower or any CalGen Company relating to any indebtedness of the Borrower or any CalGen Company to such Guarantor, and hereby assigns to the Administrative
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Agent (for the benefit of itself and the Lenders) all rights of such Guarantor thereunder. If any Guarantor does not file any such claim, the Administrative Agent, as attorney-in-fact for such Guarantor, is hereby authorized to do so in the name of such Guarantor or, in the Administrative Agent's discretion, to assign the claim to a nominee and to cause proofs of claim to be filed in the name of the Administrative Agent's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. The Administrative Agent or its nominee shall have the sole right to accept or reject any plan proposed in any such proceeding and to take any other action which a party filing a claim is entitled to take. In all such cases, whether in administration, bankruptcy or otherwise, the person authorized to pay such a claim shall pay the same to the Administrative Agent to the extent of any First Priority Term Loan Obligations which then remain unpaid or unperformed, and, to the full extent necessary for that purpose, each Guarantor hereby assigns to the Administrative Agent all of such Guarantor's rights to all such payments or distributions to which such Guarantor would otherwise be entitled; provided, however, that such Guarantor's obligations hereunder shall not be satisfied except to the extent that the Administrative Agent receives cash by reason of any such payment or distribution. If the Administrative Agent receives anything hereunder other than cash, the same shall be held as collateral for amounts due under the guarantee contained in this Article XI.
(c) Each Guarantor hereby irrevocably waives, to the extent it may do so under applicable Legal Requirements, any protection to which it may be entitled under Sections 365(c)(1), 365(c)(2) and 365(e)(2) of the Bankruptcy Law or equivalent provisions of the laws or regulations of any other jurisdiction with respect to any proceedings, or any successor provision of law of similar import, in the event of any Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company. Specifically, in the event that the trustee (or similar official) in a Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company or the debtor-in-possession takes any action (including the institution of any action, suit or other proceeding for the purpose of enforcing the rights of Holdings, the Borrower, or any Guarantor under this Agreement or any Security Document), no Guarantor shall assert any defense, claim or counterclaim denying liability hereunder on the basis that this Agreement or any Security Document is an executory contract or a "financial accommodation" that cannot be assumed, assigned or enforced or on any other theory directly or indirectly based on Section 365(c)(1), 365(c)(2) or 365(e)(2) of the Bankruptcy Law, or equivalent provisions of the law or regulations of any other jurisdiction with respect to any proceedings or any successor provision of law of similar import. If a Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company shall occur, each Guarantor agrees, after the occurrence of such Bankruptcy Event, to reconfirm in writing, to the extent permitted by applicable Legal Requirements, its pre-petition waiver of any protection to which it may be entitled under Sections 365(c)(1), 365(c)(2) and 365(e)(2) of the Bankruptcy Law or equivalent provisions of the laws or regulations of any other jurisdiction with respect to proceedings and, to give effect to such waiver, each Guarantor consents to the assumption and enforcement of each provision of the guarantee contained in this Article XI and any other provision hereof and in any other First Priority Term Loan Document by the debtor-in-possession or Holdings', the Borrower's or any CalGen Company's trustee in bankruptcy, as the case may be.
SECTION 11.09. Reinstatement. The guarantee contained in this Article XI shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the First Priority Term Loan Obligations is rescinded or must otherwise be restored or
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returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Holdings, the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Holdings, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.
SECTION 11.10. Payments. Each Guarantor shall make all payments due hereunder in accordance with Section 2.12 (General Provisions Regarding Payments).
ARTICLE XII.
MISCELLANEOUS
SECTION 12.01. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to the Borrower or any Guarantor or the Administrative Agent shall be sent to such Person's address as set forth on Appendix B or in the other relevant First Priority Term Loan Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to the Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to the Administrative Agent shall be effective until received by the Administrative Agent. Documents, notices or reports required to be delivered to the Lenders pursuant to Sections 2.11 (Mandatory Repayment Offers), 5.01(a) (Reports), 5.02 (Compliance Certificate) and 5.12 (Offer to Prepay Upon Change of Control) may be delivered electronically and posted electronically on IntraLinks/IntraAgency or other relevant website to which the Lenders have access (whether a commercial, third-party website or whether sponsored by Administrative Agent), if any; provided that (i) the Administrative Agent shall deliver paper copies of such reports to any Lender upon written request therefor; and (ii) the Administrative Agent shall notify (which may be by facsimile or electronic mail) each Lender of the posting of any such reports and provide to each Lender by email electronic versions (i.e., soft copies) of such reports.
SECTION 12.02. Expenses.
The Borrower agrees to pay promptly, without duplication among the separate clauses of this Section 12.02 and without duplication of amounts paid under the Purchase Agreement or the Revolving Loan Agreement or any other Financing Document:
(a) all the costs incurred after the Closing Date of furnishing all opinions by counsel for the Borrower and the other Obligors;
(b) the reasonable fees, expenses and disbursements of counsel to the Sole Lead Arranger in connection with the administration of the First Priority Term Loan Documents and
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the negotiation, preparation and execution of any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by the Borrower;
(c) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of the Secured Parties pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Security Documents;
(d) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers if reasonably required in connection with the administration or enforcement of this Agreement;
(e) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) reasonably required in connection with the custody or preservation of any of the Collateral; and
(f) after the occurrence of a Default or an Event of Default, all costs and expenses, including attorneys' fees and costs of settlement, incurred by any Agent and the Lenders in enforcing any First Priority Term Loan Obligations of or in collecting any payments due from any Obligor hereunder or under the other First Priority Term Loan Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the First Priority Term Loan Guarantees) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any Bankruptcy Case or Insolvency Proceeding.
SECTION 12.03. Indemnity.
(a) In addition to the payment of costs and expenses pursuant to
Section 12.02 (Expenses), whether or not the transactions contemplated hereby shall be consummated, the Borrower and the Guarantors agree to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless the Administrative Agent and the Lenders and each of their respective Affiliates and each and all of the directors, officers, partners, trustees, employees, attorneys and agents, and (in each case) their respective heirs, representatives, successors and assigns (each of the foregoing, an "Indemnitee") from and against any and all Indemnified Liabilities; provided, no Indemnitee shall be entitled to indemnification hereunder with respect to any Indemnified Liability to the extent such Indemnified Liability is found by a final and nonappealable decision of a court of competent jurisdiction to have resulted directly and primarily from the bad faith, gross negligence or willful misconduct of such Indemnitee.
(b) All amounts due under Section 12.03(a) shall be payable not later than 10 days after written demand therefor.
(c) To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in Section 12.03(a) may be unenforceable in whole or in part because they are violative
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of any law or public policy, the Borrower and the Guarantors shall contribute the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.
(d) The Borrower and the Guarantors shall not assert any claim against any Indemnitee, on any theory of liability, for any lost profits or special, indirect or consequential damages or (to the fullest extent lawful) any punitive damages arising out of, in connection with, or as a result of, this Agreement or any other First Priority Term Loan Document or any agreement or instrument or transaction contemplated hereby or relating in any respect to any Indemnified Liability, and the Borrower and the Guarantors hereby forever waive, release and agree not to sue upon any claim for any such lost profits or special, indirect, consequential or (to the fullest extent lawful) punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.
(e) The agreements in this Section 12.03 shall survive repayment of the First Priority Term Loans and all other amounts payable hereunder.
SECTION 12.04. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by the Borrower and the Guarantors at any time or from time to time subject to the consent of the Administrative Agent, without prior written notice to such Person or to any other Person (other than the Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of the Borrower or any Guarantor against and on account of the obligations and liabilities of such party to such Lender hereunder, and under the other First Priority Term Loan Documents, including all claims of any nature or description arising out of or connected hereto, or with any other First Priority Term Loan Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the First Priority Term Loans or any other amounts due hereunder shall have become due and payable pursuant to Article II and although such obligations and liabilities, or any of them, may be contingent or unmatured.
SECTION 12.05. Amendments and Waivers.
(a) Requisite Lenders' Consent. Subject to Section 12.05(e), no amendment, modification, termination or waiver of any provision of the First Priority Term Loan Documents, or consent to any departure by any Obligor therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders and any additional consents required by Sections 12.05(b) and (c).
(b) Affected Lenders' Consent. No amendment, modification, termination, or consent shall be effective if the effect thereof would:
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(i) extend the scheduled final maturity of any First Priority Term Loan or First Priority Term Loan Note outstanding to any Lender without the prior written consent of that Lender;
(ii) waive, reduce or postpone any scheduled repayment (but not prepayment) due to any Lender without the prior written consent of that Lender;
(iii) reduce the rate of interest on any First Priority Term Loan (other than any waiver of any increase in the interest rate applicable to any First Priority Term Loan pursuant to Section 2.07 (Default Interest)) payable to any Lender or reduce or extend any fee payable hereunder to any Lender without the prior written consent of that Lender;
(iv) reduce the principal amount of any First Priority Term Loan outstanding to any Lender without the prior written consent of that Lender;
(v) amend, modify, terminate or waive any provision of this
Section 12.05(b), as it applies to any Lender without the prior written consent of that Lender;
(vi) amend the definition of "Requisite Lenders" or "Pro Rata Share" without the prior written consent of all Lenders;
(vii) release any Collateral from the Liens created by the Security Documents, except as specifically provided for in this Agreement and the Security Documents, without the prior written consent of all Lenders;
(viii) release any Guarantor from its obligations under its First Priority Term Loan Guarantee(s) or otherwise consent to the assignment or transfer by any Obligor of any of its rights and obligations under any First Priority Term Loan Document without the prior written consent of all Lenders; or
(ix) amend or modify any provision which requires pro rata payments among and as between the Lenders without the prior written consent of all Lenders.
(c) Other Consents. No amendment, modification, termination or waiver of any provision of the First Priority Term Loan Documents, or consent to any departure by any Obligor therefrom, shall amend, modify, terminate or waive any provision of Article VIII as the same applies to the Administrative Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of the Administrative Agent.
(d) Execution of Amendments, etc. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Obligor in any case shall entitle any Obligor to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 12.05 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by an Obligor, on such Obligor.
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(e) Certain Amendments. Notwithstanding the preceding provisions of this Section 12.05, the Borrower and the Administrative Agent may amend or supplement the First Priority Term Loan Documents without the consent of any Lender:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for the assumption of the Borrower's obligations to the Lenders by a successor to the Borrower pursuant to Article VI hereof;
(iii) to make any change that would provide any additional rights or benefits to the Lenders or that does not adversely affect the legal rights hereunder of any Lender;
(iv) to allow any Subsidiary of the Borrower to provide a First Priority Term Loan Guarantee or allow any Guarantor to execute a supplemental Guarantee with respect to the First Priority Term Loan Obligations;
(v) to make, complete or confirm any grant of Collateral permitted or required by this Agreement or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Agreement or any of the Security Documents;
(vi) to conform the text of this Agreement, the First Priority Term Loan Notes or the Security Documents to any provision of the Description of New Term Loans or Description of Notes section of the Offering Memorandum to the extent that such provision of the Description of New Term Loans or Description of Notes section of the Offering Memorandum was intended to be a verbatim recitation of a provision of this Agreement, the First Priority Term Loans or the Security Documents; or
(vii) to reflect any waiver or termination of any right arising under the provisions of this Agreement that otherwise would be enforceable by any holder of the Notes, if such waiver or termination is set forth in the indentures governing such Notes, provided that no such waiver or amendment shall adversely affect the rights of the Lenders.
SECTION 12.06. Successors and Assigns; Participations.
(a) Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders and the other parties hereto. No Obligor's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Obligor without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Register. The Borrower, the Administrative Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding First Priority Term Loan Commitments and First Priority Term Loans listed
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therein for all purposes hereof, and no assignment or transfer of any such First Priority Term Loan Commitment or First Priority Term Loan (including any First Priority Term Loan represented by a First Priority Term Loan Note) shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by the Administrative Agent and recorded in the Register as provided in Section
12.06(e). Prior to such recordation, all amounts owed with respect to the applicable First Priority Term Loan Commitment or First Priority Term Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding First Priority Term Loan Commitments or First Priority Term Loans.
(c) Right to Assign. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including all or a portion of its First Priority Term Loan Commitment or First Priority Term Loans owing to it or other First Priority Term Loan Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any First Priority Term Loan and any related First Priority Term Loan Commitments):
(i) to any Person meeting the criteria of clause (a) of the definition of the term of "Eligible Assignee" upon the giving of notice to the Borrower and the Administrative Agent; and
(ii) to any Person meeting the criteria of clause (b) of the definition of the term of "Eligible Assignee";
provided, further each such assignment pursuant to this Section 12.06(c) shall be in an aggregate amount of not less than $1,000 (or such lesser amount as may be agreed to by the Borrower and the Administrative Agent or as shall constitute the aggregate amount of the First Priority Term Loan Commitments and First Priority Term Loans outstanding to the assigning Lender).
(d) Mechanics; Fee. The assigning Lender and the assignee thereof shall execute and deliver to the Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to the Administrative Agent pursuant to Section 2.16(e) (Taxes; Withholding, etc.).
(e) Notice of Assignment. Upon its receipt of a duly executed and completed Assignment Agreement (and any forms, certificates or other evidence required by this Agreement in connection therewith), the Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to the Borrower and shall maintain a copy of such Assignment Agreement.
(f) Representations and Warranties of Assignee. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, and without limiting any other representation or warranty contained in any such Assignment Agreement, represents and warrants as of the Closing Date or as of the applicable Effective Date
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(as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable First Priority Term Loan Commitments or First Priority Term Loans, as the case may be; and (iii) it shall make or invest in, as the case may be, its First Priority Term Loan Commitments or First Priority Term Loans for its own account in the ordinary course of its business and without a view to distribution of such First Priority Term Loan Commitments or First Priority Term Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 12.06, the disposition of such First Priority Term Loan Commitments or First Priority Term Loans or any interests therein shall at all times remain within its exclusive control).
(g) Effect of Assignment. Subject to the terms and conditions of this
Section 12.06, as of the "Effective Date" specified in the applicable Assignment Agreement:
(i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof;
(ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 12.08 (Survival of Representations, Warranties and Agreements) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the First Priority Term Loan Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); and
(iii) if any such assignment occurs after the issuance of any First Priority Term Loan Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable First Priority Term Loan Notes to the Administrative Agent for cancellation, and thereupon the Borrower shall issue and deliver new First Priority Term Loan Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new outstanding First Priority Term Loans of the assignee and/or the assigning Lender.
(h) Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than the Borrower, any of its Restricted Subsidiaries or any of its Affiliates) in all or any part of its First Priority Term Loans or in any other First Priority Term Loan Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would:
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(i) extend the final scheduled maturity of any First Priority Term Loan or First Priority Term Loan Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any First Priority Term Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof);
(ii) consent to the assignment or transfer by any Obligor of any of its rights and obligations under this Agreement; or
(iii) release all or substantially all of the Collateral under the Security Documents (except as expressly provided in the First Priority Term Loan Documents) supporting the First Priority Term Loan Obligations hereunder in which such participant is participating.
The Borrower agrees that each participant shall be entitled to the benefits of Sections 2.14(c) (Making or Maintaining First Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy) and 2.16 (Taxes; Withholding, etc.) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.14 (Making or Maintaining First Priority Term Loans) or 2.15 (Increased Costs; Capital Adequacy) than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with the Borrower's prior written consent and (ii) a participant that would be a Non-U.S. Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 (Taxes; Withholding, etc.) unless the Borrower is notified of the participation sold to such participant and such participant agrees, for the benefit of the Borrower, to comply with Section 2.16 (Taxes; Withholding, etc.) as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 12.04 (Set-Off) as though it were a Lender, provided such participant agrees to be subject to Section 2.13 (Ratable Sharing) as though it were a Lender.
(i) Certain Other Assignments.
(i) In addition to any other assignment permitted pursuant to this Section 12.06, any Lender may assign and/or pledge all or any portion of its First Priority Term Loans, the other First Priority Term Loan Obligations owed by or to such Lender, and its First Priority Term Loan Notes, if any, to secure obligations of such Lender including (A) to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank and (B) with respect to any Lender that is a fund that invests in bank loans, to any trustee or holder of obligations owed, or securities issued by, such fund as security for such obligations or securities or to any other representative of such holders; provided, no Lender, as between the Borrower and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and
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provided further, in no event shall the applicable Federal Reserve Bank, trustee or such holder of obligations be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
(ii) At the request of the Borrower in connection with the payment in full of all of the First Priority Term Loan Obligations, whether by voluntary or mandatory prepayment thereof or on the Maturity Date or otherwise, each Lender shall execute and deliver to the Borrower (or to such Person(s) as the Borrower requests) such documents and instruments as the Borrower reasonably requests to assign all of such Lender's First Priority Term Loan Obligations (together with all of such Lender's right, title and interest in, to and under all the First Priority Term Loan Documents) to such Person(s) as the Borrower may direct; provided, that (A) upon the effectiveness of such assignment the Borrower shall execute and deliver to each Lender an instrument pursuant to which the Borrower and the Guarantors release such Lender from all claims under this Agreement and all of the other First Priority Term Loan Documents and (B) such assignment shall be without recourse to and without any representations or warranties from the assigning Lender. If any such assignment occurs after the issuance to it of any First Priority Term Loan Notes hereunder, then upon the effectiveness of such assignment, the assigning Lender shall deliver all of its First Priority Term Loan Notes to the Borrower for cancellation or re-issuance to the new Lender.
SECTION 12.07. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.
SECTION 12.08. Survival of Representations, Warranties and Agreements. All agreements made herein shall survive the execution and delivery hereof and the making of any First Priority Term Loan. Notwithstanding anything herein or implied by law to the contrary, the agreements of the Borrower and the Guarantors set forth in Sections 2.14(c) (Making or Maintaining First Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy), 2.16 (Taxes; Withholding, etc.), 12.02 (Expenses), 12.03 (Indemnity), 12.04 (Set-Off), 12.15 (Consent to Jurisdiction), 12.16 (Waiver of Jury Trial) and 12.17 (Confidentiality) and the agreements of Lenders set forth in Sections 2.13 (Ratable Sharing), 8.03(b) (General Immunity) and 8.06 (Right to Indemnity) shall survive the payment of the First Priority Term Loans and the termination hereof.
SECTION 12.09. No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other First Priority Term Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other First Priority Term Loan Documents. Any forbearance or failure to exercise, and any delay in exercising, any right,
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power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
SECTION 12.10. Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Obligor or any other Person or against or in payment of any or all of the First Priority Term Loan Obligations. To the extent that any Obligor makes a payment or payments to the Administrative Agent or the Lenders (or to the Administrative Agent, on behalf of the Lenders), or the Administrative Agent or the Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
SECTION 12.11. Severability. In case any provision in or obligation under any First Priority Term Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 12.12. First Priority Term Loan Obligations Several; Independent Nature of Lenders' Rights. The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or First Priority Term Loan Commitment of any other Lender hereunder. Nothing contained herein or in any other First Priority Term Loan Document, and no action taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
SECTION 12.13. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
SECTION 12.14. Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
SECTION 12.15. Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING HERETO OR ANY OTHER FIRST PRIORITY TERM LOAN DOCUMENT, OR ANY OF THE FIRST PRIORITY TERM LOAN OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH
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PARTY HERETO, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE OBLIGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 12.01 (NOTICES); (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE OBLIGOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES THAT THE AGENTS AND THE LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 12.16. Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER FIRST PRIORITY TERM LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 12.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER FIRST PRIORITY TERM LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE FIRST PRIORITY TERM LOAN OBLIGATIONS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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SECTION 12.17. Confidentiality.
Each Lender shall hold all non-public information regarding the Borrower and its business identified as such by the Borrower and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender's customary procedures for handling confidential information of such nature, it being understood and agreed by the Borrower that, in any event, a Lender may make:
(i) disclosures of such information to Affiliates of such Lender and to their agents and advisors (and to other Persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 12.17);
(ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any First Priority Term Loan Obligations or any participations therein;
(iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Obligors received by it from any of the Agents or any Lender, and
(iv) disclosures required or requested by any governmental agency or representative thereof or by the National Association of Insurance Commissioners or pursuant to legal or judicial process; provided, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information.
SECTION 12.18. Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the First Priority Term Loan Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the First Priority Term Loan Obligations shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the First Priority Term Loan Obligations are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or
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receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the First Priority Term Loan Obligations or be refunded to the Borrower.
SECTION 12.19. Counterparts; Execution by Facsimile.
(a) This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
(b) The delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
SECTION 12.20. Effectiveness. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Borrower and the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.
SECTION 12.21. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement must include:
(i) a statement that the Person making such certificate or opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
SECTION 12.22. No Recourse Against the Borrower or the Guarantors.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT OR ANY OTHER FIRST PRIORITY TERM LOAN DOCUMENT, THE FIRST PRIORITY TERM LOANS AND THE FIRST PRIORITY TERM LOAN GUARANTEES ARE NON-RECOURSE SECURED OBLIGATIONS OF THE BORROWER AND THE APPLICABLE GUARANTORS, RESPECTIVELY. THE ONLY RECOURSE A LENDER WILL HAVE WITH RESPECT TO THE PAYMENT OF PRINCIPAL OF, OR INTEREST OR PREMIUM ON, THE FIRST PRIORITY TERM LOAN OBLIGATIONS (WHETHER UNDER THIS AGREEMENT OR PURSUANT TO THE GUARANTEES) WILL
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BE ENFORCEMENT OF ITS RIGHTS AGAINST THE COLLATERAL PURSUANT TO THE SECURITY DOCUMENTS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
CALPINE GENERATING COMPANY, LLC,
as the Borrower

By: /s/ ZAMIR RAUF
    ------------------------------------
    Name:  Zamir Rauf
    Title: Vice President	

[First Priority Credit and Guarantee Agreement - Calpine Generating Company, LLC]
MORGAN STANLEY SENIOR FUNDING, INC.,
as Administrative Agent and a Lender

By: /s/ LUCY K. GALBRAITH
    ------------------------------------
    Name:
    Title:	

MORGAN STANLEY SENIOR FUNDING, INC.,
as Sole Lead Arranger and Sole Bookrunner

By: /s/ LUCY K. GALBRAITH
    ------------------------------------
    Name:
    Title:	

[First Priority Credit and Guarantee Agreement - Calpine Generating Company, LLC]
BEAL BANK, S.S.B., as a Lender

By: /s/ W. T. SAURENMANN
    ------------------------------------
    Name:  W.T. Saurenmann
    Title: SVP	

[First Priority Credit and Guarantee Agreement - Calpine Generating Company, LLC]
THE GUARANTORS:
CALGEN EXPANSION COMPANY, LLC
CPN FREESTONE, LLC
CALPINE FREESTONE, LLC
CALPINE FREESTONE ENERGY GP, LLC
CALPINE CHANNEL ENERGY CENTER LP, LLC
CALPINE CHANNEL ENERGY CENTER GP, LLC
CHANNEL POWER GP, LLC
 CALGEN EQUIPMENT FINANCE HOLDINGS, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY ONE,
LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY THREE
LLC
CALGEN EQUIPMENT FINANCE COMPANY, LLC
NUECES BAY ENERGY LLC
CALPINE NORTHBROOK SOUTHCOAST INVESTORS, LLC
CALPINE CORPUS CHRISTI ENERGY GP, LLC
ZION ENERGY LLC
LOS MEDANOS ENERGY CENTER, LLC
MORGAN ENERGY CENTER, LLC
CARVILLE ENERGY LLC
DECATUR ENERGY CENTER, LLC
CALPINE ONETA POWER I, LLC
CALPINE ONETA POWER II, LLC
CALPINE BAYTOWN ENERGY CENTER LP, LLC
CALPINE BAYTOWN ENERGY CENTER GP, LLC
BAYTOWN POWER GP, LLC
COLUMBIA ENERGY LLC
DELTA ENERGY CENTER, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY TWO,
LLC
PASTORIA ENERGY FACILITY L.L.C.
CALPINE PASTORIA HOLDINGS, LLC
Executing this Agreement on
behalf of and so as to bind
each of the limited
liability companies named
above under the caption
"The Guarantors"

By:      /s/ ZAMIR RAUF
    ----------------------------------------
         Name: Zamir Rauf
         Title:   Vice President	

[First Priority Credit and Guarantee Agreement - Calpine Generating Company, LLC]
THE GUARANTORS:
FREESTONE POWER GENERATION LP
CALPINE FREESTONE ENERGY, LP
CALPINE POWER EQUIPMENT LP
CHANNEL POWER, LP
CHANNEL ENERGY CENTER, LP
CALPINE CORPUS CHRISTI ENERGY, LP
CORPUS CHRISTI COGENERATION LP
CALPINE ONETA POWER, L.P.
BAYTOWN ENERGY CENTER, LP
BAYTOWN POWER, LP
Executing this Agreement on
behalf of and so as to bind
each of the limited
partnerships named above
under the caption "The
Guarantors"

By:      /s/ ZAMIR RAUF
   -----------------------------------------
         Name: Zamir Rauf
         Title:   Vice President	

[First Priority Credit and Guarantee Agreement - Calpine Generating Company, LLC]
 
APPENDIX A
TO FIRST PRIORITY TERM LOAN AGREEMENT
INITIAL FIRST PRIORITY TERM LOAN COMMITMENTS

                                                           First Priority
Lender                                                  Term Loan Commitment             Pro Rata Share
-------------------------------------------------- -------------------------------- --------------------------
Morgan Stanley Senior Funding, Inc.                        $425,000,000.00                    70.8%

Beal Bank, S.S.B.                                          $175,000,000.00                    29.2%
                                                           ---------------                    ----
Total                                                      $600,000,000.00                     100%
                                                           ===============                    ====	

A-1
 
APPENDIX B
TO FIRST PRIORITY TERM LOAN AGREEMENT
NOTICE ADDRESSES

Administrative Agent's
Principal Office:                       Morgan Stanley Senior Funding, Inc.
                                        as the Administrative Agent
                                        1585 Broadway
                                        New York, NY 10036
                                        Attention: Lisa Malone
                                        Phone: (212) 537-1312
                                        Facsimile: (212) 537-1867
                                        E-mail: lisa.malone@morganstanley.com

Collateral Agent:                       Wilmington Trust Company
                                        Rodney Square North
                                        1100 North Market Street
                                        Wilmington, DE 19890-1615
                                        Attn: Kristin Long

Borrower:                               Calpine Generating Company, LLC
                                        50 West San Fernando Street
                                        San Jose,  CA 95113
                                        Attn:  Chief Financial Officer
                                        Fax:  (408) 995-0505
                                        Phone:  (408) 995-5115

Each Guarantor:                         c/o Calpine Generating Company, LLC
                                        50 West San Fernando Street
                                        San Jose,  CA 95113
                                        Attn:  Chief Financial Officer
                                        Fax:  (408) 995-0505
                                        Phone:  (408) 995-5115	

B-1
EXHIBIT A
TO FIRST PRIORITY TERM LOAN AGREEMENT
FORM OF SUBORDINATION TERMS
[TO BE INCLUDED AS AN ARTICLE IN THE INSTRUMENT EVIDENCING "AFFILIATE
SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO THIS AGREEMENT, THIRD PARTY SUBORDINATED INDEBTEDNESS INCURRED PURSUANT TO THIS AGREEMENT, AND AS OTHERWISE REQUIRED BY THIS AGREEMENT]
[THE COLLATERAL AGENT SHALL EITHER BE A PARTY TO OR A THIRD PARTY BENEFICIARY OF THESE SUBORDINATION TERMS]
ARTICLE [__]
SUBORDINATION
Section [__].1. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Collateral Trust Agreement, dated as of March 23, 2004, among Calpine CalGen Holdings, Inc., Calpine Generating Company, LLC ("CalGen"), CalGen Finance Corp., the guarantors party thereto from time to time (the "Guarantors"), the Secured Debt Representatives party thereto and Wilmington Trust Company, as collateral agent (the "Collateral Agent"), as in effect on the date hereof. As used in this Article, the following terms shall have the following respective meanings:
"Junior Claimant" means [INSERT NAME OF LENDER UNDER 
SUBORDINATED DEBT].
"Proceeding" means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding of or against the Subordinated Debtor or its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of the Subordinated Debtor, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of the Subordinated Debtor, or (d) other marshalling of the assets of the Subordinated Debtor.
"Senior Claimants" means the holders of Senior Obligations.
"Senior Claim Documents" means the Secured Debt Documents other than the Other Junior Lien Debt Documents.
"Senior Claims" means, collectively, (a) the principal of, and premium, if any, and interest on, the Senior Obligations (in each case, including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of
A-1
such Proceeding), and (b) all other Obligations of the Subordinated Debtor to the Senior Claimants, whether now existing or hereafter incurred or created, under or with respect to the Senior Claim Documents or any replacement, supplement to or refinancing of the Senior Obligations.
"Senior Obligations" means all Secured Obligations other than the Other Junior Lien Obligations.
"Senior Obligations Termination Date" means the date on which all Senior Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Senior Claim Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Senior Claim Documents), all commitments to extend credit under all Senior Claim Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Senior Claim Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Subordinated Debt" means all indebtedness owing to Junior Claimant arising under or in respect of the Subordinated Debt Documents.
"Subordinated Debt Documents" means [DESCRIBE SUBORDINATED DEBT INSTRUMENT], any promissory note or other instrument relating thereto and any other documents or instruments directly relating to the foregoing (in each case, including any amendments, replacements or substitutions thereof).
"Subordinated Debtor" means [INSERT CALGEN OR GUARANTOR 
INCURRING THE SUBORDINATED DEBT].
Section [_].2. Certain Subordination Terms. Until the Senior Obligations Termination Date, and notwithstanding anything in the Subordinated Debt Documents to the contrary:
[__].2.1. Except as permitted under the Senior Claim Documents, the Subordinated Debtor shall not, directly or indirectly, make any payment of principal, interest or otherwise on or in respect of the Subordinated Debt.
[__].2..2. Except for the right to accept payments as provided in
Section [__].2.1 or [__].2.5(b), Junior Claimant shall not demand, sue for or accept from the Subordinated Debtor or any other Person any such payment or collateral, nor take any other action to enforce or collect upon any such payment or to enforce its rights to receive any such payment, in either case in respect of the Subordinated Debt, provided, however, that nothing herein shall limit the right or ability of Junior Claimant (i) to receive payments from the Subordinated Debtor in respect of the Subordinated Debt as provided in Section
[__].2.1 so long as no default or event of default under any Secured Debt Document has occurred and is continuing, or (ii) to accelerate the maturity of the Subordinated Debt at any time after all of the Senior Claims have been accelerated; and provided further, that in the event that after an
A-2
acceleration any of the Senior Claimants rescind the acceleration of the Senior Claims, and provide written notice to Junior Claimant thereof, or Junior Claimant otherwise becomes aware of such rescission, Junior Claimant shall rescind the acceleration of the Subordinated Debt.
[__].2.3. Neither the Subordinated Debtor nor Junior Claimant shall take any action prejudicial to or inconsistent with the Senior Claimants' priority position over Junior Claimant created by this Article, including, without limitation, any action which will hinder, delay or otherwise prevent the Senior Claimants from taking any action they deem necessary to enforce rights with respect to the Senior Claims or the Lien of the Senior Claim Documents. The Junior Claimant shall not take any action or otherwise act to contest on account of the Subordinated Debt (i) the validity or priority of any Liens or security interests granted to, or for the benefit of, the Senior Claimants, (ii) the relevant rights and duties of the Senior Claimants with respect to Junior Claimant on account of any Subordinated Debt as established in this Article or
(iii) the Senior Claimants' exercise of remedies in accordance with the Senior Claim Documents.
[__].2.4. Each document or instrument evidencing Subordinated Debt shall bear a legend providing that payment of the Subordinated Debt thereunder has been subordinated to prior payment of the Senior Claims in the manner and to the extent set forth in this Article.
[__].2.5. Junior Claimant shall not commence or join with any other creditor or creditors of the Subordinated Debtor in commencing any Proceeding against the Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor--ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], but may join in any Proceeding after it has commenced. At any general meeting of creditors of Subordinated Debtor,
[CalGen, CalGen Holdings or any Guarantor--ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], or in the event of any Proceeding, if all Senior Claims have not been paid in full in cash at such time, the Collateral Agent on behalf of the Senior Claimants is hereby irrevocably authorized at any such meeting or in any such Proceeding:
(a) To enforce claims comprising Subordinated Debt in the name of Junior Claimant, by proof of debt, proof of claim, suit or otherwise;
(b) To collect any assets of the Subordinated Debtor distributed, divided or applied by way of dividend or payment as a result of a Proceeding, or such securities issued, on account of Subordinated Debt as a result thereof and apply the same, or the proceeds of any realization upon the same that the Senior Claimants in their discretion elect to effect, to Senior Claims until all Senior Claims shall have been paid in full in cash (the Senior Claimants hereby agreeing to render any surplus to Junior Claimant and/or other subordinated creditors, as their interests appear, or to interplead such surplus with a court of competent jurisdiction); and
(c) To take generally any action in connection with any such meeting or proceeding which Junior Claimant might otherwise take in respect of the Subordinated Debt and claims relating thereto.
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After the commencement of any such Proceeding, Junior Claimant may inquire in writing of the Collateral Agent on behalf of the Senior Claimants whether the respective Senior Claimants intend to exercise the foregoing rights with respect to the Subordinated Debt. Should the Senior Claimants fail, at least 20 days before the deadline therefor, either to file a proof of claim with respect to the Subordinated Debt and to furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in writing that the Senior Claimants intend to exercise their rights to assert the Subordinated Debt in the manner hereinabove provided, Junior Claimant may, but shall not be required to, proceed to file a proof of claim with respect to the Subordinated Debt and take such further steps with respect thereto, not inconsistent with this Article, as Junior Claimant may deem proper.
[__].2.6. Upon the occurrence and during the continuation of an event of default under a Secured Debt Document, Junior Claimant may, but shall have no obligation to, upon not less than 10 days prior written notice to the Collateral Agent, purchase all of the outstanding Senior Obligations owing to the Senior Claimants by irrevocably tendering, in immediately available funds, full payment of the Purchase Price (as defined below) to the Senior Claimants:
(a) The Purchase Price shall be equal to the total amount of Senior Claims at the time of acceleration (assuming such obligations have been accelerated);
(b) Any such purchase by Junior Claimant shall be without warranty by, or recourse to, the Senior Claimants, except with respect to the legal and beneficial ownership by the Senior Claimants of the Obligations so purchased, free and clear of all Liens and rights of others; and
(c) Concurrently with any such purchase, the Senior Claimants shall forthwith sell, assign, transfer and convey to Junior Claimant all of their right, title and interest in and to the Senior Obligations, and all Liens and other security interests in favor of the Senior Claimants securing the obligations of the Subordinated Debtor in connection therewith.
Section [__].3. Senior Claim Documents. The Junior Claimant acknowledges that it has been provided with a copy of the Senior Claim Documents and has read and is familiar with the provisions thereof.
Section [__].4. Time of Filing. Notwithstanding the time of filing, attachment or recording of any document or other instrument, it is agreed by Junior Claimant that any Liens arising under or pursuant to the Senior Claim Documents shall be senior to any Liens arising in favor of Junior Claimant as part of or relating to the Subordinated Debt Documents, if any; provided, however, that nothing herein shall be deemed to permit Junior Claimant to obtain any such Liens.
Section [__].5. Wrongful Collections. Should any payment on account of, or any collateral for any part of, the Subordinated Debt be received by Junior Claimant in violation of this Article, such payment or collateral shall be delivered forthwith to the Collateral Agent by
A-4
the recipient for application to Senior Claims, in the form received. The Collateral Agent is irrevocably authorized to supply any required endorsement or assignment which may have been omitted. Until so delivered, any such payment or collateral shall be held by the recipient in trust for the Senior Claimants and shall not be commingled with other funds or property of the recipient.
Section [__].6. Ownership of Subordinated Debt; Amendment of Subordinated Debt Documents.
[__].6.1. The Junior Claimant represents and warrants that it is the lawful owner of the Subordinated Debt. Any security interest in the Junior Claimant's interest in the Subordinated Debt will at all times be subject to the rights of the Senior Claimants hereunder. The Junior Claimant agrees that it may not assign all or any portion of the Subordinated Debt or any of its rights or remedies under the Subordinated Debt Documents unless any assignee expressly agrees in writing for the benefit of the Collateral Agent that it takes such Subordinated Debt subject in all respects to the rights of the Senior Claimants hereunder.
[__].6.2. The Subordinated Debt Documents may not be amended so as to have an adverse effect upon the Senior Claims or the Subordinated Debtor's ability to pay the Senior Claims at any time.
Section [__].7. Waivers. The Collateral Agent and the Senior Claimants are hereby authorized to demand specific performance of this Article, whether or not the Subordinated Debtor shall have complied with the provisions hereof applicable to it, at any time when Junior Claimant shall have failed to comply with any provision hereof applicable to it. Junior Claimant hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance hereof in any action brought therefor by the Senior Claimants. Junior Claimant (a) further waives presentment, notice and protest in connection with all negotiable instruments evidencing Senior Claims or Subordinated Debt to which Junior Claimant may be a party, notice of the acceptance of this Article by the Senior Claimants, notice of any loan made, extension granted or other action taken in reliance hereon, and all demands and notices of every kind in connection with this Article, Senior Claims or time of payment of Senior Claims or Subordinated Debt and (b) hereby assents to any renewal, extension or postponement of the time of payment of Senior Claims or any other indulgence with respect thereto, to any increase in the amount of Senior Claims, to any substitution, exchange or release of collateral therefor and to the addition or release of any person primarily or secondarily liable thereon and assents to the provisions of any instrument, security or other writing evidencing Senior Claims.
Section [__].8. Subrogation; No Impairment of Subordinated Debtor's Obligations. Subject to and from and after the Senior Obligations Termination Date, Junior Claimant shall be subrogated to the rights of the Senior Claimants to receive payments or distributions of cash, property or securities of the Subordinated Debtor applicable to the Senior Claims until all amounts owing on the Subordinated Debt shall be paid in full. For purposes of such subrogation, no payments or distributions to the Senior Claimants to which Junior Claimant would be entitled but for the provisions of this Article, and no payments paid over by Junior
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Claimant to Senior Claimants pursuant to this Article shall, as among the Subordinated Debtor, its creditors other than the Senior Claimants, and Junior Claimant, be deemed to be a payment or distribution on account of the Subordinated Debt, it being understood that the provisions of this Article are intended solely for the purpose of defining the relative rights of Junior Claimant and the Senior Claimants. Nothing contained in this Article is intended to or shall impair, as between the Subordinated Debtor and Junior Claimant, the obligation of the Subordinated Debtor, which is absolute and unconditional, to pay to Junior Claimant the principal of and the premium, if any, and the interest on the Subordinated Debt, and all other amounts payable by the Subordinated Debtor under the Subordinated Debt Documents, as and when the same shall become due and payable, or to affect the relative rights of Junior Claimant and creditors of Subordinated Debtor other than the Senior Claimants.
Section [__].9. Reinstatement. The obligations of Junior Claimant under this Article shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Claim, or any other payment to any holder of any Senior Claim in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Claims upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Subordinated Debtor or any substantial part of its property, or otherwise, all as though such payment had not been made.
Section [__].10. Bankruptcy. This Article shall remain in full force and effect as between Junior Claimant and the Senior Claimants notwithstanding the occurrence of any Proceeding affecting the Subordinated Debtor.
Section [__].11. Further Assurances. The Subordinated Debtor and Junior Claimant shall execute and deliver to the Senior Claimants such further instruments and shall take such further action as the Senior Claimants may at any time or times reasonably request in order to carry out the provisions and intent of this Article.
Section [__].12. Successors and Assigns. The provisions of this Article shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Junior Claimant nor the Senior Claimants shall have a duty to preserve rights against prior parties in any property of any kind received hereunder. Nothing contained herein shall impose on the Senior Claimants any duties with respect to any property of the Subordinated Debtor or Junior Claimant received hereunder.
Section [__].13. Governing Law. This Article is intended to take effect as a sealed instrument, shall be binding upon the parties hereto and their respective executors, administrators, other legal representatives, successors and assigns, and shall inure to the benefit of the Senior Claimants, their respective successors and assigns and shall be governed by the laws of the State of New York without reference to principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law). The parties hereto intend and agree that this Article shall remain binding on such parties (other than the Subordinated Debtor) notwithstanding the termination (except upon the payment in full of Senior Claims in cash) or unenforceability of this Article as against the Subordinated Debtor.
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EXHIBIT B
TO FIRST PRIORITY TERM LOAN AGREEMENT
FORM OF
ASSIGNMENT AGREEMENT
Date: _______ __, ____
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Calpine Generating Company, LLC
50 West San Fernando Avenue, 5th Floor
San Jose, CA 95113
Attention: President
Re: Calpine Generating Company, LLC - Assignment Agreement
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "First Priority Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the First Priority Term Loan Agreement and used herein shall have the meanings given to them in the First Priority Term Loan Agreement.
As of [INSERT EFFECTIVE DATE OF ASSIGNMENT] (the "Effective Date"),
[INSERT NAME OF ASSIGNOR] (the "Assignor") irrevocably sells, transfers, conveys and assigns, without recourse, representation or warranty (except as expressly set forth herein), to [INSERT NAME OF ASSIGNEE] (the "Assignee"), and the Assignee irrevocably purchases from the Assignor and assumes (as more particularly described in Schedule I hereto), (a) [INSERT PERCENTAGE OF FIRST PRIORITY TERM LOANS TO BE ASSIGNED]% of the First Priority Term Loans under the First Priority Term Loan Agreement (which represents $[INSERT AMOUNT OF FIRST PRIORITY TERM LOANS TO BE ASSIGNED]) and (b) all rights, benefits, obligations, liabilities, and indemnities related to such First Priority Term Loans under and in connection with the First Priority Term Loan Agreement and the other First Priority Term Loan Documents (the "Assigned Portion").
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In addition, this Assignment Agreement constitutes notice to the Administrative Agent, pursuant to Section 12.06 of the First Priority Term Loan Agreement, of the assignment and delegation to the Assignee of the Assigned Portion of the First Priority Term Loans of the Assignor outstanding under the First Priority Term Loan Agreement as of the Effective Date, subject to its written consents.
All accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period of time prior to the Effective Date shall be payable to the Assignor, and all accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period from and after the Effective Date shall be payable to the Assignee. The Assignor and Assignee each agree to hold in trust for the other any such amounts that it receives pursuant to any First Priority Term Loan Document and to which the other party is entitled.
The Assignee confirms and agrees that in becoming a Lender and in making its First Priority Term Loans under the First Priority Term Loan Agreement, such actions have and will be made without recourse to, or representation or warranty by, the Administrative Agent, except for the representations expressly set forth below.
The Assignor represents and warrants that it is legally authorized to enter into and deliver this Assignment Agreement, that its existing aggregate First Priority Term Loans are as set forth on Schedule I hereto, that it is the legal and beneficial owner of the Assigned Portion and that it has not created any adverse claim on its interest in the Assigned Portion. Except as set forth in the previous sentence, the Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made pursuant to or in connection with this Assignment Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Assignment Agreement, the First Priority Term Loan Agreement, any other First Priority Term Loan Document or any other instrument or document furnished pursuant hereto or thereto, including the financial condition of any CalGen Company or the performance or observance by any Lender or any of the Agents of any of its obligations under the First Priority Term Loan Agreement, any other First Priority Term Loan Document or any other instrument or document furnished pursuant hereto or thereto.
The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and that it is legally authorized to enter into and deliver this Assignment Agreement, (ii) it has experience and expertise in the making of or investing in loans such as the applicable First Priority Term Loans and (iii) it will make or invest in its First Priority Term Loans for its own account in the ordinary course of business and without a view to the distribution of such First Priority Term Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws, (b) confirms that it has received a copy of the First Priority Term Loan Agreement, together with copies of the most recent financial statements delivered pursuant to Section 3.19 of the First Priority Term Loan Agreement and copies of the documents which were required to be delivered under the First Priority Term Loan Agreement as a condition to the making of First Priority Term Loans thereunder and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (c) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the First Priority Term Loan Agreement and the other First Priority Term Loan Documents are
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required to be performed by it as a Lender, (d) acknowledges that it has received copies of, consented to and approved the Collateral Trust Agreement, and authorizes the Agents to perform their respective obligations thereunder and
(e) attaches the forms prescribed by applicable Governmental Authorities as to the Assignee's status for purposes of determining exemption from withholding taxes with respect to all payments to be made to the Assignee under any of the First Priority Term Loan Documents or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty. In addition, the Assignee, independently and without reliance upon the Assignor, the Administrative Agent, any other Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, shall continue to make its own credit decisions in taking or not taking action under the First Priority Term Loan Agreement, the other First Priority Term Loan Documents and the other instruments and documents delivered in connection therewith. ASSIGNEE HEREBY ACKNOWLEDGES AND AGREES THAT ITS LIEN PRIORITIES, THE DISTRIBUTION OF PROCEEDS OF COLLATERAL, THE EXERCISE OF REMEDIES UNDER THE FIRST PRIORITY TERM LOAN AGREEMENT, AMENDMENTS AND WAIVERS TO THE FIRST PRIORITY TERM LOAN DOCUMENTS, AND OTHER MATTERS RELATED TO THE COLLATERAL ARE SUBJECT TO AND GOVERNED BY THE COLLATERAL TRUST AGREEMENT.
Following the execution of this Assignment Agreement, it will be delivered to the Administrative Agent for recording by the Administrative Agent pursuant to Section 12.06 of the First Priority Term Loan Agreement, effective as of the Effective Date. The Assignor attaches hereto the First Priority Term Loan Note held by it, if any, evidencing the Assigned Portion and (i) upon request by the Assignee, will request that the Administrative Agent exchange the attached First Priority Term Loan Note for a new First Priority Term Loan Note, payable to the Assignee and (ii) if the Assignor has retained any interest, may request that the Administrative Agent exchange the attached First Priority Term Loan Note for a new First Priority Term Loan Note, payable to the Assignor, and in each case in amounts which reflect the assignment being made hereby and after giving effect to any other assignments which have become effective on the Effective Date.
Except as otherwise provided in the First Priority Term Loan Agreement, effective as of the Effective Date:
(a) the Assignee:
(i) shall be deemed automatically to have become a party to the First Priority Term Loan Agreement, have all the rights and obligations of a "Lender" under the First Priority Term Loan Agreement and the other First Priority Term Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph of this Assignment Agreement, and hereby expressly confirms its undertakings regarding its appointments and indemnity obligations provided for in Article XII of the First Priority Term Loan Agreement; and
(ii) agrees to be bound by the terms and conditions set forth in the First Priority Term Loan Agreement and the other First Priority Term Loan Documents as if it were an original signatory thereto; and
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(b) the Assignor shall be released from its obligations and shall relinquish its rights under the First Priority Term Loan Agreement and the other First Priority Term Loan Documents to the extent specified in the second paragraph of this Assignment Agreement, except with regard to those provisions that expressly survive the termination of the First Priority Term Loan Agreement to the extent such provisions relate to the time prior to the Effective Date.
The Assignee hereby advises each of you of the following administrative details with respect to the assigned First Priority Term Loan Commitments and First Priority Term Loans:
(A) Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
(B) Payment Instructions:
[ASSIGNEE TO COMPLETE.]
The Assignee has attached hereto the forms, certificates or other evidence required by Section 2.16(e) of the First Priority Term Loan Agreement no later than the date of acceptance hereof by the Administrative Agent. The Assignee has also attached hereto any powers of attorney or other public or private documents requested by the Collateral Agent which are necessary to enable the Collateral Agent to enforce any of the Security Documents on behalf of the Secured Parties.
The Administrative Agent shall notify the Borrower of any such assignments.
This Assignment Agreement may be executed by the Assignor and Assignee in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same agreement. The delivery of an executed signature page of this Assignment Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. The parties hereto hereby agree to execute and deliver such other documents or instruments as shall be necessary to effect the purposes of this Assignment Agreement.
This Assignment Agreement shall be governed by the laws of the State of New York without regard to the conflicts of law provisions thereof, other than sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York.
(signature page follows)
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IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Assignment Agreement as of the date first written above.
[INSERT NAME OF ASSIGNOR]
By:

Name:

Title:
[INSERT NAME OF ASSIGNEE]
By:

Name:

Title:
Accepted and acknowledged
for recording in the Register
this ____ day of ________, ____
MORGAN STANLEY SENIOR FUNDING, INC.
By:
 Name:
Title:

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[INCLUDE THE FOLLOWING ACKNOWLEDGEMENTS AND AGREEMENTS IN RESPECT OF
ASSIGNMENTS FOR LESS THAN $1,000 IF SUCH ASSIGNMENT IS FOR AN AMOUNT THAT DOES NOT CONSTITUTE THE AGGREGATE AMOUNT OF THE FIRST PRIORITY TERM LOANS OUTSTANDING TO THE ASSIGNOR:]
Acknowledged and Agreed:
MORGAN STANLEY SENIOR FUNDING, INC.
By:
 Name:
Title:
CALPINE GENERATING COMPANY, LLC
By:
 Name:
Title:

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SCHEDULE I
to Assignment Agreement
First Priority Term Loans

AGGREGATE AMOUNT OF FIRST PRIORITY    AMOUNT OF FIRST PRIORITY    PERCENTAGE OF ASSIGNED FIRST
    TERM LOANS FOR ALL LENDERS           TERM LOANS ASSIGNED           PRIORITY TERM LOANS
----------------------------------    ------------------------    ----------------------------
                                                                               %
                                                                               %
                                                                               %
                                                                               %
                                                                               %	

B-7
EXHIBIT C
TO FIRST PRIORITY TERM LOAN AGREEMENT
[LETTERHEAD OF NON-U.S. LENDER]
FORM OF CERTIFICATE RE: NON-BANK STATUS
Certificate Date: _______ __, ____
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Re: Calpine Generating Company, LLC - Non-Bank Status
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "First Priority Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the First Priority Term Loan Agreement and used herein shall have the meanings given to them in the First Priority Term Loan Agreement.
[INSERT NAME OF NON-U.S. LENDER] (the "Non-U.S. Lender") is providing this certificate pursuant to Section 2.16(e) of the First Priority Term Loan Agreement. The Non-U.S. Lender hereby represents and warrants as follows:
1. The Non-U.S. Lender is the sole record and beneficial owner of the First Priority Term Loans or the obligations evidenced by First Priority Term Loan Note in respect of which it is providing this certificate.
2. The Non-U.S. Lender is not a "bank" for purposes of Section 871(h) or 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In this regard, the Non-U.S. Lender further represents and warrants that:
(a) the Non-U.S. Lender is not subject to regulatory or other Legal Requirements as a bank in any jurisdiction; and
(b) the Non-U.S. Lender has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental
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Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other Legal Requirements.
3. The Non-U.S. Lender is not a 10 percent shareholder of the Borrower within the meaning of Section 871(h) or 881(c)(3)(B) of the Code.
4. The Non-U.S. Lender is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 871(h) or 881(c)(3)(C) of the Code.
(signature page follows)
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IN WITNESS WHEREOF, the undersigned has duly executed this certificate by its respective authorized representative as of the day and year first above written.
[INSERT NAME OF NON-U.S. LENDER]
By:

Name:

Title:
C-3
EXHIBIT D
TO FIRST PRIORITY TERM LOAN AGREEMENT
[LETTERHEAD OF THE BORROWER]
FORM OF
CONTINUATION NOTICE
Date: _____ __, ____
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Re: Calpine Generating Company, LLC - Continuation Notice
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "First Priority Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the First Priority Term Loan Agreement and used herein shall have the meanings given to them in the First Priority Term Loan Agreement.
The Borrower hereby gives you notice, irrevocably, pursuant to Section 2.06 of the First Priority Term Loan Agreement, that the Borrower hereby requests a
[CONTINUATION] [CONVERSION] of First Priority Term Loans under the First Priority Term Loan Agreement and, in connection therewith, sets forth below the information relating to such [CONTINUATION] [CONVERSION] (the "Proposed
[CONTINUATION] [CONVERSION]") as required by Section 2.06 of the First Priority Term Loan Agreement.
(a) The Borrower hereby requests that First Priority Term Loans be
[CONTINUED] [CONVERTED] as follows:
(i) The first day of the new Interest Period in respect of the Proposed [CONTINUATION] [CONVERSION] is ________ __, ____ (which is a Business Day).
(ii) [IF SUCH FIRST PRIORITY TERM LOANS ARE TO BE CONTINUED WITH NO CHANGE IN ANY TYPE OF LOAN(1):] $___________ of the currently outstanding principal amount of

(1) LIBOR Rate Loans may only be continued in a minimum amount equal to $5,000,000 and in integral multiples of $1,000,000 in excess of that amount.

D-1
First Priority Term Loans currently being maintained as First Priority Term Loans with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s), the last day of which is the day immediately preceding the first day of the Proposed Continuation referred to in clause (i) above, should be continued as $__________ of First Priority Term Loans with an Interest Period of
[ONE] [TWO] [THREE] [SIX] month(s).
(iii) [IF SUCH FIRST PRIORITY TERM LOANS ARE TO BE CONVERTED:] $___________ of the currently outstanding principal amount of First Priority Term Loans which are [BASE RATE LOANS] [LIBOR RATE LOANS(2)] with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s), the last day of which is the day immediately preceding the first day of the Proposed Conversion referred to in clause (i) above, should be converted to [BASE RATE LOANS] [LIBOR RATE LOANS] with an Interest Period of [ONE] [TWO]
[THREE] [SIX] month(s).
(b) The Borrower hereby certifies that, as of the date hereof, no Default or Event of Default has occurred and is continuing.
(signature page follows)

(2) LIBOR Rate Loans may only be converted upon the expiration of the Interest Period applicable to such LIBOR Rate Loan.

D-2
IN WITNESS WHEREOF, the Borrower has caused this Continuation Notice to be executed and delivered by a duly authorized officer of the Borrower on the date first written above.
CALPINE GENERATING COMPANY, LLC
By:

Name:

Title:
D-3
EXHIBIT E
TO FIRST PRIORITY TERM LOAN AGREEMENT
CALPINE GENERATING COMPANY, LLC
50 WEST SAN FERNANDO STREET
SAN JOSE, CALIFORNIA 95113
FORM OF FUNDING NOTICE
Certificate Date: March __, 2004(1)
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Re: Calpine Generating Company, LLC - Funding Notice
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors (and permitted assigns) in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the First Priority Term Loan Agreement and used herein shall have the meanings given to them in the First Priority Term Loan Agreement.
The Borrower hereby gives you notice in accordance with Section 2.01 of the First Priority Term Loan Agreement that the Borrower irrevocably requests that a First Priority Term Loan be made on March 23, 2004 (which date is a Business Day), which shall be a LIBOR Rate Loan in an aggregate principal amount of $600,000,000 with an initial Interest Period ending March 31, 2004.
(signature page follows)

(1) The Borrower must deliver the Funding Notice to the Administrative Agent or before the date which is three Business Days prior to the Closing Date.

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IN WITNESS WHEREOF, the Borrower has caused this Funding Notice to be executed and delivered by a duly authorized officer of the Borrower on the date first written above.
CALPINE GENERATING COMPANY, LLC
By:

Name:

Title:
E-2
EXHIBIT F
TO FIRST PRIORITY TERM LOAN AGREEMENT
FORM OF FIRST PRIORITY TERM NOTE
$__________ ____________, _____
FOR VALUE RECEIVED, the undersigned, Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), hereby unconditionally promises to pay to the order of ________________________ (the "Lender") the principal sum in immediately available funds, of ________________________ or such lesser amount as may be outstanding from time to time hereunder pursuant to the First Priority Term Loan Agreement (as defined below). The Borrower further agrees to pay interest in like money at the Principal Office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.05 of the First Priority Term Loan Agreement.
The holder of this First Priority Term Loan Note is authorized to endorse on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, the date and amount of each payment or prepayment of principal hereof, each continuation hereof and the length of each Interest Period with respect hereto. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrower in respect of any First Priority Term Loan.
This First Priority Term Loan Note (a) is one of the First Priority Term Loan Notes referred to in the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "First Priority Term Loan Agreement"), among the Borrower, the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto; (b) is subject to the provisions of the First Priority Term Loan Agreement and (c) is subject to voluntary and mandatory prepayment in whole or in part as provided in the First Priority Term Loan Agreement. This First Priority Term Loan Note is secured and guaranteed as provided in the First Priority Term Loan Documents. Reference is hereby made to the First Priority Term Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this First Priority Term Loan Note in respect thereof.
Upon the occurrence of any Event of Default, all principal and all accrued interest then remaining unpaid on this First Priority Term Loan Note shall become, or may be declared to be, immediately due and payable, all as provided in, and subject to, the First Priority Term Loan Agreement.
F-1
All parties now and hereafter liable with respect to this First Priority Term Loan Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.
This First Priority Term Loan Note is subject to the limitations on recourse set forth in Section 12.22 of the First Priority Term Loan Agreement.
Repayments of principal, interest and all other amounts due with respect to or in connection with this First Priority Term Loan Note are subject to the terms of the Collateral Trust Agreement (as defined in the First Priority Term Loan Agreement).
Unless otherwise defined herein, terms defined in the First Priority Term Loan Agreement and used herein shall have the meanings given to them in the First Priority Term Loan Agreement.
This First Priority Term Loan Note has been delivered in New York, New York and shall be deemed to be a contract made under, governed by and construed in accordance with the laws of the State of New York without regard to the conflict of law provisions thereof (other than sections 5-1401 and 5-1402 of the General Obligations Law of the state of New York).
CALPINE GENERATING COMPANY, LLC
By:

Name:

Title:
F-2
Schedule A to First Priority Term Loan Note
FIRST PRIORITY TERM LOANS AND REPAYMENTS OF FIRST PRIORITY TERM LOANS

Date    Amount of First Priority Term Loans    Type of Loan    Interest Period    Amount of Principal Repaid    Notation Made By
----    -----------------------------------    ------------    ---------------    --------------------------    ----------------	

EXHIBIT G
TO FIRST PRIORITY TERM LOAN AGREEMENT
FORM OF OPINIONS
[SEE ATTACHED]
G-1
SCHEDULE A
TO FIRST PRIORITY TERM LOAN AGREEMENT
THIRD PARTY PROJECT DOCUMENTS
Baytown
1. Energy Services Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents dated as of August 13, 2002.
2. Services Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents, dated as of August 13, 2002.
3. Ground Lease and Easement Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents, dated as of August 13, 2002.
Carville
1. Energy Services Agreement, dated as of December 28, 1999, between Cos-Mar Incorporated and Carville Energy LLC, as amended by Amendment No. 1 to Energy Services Agreement, dated as of April 30, 2000, and Amendment No. 2 to Energy Services Agreement, dated as of June 26, 2001.
2. Agreement for Purchased Power from Qualified Cogeneration Facility, dated as of August 31, 2002, between Entergy Gulf States, Inc. and Carville Energy LLC.
Channel
1. Energy Services Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.).
2. Facility Services Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.).
3. Operating Lease Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction
Schedule A-2-1
Finance Company, L.P.), as amended by Amendment No. 1 to Operating Lease Agreement, dated as of March 30, 2001.
4. Amended and Restated Ground Lease and Easement Agreement, dated as of October 30, 2001, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P.
Columbia
1. Energy Services Agreement, dated as of August 15, 2000, between Eastman Chemical Company and Columbia Energy LLC, as amended by First Amendment to Energy Services Agreement, dated as of August 1, 2001, and Second Amendment to Energy Services Agreement, dated as of October 1, 2002.
2. Amended and Restated Ground Lease Agreement, dated as of August 1, 2001, between Eastman Chemical Company and Columbia Energy LLC, as amended by First Amendment to Amended and Restated Ground Lease Agreement, dated as of October 22, 2002.
Corpus Christi
1. Energy Services Agreement. dated as of March 23, 1999. between Corpus Christi Cogeneration LP (as assignee of Nueces Bay Energy LLC) and Citgo Refining and Chemicals, L.P., as amended by Amendment No. 1 to Energy Services Agreement, dated as of March 22, 2001, and Second Amendment of Energy Services Agreement, dated as of August 24, 2001.
2. Restated Energy Services Agreement - Steam, dated as of July 26, 2002, between Corpus Christi Cogeneration LP and Elementis Chromium L.P.
3. Energy Services Agreement, dated as of July 24, 2003, between Corpus Christi Cogeneration LP and Flint Hills Resources, LP.
4. Project Site Lease Agreement, dated as of June 21, 1999, between Corpus Christi Cogeneration LP (as assignee of Nueces Bay Energy LLC) and Citgo Refining and Chemicals, L.P., as amended by First Amendment of Project Site Lease Agreement, dated as of August 24, 2001.
Decatur
1. Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001, between Solutia Inc. and Decatur Energy Center, LLC, as amended by First Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of June 28, 2001, Second Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of August 13, 2001, Third Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of October 31, 2001, Fourth Amendment
Schedule A-2-2
to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 28, 2002, and Fifth Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of October 7, 2002.
2. Power Purchase Agreement, dated as of June 21, 2002, between Decatur Energy Center, LLC and Tennessee Valley Authority.
Delta
1. Merchant Plant Lease, dated as of April 13, 2000, between The Dow Chemical Company and Delta Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Merchant Plant Lease, dated as of July 31, 2001, Second Amendment to Merchant Plant Lease, dated as of December 14, 2001, Third Amendment to Merchant Plant Lease, dated as of February 20, 2003, and Fourth Amendment to Merchant Plant Lease, dated as of February 20, 2003.
2. Must-Run Service Agreement, dated as of February 10, 2003, between Delta Energy Center LLC and California Independent System Operator Corporation and Offer Letter from Delta Energy Center LLC to California Independent System Operator Corporation for Provision of RMR Services in 2004.
Freestone
None.
Los Medanos
1. Energy Purchase and Sale Agreement, dated as of December 21, 1998, between USS-POSCO Industries and Los Medanos Energy Center, LLC (as successor in interest to Pittsburg District Energy Facility, LLC), as amended by Modification Agreement (First Amendment to Energy Purchase and Sale Agreement), dated as of June 30, 1999, and Second Amendment to Energy Purchase and Sale Agreement, dated as of April 30, 2001.
2. Ground Lease Agreement, dated as of October 4, 1999, between USS-POSCO Industries and Los Medanos Energy Center, LLC (as successor in interest to Pittsburg District Energy Facility, LLC), as amended by First Amendment to Ground Lease Agreement, dated as of August 25, 2000, Second Amendment to Ground Lease Agreement, dated as of October 30, 2000, Third Amendment to Ground Lease Agreement, dated as of July 6, 2001, and Fourth Amendment to Ground Lease Agreement, dated as of May 31, 2002.
3. Energy Supply Arrangements with Dow comprising: Binding Letter of Intent, dated as of December 10, 2002, among The Dow Chemical Company, Los Medanos Energy Center, LLC, Calpine Pittsburg, LLC, and Delta Energy Center, LLC; Steam Supply Agreement, dated as of December 10, 2002, between Calpine Pittsburg, LLC and Los Medanos Energy Center, LLC; and Agreement Regarding Power and Steam Supply, dated as of
Schedule A-2-3
December 10, 2002, among Calpine Pittsburg, LLC, Los Medanos Energy Center, LLC, and Delta Energy Center, LLC.
4. Amended and Restated Must-Run Service Agreement, dated June 17, 2003, between Los Medanos Energy Center, LLC and California Independent System Operator Corporation.
Morgan
1. Project Agreement, dated as of June 1, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Project Agreement, dated as of August 20, 2001.
2. Energy Sales Agreement, dated as of June 1, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Energy Sales Agreement, dated as of August 20, 2001, and Second Amendment to Energy Sales Agreement, dated as of July 31, 2003.
3. Site Interface Agreement, dated as of September 29, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.).
4. Land Lease, dated as of September 29, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment of Land Lease and Memorandum of Lease and Grant of Easements, dated as of August 20, 2001, and Second Amendment of Land Lease and Memorandum of Lease and Grant of Easements, dated as of December 13, 2001.
5. Power Purchase Agreement, dated as of June 19, 2003, between Morgan Energy Center, LLC and Tennessee Valley Authority.
Oneta
None.
Pastoria
1. Ground Lease, dated as of July 19, 2001, between Tejon Ranchcorp and Pastoria Energy Facility L.L.C., as amended by Landlord Non-disturbance and Consent Agreement, dated as of September 28, 2001.
Zion
Schedule A-2-4
1. Amended and Restated Fuel Conversion Services Agreement, dated as of April 28, 2003, between Zion Energy LLC and Wisconsin Electric Power Company.
Schedule A-2-5
SCHEDULE 2.09
TO FIRST PRIORITY TERM LOAN AGREEMENT
AMORTIZATION SCHEDULE

                                                PERCENTAGE OF ORIGINAL PRINCIPAL
PAYMENT DATE                                       AMOUNT PAYABLE ON SUCH DATE
------------                                    --------------------------------
July 1, 2007                                                  0.250%

October 1, 2007                                               0.250%

January 1, 2008                                               0.250%

April 1, 2008                                                 0.250%

July 1, 2008                                                  0.250%

October 1, 2008                                               0.250%

January 1, 2009                                               0.250%	

All remaining principal of the First Priority Term Loans will be payable on April 1, 2009.
Schedule 2.09-1
SCHEDULE 4.01
TO FIRST PRIORITY TERM LOAN AGREEMENT
CAPITAL STRUCTURE
[SEE ATTACHED]
Schedule 4.01-1
SCHEDULE 4.11
TO FIRST PRIORITY TERM LOAN AGREEMENT
LITIGATION
We are party from time to time to various litigation matters arising in the normal course of business. On July 22, 2003, PG&E filed with CPUC a complaint and request for immediate issuance of an order to show cause against Calpine, CPN Pipeline Company, CES, Calpine Natural Gas Company and LGS. The complaint requests that CPUC issue an order requiring the defendants to (i) show cause why they should not be ordered to cease and desist from using any direct interconnections between the facilities of CPN Pipeline Company and those of LGS, unless such parties first seek and obtain regulatory approval from CPUC, and (ii) pay to PG&E any underpayments of PG&E's tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS' direct interconnections to any entity other than PG&E. The complaint also seeks an order permanently enjoining LGS and any entity other than PG&E from entering into or utilizing direct interconnections with LGS, and directing defendants to pay to PG&E any underpayments of PG&E's tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS' direct interconnections to any entity other than PG&E. The complaint also alleges that various natural gas consumers, including Calpine-affiliated generation facilities within California, are engaged with defendants in the acts complained of, and that the defendants unlawfully bypass PG&E's system and operate as an unregulated local distribution company within PG&E's service territory. On August 27, 2003, Calpine filed its answer and a motion to dismiss, which was denied on October 16, 2003.
On January 15, 2004, PG&E, the Calpine entities and LGS entered into the Settlement which would resolve all issues raised by the complaint. Although the Settlement became effective as of January 15, 2004, certain of its terms will only become effective upon approval of the Settlement by CPUC, and in the event that CPUC does not approve the Settlement certain of its provisions will become null and void. Upon approval of the Settlement by CPUC, PG&E would be paid $2.7 million and the parties would release all claims relating to prior periods. PG&E also would agree not to pursue any new claim of unauthorized public utility activity against the Calpine entities named in the complaint, except insofar as such new claim raises matters not raised in the complaint, or with respect to a change in the facts and circumstances relating to alleged unauthorized public utility activity from those facts and circumstances existing as of January 15, 2004. As provided by the Settlement. the direct interconnections between CPN Pipeline and LGS have been shut down pending possible future regulatory action.
In accordance with the procedural schedule adopted by the presiding administrative law judge, a settlement meeting was conducted pursuant to CPUC settlement procedures on January 26, 2004. The settling parties filed a motion for approval of the Settlement on February 6. Comments on the Settlement were due March 8, and no party filed comments opposing any provision of the settlement agreement. Reply comments are due March 23.
Schedule 4.11-1
The complaint does not name us or our facilities as defendants. However, if the Settlement is not approved, there can be no assurances that this litigation will not adversely affect CPN Pipeline Company's ability to perform its obligations under the Cotenancy, Operating and Maintenance Agreement among CPN Pipeline Company, Gilroy Energy Center, LLC, the Delta facility and the Los Medanos facility.
On June 11, 2003, the Estate of Darrell Jones and the Estate of Cynthia Jones filed a complaint against Calpine in the U.S. District Court, Western District of Washington. Calpine purchased Goldendale Energy, Inc., a Washington corporation, from Darrell Jones. The agreement provided, among other things, that upon substantial completion of the Goldendale facility, Calpine would pay Mr. Jones (i) $6.0 million and (ii) $18.0 million less $0.2 million per day for each day that elapsed between July 1, 2002 and the date of substantial completion. Substantial completion of the Goldendale facility has not occurred and the daily reduction in the payment amount has reduced the $18.0 million payment to zero. The complaint alleges that by not achieving substantial completion by July 1, 2002, Calpine breached its contract with Mr. Jones, violated a duty of good faith and fair dealing, and caused an inequitable forfeiture. The complaint seeks damages in an unspecified amount in excess of $75,000. On July 28, 2003, Calpine filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The court granted Calpine's motion to dismiss the complaint on March 10, 2004. The plaintiffs may appeal, and could also seek reconsideration of the decision.
The ultimate outcome of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated.
Schedule 4.11-2
SCHEDULE 4.18 (B)
TO FIRST PRIORITY TERM LOAN AGREEMENT
QUALIFYING FACILITIES
1. Baytown Energy Center, LP
2. Carville Energy LLC
3. Channel Energy Center, LP
4. Corpus Christi Cogeneration LP
5. Columbia Energy LLC
6. Decatur Energy Center, LLC
7. Los Medanos Energy Center LLC
8. Morgan Energy Center, LLC
Schedule 4.18(b)-1
SCHEDULE 4.18(C)
TO FIRST PRIORITY TERM LOAN AGREEMENT
EXEMPT WHOLESALE GENERATORS
1. Delta Energy Center, LLC
2. Goldendale Energy Center, LLC
3. Pastoria Energy Center L.L.C.
4. Freestone Power Generation LP
5. Calpine Oneta Power, L.P.
6. Zion Energy LLC
Schedule 4.18(c)-1
 
EXHIBIT 10.2.4
EXECUTION VERSION
THE LOANS TO BE MADE HEREUNDER SHALL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND ARE SUBJECT TO TREASURY REGULATIONS REGARDING THE REPORTING OF ORIGINAL ISSUE DISCOUNT. FURTHER INFORMATION MAY BE OBTAINED BY SUBMITTING A REQUEST TO THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 50 WEST SAN FERNANDO STREET, 5TH FLOOR, SAN JOSE, CALIFORNIA 95113.
$100,000,000
SECOND PRIORITY SECURED INSTITUTIONAL TERM LOANS DUE 2010
CREDIT AND GUARANTEE AGREEMENT
Dated as of March 23, 2004
among
CALPINE GENERATING COMPANY, LLC
The Borrower
THE GUARANTORS PARTY HERETO FROM TIME TO TIME
The Guarantors
THE LENDERS PARTY HERETO FROM TIME TO TIME
The Lenders
MORGAN STANLEY SENIOR FUNDING, INC.
Administrative Agent
and
MORGAN STANLEY SENIOR FUNDING, INC.
Sole Lead Arranger and Sole Bookrunner
TABLE OF CONTENTS

                                                                                                                    PAGE
                                                                 ARTICLE I.
                                                   DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01.              Definitions..........................................................................       3
SECTION 1.02.              Rules of Construction................................................................      47

                                                                  ARTICLE II.
                                                       THE SECOND PRIORITY TERM LOANS

SECTION 2.01.              Second Priority Term Loans...........................................................      48
SECTION 2.02.              Amount of Second Priority Term Loans; Availability of Funds..........................      49
SECTION 2.03.              Use of Proceeds......................................................................      49
SECTION 2.04.              Evidence of Debt; Register; Lenders' Books and Records; Notes........................      49
SECTION 2.05.              Interest.............................................................................      50
SECTION 2.06.              Continuation Notice..................................................................      51
SECTION 2.07.              Default Interest.....................................................................      52
SECTION 2.08.              Fees.................................................................................      53
SECTION 2.09.              Payments.............................................................................      53
SECTION 2.10.              Voluntary Prepayments................................................................      53
SECTION 2.11.              Mandatory Repayment Offers...........................................................      54
SECTION 2.12.              General Provisions Regarding Payments................................................      56
SECTION 2.13.              Ratable Sharing......................................................................      57
SECTION 2.14.              Making or Maintaining Second Priority Term Loans.....................................      57
SECTION 2.15.              Increased Costs; Capital Adequacy....................................................      59
SECTION 2.16.              Taxes; Withholding, etc..............................................................      60
SECTION 2.17.              Removal or Replacement of a Lender...................................................      63

                                                                 ARTICLE III.
                                                              CONDITIONS PRECEDENT

SECTION 3.01.              Resolutions..........................................................................      64
SECTION 3.02.              Incumbency...........................................................................      64
SECTION 3.03.              Formation Documents..................................................................      64
SECTION 3.04.              Good Standing Certificates...........................................................      64
SECTION 3.05.              Financial Officer's Certificate......................................................      65
SECTION 3.06.              Security.............................................................................      65
SECTION 3.07.              Consummation of Notes Offering, First Priority Term Loan
                             Agreement, Revolving Loan Agreement and Second Priority Term Loan Documents........      67
SECTION 3.08.              Ratings..............................................................................      67
SECTION 3.09.              No Material Adverse Change...........................................................      67
SECTION 3.10.              Third Party Approvals................................................................      68	

i

SECTION 3.11.              Opinions.............................................................................      68
SECTION 3.12.              Officer's Certificates...............................................................      68
SECTION 3.13.              Title Policies.......................................................................      68
SECTION 3.14.              Evidence of Insurance................................................................      69
SECTION 3.15.              Other Financing Documents............................................................      69
SECTION 3.16.              No Default...........................................................................      69
SECTION 3.17.              Fees.................................................................................      69
SECTION 3.18.              Funding Notice.......................................................................      69
SECTION 3.19.              Delivery of Financials...............................................................      69
SECTION 3.20.              Site Assessment Reports..............................................................      70
SECTION 3.21.              Major Project Documents..............................................................      70

                                                               ARTICLE IV.
                                                      REPRESENTATIONS AND WARRANTIES

SECTION 4.01.              Organization.........................................................................      70
SECTION 4.02.              Financing Documents and Major Project Documents......................................      71
SECTION 4.03.              Collateral...........................................................................      71
SECTION 4.04.              Governmental Approvals...............................................................      72
SECTION 4.05.              Compliance with Law..................................................................      72
SECTION 4.06.              Ownership of Property; Liens.........................................................      72
SECTION 4.07.              Governmental Authorizations; Permits.................................................      72
SECTION 4.08.              Labor Disputes.......................................................................      73
SECTION 4.09.              Intellectual Property Rights.........................................................      73
SECTION 4.10.              Hazardous Substances.................................................................      73
SECTION 4.11.              Litigation...........................................................................      73
SECTION 4.12.              Financial Information................................................................      73
SECTION 4.13.              Disclosure; Projections..............................................................      73
SECTION 4.14.              Adverse Change.......................................................................      74
SECTION 4.15.              Taxes................................................................................      74
SECTION 4.16.              Investment Company Act...............................................................      75
SECTION 4.17.              ERISA................................................................................      75
SECTION 4.18.              Governmental Regulation..............................................................      75
SECTION 4.19.              Margin Stock, Etc....................................................................      76
SECTION 4.20.              No Violations or Defaults............................................................      76
SECTION 4.21.              Solvency.............................................................................      76
SECTION 4.22.              Capitalization.......................................................................      77
SECTION 4.23.              Other Indebtedness...................................................................      77

                                                                 ARTICLE V.
                                                                  COVENANTS

SECTION 5.01.              Reports..............................................................................      77
SECTION 5.02.              Compliance Certificate...............................................................      77
SECTION 5.03.              Stay, Extension and Usury Laws.......................................................      78
SECTION 5.04.              Restricted Payments..................................................................      78	

ii

SECTION 5.05.              Dividend and Other Payment Restrictions Affecting Subsidiaries.......................      79
SECTION 5.06.              Incurrence of Indebtedness and Issuance of Preferred Equity..........................      81
SECTION 5.07.              Asset Sales; Application of Net Proceeds.............................................      84
SECTION 5.08.              Transactions with Affiliates.........................................................      86
SECTION 5.09.              Liens................................................................................      88
SECTION 5.10.              Business Activities..................................................................      88
SECTION 5.11.              Payments for Consent.................................................................      89
SECTION 5.12.              Offer to Prepay Upon Change of Control...............................................      89
SECTION 5.13.              Restrictions on Activities of CalGen Finance.........................................      89
SECTION 5.14.              Additional Subsidiaries..............................................................      89
SECTION 5.15.              Limitation on Issuances and Sales of Equity Interests in Subsidiaries................      90
SECTION 5.16.              Deposit of Revenues..................................................................      90
SECTION 5.17.              Maintenance of Insurance.............................................................      90
SECTION 5.18.              Coverage Ratio; Kilowatt Test........................................................      90
SECTION 5.19.              Further Assurances; Ratings..........................................................      91
SECTION 5.20.              Suspension of Certain Covenants......................................................      91

                                                                ARTICLE VI.
                                                                 SUCCESSORS

SECTION 6.01.              Merger, Consolidation, or Sale of Assets.............................................      91
SECTION 6.02.              Successor Corporation Substituted....................................................      92

                                                               ARTICLE VII.
                                                           DEFAULTS AND REMEDIES

SECTION 7.01.              Events of Default....................................................................      92
SECTION 7.02.              Acceleration.........................................................................      94
SECTION 7.03.              Other Remedies.......................................................................      94
SECTION 7.04.              Waiver of Past Defaults; Rescission..................................................      94
SECTION 7.05.              Control by Majority..................................................................      94
SECTION 7.06.              Collection Suit by Administrative Agent..............................................      94
SECTION 7.07.              Priorities...........................................................................      95

                                                              ARTICLE VIII.
                                                                  AGENTS

SECTION 8.01.              Appointment of Agents................................................................      95
SECTION 8.02.              Powers and Duties....................................................................      96
SECTION 8.03.              General Immunity.....................................................................      96
SECTION 8.04.              Agents Entitled to Act as Lender.....................................................      97
SECTION 8.05.              Lenders' Representations, Warranties and Acknowledgment..............................      97
SECTION 8.06.              Right to Indemnity...................................................................      98
SECTION 8.07.              Successor Administrative Agent.......................................................      98
SECTION 8.08.              Withholding Tax......................................................................      98	

iii
 
ARTICLE IX.
COLLATERAL AND SECURITY
ARTICLE X.
RANKING OF LIENS AND COLLATERAL SHARING
ARTICLE XI.
SECOND PRIORITY TERM LOAN GUARANTEE

SECTION 11.01.             Guarantee............................................................................     100
SECTION 11.02.             Right of Contribution................................................................     101
SECTION 11.03.             Subordination........................................................................     101
SECTION 11.04.             No Subrogation.......................................................................     102
SECTION 11.05.             Amendments, etc. with respect to the Second Priority Term Loan Obligations...........     102
SECTION 11.06.             Guarantee Absolute and Unconditional.................................................     103
SECTION 11.07.             Waiver...............................................................................     105
SECTION 11.08.             Bankruptcy...........................................................................     106
SECTION 11.09.             Reinstatement........................................................................     108
SECTION 11.10.             Payments.............................................................................     108

                                                      ARTICLE XII.
                                                     MISCELLANEOUS

SECTION 12.01.             Notices..............................................................................     108
SECTION 12.02.             Expenses.............................................................................     108
SECTION 12.03.             Indemnity............................................................................     109
SECTION 12.04.             Set-Off..............................................................................     110
SECTION 12.05.             Amendments and Waivers...............................................................     110
SECTION 12.06.             Successors and Assigns; Participations...............................................     112
SECTION 12.07.             Independence of Covenants............................................................     116
SECTION 12.08.             Survival of Representations, Warranties and Agreements...............................     116
SECTION 12.09.             No Waiver; Remedies Cumulative.......................................................     117
SECTION 12.10.             Marshalling; Payments Set Aside......................................................     117
SECTION 12.11.             Severability.........................................................................     117
SECTION 12.12.             Second Priority Term Loan Obligations Several; Independent Nature of Lenders' Rights.     117
SECTION 12.13.             Headings.............................................................................     117
SECTION 12.14.             Applicable Law.......................................................................     118
SECTION 12.15.             Consent to Jurisdiction..............................................................     118
SECTION 12.16.             Waiver Of Jury Trial.................................................................     118
SECTION 12.17.             Confidentiality......................................................................     119
SECTION 12.18.             Usury Savings Clause.................................................................     119
SECTION 12.19.             Counterparts; Execution by Facsimile.................................................     120
SECTION 12.20.             Effectiveness........................................................................     120
SECTION 12.21.             Statements Required in Certificate or Opinion........................................     120
SECTION 12.22.             No Recourse Against the Borrower or the Guarantors...................................     121	

iv
 
APPENDICES:

Appendix A:       Initial Second Priority Term Loan Commitments
Appendix B:       Notice Addresses

EXHIBITS:

Exhibit A:        Subordination Terms
Exhibit B:        Assignment and Assumption Agreement
Exhibit C:        Certificate Re Non-Bank Status
Exhibit D:        Continuation Notice
Exhibit E:        Funding Notice
Exhibit F:        Second Priority Term Loan Note
Exhibit G:        Form of Opinions

SCHEDULES:

Schedule A:                Third Party Project Documents
Schedule 2.09:             Amortization Schedule
Schedule 4.01:             Capital Structure
Schedule 4.11:             Litigation
Schedule 4.18(b):          Qualifying Facilities
Schedule 4.18(c):          Exempt Wholesale Generators	

v
CREDIT AND GUARANTEE AGREEMENT
This CREDIT AND GUARANTEE AGREEMENT, dated as of March 23, 2004 (this "Agreement"), is entered into by and among CALPINE GENERATING COMPANY, LLC, a Delaware limited liability company (the "Borrower"), the GUARANTORS party hereto from time to time, the LENDERS party hereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as administrative agent (together with its successors and permitted assigns in such capacity, the "Administrative Agent") and MORGAN STANLEY SENIOR FUNDING, INC., as sole lead arranger and sole bookrunner.
RECITALS
WHEREAS, the Borrower intends to borrow, on a non-recourse basis as described in Section 12.22 (No Recourse), $100,000,000 in aggregate principal amount of second priority secured institutional term loans due 2010 (the "Second Priority Term Loans") under this Agreement;
WHEREAS, the Borrower:
(a) intends to issue, together with CalGen Finance Corp., a Delaware corporation and a Wholly Owned Subsidiary of the Borrower ("CalGen Finance"), as co-issuer, on a non-recourse basis:
(i) $235,000,000 in aggregate principal amount of its First Priority Secured Floating Rate Notes due 2009 (the "First Priority Notes"), pursuant to the Indenture, dated as of the date hereof (the "First Priority Indenture"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "First Priority Indenture Trustee");
(ii) $640,000,000 in aggregate principal amount of its Second Priority Secured Floating Rate Notes due 2010 (the "Second Priority Notes"), pursuant to the Indenture, dated as of the date hereof (the "Second Priority Indenture"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "Second Priority Indenture Trustee"); and
(iii) (A) $680,000,000 in aggregate principal amount of its Third Priority Secured Floating Rate Notes due 2011
(the "Third Priority Floating Rate Notes"), and (B) $150,000,000 in aggregate principal amount of its 11.50% Third Priority Secured Notes due 2011 (the "Third Priority Fixed Rate Notes" and, together with the First Priority Notes, the Second Priority Notes and the Third Priority Floating Rate Notes, the "Notes"), pursuant to the Indenture, dated as of the date hereof (the "Third Priority Indenture" and, together with the First Priority Indenture and the Second Priority Indenture, the "Indentures"), among the Borrower, CalGen Finance, the Guarantors party thereto from time to time and Wilmington Trust FSB, as trustee (together with its successors and permitted assigns in such capacity, the "Third Priority Indenture Trustee");
1
(b) intends to borrow, on a non-recourse basis, $600,000,000 in aggregate principal amount of first priority secured institutional term loans due 2009 (the "First Priority Term Loans" and, together with the Second Priority Term Loans, the "Term Loans"), pursuant to a Credit and Guarantee Agreement, dated as of the date hereof (the "First Priority Term Loan Agreement" and, together with this Agreement, the "Term Loan Agreements"), among the Borrower, the Guarantors party thereto from time to time, Morgan Stanley Senior Funding, Inc., as the administrative agent (together with its successors and permitted assigns in such capacity, the "First Priority Term Loan Administrative Agent"), Morgan Stanley Senior Funding, Inc., as sole lead arranger, Morgan Stanley Senior Funding, Inc., as sole book-runner, and the lenders party thereto from time to time; and
(c) has entered into that certain Amended and Restated Credit Agreement, dated as of the date hereof (the "Revolving Loan Agreement"), among the Borrower, the Guarantors party thereto from time to time, the lenders party thereto from time to time, The Bank of Nova Scotia, as administrative agent (together with its successors and permitted assigns in such capacity, the "Revolver Administrative Agent"), and each of the other agents and arrangers party thereto, which provides for the borrowing on a non-recourse basis of up to $200,000,000 in aggregate principal amount of first priority secured revolving loans (the "Revolving Loans");
WHEREAS, each Guarantor is a Wholly Owned Subsidiary of the Borrower and each Guarantor will receive substantial direct and indirect benefit from the making of the Second Priority Term Loans and the use of proceeds therefrom;
WHEREAS, the Guarantors shall guarantee, on a non-recourse basis as described in Section 12.22 (No Recourse), payment of the Second Priority Term Loans and all other Second Priority Term Loan Obligations pursuant to the terms hereof;
WHEREAS, the Borrower and the Guarantors intend to secure the First Priority Term Loans, the Second Priority Term Loans, all other First Priority Term Loan Obligations, all other Second Priority Term Loan Obligations, the Notes, all other Note Obligations and all other First Priority Lien Obligations (including the Revolving Loan Obligations), Second Priority Lien Obligations and Third Priority Lien Obligations with a lien on all present and future Collateral; and
WHEREAS, Calpine CalGen Holdings, Inc., a Delaware corporation ("Holdings"), CalGen Finance, the Borrower, the Guarantors, the Administrative Agent, the First Priority Term Loan Administrative Agent, the Revolver Administrative Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, and Wilmington Trust Company as collateral agent (together with its successors and permitted assigns, the "Collateral Agent") have entered into the Collateral Trust Agreement (as defined below), which sets forth the terms on which the Borrower and the Guarantors, among others, have appointed the Collateral Agent as trustee for the present and future holders of the Secured Obligations to (a) receive, hold, maintain, administer, and enforce (i) all Security Documents and (ii) all interests, rights, powers and remedies of the Collateral Agent thereunder, and
(b)
2
distribute the proceeds of the Collateral in a manner consistent with the priority of liens established by the Collateral Trust Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01. Definitions.
Unless the context otherwise requires, the following capitalized terms, when used in this Agreement, including in its preamble and recitals, shall have the following meanings:
"Acquired Debt" means, with respect to any specified Person:
(a) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(b) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Adjusted LIBOR Rate" means, with respect to the relevant Interest Period, the greater of (a) 1.25% and (b) the quotient of (i) the LIBOR Rate applicable to such Interest Period, divided by (ii) one minus the Applicable Reserve Requirement (expressed as a decimal) applicable to such Interest Period.
"Administrative Agent" is defined in the Preamble hereto.
"Administrative Services Agreement" means that certain Master Administrative Services Agreement, dated as of the date hereof, among the Borrower, CalGen Finance, each of the Subsidiaries of the Borrower from time to time party thereto and Calpine Administrative Services Company, Inc.
"Affected Lender" is defined in Section 2.14 (Making or Maintaining Second Priority Term Loans).
"Affected Loans" is defined in Section 2.14 (Making or Maintaining Second Priority Term Loans).
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified
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Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Affiliate Subordinated Indebtedness" means Indebtedness incurred by the Borrower pursuant to any arrangement with an Affiliate of the Borrower; provided, that such Indebtedness (a) is contractually subordinated in right of payment and in all other respects to the Second Priority Term Loan Obligations and all other Secured Obligations on the terms described in Exhibit A, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date and is not secured other than by unperfected security interests, (b) does not provide for mandatory redemption or other redemption thereof until at least six months after final Stated Maturity of the Second Priority Term Loans, (c) provides for payment of interest thereon in the form of cash or additional Affiliate Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., pay-in-kind), and
(d) is otherwise in the form set forth in Exhibit A.
"Affiliate Transaction" is defined in Section 5.08 (Transactions With Affiliates).
"Agents" means the Administrative Agent, the Collateral Agent and the Sole Lead Arranger.
"Aggregate Amounts Due" is defined in Section 2.13 (Ratable Sharing).
"Agreement" is defined in the Preamble hereto.
"Applicable Reserve Requirement" means, at any time, the maximum rate, expressed as a decimal, at which reserves (including any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the applicable Adjusted LIBOR Rate or any other interest rate of a Second Priority Term Loan is to be determined, or (b) any category of extensions of credit or other assets which include Second Priority Term Loans. Each Second Priority Term Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on Second Priority Term Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.
"Asset Sale" means:
(a) the sale, lease, conveyance or other disposition of any assets or rights by the Borrower or any of its Subsidiaries; provided, that the sale, conveyance or other
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disposition of all or substantially all of the assets of the Borrower and its Subsidiaries taken as a whole will be governed by the provisions of Section 6.01 (Merger, Consolidation or Sale of Assets) and not by the provisions of Section 5.07 (Asset Sales; Application of Net Proceeds); and
(b) the issuance of Equity Interests in any of the Borrower's Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(a) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $25,000,000 (other than any transaction which involves the sale of an undivided interest, participation or Equity Interest in any Facility or any Subsidiary of the Borrower, each of which shall constitute an Asset Sale);
(b) a transfer of assets between or among the Borrower and the Guarantors,
(c) an issuance of Equity Interests by a Subsidiary to the Borrower or to a Guarantor;
(d) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(e) the sale or other disposition of cash or Cash Equivalents;
(f) a Restricted Payment that does not violate the covenant in Section 5.04 (Restricted Payments) or a Permitted Investment;
(g) an issuance of Equity Interests in the Borrower in accordance with the terms of this Agreement; and
(h) the sale of the Columbia Facility pursuant to the Columbia FILOT Arrangement.
"Assignment Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit B with such amendments or modifications thereto as may be approved by the Administrative Agent.
"Bank Book" means that certain confidential information memorandum titled "Calpine Generating Company, LLC, $600,000,000 First Priority Secured Term Loan B, $100,000,000 Second Priority Secured Term Loan B" dated March 2004.
"Bankruptcy Case" means any case under the Bankruptcy Law commenced voluntarily or involuntarily against the Borrower or any other Obligor.
"Bankruptcy Event" shall be deemed to occur, with respect to any Person, if that Person shall institute a voluntary case seeking liquidation or reorganization under the Bankruptcy Law,
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or shall consent to the institution of an involuntary case thereunder against it; or such Person shall file a petition or consent or otherwise institute any similar proceeding under any other applicable Federal or state law, or shall consent thereto; or such Person shall apply for, or consent or acquiesce to, the appointment of, a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other officer with similar powers for itself or any substantial part of its assets; or such Person shall make a general assignment for the benefit of its creditors; or such Person shall admit in writing its inability to pay its debts generally as they become due; or if an involuntary case shall be commenced seeking liquidation or reorganization of such Person under the Bankruptcy Law or any similar proceedings shall be commenced against such Person under any other applicable Federal or state law and (a) the petition commencing the involuntary case is not timely controverted, (b) the petition commencing the involuntary case is not dismissed within 90 days of its filing,
(c) an interim trustee is appointed to take possession of all or a portion of the property, and/or to operate all or any part of the business of such Person and such appointment is not vacated within 90 days, or (d) an order for relief shall have been issued or entered therein; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other officer having similar powers, over such Person or all or a part of its property shall have been entered; or any other similar relief shall be granted against such Person under any applicable Bankruptcy Law.
"Bankruptcy Law" means Title 11, United States Code, and any other state or federal insolvency, reorganization, moratorium or similar law for the relief of debtors, or any successor statute.
"Base Rate" means, for any day, a fluctuating rate of interest per annum equal to the higher of (a) the Prime Rate for such day and (b) the sum of
(i) the Federal Funds Effective Rate for such day and (ii) one half of one percent (0.50%) per annum.
"Base Rate Loan" means a Second Priority Term Loan bearing interest at a rate determined by reference to the Base Rate.
"Beck Report" is defined in Section 3.05(d) (Financial Officer's Certificate).
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(a) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
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(b) with respect to a partnership, the Board of Directors of the general partner of the partnership or any committee duly authorized and empowered to take action on behalf of such partnership by the partnership agreement of such partnership;
(c) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(d) with respect to any other Person, the board or committee of such Person serving a similar function.
"Borrower" is defined in the Preamble hereto.
"Business Day" shall mean any day other than a Saturday, Sunday or day on which commercial banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a LIBOR Rate Loan (including with respect to all notices and determinations in connection therewith and any payments of principal, interest or other amounts thereon), the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
"CalGen Companies" means the Borrower and the Subsidiaries of the Borrower.
"CalGen Expansion Company" means CalGen Expansion Company, LLC, a Delaware limited liability company.
"CalGen Finance" is defined in the Recitals hereto.
"Calpine" means Calpine Corporation, a Delaware corporation.
"Calpine Performance Guaranty" means that certain Affiliated Party Guaranty, dated as of the date hereof, by Calpine in favor of the Borrower and each of the Facility Owners.
"Calpine Project Undertaking" means that certain Project Undertaking and Agreement, dated as of the date hereof, among the Borrower, each of the Facility Owners and Calpine.
"Capital Lease Obligations" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(a) in the case of a corporation, corporate stock;
(b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
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(c) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
"Cash Equivalents" means:
(a) United States dollars;
(b) securities issued or directly and fully guaranteed or insured by the United States government (or any agency or instrumentality thereof), the Canadian government (or any agency or instrumentality thereof) or the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition;
(c) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Facilities or any domestic commercial bank having capital and surplus in excess of $500,000,000 and a Thomson Bank Watch (or successor rating agency) Rating of "B" or better;
(d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the qualifications specified in clause (c) above;
(e) overnight deposits with entities whose unsecured commercial paper or other unsecured short-term debt obligations have, at the time of such investment, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P; and
(e) investments in money market funds or money market mutual funds which have, at the time of such investments, credit ratings of at least P-1 (or its equivalent) or higher from Moody's and A-1 (or its equivalent) or higher from S&P.
"Casualty Event" means any damage to or destruction of a Facility in excess of $20,000,000.
"Certificate re Non-Bank Status" means a certificate substantially in the form of Exhibit C.
"CES" means Calpine Energy Services, L.P., a Delaware limited partnership.
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"Change of Control" means the occurrence of any of the following:
(a) the adoption of a plan relating to the liquidation or dissolution of the Borrower;
(b) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as that term is used in Section 13(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Calpine, measured by voting power rather than number of shares; or
(c) the first day on which Calpine fails to own, directly or indirectly, 100% of the issued and outstanding Equity Interests (other than Perpetual Preferred Stock) of the Borrower (other than as a result of the issuance of Perpetual Preferred Stock by any direct or indirect parent of the Borrower).
"Closing Date" means the date on which all of the conditions precedent set forth in Article III shall have been satisfied or waived in accordance with
Section 12.05 (Amendments and Waivers).
"Closing Date Facilities" means the electric generating facilities (including any electric generating facilities under construction) owned by Baytown Energy Center, LP; Carville Energy LLC; Channel Energy Center, LP; Columbia Energy LLC; Corpus Christi Cogeneration LP; Decatur Energy Center, LLC; Delta Energy Center, LLC, Freestone Power Generation LP; Goldendale Energy Center, LLC, Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Calpine Oneta Power, L.P.; Pastoria Energy Facility L.L.C. and Zion Energy LLC.
"Closing Date Mortgages" is defined in Section 3.13 (Title Policies).
"Closing Date Mortgage Policies" is defined in Section 3.13 (Title Policies).
"Closing Date Mortgaged Properties" means all of the real property interests owned or leased by any of the Guarantors, and "Closing Date Mortgaged Property" means all of the real property interests owned or leased by a Guarantor.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Collateral" means (a) all of the Capital Stock of the Borrower held by Holdings, (b) all of the Capital Stock of CalGen Expansion Company held by the Borrower, and (c) all assets and properties of the Borrower and each of the Guarantors (other than the Excluded Assets and the Excluded Subsidiaries), in each case as more particularly provided for in the Security Documents.
"Collateral Agent" has the meaning provided in the Recitals hereto.
"Collateral Trust Agreement" means that certain Collateral Trust and Intercreditor Agreement, dated as of the date hereof, by and among Holdings, the Borrower, the Guarantors, the Administrative Agent, the First Priority Term Loan Administrative Agent, the Revolver
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Administrative Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, the Collateral Agent and each other party from time to time a party thereto.
"Columbia Facility" means the Facility owned by Columbia Energy LLC.
"Columbia FILOT Arrangement" means a fee-in-lieu-of-taxes arrangement pursuant to which the Columbia Facility will be sold to Calhoun County, South Carolina, or a Person acting on its behalf, and leased to Columbia Energy LLC for a nominal annual amount in lieu of certain ad valorem taxes that would otherwise be owed to Calhoun County in connection with the Columbia Facility, together with the payment of a fee to Calhoun County in lieu of such ad valorem taxes; provided, that (a) Columbia Energy LLC has the right under such arrangement to repurchase the Columbia Facility for nominal consideration upon completion or termination of the lease agreement, (b) the leasehold interest held by Columbia Energy LLC is part of the Collateral, (c) the arrangement is not reasonably expected to have a material adverse effect on the operation or financial condition of the Columbia Facility and (d) the arrangement does not impair the Columbia Facility's status as a QF.
"Condemnation Event" means any Facility (or any portion thereof in excess of $20,000,000) is condemned, confiscated, requisitioned, captured, seized or subjected to forfeiture, or title thereto is taken, by any governmental authority (or any Person acting under color of governmental authority).
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(a) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(b) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(c) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(d) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(e) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business,
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in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus (a) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of (i) any and all interest expense for such period, including, without limitation, Consolidated Interest Expense and any interest expense attributable to Affiliate Subordinated Indebtedness, (ii) consolidated income tax expense for such period, (iii) all amounts attributable to depreciation and amortization for such period, (iv) any extraordinary or non-recurring non-cash charges (other than the write-down of current assets) for such period (including any such non-cash charges for such period relating to the application of fresh start accounting principals), (v) any non-cash goodwill or other intangible asset impairment charges incurred after the date hereof resulting from the application of Statement Number 142 of the Financial Accounting Standards Board, (vi) any non-recurring expenses incurred in connection with the transactions contemplated by the Financing Documents and (vii) any non-cash compensation charges, including any such charges arising from stock options, restricted stock grants and other equity incentive programs (provided that, to the extent all or any portion of the income of any Subsidiary of the Borrower or other Person is excluded from Consolidated Net Income pursuant to the definition thereof for all or any portion of such period, any amounts set forth in the preceding clauses (i) through (vii) that are attributable to such Subsidiary or other Person shall be not be included for purposes of this clause (a) for such period or portion thereof), plus (b) without duplication, the cash amount of (i) prepayments received by the Borrower or any of its Subsidiaries under any Major Project Document during such period and (ii) any distributions received by the Borrower or any of its Subsidiaries pursuant to the Index Hedge during such period, and minus (c) without duplication (i) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net Income pursuant to clause (a) above in a previous period and
(ii) to the extent included in determining such Consolidated Net Income, any extraordinary gains and all non-cash items of income for such period, all determined on a consolidated basis in accordance with GAAP; provided that, if the Borrower has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the sum of (1) the consolidated net income
(loss) of such Subsidiary (to the extent included in Consolidated Net Income) and (2) the amounts set forth in clause (a)(i)-(vii) above attributable to such Subsidiary multiplied by (B) the percentage of Equity Interests in such Subsidiary not directly or indirectly owned by the Borrower on the last day of such period. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated EBITDA will be calculated on a Pro Forma basis as if all transactions entered into by the Borrower on the Closing Date were entered into on the first day of the period for which Consolidated EBITDA is being measured.
"Consolidated Interest Coverage Ratio" means, on any date, the ratio of
(a) Consolidated EBITDA of the Borrower and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended on or prior to such date, taken as one accounting period, to (b) Consolidated Interest Expense of the Borrower and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended on or prior to such date, taken as one accounting period.
"Consolidated Interest Expense" means, for any period, (a) the sum of, without duplication, (i) the interest expense (including imputed interest expense in respect of Capital
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Lease Obligations and Synthetic Lease Obligations but excluding any interest expense attributable to Affiliate Subordinated Indebtedness) of the Borrower and its Subsidiaries for such period (including all commissions, discounts and other fees and charges owed by the Borrower and its Subsidiaries with respect to letters of credit and bankers' acceptance financing), net of interest income, in each case determined on a consolidated basis in accordance with GAAP, plus (ii) any interest accrued (other than interest accrued with respect to Affiliate Subordinated Indebtedness) during such period in respect of Indebtedness of the Borrower or any Subsidiary of the Borrower that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP, minus (b) to the extent included in such consolidated interest expense for such period, amounts attributable to the amortization of financing costs and non-cash amounts attributable to the amortization of debt discounts. For purposes of this definition, interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any Subsidiary of the Borrower with respect to interest rate Hedging Obligations. Notwithstanding anything to the contrary herein, for each of the first four fiscal quarters ended after the Closing Date, Consolidated Interest Expense will be calculated on a Pro Forma basis as if all transactions entered into by the Borrower on the Closing Date were entered into on the first day of the period for which Consolidated Interest Expense is being measured.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that:
(a) the Net Income of any Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; and
(b) the cumulative effect of a change in accounting principles will be excluded.
"Continuation Notice" means a Continuation Notice substantially in the form of Exhibit D.
"Credit Facilities" means one or more debt facilities or commercial paper facilities (including the debt facilities provided under this Agreement, the First Priority Term Loan Agreement and the Revolving Loan Agreement), in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
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"Default Rate" is defined in Section 2.07 (Default Interest).
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the Stated Maturity of the Second Priority Term Loans. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Borrower to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Borrower may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 5.04 (Restricted Payments). The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Borrower and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.
"Dollars" and the sign "$" mean the lawful money of the United States of America.
"Eligible Assignee" means (a) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (b) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses.
"Environmental Consultants" means E Cubed, Inc., ENSR Corporation, Environmental Consulting & Technology, Inc., STS Consultants, Ltd and Separation Systems Consultants, Inc.
"Environmental Law" is defined in Section 4.10 (Hazardous Substances).
"Equally and Ratably" is defined in the Collateral Trust Agreement.
"Equity Contributions" means contributions of cash or Cash Equivalents to the common equity capital of the Borrower by Persons other than the Borrower and its Subsidiaries.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with Borrower or any of its Subsidiaries under Section 52 or 414 of the Code or Title IV of ERISA.
"ERISA Plan" means any employee benefit plan (including any Multiemployer Plan) under Section 3(3) of ERISA (a) maintained by Borrower or its Subsidiaries or any ERISA
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Affiliate, or to which any of them contributes or is obligated to contribute, or has contributed or been obligated to contribute, or has any liability, and (b) covered by Title IV of ERISA or to which Section 302 of ERISA, Section 412 of the Code or Subtitle J of the Code applies.
"Estimated Peak Capacity" means, with respect to a Facility, the nominal, as-tested new and clean capacity of such Facility, as corrected to average ambient conditions, plus all incremental peaking capability of such Facility derived from duct firing, power augmentation, steam injection or other means.
"Event of Default" is defined in Section 7.01 (Events of Default).
"EWG" is defined in Section 4.18 (Governmental Regulation).
"Excess Cash Flow" means, for any period:
(a) the sum of:
(i) all revenues (excluding (A) non-cash revenues and (B) any payments received from contract monetizations, contract buy-outs and similar transactions) received by the Borrower and its Subsidiaries during such period,
(ii) all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events, and all net proceeds from the sale, lease, conveyance or other disposition of any assets or rights not constituting "Asset Sales," in each case received by the Borrower and its Subsidiaries during such period and remaining after application of such proceeds to a Mandatory Repayment Offer pursuant to Section 2.11 (Mandatory Repayment Offers) and Section 5.07 (Asset Sales; Application of Net Proceeds), and
(iii) all Excess Expansion Asset Financing Proceeds received by the Borrower and its Subsidiaries during such period; less
(b) the sum of:
(i) all costs, expenses, fees and other charges
(including liquidated damages or other damages or penalties) incurred by the Borrower and its Subsidiaries during such period in connection with the ownership, operation, maintenance and use of the Facilities, including all payments under Major Project Documents and other agreements relating to the Facilities (other than Major Maintenance Expenses),
(ii) all trustee fees, collateral agent fees and other similar administrative fees and expenses paid by the Borrower and its Subsidiaries during such period,
(iii) the Fixed Charges of the Borrower and its Subsidiaries during such period (other than Fixed Charges of the kind referred to in clause (d) of the definition of Fixed Charges and Fixed Charges relating to Subordinated Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the Second Priority Term Loan Obligations),
(iv) all payments of principal of Indebtedness of the Borrower and its Subsidiaries required to be made (whether or not actually made) during such period, other than payments of principal of Subordinated
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Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the Second Priority Term Loan Obligations, and
(v) all amounts paid by the Borrower and its Subsidiaries for capital expenditures to the Facilities during such period, other than Excluded CapEx Amounts.
"Excess Expansion Asset Financing Proceeds" means the excess of (a) the aggregate amount of proceeds of Expansion Debt incurred to finance costs associated with Expansion Assets in accordance with Section 5.06(b)(iii) and Equity Contributions made in connection therewith, over (b) the amount of such proceeds and Equity Contributions required to finance costs associated with such Expansion Assets in compliance with the conditions set forth in Section 5.06(b)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" means
(a) the fixtures and equipment relating to any Facility if, to the extent that and for so long as (i) the ownership or operation of such Facility is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (A) such fixtures and equipment will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (a) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (B) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the security documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section
5.07 (Asset Sales; Application of Net Proceeds);
(b) with respect to personal property, any contract, agreement, lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i)
grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such contract, agreement, lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such contract, agreement, lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable Legal Requirement (including the United States bankruptcy code); provided, that (A) such contract, agreement, lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (b) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (B) the proceeds of any sale, lease or other disposition of any such contract, agreement, lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section 5.07 (Asset Sales; Application of Net Proceeds);
(c) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for as long as the condition set forth above is and remains satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Agent under the Security Documents except as such proceeds are applied and used by the Borrower or its Subsidiaries in the ordinary course of business and applied in accordance with Section 5.07 (Asset Sales; Application of Net Proceeds);
(d) any Excluded Subsidiary Securities;
(e) any property or assets owned by the Excluded Subsidiary;
(f) any Expansion Assets; provided, that any Expansion Assets will be Excluded Assets only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on the ability to grant a Lien on such Expansion Assets to secure the Secured Obligations continue to be applicable, as determined in good faith by the Borrower; and
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(g) the Borrower's rights under or with respect to the Working Capital Facility.
"Excluded CapEx Amounts" means amounts paid by the Borrower and its Subsidiaries for capital expenditures to the Facilities using funds derived from either of the following funding sources:
(a) Equity Contributions, other than Equity Contributions made to comply with Section 5.06(b)(iii); and
(b) proceeds of Expansion Debt incurred in accordance with Section 5.06(b)(iii).
"Excluded Subsidiary" means Goldendale Energy Center, LLC, only if and for so long as the limitations imposed by the debt instruments of Calpine and its Subsidiaries on Goldendale Energy Center, LLC's ability to be a Guarantor and grant a Lien on its property and assets to secure the Secured Obligations continue to be applicable to Goldendale Energy Center, LLC, as determined in good faith by the Borrower.
"Excluded Subsidiary Securities" means Capital Stock or other securities of any Subsidiary of the Borrower, other than the Equity Interests in CalGen Expansion Company.
"Existing Credit Administrative Agent" means Credit Suisse First Boston, acting through its New York Branch, as the administrative agent under the Existing Senior Secured Credit Facility.
"Existing Purchase Option" means an Asset Sale required in accordance with any of the following, without giving effect to any amendments or other modifications thereto after the Closing Date:
(a) the exercise by Eastman Chemical Company (or its successors and permitted assigns) of any of its purchase options under the Energy Services Agreement, dated as of August 15, 2000, and as amended to the Closing Date, between Columbia Energy LLC and Eastman Chemical Company;
(b) the exercise by Solutia, Inc. (or its successors and permitted assigns) of its purchase option upon an event of default under the Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001, and as amended to the Closing Date, between Decatur Energy Center, LLC and Solutia, Inc.;
(c) the exercise by Bayer Corporation (or its successors and permitted assigns) of its purchase option under the Energy Services Agreement, dated as of January 12, 2000, and as amended to the Closing Date, between Baytown Energy Center, LP and Bayer Corporation;
(d) the exercise by Lyondell-CITGO Refining L.P. (or its successors and permitted assigns) of any of its OPTIONS to acquire certain property under the Amended and Restated Ground Lease and Easement Agreement, dated as of March 30, 2001, and
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as amended to the Closing Date, between Channel Energy Center, LP and Lyondell-CITGO Refining L.P.;
(e) the exercise by CITGO Refining and Chemicals Company L.P. (or its successors and permitted assigns) of its right of first offer under the Energy Services Agreement, dated as of March 23, 1999, and as amended to the Closing Date, between Corpus Christi Cogeneration, LP and CITGO Refining and Chemicals Company L.P.; and
(f) the exercise by Flint Hills Resources, L.P. (or its successors and permitted assigns) its purchase option under the Energy Services Agreement, dated as of July 24, 2003, and as amended to the Closing Date, between Corpus Christi Cogeneration, LP and Flint Hills Resources, L.P.
"Existing Senior Secured Credit Facility" means the Credit Agreement, dated as of October 16, 2000, among the Borrower, the Existing Credit Administrative Agent, the financial institutions thereto from time to time as lenders and the other agents and arrangers party thereto.
"Expansion Assets" means the assets (including real property rights, contractual rights, rights under permits, other general intangibles and other ancillary rights) added to a Facility in connection with the addition of capacity to, or other expansion of, such Facility; provided, that such Expansion Assets are not necessary for the operation of such Facility or any other Facility (other than the Expansion Assets themselves), are readily distinguishable from such Facility and can be removed or separated from such Facility, dismantled or operated independently of the operation of the Facility without impairing the Facility or any other Facility in any material respect.
"Expansion Debt" means Indebtedness incurred for the purpose of financing the development, construction or purchase of, or repairs, improvements or additions to, Expansion Assets relating to one or more Facilities, including any Indebtedness existing at the time such Expansion Assets are acquired, whether or not such Indebtedness is incurred in connection with, or in contemplation of, the acquisition of such Expansion Assets; provided, that such Indebtedness was incurred to finance the development, construction or purchase of, or repairs, improvements or additions to, such Expansion Assets.
"Facilities" means the Closing Date Facilities and any other electric generating facilities acquired or constructed after the Closing Date in accordance with the terms hereof; provided that any Facility disposed of in accordance with the terms hereof shall from and after the date of any such disposition be deemed not to be a Facility hereunder from and after the date of such disposition.
"Facility Owners" means Baytown Energy Center, LP; Carville Energy LLC; Channel Energy Center, LP; Columbia Energy LLC; Corpus Christi Cogeneration LP; Decatur Energy Center, LLC; Delta Energy Center, LLC, Freestone Power Generation LP; Goldendale Energy Center, LLC, Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Calpine Oneta Power, L.P.; Pastoria Energy Facility L.L.C. and Zion Energy LLC.
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"Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, (a) determined in good faith by an Officer of the Borrower and evidenced by an Officer's Certificate delivered to the Administrative Agent, if such value is less than or equal to $10,000,000, or (b) determined in good faith by the Board of Directors of the Borrower and evidenced by a resolution delivered to the Administrative Agent, if such value is greater than $10,000,000.
"Federal Funds Effective Rate" means for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent, in its capacity as a Lender, on such day on such transactions as determined by the Administrative Agent.
"FERC" is defined in Section 4.18 (Governmental Regulation).
"Financing Documents" means this Agreement, the First Priority Term Loan Agreement, the Revolving Loan Agreement, the Purchase Agreement, the Indentures, the Notes, the Registration Rights Agreement, the Security Documents and all other security documents and intercreditor agreements entered into by Holdings, the Borrower or any Subsidiary thereof (on the one hand) and any Agent or any Lender (on the other hand) in connection therewith.
"Financing Statements" is defined in Section 3.06 (Security).
"First Priority Debt Representative" is defined in the Collateral Trust Agreement.
"First Priority Indenture" is defined in the Recitals hereto.
"First Priority Indenture Trustee" is defined in the Recitals hereto.
"First Priority Lien" means a Lien granted by the Borrower or any Guarantor under a Security Document to the Collateral Agent upon any assets or property of the Borrower or any Guarantor to secure First Priority Lien Obligations.
"First Priority Lien Cap" means as of any date, (a) the principal amount of First Priority Notes, plus (b) the principal amount of all Indebtedness outstanding under the First Priority Term Loan Agreement on the Closing Date, plus the Indebtedness outstanding under any other Credit Facility (including the Revolving Loan Agreement), all in an aggregate principal amount not to exceed the amount provided for in Section 5.06(b)(i)(A), less (c) the amount of Second Priority Lien Debt and Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay First Priority Lien Debt, plus (d) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (a) and (b), plus (e) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to other First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting
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Second Priority Lien Debt, $500,000,000. For purposes of this definition of First Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
"First Priority Lien Debt" means, collectively, (a) the First Priority Notes, (b) the Indebtedness under the First Priority Term Loan Agreement, (c) the Indebtedness under the Revolving Loan Agreement, (d) Hedging Obligations incurred to hedge or manage interest rate risk with respect to other First Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting Second Priority Lien Debt, $500,000,000, (e) Indebtedness under any other Credit Facility that is secured by a First Priority Lien, and (f) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other First Priority Lien Debt; provided, however, such Indebtedness shall constitute First Priority Lien Debt only if, in the case of clauses (d), (e) or (f) of this definition, (i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document), (ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each First Priority Debt Representative and the Collateral Agent, as First Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other First Priority Lien Documents; (iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation and an agreement by the holder of such Indebtedness and the applicable First Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and (iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is First Priority Lien Debt).
"First Priority Lien Documents" means the First Priority Term Loan Agreement, the First Priority Notes, the Guarantees related thereto, the First Priority Indenture, the Revolving Loan Agreement, each agreement governing any other series of First Priority Lien Debt and all other agreements governing, securing or relating to any First Priority Lien Obligations.
"First Priority Lien Obligations" means the First Priority Lien Debt and all other Obligations in respect of First Priority Lien Debt.
"First Priority Notes" is defined in the Recitals hereto.
"First Priority Notes Indenture" is defined in the Recitals hereto.
"First Priority Secured Parties" shall mean the holders of the First Priority Lien Obligations (including the holders of the First Priority Notes, the lenders under the First Priority Term Loan Agreement, the First Priority Term Loan Administrative Agent and the lenders under the Revolving Loan Agreement).
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"First Priority Term Loan Administrative Agent" is defined in the Recitals hereto.
"First Priority Term Loan Agreement" is defined in the Recitals hereto.
"First Priority Term Loan Documents" means the First Priority Term Loan Agreement and the Security Documents which relate to any of the First Priority Term Loan Obligations and all other agreements related thereto.
"First Priority Term Loan Obligations" means the First Priority Term Loans and all other Obligations under the First Priority Term Loan Documents relating to such loans.
"First Priority Term Loans" is defined in the Recitals hereto.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred equity subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving Pro Forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(a) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries acquired by the specified Person or any of its Subsidiaries, and including any related financing transactions and including increases in ownership of Subsidiaries, during the applicable reference period or subsequent to such reference period and on or prior to the Calculation Date will be given Pro Forma effect as if they had occurred on the first day of such reference period;
(b) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(c) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date;
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(d) any Person that is a Subsidiary on the Calculation Date will be deemed to have been a Subsidiary at all times during such reference period;
(e) any Person that is not a Subsidiary on the Calculation Date will be deemed not to have been a Subsidiary at any time during such reference period; and
(f) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire reference period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(a) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases, but excluding the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, under any Affiliate Subordinated Indebtedness; plus
(b) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, but excluding the consolidated capitalized interest of such Person and its Subsidiaries for such period under any Affiliate Subordinated Indebtedness; plus
(c) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(d) the product of (i) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred equity of such Person or any of its Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of CalGen (other than Disqualified Stock) or to CalGen or a Subsidiary of CalGen, times
(ii) a fraction, the numerator of which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal,
in each case, on a consolidated basis and determined in accordance with GAAP.
"FPA" is defined in Section 4.18 (Governmental Regulation).
"Funding Notice" means a notice substantially in the form of Exhibit E.
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"GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the applicable date of determination.
"Goldendale Facility" means the Facility owned by Goldendale Energy Center, LLC.
"Governmental Authority" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"Governmental Rule" means any law, rule, regulation, ordinance, order, code interpretation, treaty, judgment, decree, directive, guidelines, policy or similar form of decision of any Governmental Authority.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
"Guarantors" means
(a) CalGen Expansion Company; CPN Freestone, LLC; Calpine Freestone, LLC; Freestone Power Generation LP; Calpine Freestone Energy GP, LLC; Calpine Freestone Energy, LP; Calpine Power Equipment LP; Calpine Channel Energy Center LP, LLC; Calpine Channel Energy Center GP, LLC; Channel Power GP, LLC; Channel Power, LP; Channel Energy Center, LP; CalGen Equipment Finance Holdings, LLC; CalGen Project Equipment Finance Company One, LLC; CalGen Project Equipment Finance Company Three LLC; CalGen Equipment Finance Company, LLC; Nueces Bay Energy LLC; Calpine Northbrook Southcoast Investors, LLC; Calpine Corpus Christi Energy GP, LLC; Calpine Corpus Christi Energy, LP; Corpus Christi Cogeneration LP; Zion Energy LLC; Los Medanos Energy Center, LLC; Morgan Energy Center, LLC; Carville Energy LLC; Decatur Energy Center, LLC; Calpine Oneta Power I, LLC; Calpine Oneta Power II, LLC; Calpine Oneta Power, L.P.; Calpine Baytown Energy Center LP, LLC; Calpine Baytown Energy Center GP, LLC; Baytown Energy Center, LP; Baytown Power GP, LLC; Baytown Power, LP; Columbia Energy LLC; Delta Energy Center, LLC; CalGen Project Equipment Finance Company Two, LLC; Pastoria Energy Facility L.L.C.; and Calpine Pastoria Holdings, LLC; and
(b) any other Subsidiary of the Borrower that becomes a Guarantor in accordance with the provisions of this Agreement;
and their respective successors and assigns.
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"Hedging Obligations" means, with respect to any specified Person, the Obligations of such Person under:
(a) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(b) other agreements or arrangements designed to manage interest rate risk; and
(c) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.
"Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
"Holding Companies" means
(a) Calpine Baytown Energy Center LP, LLC; Calpine Baytown Energy Center GP, LLC; Baytown Power GP, LLC; Baytown Power, LP; Channel Power, LP; Calpine Channel Energy Center LP, LLC; Calpine Channel Energy Center GP, LLC; Channel Power GP, LLC; Calpine Corpus Christi Energy GP, LLC; Calpine Corpus Christi Energy, LP; Nueces Bay Energy LLC; Calpine Northbrook Southcoast Investors, LLC; CPN Freestone, LLC; Calpine Freestone, LLC; Calpine Freestone Energy GP, LLC; Calpine Freestone Energy, LP; Calpine Oneta Power I, LLC; Calpine Oneta Power II, LLC; CalGen Equipment Finance Holdings, LLC; and Calpine Pastoria Holdings, LLC; and
(b) any other Subsidiary of the Borrower that becomes a Holding Company in accordance with the provisions of this Agreement;
and their respective successors and assigns.
"Holdings" is defined in the Recitals hereto.
"Increased-Cost Lender" is defined in Section 2.17 (Removal Replacement of a Lender).
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(a) in respect of borrowed money;
(b) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(c) in respect of bankers' acceptances;
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(d) representing Capital Lease Obligations;
(e) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
(f) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(i) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(ii) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(iii) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(A) the Fair Market Value of such asset at the date of determination, and
(B) the amount of the Indebtedness of the other Person.
Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation.
"Indemnified Liabilities" has the meaning assigned to it in the Collateral Trust Agreement.
"Indemnitee" is defined in Section 12.03 (Indemnity).
"Indentures" is defined in the Recitals hereto.
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"Independent Engineer" means R.W. Beck or any other independent engineering company of national standing selected by the Borrower and reasonably acceptable to the Administrative Agent.
"Index Based Gas Sale and Power Purchase Agreement" means that certain Index Based Gas Sale and Power Purchase Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and CES.
"Index Hedge" means, collectively, (a) that certain ISDA Master Agreement (MULTICURRENCY-CROSS BORDER), dated as of March 12, 2004, between the Borrower and MSCG, as supplemented by that certain Schedule to the Master Agreement, dated as of March 12, 2004, between the Borrower and MSCG and by that certain Amended and Restated Confirmation, dated as of March 12, 2004, between the Borrower and MSCG, and (b) that certain Guaranty, dated as of March 12, 2004, by Morgan Stanley for the benefit of the Borrower.
"Insolvency Proceeding" means
(a) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Borrower or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Borrower or any other Obligor or any similar case or proceeding relative to the Borrower or any other Obligor or its creditors, as such, in each case whether or not voluntary;
(b) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Borrower or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or
(c) any other proceeding of any type or nature in which substantially all claims of creditors of the Borrower or any other Obligor are determined and any payment or distribution is or may be made on account of such claims.
"intellectual property rights" is defined in Section 4.09 (Intellectual Property Rights).
"Interest Payment Date" means (a) July 1, 2004, (b) each October 1, January 1, April 1 and July 1 thereafter, and (c) in all cases, upon prepayment of any Second Priority Term Loans (to the extent thereof and including any optional or mandatory prepayments or redemptions), upon conversion from a Base Rate Loan to a LIBOR Rate Loan or a LIBOR Rate Loan to a Base Rate Loan, and on the Maturity Date.
"Interest Period" means the period of one, two, three or six months, as selected by the Borrower in the applicable Continuation Notice commencing on the day on which the immediately preceding Interest Period expires; provided, (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall,
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subject to clause (c) of this definition, end on the last Business Day of such calendar month; (c) no Interest Period shall extend beyond the Maturity Date; and (d) the first Interest Period is deemed to begin on the Closing Date and expire on March 31, 2004.
"Interest Rate Determination Date" means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period.
"Investment Company Act" is defined in Section 4.16 (Investment Company Act).
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the form of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Borrower or any of its Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Borrower such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Borrower, the Borrower will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Borrower's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of Section 5.04 (Restricted Payments). Except as otherwise provided in this Agreement, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.
"Legal Requirements" means, as to any Person, the articles of incorporation, bylaws or other organizational or governing documents of such Person, and any requirement under a Permit, and any Governmental Rule in each case applicable to or binding upon such Person or any of its properties or to which such Person or any of its property is subject.
"Lender" means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.
"LIBOR Rate" means, with respect to any LIBOR Rate Loan for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the applicable Interest Rate Determination Date by reference to the British Bankers' Association Interest Settlement Rates for deposits in dollars (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "LIBOR Rate" shall be the rate per annum at which the Administrative Agent or one of its affiliate banks offers to place deposits in Dollars with first-class banks in the London interbank market in London, England for such relevant Interest Period at approximately 11:00 a.m. (London time) on the applicable Interest Rate Determination Date, in amounts equal to $1,000,000.
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"LIBOR Rate Loan" means a Second Priority Term Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Lien Priority Confirmation" is defined in the Collateral Trust Agreement.
"Loan Agreements" means this Agreement, the First Priority Term Loan Agreement and the Revolving Loan Agreement.
"Major Maintenance Expenses" means all costs, expenses, fees and other charges (including liquidated damages or other damages or penalties) incurred by the Borrower and its Subsidiaries during a period for major maintenance of the Facilities under the Master Maintenance Services Agreement or otherwise.
"Major Project Documents" means the WECC Fixed Price Gas Sale and Power Purchase Agreement, the Index Based Gas Sale and Power Purchase Agreement, the Index Hedge, the Working Capital Facility, the Master Operation and Maintenance Agreement, the Master Maintenance Services Agreement, the Calpine Performance Guaranty, the Master Construction Management Agreement, the Calpine Project Undertaking and the Administrative Services Agreement.
"Mandatory Repayment Offer" is defined in Section 2.11 (Mandatory Repayment Offers).
"Master Construction Management Agreement" means that certain Master Construction Management Agreement, dated as of the date hereof, among the Borrower, Columbia Energy LLC, Goldendale Energy Center, LLC, Pastoria Energy Facility, LLC and Calpine Construction Management Company, Inc.
"Master Maintenance Services Agreement" means that certain Master Maintenance Services Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and Calpine Operating Services Company, Inc.
"Master Operation and Maintenance Agreement" means that certain Master Operation and Maintenance Agreement, dated as of the date hereof, among the Borrower, each Facility Owner and Calpine Operating Services Company, Inc.
"Material Adverse Effect" means a material adverse effect on (a) the current or reasonably anticipated business, property, results of operation or financial condition of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower and its Subsidiaries to perform their obligations under this Agreement and the other Second Priority
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Term Loan Documents or (c) the value of, or the validity or priority of the Collateral Agent's security interests in, the Collateral taken as a whole.
"Materially Adverse" means, with respect to an event or circumstance, that such event or circumstance has had or is reasonably expected to have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole; it being understood that an event or circumstance would have a material adverse effect on the Borrower and its Subsidiaries, taken as a whole, if the Excess Cash Flow for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event or circumstance occurred or commenced to exist, as applicable, would have decreased by more than 5.0%, determined on a Pro Forma basis.
"Maturity Date" means the earlier of (a) April 1, 2010 and (b) the date that all Second Priority Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Mortgages" means each of the mortgages and deeds of trust encumbering any of the properties of any of the Guarantors including the Closing Date Mortgages and the mortgages and/or deeds of trust entered into pursuant to
Section 5.14 (Additional Subsidiaries).
"MSCG" means Morgan Stanley Capital Group, Inc.
"MSSF" means Morgan Stanley Senior Funding, Inc.
"Multiemployer Plan" means any "Multiemployer Plan" (as such term is defined in Section 3(37) or 4001(a)(3) of ERISA).
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(a) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and
(b) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means:
(a) the aggregate cash proceeds received by the Borrower or any of its Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, sales commissions, any relocation expenses incurred as a result of the Asset
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Sale, and any taxes paid or payable by the Borrower, any of its Subsidiaries or Calpine as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of the Asset Sale (other than Secured Obligations), and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP;
(b) all proceeds of any insurance, indemnity, warranty or guaranty payable from time to time with respect to any Casualty Event that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, other than business interruption insurance proceeds, net of the direct costs relating to the collection of such proceeds; and
(c) all payments (in any form whatsoever) made or due and payable from time to time in connection with any Condemnation Event by any governmental authority (or any Person acting under color of governmental authority) that are not applied to the repair, replacement or rebuilding of the applicable Facility to the extent commercially feasible, net of the direct costs relating to the collection of such proceeds.
"Non-Consenting Lender" is defined in Section 2.17 (Removal or Replacement of a Lender).
"Non-U.S. Lender" is defined in Section 2.16 (Taxes; Withholding, etc.).
"Note Documents" means the Indentures, the Notes, the Note Guarantees, the Collateral Trust Agreement, each Sharing Confirmation, the other Security Documents which relate to any of the Note Obligations and all other agreements related thereto.
"Note Guarantee" means the Guarantee by each Guarantor of the Borrower's obligations under each Indenture and on the Notes issued in connection therewith, including the payment, when due and payable, of principal, interest and premium, if any, thereunder, executed pursuant to the provisions of each Indenture.
"Note Obligations" means the Notes, the Note Guarantees and all other Obligations of any Obligor under the Note Documents.
"Notes" is defined in the Recitals hereto.
"Obligations" means any principal (including reimbursement obligations with respect to letters of credit whether or not drawn), interest, premium (if any), fees, indemnifications, reimbursements, expenses and other liabilities payable under the documentation governing or securing any Indebtedness.
"Obligor" means Holdings, the Borrower, the Guarantors and each other Subsidiary of the Borrower that has granted the Collateral Agent a Lien upon any of the Collateral as security for any Secured Obligations.
"Offer Amount" is defined in Section 2.11 (Mandatory Repayment Offers).
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"Offer Period" is defined in Section 2.11 (Mandatory Repayment Offers).
"Offering Memorandum" means the Offering Memorandum dated March 17, 2004 of the Borrower and CalGen Finance, as amended or supplemented.
"Officer" means, with respect to any Person, the chairman of the board, the chief executive officer, the president, the chief operating officer, the chief financial officer, the treasurer, any assistant treasurer, the controller, the secretary or any vice-president of such Person.
"Officer's Certificate" means a certificate signed on behalf of the Borrower by one Officer of the Borrower that meets the requirements of Section 12.21.
"Other Taxes" means any and all present and future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any of the Second Priority Term Loan Documents or from the execution, delivery or enforcement of, or otherwise with respect to, any of the Second Priority Term Loan Documents.
"Payment Default" is defined in Section 7.01 (Events of Default).
"Payout Amount" is defined in Section 3.06(a)(iv) (Security).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
"Permitted Business" means the ownership, construction, operation and maintenance of the Closing Date Facilities and any substantially similar electric generating facilities located in the United States, together with any related assets or facilities, including gas pipelines supplying natural gas to such generating facilities, electric transmission lines carrying energy generated from such generating facilities, and any related gas or electric interconnection facilities.
"Permitted Counterparty Lien" means a Lien in favor of a counterparty under a PPA; provided, that the following conditions are satisfied:
(a) the counterparty is not an Affiliate of the Borrower;
(b) the Lien does not secure any Indebtedness and (i) is granted solely to secure the performance obligations of the Borrower or the applicable Subsidiary under the PPA and/or any obligation of the Borrower or the applicable Subsidiary to make a termination payment under the PPA upon the occurrence of the event described in clause
(c)(iii)(A) below or the termination by the counterparty upon the occurrence of any of the events described in clause (c)(iii)(B) below, or (ii) creates rights designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA;
(c) the counterparty can exercise its rights with respect to the Lien only (i) for so long as the counterparty remains current with respect to all of its payment obligations
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under the PPA and is not otherwise in a continuing default under the PPA, (ii) if the counterparty continues to acknowledge the existence of the Liens securing the Secured Obligations (unless and until Liens securing the Secured Obligations are eliminated in connection with a foreclosure of the Permitted Counterparty Liens as contemplated by clause (d) of this definition), and (iii) if either (A) the Borrower or the applicable Subsidiary has terminated, rejected or repudiated the PPA (including any rejection or similar act by or on behalf of the Borrower or the applicable Subsidiary in connection with any bankruptcy proceeding) or (B) the Borrower or the applicable Subsidiary has intentionally breached its obligations under the PPA; provided, that the following actions will be considered an intentional breach by the Borrower or the applicable Subsidiary under the PPA: (1) the Borrower or the applicable Subsidiary provides or delivers capacity or energy to a third party if the Borrower or the applicable Subsidiary is required under the PPA to provide or deliver such capacity or energy to the counterparty; (2) the Borrower or the applicable Subsidiary of the Borrower fails to operate or attempt to operate one or more of the relevant Facilities at a time when the Borrower or the applicable Subsidiary of the Borrower was required, under the PPA, to operate or attempt to operate such Facility or Facilities and such operation or attempted operation is not prevented by force majeure, forced outage or other events or circumstances outside the reasonable control of the Person responsible therefor; (3) any failure by the Borrower or the applicable Subsidiary to comply with any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise take actions necessary to continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA, in each case to the extent the Borrower or the applicable Subsidiary is then capable of complying with such provisions; or (4) any failure by the Borrower or the applicable Subsidiary to pay to the counterparty any amount due and payable in accordance with the terms and conditions of the PPA; and
(d) the counterparty's exercise of its rights with respect to the Lien is limited to (i) the taking of actions pursuant to any provisions of the PPA designed to enable the counterparty to assume operational control of the relevant Facility or Facilities (e.g., step-in rights) or otherwise necessary to continue performance of the Borrower's or the applicable Subsidiary's obligations under the PPA or
(i) the recovery of any termination payment due under the PPA upon the occurrence of the event described in clause (c)(iii)(A) above or the termination by the counterparty upon the occurrence of any of the events described in clause (c)(iii)(B) above.
"Permitted Debt" is defined in Section 5.06 (Incurrence of Indebtedness and Issuance of Preferred Equity).
"Permitted Investment" means:
(a) any Investment in the Borrower or in a Guarantor;
(b) (i) any Investment in the Goldendale Facility to finance the construction and completion of the Goldendale Facility and any other repairs, improvements or other capital expenditures necessary to operate and maintain such Facility in accordance with
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prudent industry practice, and (ii) any other Investment in the Goldendale Facility made with the proceeds of Equity Contributions, Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(c) any Investment in Cash Equivalents;
(d) any Investment by the Borrower or any Guarantor in a Person, if as a result of such Investment:
(i) such Person becomes a Wholly Owned Subsidiary of the Borrower and a Guarantor; or
(ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Borrower or a Guarantor;
(e) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 5.07 (Asset Sales; Application of Net Proceeds);
(f) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Borrower;
(g) any Investments received in compromise or resolution of (i) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Borrower or any of its Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (ii) litigation, arbitration or other disputes with Persons who are not Affiliates;
(h) Investments represented by Hedging Obligations;
(i) repurchases of the Notes and other Secured Obligations;
(j) negotiable instruments held for deposit or collection in the ordinary course of business; and
(k) other Investments in any Person other than an Affiliate of the Borrower having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (k) that are at the time outstanding, not to exceed $30,000,000.
"Permitted Liens" means:
(a) Liens in favor of the Collateral Agent Equally and Ratably securing the First Priority Notes, the First Priority Term Loans, the Revolving Loans and all other First Priority Lien Debt, all in an aggregate principal amount not exceeding the First Priority Lien Cap, and all related First Priority Lien Obligations;
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(b) Liens in favor of the Collateral Agent Equally and Ratably securing the Second Priority Notes, the Second Priority Term Loans and all other Second Priority Lien Debt, all in an aggregate principal amount not exceeding the Second Priority Lien Cap, and all related Second Priority Lien Obligations;
(c) Liens in favor of the Collateral Agent Equally and Ratably securing the Third Priority Notes and all other Third Priority Lien Debt and all related Third Priority Lien Obligations;
(d) Liens in favor of the Borrower or the Guarantors;
(e) pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or operating leases to which such Person is a party;
(f) Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
(g) (i) Liens to secure Expansion Debt that encumber the Expansion Assets financed with the proceeds of such Expansion Debt and other Expansion Assets owned by the Person incurring such Expansion Debt (including any rights of such Person under Shared Facilities Arrangements), (ii) Liens to secure Expansion Debt that encumber the Capital Stock of CalGen Expansion Company; provided, that any such Capital Stock must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date; and (iii) if such Expansion Assets are not Excluded Assets and are part of the Collateral, Liens to secure Expansion Debt on the other property and assets of such Person; provided, that any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to such Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of such Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
(h) obligations under Shared Facilities Arrangements, to the extent such obligations constitute Liens, and Liens on Shared Facilities securing the Borrower's or the applicable Subsidiary's obligations under Shared Facilities Arrangements;
(i) Liens which constitute bankers' liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract;
(j) Liens existing on the Closing Date;
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(k) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided, that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(l) Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the ordinary course of business; or Liens arising out of judgments that do not constitute a Default or an Event of Default;
(m) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(n) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Agreement; provided, however, that:
(i) the new Lien shall be limited to all or part of the same property and assets that secured the original Lien (plus repairs, improvements and additions to such property or assets); and
(ii) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (B) an amount necessary to pay any fees and expenses, including premiums, related to such Indebtedness;
(o) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to operating leases incurred in the ordinary course of business and not otherwise prohibited by this Agreement;
(p) Liens not in respect of Indebtedness consisting of the interest of the lessor under any operating lease entered into in the ordinary course of business and not otherwise prohibited by this Agreement;
(q) Permitted Counterparty Liens;
(r) to the extent constituting Liens, obligations of the Borrower or its Subsidiaries under or restrictions imposed by any PPA Recognition Agreement;
(s) Liens on property and assets of the Borrower to secure Third Party Subordinated Indebtedness; provided, that all such property and assets must be part of the Collateral and any such Liens must be junior to all Liens securing Secured Obligations in accordance with the terms of the Collateral Trust Agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to the Collateral, and a provision to the effect that the holders of such Liens will not be entitled to the proceeds of any Collateral upon a sale thereof, in each case until the Secured Obligations Termination Date;
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(t) unperfected security interests to secure (i) intercompany Indebtedness permitted to be incurred under Section 5.06(b)(v) or (ii) Affiliate Subordinated Indebtedness permitted to be incurred under Section 5.06(b)(ix); and
(u) Liens incurred in the ordinary course of business of the Borrower or any Subsidiary of the Borrower with respect to obligations that do not exceed $50,000,000 at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Borrower or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Borrower or any of its Subsidiaries (other than intercompany Indebtedness); provided, that:
(a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);
(b) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(c) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the First Priority Term Loan Obligations, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the First Priority Term Loan Obligations on terms at least as favorable to the holders of the First Priority Term Loan Obligations as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
(d) such Indebtedness is incurred either by the Borrower or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means without duplication as to amounts and as long as the Borrower is a pass-through entity for U.S. federal income tax purposes, payments to Calpine in an amount equal to the federal, state, local and foreign taxes (including any penalties and interest) that the Borrower would owe if the Borrower were a corporation for U.S. federal income tax purposes filing a consolidated or combined return with its Subsidiaries.
"Perpetual Preferred Stock" means, with respect to any Person, preferred Capital Stock of such Person that is not subject to mandatory redemption and is not Voting Stock.
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"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"PPA" means an agreement (including a tolling agreement, fuel conversion services agreement or other similar agreement) entered into by the Borrower or any of its Subsidiaries for the sale of capacity or energy (and services ancillary or related thereto) from one or more of the Facilities.
"PPA Recognition Agreement" means an agreement by the Collateral Agent, on behalf of the holders of Secured Obligations, (a) to assume the rights and obligations of the Borrower or any of its Subsidiaries under the WECC Fixed Price Gas Sale and Power Purchase Agreement in the event of a foreclosure under any Financing Documents and (b) not to reject the WECC Fixed Price Gas Sale and Power Purchase Agreement in a Bankruptcy Case (subject to applicable law and the discretion of the bankruptcy court) so long as CES is not then in default under WECC Fixed Price Gas Sale and Power Purchase Agreement or the Index Based Gas Sale and Power Purchase Agreement, provided that such Recognition Agreement is substantially in the form attached as an exhibit to the Collateral Trust Agreement.
"preferred stock" means, with respect to any Person, any Capital Stock of such Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of the other Capital Stock issued by such Person.
"Prime Rate" means the prime lending rate published from time to time in the eastern edition of the Wall Street Journal. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged by the Administrative Agent or any Lender to any customer. The Administrative Agent or any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.
"Principal Office" means, for the Administrative Agent, its "Principal Office" as set forth on Appendix B, or such other office as the Administrative Agent (or any permitted successor or thereof) may from time to time designate in writing to the Borrower, the Collateral Agent and each Lender.
"Pro Forma" means, with respect to a calculation, that such calculation is made in accordance with Regulation S-X under the Securities Act and gives effect to all relevant modifications to Major Project Documents and other contractual arrangements that have been made prior to, or are being made on, the calculation date and, in the case of a calculation for any period commencing prior to the Closing Date, all Major Project Documents and other contractual arrangements in effect on the Closing Date shall be deemed to have been in effect for the entirety of such period.
"Pro Rata Share" means, with respect to the Second Priority Term Loans of any Lender, the percentage set forth after such Lender's name on Appendix A (as the same may be updated or adjusted from time to time to reflect any assignments made by any Lender hereunder).
"Projections" is defined in Section 3.19 (Delivery of Financials).
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"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"PURPA" is defined in Section 4.18 (Governmental Regulation).
"Purchase Agreement" means the Purchase Agreement, dated March 12, 2004, among the Borrower, CalGen Finance, the Guarantors and Morgan Stanley & Co. Incorporated as the initial purchaser.
"QF" means a "qualifying cogeneration facility" as defined under the FPA, as amended by PURPA and Subpart B of Part 292 of the FERC's regulations.
"Register" is defined in Section 2.04(b)(Evidence of Debt; Register).
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date hereof, among the Borrower, CalGen Finance, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, and the other Persons from time to time party thereto.
"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Related Fund" means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans similar to the Second Priority Term Loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
"Repayment Date" is defined in Section 2.11 (Mandatory Repayment Offers).
"Replacement Lender" is defined in Section 2.17 (Removal or Replacement of a Lender).
"Requisite Lenders" means one or more Lenders holding more than 50% of the sum of the aggregate outstanding Second Priority Term Loans (or, at any time prior to the funding of the Second Priority Term Loans, the Second Priority Term Loan Commitments). For this purpose only, Second Priority Term Loans registered in the name of, or beneficially owned by, the Borrower or any Affiliate of the Borrower shall be deemed not to be outstanding.
"Restricted Investments" means an Investment other than a Permitted Investment.
"Restricted Payment" is defined in Section 5.04 (Restricted Payments).
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"Revenue Account" means account number A/C 65572-1 (short title: CALGEN REV A/C SUB SEC INT of WTC AS CA) in the name of the Borrower maintained at Wilmington Trust Company and any successor account or accounts.
"Revolver Administrative Agent" is defined in the Recitals hereto.
"Revolving Loan Agreement" is defined in the Recitals hereto.
"Revolving Loan Documents" means the Revolving Loan Agreement, any letters of credit issued thereunder, the Security Documents which relate to the Revolving Loan Obligations and all other agreements related thereto.
"Revolving Loan Guarantee" means the Guarantee made by each Guarantor of the Borrower's obligations under the Revolving Loan Agreement.
"Revolving Loan Obligations" means the Revolving Loans and all other Obligations related thereto under the Revolving Loan Documents.
"Revolving Loans" is defined in the Recitals hereto.
"R.W. Beck" means R.W. Beck, Inc.
"S&P" means Standard & Poor's Ratings Group.
"Second Priority Debt Representative" is defined in the Collateral Trust Agreement.
"Second Priority Indenture" is defined in the Recitals hereto.
"Second Priority Indenture Trustee" is defined in the Recitals hereto.
"Second Priority Lien" means a Lien granted by the Borrower or any Guarantor under a Security Document to the Collateral Agent upon any assets or property of the Borrower or any Guarantor to secure Second Priority Lien Obligations.
"Second Priority Lien Cap" means as of any date, (a) the principal amount of Second Priority Notes, plus (b) the principal amount of all Indebtedness outstanding under this Agreement on the Closing Date, plus the Indebtedness outstanding under any other Credit Facility, all in an aggregate principal amount not to exceed the amount provided for in Section 5.06(b)(i)(B), less (c) the amount of Third Priority Lien Debt incurred after the Closing Date the net proceeds of which are used to repay Second Priority Lien Debt, plus (d) the amount of accrued interest, fees and expenses, including premiums, paid in connection with the incurrence of any Permitted Refinancing Indebtedness with respect to the Indebtedness described in clauses (a) and (b), plus (e) the notional amount of Hedging Obligations incurred to hedge or manage interest rate risk with respect to other Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500,000,000. For purposes of this definition of Second Priority Lien Cap, all letters of credit will be valued at the face amount thereof, whether or not drawn.
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"Second Priority Lien Debt" means, collectively, (a) the Second Priority Notes, (b) the Indebtedness under this Agreement, (c) Hedging Obligations incurred to hedge or manage interest rate risk with respect to other Second Priority Lien Debt having an aggregate notional amount not to exceed, together with the aggregate notional amount of any outstanding Hedging Obligations constituting First Priority Lien Debt, $500,000,000, (d) Indebtedness under any other Credit Facility that is secured by a Second Priority Lien, and (e) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire any other Second Priority Lien Debt or any First Priority Lien Debt; provided, however, in the case of clauses (c), (d) or (e) of this definition, such Indebtedness shall constitute Second Priority Lien Debt only if (i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document), (ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each Second Priority Debt Representative and the Collateral Agent, as Second Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other Second Priority Lien Documents; (iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation, and an agreement by the applicable Second Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and
(iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is Second Priority Lien Debt).
"Second Priority Lien Documents" means this Agreement, the Second Priority Notes, the Guarantees related thereto, the Second Priority Indenture, each agreement relating to any other series of Second Priority Lien Debt and all other agreements governing, securing or relating to any Second Priority Lien Obligations.
"Second Priority Lien Obligations" means the Second Priority Lien Debt and all other Obligations in respect of Second Priority Lien Debt.
"Second Priority Notes" is defined in the Recitals hereto.
"Second Priority Secured Parties" shall mean the holders of the Second Priority Lien Obligations (including the holders of the Second Priority Notes, the Administrative Agent and the Lenders).
"Second Priority Term Loan Commitment" means the commitment of a Lender to make or otherwise fund a Second Priority Term Loan and "Second Priority Term Loan Commitments" means such commitments of all Lenders in the aggregate. The aggregate amount of the Second Priority Term Loan Commitments as of the Closing Date is $100,000,000.
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"Second Priority Term Loan Documents" means this Agreement and any security documents which relate to any of the Second Priority Term Loan Obligations and all other agreements related thereto.
"Second Priority Term Loan Guarantees" means the Guarantees by the Guarantors of the Borrower's and the other Guarantors' obligations with respect to Second Priority Term Loan Obligations under this Agreement, as set forth in Article XI hereof.
"Second Priority Term Loan Note" means a promissory note in the form of Exhibit F, evidencing a Second Priority Term Loan.
"Second Priority Term Loan Obligations" means the Second Priority Term Loans and all other Obligations related thereto under the Second Priority Term Loan Documents.
"Second Priority Term Loan Secured Obligations Termination Date" means the date on which all Second Priority Term Loan Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the Second Priority Term Loan Documents even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash and all commitments to extend credit hereunder have been terminated.
"Second Priority Term Loan Secured Parties" means the Administrative Agent, the Collateral Agent and the Lenders.
"Second Priority Term Loans" is defined in the Recitals hereto.
"Secured Debt" means, collectively, First Priority Lien Debt, Second Priority Lien Debt and Third Priority Lien Debt.
"Secured Obligations" means, collectively, First Priority Lien Obligations, Second Priority Lien Obligations and Third Priority Lien Obligations.
"Secured Obligations Termination Date" means the date on which all Secured Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the First Priority Lien Documents, Second Priority Lien Documents or Third Priority Lien Documents, as applicable, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Financing Documents), all commitments to extend credit under all Financing Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Financing Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Secured Parties" means the First Priority Secured Parties, the Second Priority Secured Parties and the Third Priority Secured Parties.
"Securities Act" means the Securities Act of 1933, as amended.
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"Security Documents" means the Collateral Trust Agreement and all security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, control agreements, deeds of trust or other grants or transfers for security executed and delivered by Holdings, the Borrower or any Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Agent with respect to the Second Priority Term Loan Obligations.
"SEC" means the Securities and Exchange Commission.
"SERC" means the Southeastern Electric Reliability Council and any successor organization.
"Shared Facilities" means equipment, facilities, pipelines, permits, real estate rights, entitlements or other property that are shared or jointly used, owned or operated by the Borrower or any of its Subsidiaries and any owner of Expansion Assets.
"Shared Facilities Arrangement" means any arrangement that provides for the sharing, joint operation or use, common ownership, leasing or contingent use of Shared Facilities between the Borrower or any of its Subsidiaries and any owner of Expansion Assets or Toll Party (as defined below), and/or their respective lenders, including (a) agreements for the sharing or joint use or operation of Shared Facilities, (b) ownership of undivided interests in Shared Facilities as tenants in common or other similar forms of joint ownership, (c) leasing of Shared Facilities by the Borrower or any of its Subsidiaries to an owner of Expansion Assets, (d) ownership of Shared Facilities by a single purpose entity formed solely to own the Shared Facilities and owned by the Borrower or any of its Subsidiaries or jointly owned by the Borrower or any of its Subsidiaries and the owner of the Expansion Assets, (e) tolling agreements between the Borrower or any of its Subsidiaries and any other Person (the "Toll Party") with respect to a Facility's steam turbine, (f) granting of conditional or unconditional real estate rights for the construction, installation or use of Shared Facilities, (g) Liens on the Shared Facilities or interests therein to secure any such arrangement; provided, that the Borrower shall deliver to the Collateral Agent an Officer's Certificate to the effect that, and, with respect to items (c) and (d) below, a nationally-recognized independent engineer will deliver a report concluding that (subject to customary assumptions and qualifications):
(a) the ownership, operation, leasing or use of such Shared Facilities by the owner of Expansion Assets (including the use of the steam turbine by the Toll Party) cannot unreasonably interfere with or otherwise materially adversely affect the operation of the Facility;
(b) the owner of the Facility (or another entity on such owner's behalf) continues to operate and maintain the Facility and the Shared Facilities;
(c) the costs of operating and maintaining the Shared Facilities are shared by the owner of the Facility and the owner of the Expansion Assets or the Toll Party, as applicable, on an equitable basis;
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(d) the Shared Facilities and the entitlements related thereto are sufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, or, to the extent the Shared Facilities or the entitlements related thereto are insufficient to fully serve both the Facility and the Expansion Assets or the Toll Party, as applicable, the Facility will have priority with respect to such Shared Facilities or entitlements, so long as the Facility is operated within the requirements, operating restrictions and other limitations associated with such Shared Facilities or entitlements;
(e) the holder of the Expansion Assets or the Toll Party, as applicable, will not have any rights with respect to the sale or other disposition of, or exercise of remedies with respect to, the Facility, so long as the Shared Facilities remain subject to the Shared Facilities Arrangements;
(f) each party waives the defense that an adequate remedy exists at law and affords the other party (and its lenders or agents on behalf of such lenders) the right to specifically enforce the agreement; and
(g) the owner of the Expansion Assets or the Toll Party, as applicable, cannot prevent a dismantling of the Facility and the receipt by the holders of the Secured Debt of the proceeds of the sale thereof, so long as (i) such owner or Toll Party, as applicable, is given an option to purchase the Shared Facilities at their Fair Market Value, as determined by appraisal, prior to dismantling of the Facility, (ii) such owner or Toll Party, as applicable, is given a right of first refusal to acquire the Shared Facilities in the event they are offered for sale in connection with the dismantling of the Facility, and (iii) the owner of the Facility cooperates with the owner of the Expansion Assets or the Toll Party, as applicable, in accommodating the continued use and operation of the Expansion Assets and the Shared Facilities to the maximum extent reasonably possible notwithstanding the dismantling of the Facility, including providing reasonable periods for and cooperating in the modification of the Shared Facilities.
"Sharing Confirmation" means, as the context requires, First Priority Debt Sharing Confirmation, Second Priority Debt Sharing Confirmation or Third Priority Debt Sharing Confirmation, in each case as defined in the Collateral Trust Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof.
"Sole Lead Arranger" means MSSF.
"Stated Maturity" means, with respect to any installment of interest or principal on any Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Closing Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Affiliate Subordinated Indebtedness, Working Capital Facility Indebtedness or Third Party Subordinated Indebtedness.
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"Subsidiary" means, with respect to any specified Person,
(a) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(b) any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
"Synthetic Lease Obligations" means all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease or (b) an agreement for the use or possession of any property (whether real, personal or mixed) creating obligations which do not appear on the balance sheet of such Person, but which, upon the insolvency or bankruptcy of such Person, would be characterized as Indebtedness of such Person (without regard to accounting treatment).
"Tax" means any present or future tax, levy, impost, charge, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed by a taxing authority other than a "Tax on the overall net income" of any Person. A "Tax on the overall net income" of a Person shall be construed as a reference to a tax (including U.S. backup withholding taxes) imposed by the jurisdiction in which that Person is organized or in which that Person's applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).
"Terminated Lender" is defined in Section 2.17 (Removal or Replacement of a Lender).
"Term Loan Agreements" is defined in the Recitals hereto.
"Term Loans" is defined in the Recitals hereto.
"Third Party Project Documents" means the agreements listed on Schedule
A.
"Third Party Subordinated Indebtedness" means Indebtedness loaned to the Borrower by a Person other than an Affiliate of the Borrower; provided, that such Indebtedness (a) is contractually subordinated in right of payment to the First Priority Term Loans and all other Secured Obligations on the terms described in Exhibit A, including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (b) does not provide for mandatory redemption or other redemption thereof until at least
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six months after final Stated Maturity of the First Priority Term Loans, (c) provides for payment of interest thereon in the form of cash or additional Third Party Subordinated Indebtedness having a principal amount equal to the amount of interest due (i.e., "pay-in-kind"), and (d) is otherwise in the form set forth in Exhibit A.
"Third Priority Debt Representative" is defined in the Collateral Trust Agreement.
"Third Priority Fixed Rate Notes" is defined in the Recitals hereto.
"Third Priority Floating Rate Notes" is defined in the Recitals hereto.
"Third Priority Indenture" is defined in the Recitals hereto.
"Third Priority Indenture Trustee" is defined in the Recitals hereto.
"Third Priority Lien Debt" means, collectively, (a) the Third Priority Floating Rate Notes and the Third Priority Fixed Rate Notes; (b) any other Indebtedness the net proceeds of which are used to refund, refinance, replace, defease, discharge or otherwise acquire or retire First Priority Lien Debt, Second Priority Lien Debt or other Third Priority Lien Debt; and (c) Hedging Obligations incurred to hedge or manage interest rate risk with respect to Third Priority Lien Debt having a notional amount not to exceed the aggregate principal amount of outstanding Third Priority Lien Debt; provided, that, in the case of any Indebtedness referred to in clause (b) or (c) of this definition:
(i) such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document (or the lenders under such Indebtedness obtained an Officer's Certificate of the Borrower at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and so secured under each applicable Financing Document);
(ii) on or before the date on which such Indebtedness is incurred by the Borrower or the applicable Subsidiary, such Indebtedness is designated by the Borrower, in an Officer's Certificate delivered to each Third Priority Debt Representative and the Collateral Agent, as Third Priority Lien Debt for the purposes of the Collateral Trust Agreement and the other Third Priority Lien Documents;
(iii) such Indebtedness is governed by an agreement that includes a Sharing Confirmation, a Lien Priority Confirmation and an agreement by the holder of such Indebtedness and the applicable Third Priority Debt Representative to vote with respect to such Indebtedness as described in the Collateral Trust Agreement; and
(iv) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Agent's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements will be conclusively established if the Borrower delivers to the Collateral Agent an Officer's Certificate stating that such requirements have been satisfied and that such Indebtedness is Third Priority Lien Debt).
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"Third Priority Lien Documents" means the Third Priority Floating Rate Notes and the Third Priority Fixed Rate Notes, the Guarantees related thereto, the Third Priority Indenture, each agreement governing any other series of Third Priority Lien Debt and all other agreements governing, securing or relating to any Third Priority Lien Obligations.
"Third Priority Lien Obligations" means the Third Priority Lien Debt and all other Obligations in respect of Third Priority Lien Debt.
"Third Priority Secured Parties" shall mean the holders of the Third Priority Lien Obligations (including the holders of the Third Priority Fixed Rate Notes and the holders of the Third Priority Floating Rate Notes).
"Title Company" means Stewart Title Guaranty Company.
"TPUC" is defined in Section 4.18(d).
"Type of Loan" means, with respect to any Second Priority Term Loan, a Base Rate Loan or a LIBOR Rate Loan.
"U.S." means the United States of America.
"UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"WECC" means the Western Electricity Coordinating Council and any successor organization.
"WECC Fixed Price Gas Sale and Power Purchase Agreement" means that certain WECC Fixed Price Gas Sale and Power Purchase Agreement, dated as of the date hereof, among the Borrower, certain Facility Owners and CES.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(a) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(b) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors'
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qualifying shares) will at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means that certain Working Capital Facility, dated as of the date hereof, among the Borrower, Holdings and Calpine.
"Working Capital Facility Indebtedness" means Indebtedness incurred by the Borrower under the Working Capital Facility; provided, that such Indebtedness (a) is contractually subordinated in right of payment and in all other respects to the Second Priority Term Loans and all other Secured Obligations on the terms described in Exhibit A including an agreement by the holders of such Indebtedness not to exercise any remedies until the Secured Obligations Termination Date, (b) does not provide for mandatory redemption thereof until at least six months after the Maturity Date, (c) provides for payment of interest thereon in the form of cash or by capitalizing the interest to principal, and (d) is otherwise in the form set forth in Exhibit A.
SECTION 1.02. Rules of Construction.
Unless the context otherwise requires:
(a) An accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.
(b) Any of the terms used or defined herein may be used in the singular or the plural, depending on the reference.
(c) Except as expressly provided in any Second Priority Term Loan Document, any reference to any agreement or instrument shall be deemed to include a reference to such agreement or instrument as assigned, amended, amended and restated, supplemented, otherwise modified from time to time or replaced in accordance with the terms of this Agreement.
(d) The use in this Agreement or any of the Second Priority Term Loan Documents of the word "include" or "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. The word "will" shall be construed to have the same meaning and effect as the word "shall."
(e) References to "Articles", "Sections" and "clauses" shall be to Articles, Sections and clauses, respectively, of this Agreement unless otherwise specifically provided.
(f) References to "Exhibits", "Appendices" and "Schedules" shall be to Exhibits, Appendices and Schedules, respectively, to this Agreement unless otherwise specifically provided.
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(g) The use in this Agreement of the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof.
(h) This Agreement, the other Second Priority Term Loan Documents and any documents or instruments delivered pursuant hereto or thereto shall be construed without regard to the identity of the party who drafted the various provisions of the same. Each and every provision of this Agreement, the other Second Priority Term Loan Documents and instruments and documents entered into and delivered in connection therewith shall be construed as though the parties participated equally in the drafting of the same. Consequently, each of the parties acknowledges and agrees that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or the other Second Priority Term Loan Documents and instruments and documents entered into and delivered in connection therewith.
ARTICLE II.
THE SECOND PRIORITY TERM LOANS
SECTION 2.01. Second Priority Term Loans.
(a) Second Priority Term Loan Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, a Second Priority Term Loan to the Borrower in an amount equal to 98.50% of such Lender's Second Priority Term Loan Commitment (it being acknowledged and agreed that each Lender is funding its Second Priority Term Loan at a discount of 1.50% of the principal amount thereof). The Borrower may make only one borrowing under the Second Priority Term Loan Commitment, which shall be on the Closing Date. Any amount borrowed under this Section and subsequently repaid or prepaid may not be reborrowed. All amounts owed hereunder with respect to the Second Priority Term Loans shall be paid in full no later than the Maturity Date. Each Lender's Second Priority Term Loan Commitment shall terminate immediately and without further action upon the funding by such Lender of its Second Priority Term Loan Commitment.
(b) Borrowing Mechanics for Second Priority Term Loans.
(i) On or before the date which is three Business Days prior to the Closing Date, the Borrower shall deliver to the Administrative Agent a fully executed Funding Notice, which Funding Notice shall be in the form of Exhibit E. Promptly upon receipt by the Administrative Agent of such Funding Notice, the Administrative Agent shall notify each Lender of the proposed borrowing.
(ii) Each Lender shall make each Second Priority Term Loan to be made by it hereunder available to the Administrative Agent not later than 12:00 noon (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at the Principal Office. Upon satisfaction or waiver of the conditions precedent specified in Article III and subject to Section 2.02(b) (Pro Rata Shares; Availability of Funds) below, the Administrative Agent shall make the proceeds of the Second Priority Term Loans
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available to the Borrower on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Second Priority Term Loans received by the Administrative Agent from the Lenders to be credited to one or more accounts as may be designated in writing to the Administrative Agent by the Borrower.
SECTION 2.02. Amount of Second Priority Term Loans; Availability of Funds.
(a) Amount of Second Priority Term Loans. All Second Priority Term Loans shall be made by the Lenders simultaneously in the amount of their respective Second Priority Term Loan Commitments, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Second Priority Term Loan hereunder nor shall any Second Priority Term Loan Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a Second Priority Term Loan hereunder.
(b) Availability of Funds. Unless the Administrative Agent shall have been notified by any Lender prior to the Closing Date that such Lender does not intend to make available to the Administrative Agent the amount of such Lender's Second Priority Term Loan, the Administrative Agent may assume that such Lender has made and will make such amount available to the Administrative Agent on the Closing Date and the Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to the Borrower a corresponding amount on the Closing Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from the Closing Date until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent together with interest thereon, for each day from the Closing Date until the date such amount is paid to the Administrative Agent, at the rate payable hereunder for Second Priority Term Loans. Nothing in this
Section 2.02(b) shall be deemed to relieve any Lender from its obligation to fulfill its Second Priority Term Loan Commitments hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder.
SECTION 2.03. Use of Proceeds. The proceeds of the Second Priority Term Loans shall be applied (together with the net proceeds from the making of the First Priority Term Loans and the issuance of the Notes) by the Borrower to prepay and retire the Existing Senior Secured Credit Facility and to pay certain fees and expenses due under this Agreement and the other Financing Documents in connection therewith. No portion of the proceeds of any Second Priority Term Loans shall be used in any manner that causes or might cause the funding of the Second Priority Term Loans or the application of such proceeds to violate Regulation T, Regulation U or Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act.
SECTION 2.04. Evidence of Debt; Register; Lenders' Books and Records; Notes.
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(a) Lenders' Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of the Borrower to such Lender, including the amounts of the Second Priority Term Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on the Borrower, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's Obligations in respect of any Second Priority Term Loan; and provided further, that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern.
(b) Register. The Administrative Agent shall maintain at the Principal Office a register for the recordation of the names and addresses of the Lenders and the Second Priority Term Loans made by each Lender from time to time (the "Register"). The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall record in the Register the Second Priority Term Loans, and each repayment or prepayment in respect of the principal amount of the Second Priority Term Loans, and any such recordation shall be conclusive and binding on the Borrower and each Lender, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's Obligations in respect of any Second Priority Term Loan. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent solely for purposes of maintaining the Register as provided in this Section 2.04, and the Borrower hereby agrees that, to the extent the Administrative Agent serves in such capacity, the Administrative Agent and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees" under Section 12.03 (Indemnity).
(c) Second Priority Term Loan Notes. If so requested by any Lender by written notice to the Borrower (with a copy to the Administrative Agent) at any time, the Borrower shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 12.06 (Successors and Assigns; Participations)) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after the Borrower's receipt of such notice), a Second Priority Term Loan Note to evidence such Lender's Second Priority Term Loan.
SECTION 2.05. Interest.
(a) Except as otherwise set forth herein, the Second Priority Term Loans shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:
(i) if a Base Rate Loan, at the Base Rate plus 4.75% per annum; or
(ii) if a LIBOR Rate Loan, at the Adjusted LIBOR Rate plus 5.75% per annum.
Notwithstanding anything contained herein to the contrary, during the period from the Closing Date through March 31, 2004, the Second Priority Term Loans shall bear interest on the unpaid principal amount thereof at 7.00% per annum.
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(b) The Type of Loan, and the Interest Period with respect to any LIBOR Rate Loan, shall be selected by the Borrower and notified to the Administrative Agent and the Lenders pursuant to the applicable Continuation Notice. If on any day a Second Priority Term Loan is outstanding with respect to which a Funding Notice or Continuation Notice has not been delivered to the Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Second Priority Term Loan shall be a Base Rate Loan. Notwithstanding the foregoing, during the period from the Closing Date through March 31, 2004, the Second Priority Term Loans shall be deemed to be LIBOR Rate Loans and shall have the "Interest Period" contemplated by clause (d) of the definition thereof.
(c) In connection with LIBOR Rate Loans there shall be no more than five Interest Periods outstanding at any time. In the event that the Borrower fails to specify the Type of Loan in the applicable Funding Notice or Continuation Notice, such Second Priority Term Loan (if outstanding as a LIBOR Rate Loan) will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Second Priority Term Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan). In the event that the Borrower fails to specify an Interest Period for any LIBOR Rate Loan in the applicable Funding Notice or Continuation Notice, the Borrower shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Rate Loans for which an interest rate is then being determined for the applicable Interest Period and, upon the request of the Borrower, shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and each Lender.
(d) Interest payable pursuant to Section 2.05(a) shall be computed
(i) in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of LIBOR Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Second Priority Term Loan, the date of the making of such Second Priority Term Loan or the first day of an Interest Period applicable to such Second Priority Term Loan or, with respect to a Base Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Second Priority Term Loan or the expiration date of an Interest Period applicable to such Second Priority Term Loan or, with respect to a Base Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such Base Rate Loan to such LIBOR Rate Loan, as the case may be, shall be excluded; provided, if a Second Priority Term Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Second Priority Term Loan.
(e) Except as otherwise set forth herein, interest on each Second Priority Term Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Second Priority Term Loan.
SECTION 2.06. Continuation Notice.
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(a) Subject to Section 2.15 (Increased Costs; Capital Adequacy) and so long as no Default or Event of Default shall have occurred and then be continuing, the Borrower shall have the option:
(i) to convert at any time all or any part of any Second Priority Term Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a LIBOR Rate Loan may only be converted on the expiration of the Interest Period applicable to such LIBOR Rate Loan unless the Borrower shall pay all amounts due under Section 2.14 (Making or Maintaining Second Priority Term Loans) in connection with any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any LIBOR Rate Loan, to continue all or any portion of such Second Priority Term Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount as a LIBOR Rate Loan.
(b) The Borrower shall deliver a Continuation Notice to the Administrative Agent no later than 10:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBOR Rate Loan). Except as otherwise provided herein, a Continuation Notice for conversion to, or continuation of, any LIBOR Rate Loans shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to effect a conversion or continuation in accordance therewith. In the event that the Borrower shall have failed to provide a Continuation Notice as required by this Section 2.06(b) to continue any LIBOR Rate Loan into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.06(b) to convert such LIBOR Rate Loan into a Base Rate Loan), then such LIBOR Rate Loan shall, at the end of the applicable Interest Period, automatically be converted into a Base Rate Loan.
(c) Any Continuation Notice shall be executed by an Officer of the Borrower in a writing delivered to the Administrative Agent. In lieu of delivering a written notice, the Borrower may give the Administrative Agent telephonic notice by the required time of any continuation; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Continuation Notice to the Administrative Agent on or before the applicable date of continuation. Neither the Administrative Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer or other Person authorized on behalf of the Borrower or otherwise acting in good faith
SECTION 2.07. Default Interest. Notwithstanding anything to the contrary herein, upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Second Priority Term Loans and, to the extent permitted by applicable Legal Requirements, any accrued but unpaid interest payments thereon and any accrued but unpaid fees and other amounts hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under applicable Bankruptcy Laws) payable upon demand at a rate that is (a) 2% per annum in excess of the interest rate then otherwise payable under this Agreement with respect to
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the applicable Second Priority Term Loans or (b) in the case of any such fees and other amounts, at a rate that is 2% per annum in excess of the interest rate then otherwise payable under this Agreement for Base Rate Loans (the "Default Rate"); provided that if an Event of Default has occurred and is continuing on the expiration date of the Interest Period for any LIBOR Rate Loans, then such LIBOR Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate that is 2% per annum in excess of the interest rate then otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.07 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent, the Collateral Agent or any Lender.
SECTION 2.08. Fees. The Borrower agrees to pay to each Agent such fees in the amounts and at the times separately agreed upon by the Borrower and such Agent in writing.
SECTION 2.09. Payments. The principal amounts of the Second Priority Term Loans (reduced in connection with any voluntary or mandatory prepayments of the Second Priority Term Loans, in accordance with Sections 2.10 (Voluntary Prepayments) and 2.11 (Mandatory Repayment Offers), as applicable) shall be repaid by the Borrower in accordance with the repayment schedule set forth on Schedule 2.09, with any remaining unpaid principal, interest, fees and costs due and payable in full on the Maturity Date.
SECTION 2.10. Voluntary Prepayments.
(a) Voluntary Prepayments.
(i) The Borrower may not voluntarily prepay Second Priority Term Loans except as provided in clause (b) below. In the event of any voluntary prepayment in accordance with clause (b), the Borrower may prepay any such Second Priority Term Loans on any Business Day in whole or in part, in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 (or the remaining amount outstanding) in excess of that amount.
(ii) All such prepayments shall be made:
(A) upon not less than one Business Day's prior written, email or telephonic notice in the case of Base Rate Loans; and
(B) upon not less than three Business Days' prior written, email or telephonic notice in the case of LIBOR Rate Loans;
in each case given to the Administrative Agent by 1:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to the Administrative Agent (and the Administrative Agent will promptly transmit such telephonic or original notice, by telefacsimile or telephone to each Lender). Upon the giving of any such notice, the principal amount of the Second Priority Term Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any prepayment of any Second Priority Term Loan pursuant to this Section shall be applied in inverse order of
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maturities and otherwise in accordance with Section 2.12 (General Provisions Regarding Payments).
(b) Second Priority Term Loan Call Protection.
(i) The Second Priority Term Loans may not be voluntarily prepaid at any time on or prior to April 1, 2008;
(ii) The Borrower may, at its option, upon notice as provided in clause (a) above, prepay at any time all, or from time to time any part of, the Second Priority Term Loans, if such prepayment is after April 1, 2008 but on or before April 1, 2009, in an amount equal to 103.5% of the principal amount so prepaid, plus all other amounts owed hereunder in connection with such prepayment, including amounts payable under Sections 2.05 (Interest) and 2.14 (Making or Maintaining Second Priority Term Loans) hereof; and
(iii) Subject to clause (a) above, Second Priority Term Loans may be prepaid at any time without premium or penalty after April 1, 2009.
SECTION 2.11. Mandatory Repayment Offers.
(a) In the event that, pursuant to Section 5.07 (Asset Sales; Application of Net Proceeds) or Section 5.12 (Offer to Prepay Upon Change of Control), the Borrower shall elect to repay or be required to offer to prepay Second Priority Term Loans, then the Borrower shall make an offer to each Lender (a "Mandatory Repayment Offer") in accordance with the following the procedures specified below:
(i) The Mandatory Repayment Offer shall be made by the Borrower within 30 days following (A) the receipt by the Borrower or any of its Subsidiaries of Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event or (B) a Change of Control, as applicable, and shall remain open until 5:00 p.m. (New York City time) on the date specified in such Mandatory Repayment Offer, which date shall be no earlier than 30 days and no later than 60 days from the date such Mandatory Repayment Offer was made, except to the extent that a longer period is required by applicable law (the "Offer Period");
(ii) The Borrower shall make the Mandatory Repayment Offer by sending a notice to the Administrative Agent (for delivery to each Lender). The notice shall contain all instructions and materials necessary to enable the Lenders to accept the Mandatory Repayment Offer for all of their Second Priority Term Loans pursuant to the Mandatory Repayment Offer. The Mandatory Repayment Offer shall be made to all Lenders. The notice, which shall govern the terms of the Mandatory Repayment Offer, shall state:
(A) that the Mandatory Repayment Offer is being made pursuant to this Section 2.11 and Section 5.07 (Asset Sales; Application of Net Proceeds) or Section 5.12 (Offer to Prepay Upon Change of Control), as applicable, and the date on which the Mandatory Repayment Offer shall end;
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(B) the total amount the Borrower is offering to prepay (the "Offer Amount") and the Repayment Date therefor;
(C) that, unless the Borrower defaults in making such payment, any Second Priority Term Loan with respect to which a Lender accepts the Mandatory Repayment Offer shall cease to accrue interest from and after the Repayment Date;
(D) that a Lender that accepts a Mandatory Repayment Offer must accept such Mandatory Repayment Offer with respect to all (but not part) of its Second Priority Term Loans (up to the amount of such Lender's Second Priority Term Loans that the Borrower is offering to prepay);
(E) that the Lenders shall be entitled to withdraw their acceptance of a Mandatory Repayment Offer if the Borrower and the Administrative Agent receive, not later than the expiration of the Offer Period, a notice setting forth the name of the Lender, the principal amount of the Second Priority Term Loans for which the Lender previously accepted such Mandatory Repayment Offer and a statement that such Lender is rescinding its acceptance of such Mandatory Repayment Offer; and
(F) in the case of a Mandatory Repayment Offer being made pursuant to Section 5.07 (Asset Sales; Application of Net Proceeds), that if the aggregate principal amount of Second Priority Term Loans for which the Mandatory Repayment Offer is accepted by the Lenders exceeds the Offer Amount, then the Administrative Agent shall select the Second Priority Term Loans to be purchased in accordance with Section 2.12(c) (General Provisions Regarding Payments).
(iii) On or before the fifth day after the termination of the Offer Period (the "Repayment Date"), the Borrower shall (A) to the extent lawful, pay, in accordance with Section 2.12(c) (General Provisions Regarding Payments), the amount of Second Priority Term Loans with respect to which the Mandatory Repayment Offer was accepted, and (B) deliver to the Administrative Agent (for delivery to the Lenders) an Officer's Certificate stating the amount of the Second Priority Term Loans to be repaid in accordance with the terms of this
Section 2.11. The Administrative Agent shall promptly forward the appropriate amount to each Lender being repaid.
(b) In the event that one or more, but not all, Lenders have not elected to participate in any Mandatory Repayment Offer made pursuant to Section
5.07 (Asset Sales; Application of Net Proceeds), the Borrower shall, upon the end of the Offer Period, immediately commence a second Mandatory Repayment Offer in accordance with the procedure provided in clause (a) of this Section 2.11, provided that such subsequent offer shall only be made to Lenders who elected to participate in the initial Mandatory Repayment Offer and, provided, further, that the Borrower shall not be required to make more than one such subsequent offer with respect to each initial Mandatory Repayment Offer.
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SECTION 2.12. General Provisions Regarding Payments.
(a) All payments by the Borrower or any Guarantor of principal, interest, fees and other Second Priority Term Loan Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to the Administrative Agent not later than 1:00 p.m. (New York City time) on the date due at the Administrative Agent's Principal Office for the account of the Administrative Agent or the Lenders, as the case may be. Funds received by the Administrative Agent after that time on such due date shall be deemed to have been paid by the Borrower or the applicable Guarantor on the next succeeding Business Day.
(b) All payments in respect of the principal amount of any Second Priority Term Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Second Priority Term Loan on a date when interest is due and payable with respect to such Second Priority Term Loan) shall be applied to the payment of interest before application to principal.
(c) The Administrative Agent shall promptly distribute to each Lender, at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, except that prepayment offers accepted by Lenders pursuant to Section 2.11 (Mandatory Repayment Offer), and in respect of the Net Proceeds from any Asset Sale, Casualty Event or Condemnation Event, shall be allocated to the accepting Lenders ratably in proportion to the principal amount of Second Priority Term Loans outstanding to each accepting Lender (and not to all Lenders based on Pro Rata Shares), together with all other amounts due thereon, including all fees payable with respect thereto, to the extent received by the Administrative Agent.
(d) Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be due on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder.
(e) The Borrower hereby authorizes the Administrative Agent to charge the Borrower's accounts (if any) with the Administrative Agent in order to cause timely payment to be made to the Administrative Agent of all principal, interest, fees and expenses due hereunder (to the extent there are funds available in its accounts for that purpose) upon the occurrence and during the continuation of any Event of Default in respect of its payment obligations hereunder.
(f) The Administrative Agent shall deem any payment by or on behalf of the Borrower hereunder that is not made in same day funds prior to 1:00 p.m. (New York City time) on the date therefor to be a non-conforming payment. Any such payment shall not be deemed to have been received by the Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. The Administrative Agent shall give prompt telephonic notice to the Borrower and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 7.01 (Events of Default). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of
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such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.07 (Default Interest) from the date such amount was due and payable until the date such amount is paid in full.
SECTION 2.13. Ratable Sharing. The Lenders hereby agree among themselves that, except in the case of prepayments pursuant to Section 2.11 (Mandatory Repayment Offers), if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Second Priority Term Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Second Priority Term Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Law, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Second Priority Term Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify the Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each Lender that is deemed to be the seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders, so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to each of them, respectively; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of the Borrower or otherwise, the foregoing purchases of participations shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender(s) ratably to the extent of such recovery, but without interest. The Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Borrower to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.
SECTION 2.14. Making or Maintaining Second Priority Term Loans.
(a) Inability to Determine Applicable Interest Rate. In the event that the Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto absent manifest error), on any Interest Rate Determination Date with respect to any Second Priority Term Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Second Priority Term Loans on the basis provided for in the definition of Adjusted LIBOR Rate, the Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and each Lender of such determination, whereupon (i) no Second Priority Term Loans may be made or maintained with an interest rate based on the Adjusted LIBOR Rate, and instead will be made and maintained with an interest rate equal to the Base Rate plus 4.75% per annum, until such time as the Administrative Agent notifies the Borrower and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Continuation Notice given by the Borrower with respect to
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the Second Priority Term Loans in respect of which such determination was made shall be deemed to be rescinded by the Borrower.
(b) Illegality or Impracticability of using the Adjusted LIBOR Rate. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with the Borrower and the Administrative Agent) that the making, maintaining or continuation of its Second Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate (i) has become unlawful as a result of compliance by such Lender in good faith with any Legal Requirement or would conflict with any treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful, or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and on that day it shall give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (A) the obligation of the Affected Lender to make or maintain Second Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate shall be suspended until such notice shall be withdrawn by the Affected Lender, (B) to the extent such determination by the Affected Lender relates to a Second Priority Term Loan then being requested by the Borrower pursuant to a Funding Notice or a Continuation Notice, the Affected Lender shall make such Second Priority Term Loan as (or continue such Second Priority Term Loan as) a Second Priority Term Loan with an interest rate equal to the Base Rate plus 4.75% annum, (C) the Affected Lender's obligation to maintain its outstanding Second Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (D) the Affected Loans shall automatically convert into Second Priority Term Loans with an interest rate equal to the Base Rate plus 4.75% per annum on the date of such termination. Except as provided in the immediately preceding sentence, nothing in this Section 2.14(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Second Priority Term Loans with an interest rate based on the Adjusted LIBOR Rate in accordance with the terms hereof.
(c) Compensation for Breakage or Non-Commencement of Interest Periods. The Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Second Priority Term Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits (such anticipated profits being the 5.75% spread over the Adjusted LIBOR Rate) which such Lender may sustain within an Interest Period: (i) if any prepayment or other principal payment of any of its Second Priority Term Loans occurs on a date prior to the last day of an Interest Period applicable to that Second Priority Term Loan (including pursuant to Section 2.10 (Voluntary Prepayments), 2.11 (Mandatory Repayment Offers), 5.07 (Asset Sales; Application of Net Proceeds) and 5.12 (Offer to Prepay Upon Change of Control); or (ii) if any
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prepayment of any of its Second Priority Term Loans is not made on any date specified in a notice of prepayment given by the Borrower.
(d) Booking of Second Priority Term Loans. Any Lender may make, carry or transfer Second Priority Term Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
(e) Assumptions Concerning Funding of Second Priority Term Loans. Calculation of all amounts payable to a Lender under this Section 2.14 and under
Section 2.15 (Increased Costs; Capital Adequacy) shall be made as though such Lender had actually funded each of its relevant Second Priority Term Loans through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to clause (b) of the definition of Adjusted LIBOR Rate in an amount equal to the amount of such Second Priority Term Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such LIBOR deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, each Lender may fund each of its Second Priority Term Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.14 and under Section 2.15 (Increased Costs; Capital Adequacy).
SECTION 2.15. Increased Costs; Capital Adequacy.
(a) Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.16 (Taxes; Withholding, etc.) (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any Legal Requirement, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new Legal Requirement), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law):
(i) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to any Second Priority Term Loans that are reflected in the definition of Adjusted LIBOR Rate); or
(ii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Second Priority Term Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such
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case, the Borrower shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.15(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
(b) Capital Adequacy Adjustment. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any Legal Requirement (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Second Priority Term Loans, or participations therein or other obligations hereunder with respect to the Second Priority Term Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by the Borrower from such Lender of the statement referred to in the next sentence, the Borrower shall pay to such Lender such additional amount or amounts as shall compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.15(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
SECTION 2.16. Taxes; Withholding, etc.
(a) Payments to Be Free and Clear. Except as otherwise provided in this Section 2.16, all sums payable by or on behalf of any Obligor hereunder and under the other Second Priority Term Loan Documents shall (except to the extent required by any applicable Legal Requirement) be paid free and clear of, and without any deduction or withholding on account of, any Tax imposed, levied, collected, withheld or assessed by or within the U.S. or any political subdivision in or of the U.S. or any other jurisdiction from or to which a payment is made by or on behalf of any Obligor.
(b) Withholding of Taxes. If any Obligor or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by or on behalf of any Obligor to the any Agent or any Lender under any of the Second Priority Term Loan Documents:
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(i) the Borrower shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as the Borrower becomes aware of it;
(ii) the Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Obligor) for its own account or (if that liability is imposed on such Agent or such Lender, as the case may be) on behalf of and in the name of such Agent or such Lender;
(iii) the sum payable by such Obligor in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of all deductions, withholding or payments for or with respect to Taxes, such Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and
(iv) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any tax which it is required by clause (ii) above to pay, the Borrower shall deliver to the Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in either the imposition of deduction, withholding or payment or an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender.
(c) Other Taxes. The Borrower shall pay any Other Taxes to the relevant taxing or other authority in accordance with applicable Legal Requirements, and shall comply with the requirements of Section 2.16(b)(iv) with respect to such payments.
(d) Indemnification. Subject to the requirements of Section 2.16(e), the Borrower shall indemnify each Agent and each Lender for the full amount of Taxes (to the extent the Borrower would be required to pay additional amounts with respect to such Taxes pursuant to Section 2.16(b)) or Other Taxes arising in connection with payments made under any of the Second Priority Term Loan Documents (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Agent or Lender and any penalties, additions to tax, interest and expenses arising from or with respect to such Taxes or Other Taxes, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 10 days from the date any Agent or any Lender makes written demand therefor.
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(e) Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax purposes (a "Non-U.S. Lender") shall deliver to the Administrative Agent for transmission to the Borrower, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of the Borrower or the Administrative Agent (each in the reasonable exercise of its discretion):
(i) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Second Priority Term Loan Documents or is subject to such deduction or withholding at a reduced rate; or
(ii) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Code and is claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Certificate Re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Second Priority Term Loan Documents.
Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this
Section 2.16(e) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to the Administrative Agent for transmission to the Borrower two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Borrower to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Second Priority Term Loan Documents or is subject to such deduction or withholding at a reduced rate, or notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence. The Borrower shall not be required to pay any additional amount to any Non-U.S. Lender under Section 2.16(b)(iii) or to indemnify the Non-U.S. Lender under Section 2.16(d) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this
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Section 2.16(e), or (2) to notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided, if such Lender shall have satisfied the requirements of the first sentence of this Section 2.16(e) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of this Section 2.16(e) shall relieve the Borrower of its obligation to pay any additional amounts pursuant to Section 2.16(b) or to indemnify the Non-U.S. Lender under Section 2.16(d) in the event that, as a result of any change in any applicable Legal Requirement, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein. For the avoidance of doubt, to the extent the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a U.S. withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes.
SECTION 2.17. Removal or Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that:
(a) (i) any Lender (an "Increased-Cost Lender") shall give notice to the Borrower that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.14 (Making or Maintaining Second Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy) or 2.16 (Taxes; Withholding, etc), (ii) the circumstances which have caused such Lender to be an Increased-Cost Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after the Borrower's request for such withdrawal; or
(b) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 12.05(b) (Amendments and Waivers), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "Non-Consenting Lender") whose consent is required shall not have been obtained;
then, with respect to each such Increased-Cost Lender or Non-Consenting Lender (the "Terminated Lender"), the Borrower may, by giving written notice to the Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Second Priority Term Loans in full to one or more Eligible Assignees (each a "Replacement Lender") in accordance with the provisions of Section 12.06 (Successors and Assigns; Participations); provided,
(i) on the date of such assignment, the Replacement Lender shall pay to such Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Second Priority Term Loans of the Terminated Lender, and (B) an amount equal to all accrued, but theretofore unpaid, fees owing to such Terminated Lender pursuant to Section 2.08 (Fees);
(ii) on the date of such assignment, the Borrower shall pay any amounts payable to such Terminated Lender pursuant to Section
2.14(c) (Making or Maintaining Second Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy) or 2.16 (Taxes; Withholding, etc.); provided that no premium on such amounts shall be required to be paid; and
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(iii) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender.
Upon the prepayment of all amounts owing to any Terminated Lender, such Terminated Lender shall no longer constitute a "Lender" under any of the Second Priority Term Loan Documents; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender.
ARTICLE III.
CONDITIONS PRECEDENT
The obligation of any Lender to make a Second Priority Term Loan on the Closing Date is subject to the satisfaction, or waiver in accordance with
Section 12.05 (Amendments and Waivers), of the following conditions precedent on or before the Closing Date:
SECTION 3.01. Resolutions. The Administrative Agent shall have received a copy of one or more resolutions or other authorizations of Holdings, the Borrower and each Guarantor authorizing, as applicable and among other things, the granting of the Liens under the Security Documents and the execution, delivery and performance of this Agreement and the other Financing Documents, in each case certified by an Officer of each such Person as being (a) in full force and effect as of the Closing Date and (b) true, correct and complete copies of all of the resolutions or other authorizations of such Person relating to the transactions contemplated by this Agreement and the other Financing Documents as of the Closing Date.
SECTION 3.02. Incumbency. The Administrative Agent shall have received a certificate from each of Holdings, the Borrower and each Guarantor, signed by the appropriate authorized officer of such Person and dated as of the Closing Date, as to the incumbency of the natural persons authorized to execute and deliver the Second Priority Term Loan Documents to which such Person is a party.
SECTION 3.03. Formation Documents. The Administrative Agent shall have received
(a) a copy of the certificate of formation, articles of incorporation or other comparable constituent documents of Holdings, the Borrower and each Subsidiary of the Borrower, in each case certified by the Secretary of State of the state of such Person's formation or incorporation (as applicable) and (b) a copy of the limited liability company operating agreement, bylaws or other comparable constituent documents of such Person, in each case certified by an Officer of such Person as being true, correct and complete as of the Closing Date.
SECTION 3.04. Good Standing Certificates. The Administrative Agent shall have received certificates issued by the Secretary of State of the state in which each of Holdings, the Borrower, and each Subsidiary of the Borrower is formed or organized (as applicable), (a) dated no more than five days prior to the Closing Date and (b) certifying that such Person is in good standing and is qualified to do business in, and has paid all franchise taxes or similar taxes due to the applicable state.
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SECTION 3.05. Financial Officer's Certificate. The chief financial officer of the Borrower shall have furnished a certificate, dated the Closing Date, in form and substance satisfactory to the Administrative Agent, stating to the effect that:
(a) The present fair saleable value of the assets of each of the Borrower and each Subsidiary of the Borrower (other than CalGen Finance) exceeds the amount required to pay the probable liability on its existing debts, respectively (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent), as they become absolute and matured, and as a result of the consummation of the transactions contemplated herein and in the Bank Book, will continue to exceed such amount;
(b) Each of the Borrower and each Subsidiary of the Borrower (other than CalGen Finance) does not, and, as a result of the consummation of the transactions contemplated in this Agreement, the other Financing Documents and the Bank Book, will not, have unreasonably small capital for it to carry on its business as proposed to be conducted;
(c) Neither the Borrower nor any Subsidiary of the Borrower (other than CalGen Finance) is incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted; and
(d) Nothing has come to the Borrower's attention to cause it to believe that: (i) R.W. Beck is not qualified to pass on questions relating to the technical, environmental and economic aspects of the projects operated by the CalGen Companies as such projects are described in the Bank Book; (ii) the assumptions included in R.W. Beck's report dated March 15, 2004, entitled "Independent Engineer's Report, Calpine Generating Company, LLC Facilities" (the "Beck Report"), are not reasonable; (iii) the information provided by the CalGen Companies to R.W. Beck in connection with the Beck Report was not prepared in good faith by the CalGen Companies; and (iv) the factual information or the conclusions contained in the Beck Report are inaccurate in any material adverse respect.
SECTION 3.06. Security.
(a) Release. The Collateral Agent shall have received:
(i) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Administrative Agent, dated a date reasonably near to the Closing Date, listing all effective Financing Statements which name Holdings, the Borrower or any Subsidiary thereof (under its present names or any previous name) as the debtor, together with copies of such Financing Statements (none of which shall cover any Collateral, other than Financing Statements that evidence (A) Liens granted in connection with the Existing Senior Secured Credit Facility or (B) Liens permitted to exist hereunder after the Closing Date);
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(ii) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of each UCC Financing Statement Amendment (Form UCC-3) termination statement, if any, necessary to release all Liens of any Person in any Collateral previously granted by the Borrower or any of its Subsidiaries to the extent not permitted under the Second Priority Term Loan Documents after the Closing Date (including (A) Liens granted in connection with the Existing Senior Secured Credit Facility and (B) other existing Liens which are not permitted hereunder after the Closing Date);
(iii) such releases, reconveyances, satisfactions or other instruments as it may reasonably request to confirm the release, satisfaction and discharge in full of all mortgages and deeds of trust at any time delivered by the Borrower or any of its Subsidiaries to secure any Obligations in respect of the Existing Senior Secured Credit Facility, duly executed, delivered and acknowledged in recordable form by the grantee named therein or its of record successors or assigns; and
(iv) a letter or letters (in form and substance reasonably satisfactory to the Administrative Agent) addressed to the Collateral Agent, the First Priority Indenture Trustee, the Second Priority Indenture Trustee, the Third Priority Indenture Trustee, the Administrative Agent, the First Priority Term Loan Administrative Agent and the Revolver Administrative Agent executed and delivered by the Existing Credit Administrative Agent, stating the amount (the "Payout Amount") required to pay in full in cash at the Closing Date all outstanding Obligations under or in respect of the Existing Senior Secured Credit Facility.
(b) Security. The Collateral Agent shall have received (with a copy to the Administrative Agent):
(i) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of Uniform Commercial Code Financing Statements or fixture filings naming Holdings, the Borrower, or each of the Guarantors (as applicable) as a debtor and the Collateral Agent as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the reasonable opinion of the Administrative Agent and its counsel, desirable to perfect the security interests of the Second Priority Term Loan Secured Parties pursuant to the Security Documents;
(ii) (A) certificates (which certificates shall be accompanied by irrevocable undated stock powers or transfer documents, duly endorsed in blank and otherwise satisfactory in form and substance to the Administrative Agent) representing all Capital Stock pledged pursuant to the Security Documents and (B) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner reasonably satisfactory to the Administrative Agent) evidencing any Collateral; and
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(iii) such other documents and instruments as the Administrative Agent or the Collateral Agent may reasonably request in order to grant and perfect the security interests contemplated by the Security Documents
(c) Filing. All Uniform Commercial Code Financing Statements (Forms UCC-1) or other similar Financing Statements and UCC Financing Statement Amendments (Forms UCC-3) required pursuant to clauses (a) and (b) above (collectively, the "Financing Statements") shall have been filed or recorded or delivered to the Collateral Agent for filing or recording.
SECTION 3.07. Consummation of Notes Offering, First Priority Term Loan Agreement, Revolving Loan Agreement and Second Priority Term Loan Documents.
(a) The Borrower and CalGen Finance shall have consummated the offering of the Notes, and such Notes shall have been issued and sold prior to, or shall be issued and sold simultaneously with, the Closing Date on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
(b) The Borrower and each Guarantor shall have executed and delivered the First Priority Term Loan Agreement and the Revolving Loan Agreement and each such agreement shall be in full force and effect prior to, or shall become in full force and effect simultaneously with, the Closing Date, on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
(c) Holdings, the Borrower and each Guarantor shall have delivered to the Lenders, each of the Second Priority Term Loan Documents to be entered into as of the Closing Date, each duly executed and delivered by the party or parties thereto and, unless otherwise noted, dated the Closing Date.
(d) The Borrower shall have received cash proceeds from the sale of the Notes (net of underwriting discounts and commissions) in an amount sufficient, when added to the cash proceeds from the borrowings hereunder and under the First Priority Term Loan Agreement (in each case, net of applicable expenses and fees), to pay in full in cash the Payout Amount and all other fees, costs and expenses payable by the Borrower in connection with the closing of the transactions contemplated herein and in the Bank Book and shall have authorized disbursement of such cash proceeds directly to pay the Payout Amounts and such fees, costs and expenses pursuant to a disbursement authorization letter (in form and substance reasonably satisfactory to the Administrative Agent) executed and delivered by the Borrower.
SECTION 3.08. Ratings. The Second Priority Term Loans shall have received a rating by S&P.
SECTION 3.09. No Material Adverse Change. There shall not have occurred (a) since December 31, 2003, any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Borrower and its Subsidiaries, taken as a whole, which, in the judgment of the Administrative Agent, is material and adverse and makes it impractical or inadvisable to proceed with making of the Second Priority Term Loans; (b) since March 12, 2004, any suspension or material limitation of
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trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of Calpine on any exchange or in the over-the-counter market; (c) since March 12, 2004, a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States which, in the judgment of the Administrative Agent, makes it impracticable or inadvisable to proceed with the making of the Second Priority Term Loans; or (d) since March 12, 2004, any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of the Administrative Agent, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with the making of the Second Priority Term Loans.
SECTION 3.10. Third Party Approvals. All consents, exemptions, authorizations, or other actions by, or notices to, or filings with, governmental authorities and other Persons in respect of all applicable Legal Requirements, necessary or desirable in connection with the execution, delivery or performance by each of Holdings, the Borrower and each Guarantor of the Second Priority Term Loan Documents to which it is a party (including all federal, state and local regulatory filings, consents and approvals necessary or desirable in connection therewith) shall have been obtained and be in full force and effect, and the Administrative Agent shall have been furnished with appropriate evidence thereof, and all waiting periods related thereto shall have lapsed or expired without extension or the imposition of any conditions or restrictions.
SECTION 3.11. Opinions. The Administrative Agent shall have received one or more opinions addressed to the Administrative Agent and each of the Lenders from time to time party to this Agreement, in form and substance reasonably satisfactory to the Administrative Agent and its counsel, dated as of the Closing Date and in the form of Exhibit G.
SECTION 3.12. Officer's Certificates. The Administrative Agent shall have received a certificate, dated as of the Closing Date, of the president or any vice president and a principal financial or accounting officer of the Borrower and each of the Guarantors, in which such officer, to the best of his or her knowledge after reasonable investigation, shall state that (a) the representations and warranties of such CalGen Company in this Agreement and the other Second Priority Term Loan Documents are true and correct in all material respects; (b) such CalGen Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and (c) subsequent to December 31, 2003, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of such CalGen Company or its respective subsidiaries taken as a whole except as set forth in or contemplated by the Bank Book or otherwise disclosed in writing to the Administrative Agent prior to the Closing Date.
SECTION 3.13. Title Policies.
(a) Mortgages. The Collateral Agent shall have received (with a copy to the Administrative Agent) a fully executed and notarized mortgage or deed of trust from each Guarantor (each a "Closing Date Mortgage") encumbering all of such Guarantor's Closing Date
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Mortgaged Property as security for the payment and performance of the Secured Obligations. Each Closing Date Mortgage shall be in proper form for recording in all applicable jurisdictions where the property encumbered thereby is located.
(b) Title Insurance Policies. The Collateral Agent shall have received CLTA mortgagee policies of title insurance or unconditional commitments therefor (the "Closing Date Mortgage Policies") issued by the Title Company with respect to the Closing Date Mortgaged Properties, providing coverage in an amount equal to $50,000,000 per Closing Date Mortgaged Property and assuring the Collateral Agent that the applicable Closing Date Mortgages create valid and enforceable perfected mortgage Liens on the respective Closing Date Mortgaged Properties encumbered thereby. The Closing Date Mortgage Policies shall (i) include endorsements providing mechanics' lien coverage and such other coverages as are reasonably requested by the Administrative Agent, and (ii) provide for such affirmative insurance, gap coverage and reinsurance as the Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to the Administrative Agent.
SECTION 3.14. Evidence of Insurance. The Collateral Agent shall have received a certificate from the Borrower's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to this Agreement is in full force and effect and that Collateral Agent on behalf of the Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this Agreement.
SECTION 3.15. Other Financing Documents. The Administrative Agent shall have received true, correct and complete copies of each Financing Document (other than the Second Priority Term Loan Documents) and each shall be in full force and effect as of the Closing Date, as certified to the Administrative Agent by an Officer of the Borrower as of the Closing Date
SECTION 3.16. No Default. No Default or Event of Default shall have occurred and be continuing (or would occur or would be continuing immediately after giving effect to the making of the Second Priority Term Loans).
SECTION 3.17. Fees. The Borrower shall have paid all fees and reasonable out-of-pocket costs and expenses (including reasonable legal fees and expenses of counsel) and other compensation contemplated hereby payable to the Agents and the Lenders.
SECTION 3.18. Funding Notice. The Administrative Agent shall have received a fully executed and delivered Funding Notice from the Borrower at least three Business Days prior to the Closing Date.
SECTION 3.19. Delivery of Financials. The Administrative Agent and each Lender, at least four Business Days prior to the Closing Date, shall have received copies of (a) the consolidated financial statements for the Borrower and its Subsidiaries (covering the fiscal year ended December 31, 2003) as audited by PricewaterhouseCoopers LLP, and such consolidated financial statements shall be reasonably satisfactory to the Administrative Agent, (b) the unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries as of the Closing Date giving effect to (i) the consummation of the transactions contemplated hereby, (ii) the issuance of the Notes, the making of the loans under the First Priority Term Loan Agreement
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and the use of proceeds thereof, and (iii) the payment of fees and expenses in connection with the foregoing, and (c) the forecasted operating results of the Borrower and its Subsidiaries (the "Projections"), giving effect to the consummation of the transactions contemplated by this Agreement, the making of the loans under the First Priority Term Loan Agreement and the issuance of the Notes, covering the period from the Closing Date until December 31, 2010 and in form and substance substantial similar to the draft Projections provided to the Lenders on March 16, 2004. The Administrative Agent is entitled, but not obligated to, request and receive, prior to the making of any Second Priority Term Loan, additional information reasonably satisfactory to the Administrative Agent confirming the satisfaction of any of the foregoing if, in the good faith judgment of the Administrative Agent, such request is warranted under the circumstances.
SECTION 3.20. Site Assessment Reports. The Administrative Agent shall have received (a) a copy of one or more environmental site assessment reports from each of the Environmental Consultants relating to the Closing Date Facilities (in the form provided to counsel to the Administrative Agent prior to the Closing Date) and (b) a reliance letter from each of the Environmental Consultants, dated within three Business Days of the Closing Date, permitting the Lenders to rely on such environmental site assessment reports as if addressed to them (in form and substance reasonably satisfactory to the Administrative Agent).
SECTION 3.21. Major Project Documents. The Borrower and each applicable Guarantor shall have executed and delivered the Major Project Documents to which it is a party and each such Major Project Document shall be in full force and effect prior to, or shall become in full force and effect simultaneously with, the Closing Date, on substantially the terms described in the Bank Book and other terms reasonably satisfactory to the Administrative Agent.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Each of the Borrower and each Guarantor makes the following representations and warranties to and in favor of the Sole Lead Arranger, the Administrative Agent and the Lenders as of the Closing Date.
SECTION 4.01. Organization.
(a) The Borrower has been duly formed and is an existing limited liability company in good standing under the laws of the State of Delaware, with power and authority under such laws to own or lease its properties and conduct its business as described in the Bank Book; and the Borrower is duly qualified to do business as a foreign limited liability company, and is in good standing, in all other jurisdictions in which its ownership or leasing of property or the conduct of its business requires such qualification.
(b) Each Subsidiary of the Borrower either (i) has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with the corporate power and authority to own or lease its properties and conduct its business; or
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(ii) is a general partnership, limited partnership or a limited liability company, has been duly formed and is validly existing as a general partnership, limited partnership or limited liability company, as the case may be, is in good standing under the laws of the jurisdiction of its formation, and has full partnership or limited liability company power and authority, as the case may be, to own or lease its properties and conduct its business.
(c) Each Subsidiary of the Borrower is duly qualified to do business as a foreign corporation, general or limited partnership or limited liability company, as the case may be, and is in good standing, in all other jurisdictions in which its ownership or leasing of property or the conduct of its business requires such qualification.
(d) All of the issued and outstanding Capital Stock in each Subsidiary of the Borrower has been duly authorized and validly issued and is fully paid and nonassessable, and the Capital Stock of each Subsidiary owned by the Borrower, directly or through Subsidiaries, is owned free from liens, encumbrances and defects except for those to be terminated at the Closing Date with respect to the Existing Senior Secured Credit Facility and Permitted Liens.
(e) The capital structure of Holdings and the Borrower and its Subsidiaries is accurately set forth on Schedule 4.01.
SECTION 4.02. Financing Documents and Major Project Documents. Each of the Financing Documents, Major Project Documents and Third Party Project Documents to which the Borrower or any of its Subsidiaries is a party has been duly authorized by such CalGen Company. Each of the Financing Documents, Major Project Documents and Third Party Project Documents has been validly executed and delivered by such CalGen Company and constitutes a valid and legally binding obligation of such CalGen Company, enforceable against such CalGen Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
SECTION 4.03. Collateral.
(a) The Security Documents grant and create, in favor of the Collateral Agent (for the benefit of the Secured Parties as security for the Secured Obligations), a valid security interest in the personal property Collateral defined in each of such instruments to the extent contemplated thereby.
(b) Each Mortgage grants and creates, in favor of the Collateral Agent (for the benefit of the Secured Parties as security for the Secured Obligations), a valid mortgage lien and/or security interest in the Collateral defined in each of such Mortgage to the extent contemplated thereby.
(c) All pledged Collateral is represented by certificated securities and all such certificated securities and all promissory notes and other instruments evidencing or representing any Collateral have been delivered to the Collateral Agent in pledge for the benefit of the Secured Parties as security for all of the Secured Obligations, duly endorsed by an effective endorsement.
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SECTION 4.04. Governmental Approvals. No consent, approval, authorization, or order of, or filing with, any Governmental Authority is required for the consummation of the transactions contemplated by this Agreement, the other Financing Documents, the Major Project Documents or the Third Party Project Documents or otherwise in connection with the transactions contemplated by any such documents or the grant and perfection of the security interests in the Collateral pursuant to the Security Documents, except (a) such consents, approvals, authorizations and orders as have already been obtained, (b) filings required pursuant to Section 3.06 (Security) to perfect the Collateral Agent's security interests granted pursuant to the Security Documents, (c) such consents, approvals, authorizations and orders as may be required under state securities or blue sky laws and (d) such other consents approvals, authorizations and orders as would not, in the aggregate, have a Material Adverse Effect.
SECTION 4.05. Compliance with Law. The execution, delivery and performance of this Agreement, the other Financing Documents, the Major Project Documents and the Third Party Project Documents by the Borrower and its Subsidiaries party thereto, as applicable; the making of the Second Priority Term Loans hereunder; the grant and perfection of the security interests in the Collateral pursuant to the Security Documents; compliance with the terms and provisions of each of the foregoing by the CalGen Companies, as applicable; and the consummation by such CalGen Companies of the transactions contemplated herein and therein, in each case, will not result in a breach or violation of any of the terms and provisions of, or conflict with or constitute a default under, or result in the imposition or creation of (or the obligation to create or impose) a Lien (other than in favor of the Collateral Agent for the benefit of the Secured Parties) under, any Legal Requirement applicable to any such CalGen Company, or any agreement or instrument to which any of the CalGen Companies is a party or by which any of the CalGen Companies is bound or to which any of the properties of any of the CalGen Companies is subject, except to the extent that the foregoing would not, in the aggregate, have a Material Adverse Effect.
SECTION 4.06. Ownership of Property; Liens. Except as disclosed in the Closing Date Mortgage Policies, each of the Borrower and each Guarantor has good and marketable title to all real properties owned by it, and good title to all other properties and assets owned by it, in each case except for Permitted Liens, free from Liens that would materially affect the value thereof or materially interfere with the use made or to be made thereof by it; and, except for Permitted Liens or as disclosed in the Closing Date Mortgage Policies, each of the Borrower and each Guarantor holds any leased real or personal property under valid and enforceable leases with no exceptions to title that would materially interfere with the use made or to be made thereof by it. No Financing Statements in respect of any property or assets of any of the Borrower or any Guarantor is on file in favor of any Person other than those in respect of Permitted Liens and those to be terminated at the Closing Date with respect to the Existing Senior Secured Credit Facility.
SECTION 4.07. Governmental Authorizations; Permits. Each of the Borrower and its Subsidiaries possesses adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it and has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect.
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SECTION 4.08. Labor Disputes. No labor dispute with the employees of any of the Borrower or its Subsidiaries exists or, to the knowledge of the Borrower or any Guarantor, is imminent that might have a Material Adverse Effect.
SECTION 4.09. Intellectual Property Rights. Each of the Borrower and its Subsidiaries owns, possesses or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by it, or presently employed by it, and has not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect.
SECTION 4.10. Hazardous Substances. None of the Borrower and its Subsidiaries is in violation of any Legal Requirement relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Borrower is not aware of any pending investigation which might lead to such a claim.
SECTION 4.11. Litigation. Except as set forth on Schedule 4.11, there are no pending actions, suits or proceedings against the Borrower or any of its Subsidiaries or any of their respective properties that, if determined adversely to such CalGen Company, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of such CalGen Company to perform its or their obligations under, or contemplated by, this Agreement, the other Financing Documents, the Major Project Documents or the Third Party Project Documents, in each case to which such CalGen Company is a party, or which are otherwise material in the context of the transactions contemplated by the Financing Documents.
SECTION 4.12. Financial Information. The financial information delivered pursuant to clauses (a) and (b) of Section 3.19 (Delivery of Financials) presents fairly the financial position of the Borrower and its Subsidiaries on a combined or consolidated basis, as the case may be, as of the dates shown therein and their results of operations and cash flows for the periods shown therein, and, except as otherwise disclosed in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, such financial statements have been prepared in conformity with GAAP applied on a consistent basis. None of the Borrower or any of its Subsidiaries has any material liabilities, direct or contingent, which are required to be shown on such financial statements under GAAP, except as has been disclosed in such financial statements.
SECTION 4.13. Disclosure; Projections.
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(a) The Borrower has delivered to each Lender a copy of the Bank Book. The Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, fairly describes, in all material respects, the general nature of the business of the Borrower and its Subsidiaries, the transactions contemplated by the Financing Documents and the principal assets of the Borrower and its Subsidiaries. None of this Agreement, the Bank Book, the documents, certificates or other writings delivered to or the Administrative Agent or any Lender by or on behalf of the Borrower or any Guarantor in connection with the transactions contemplated hereby, taken as a whole, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made (other than any information that was corrected or updated in writing by the Borrower to the Administrative Agent and the Lenders prior to the Closing Date).
(b) The Projections are based on good faith estimates and assumptions believed by management of the Borrower to be reasonable as of the date of the Projections, and there are no statements or conclusions in any of the Projections which are based upon or include information known to the Borrower to be misleading in any material respect or which fail to take into account material information regarding the matters reported therein. The Borrower believes that the Projections are reasonable on the Closing Date, it being acknowledged and agreed by the Administrative Agent and the Lenders, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by the Projections may differ from the projected results and such differences may be material.
(c) Except as expressly set forth in this Section 4.13, neither the Borrower nor any Guarantor makes any representation with respect to any information, projections, forecasts, statements of opinion, expectations or beliefs of any party contained in the Bank Book or delivered in connection with the transactions contemplated under this Agreement.
SECTION 4.14. Adverse Change. Except as has been disclosed in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, since December 31, 2003 there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Borrower and its Subsidiaries taken as a whole, and, except as has been disclosed in writing to the Administrative Agent, no long-term indebtedness has been incurred (other than long-term indebtedness that is expressly contemplated by the Bank Book), and no dividend or distribution of any kind has been declared, paid or made by Borrower on any class of its equity interests.
SECTION 4.15. Taxes. Each of the Borrower, each Subsidiary of the Borrower and Holdings has timely filed (or caused to be filed timely) all federal, material state and material local tax returns and reports that are required to be filed by it. All material taxes, assessments, utility charges, fees and other governmental charges imposed on it have been timely paid (other than those taxes that it is contesting in good faith and by appropriate proceedings). All such tax
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returns are complete and accurate in all material respects. Except for Permitted Liens, no material tax Lien has been filed, and to the knowledge of the Borrower and each Guarantor, no claim is being asserted, with respect to any such taxes, assessments, charges or fees. To the extent any taxes, assessments, charges and fees are being contested, the Borrower or the applicable Guarantor has established reserves that are adequate for the payment thereof in conformity with GAAP.
SECTION 4.16. Investment Company Act. None of the Borrower or any of its Subsidiaries is an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under
Section 8 of the United States Investment Company Act of 1940, as amended (the "Investment Company Act"); none of the Borrower or any of its Subsidiaries is or, after giving effect to the transactions contemplated by this Agreement, the other Second Priority Term Loan Documents and the Major Project Documents, will be an "investment company" as defined in the Investment Company Act of 1940.
SECTION 4.17. ERISA. Either (a) there are no ERISA Plans or Multiemployer Plans for the Borrower or any ERISA Affiliate thereof or (b)(i) each of the Borrower and each ERISA Affiliate thereof has fulfilled its obligations (if any) under the minimum funding standards of ERISA and the Code for each ERISA Plan, (ii) each such Plan is in compliance in all material respects with the currently applicable provisions of ERISA and the Code and (iii) neither the Borrower nor any ERISA Affiliate thereof has incurred any liability to the PBGC or an ERISA Plan or Multiemployer Plan under Title IV of ERISA (other than liability for premiums due in the ordinary course). None of the assets of the Borrower or any ERISA Affiliate thereof, constitute assets of an employee benefit plan within the meaning of 29 C.F.R. Section 2510.3-101. Neither the Borrower nor any Subsidiary thereof maintains, or has at any point of its existence maintained, any employee-benefit plans that were subject to ERISA.
SECTION 4.18. Governmental Regulation.
(a) None of the Borrower or any "subsidiary company," as that term is defined in PUHCA, of the Borrower is, or after giving effect to the borrowing of any Second Priority Term Loans will be, subject to regulation (i) as a "holding company," a "subsidiary company" of a holding company or a "public-utility company," as those terms are defined in PUHCA; (ii) under the Federal Power Act, as amended (the "FPA"), other than (A) as an "exempt wholesale generator" ("EWG") as that term is defined in PUHCA, that is subject to regulation as a "public utility" under the FPA, other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, or (B) as a QF under the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), as contemplated by 18 C.F.R. Section 292.601(c); or (iii) under any state law or regulation with respect to rates or the financial or organizational regulation of electric utilities, other than, with respect to Subsidiaries of the Borrower that are QFs, as contemplated by 18 C.F.R. Section 292.602(c).
(b) Other than as described in the Bank Book, each of the power generation projects in which the Borrower's Subsidiaries listed on Schedule 4.18(b) have an interest meets the requirements under PURPA and the regulations of the Federal Energy Regulatory Commission
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(the "FERC") promulgated thereunder, as amended from time to time, necessary to be a "qualifying cogeneration facility" and/or a "qualifying small power generation production facility".
(c) Each of the Borrower's Subsidiaries listed on Schedule 4.18(c)
(i) own and/or operate Eligible Facilities within the meaning of Section 32 of PUHCA, and each such Subsidiary has received a determination from the FERC, not subject to any pending challenge or appeal, that it is an EWG, within the meaning of Section 32 of PUHCA; and (ii) other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, has validly issued orders from the FERC, not subject to any pending challenge, investigation, or proceeding (other than the FERC's generic proceeding initiated in Docket No. EL01-118-000), (A) authorizing such Subsidiary to engage in wholesale sales of electricity, ancillary services and, to the extent permitted under its market-based rate tariff, other services at market-based rates, and (B) granting such waivers and blanket authorizations as are customarily granted to entities with market-based rate authority; with respect to each such Subsidiary, the FERC has not imposed any rate caps or mitigation measures other than rate caps and mitigation measures generally applicable to similarly situated marketers or generators selling electricity, ancillary services or other services at wholesale in the geographic market where such Subsidiary conducts its business.
(d) Each of the Borrower's Subsidiaries that are participating in the Texas wholesale electric market has registered with the Texas Public Utilities Commission ("TPUC"), and the TPUC has not imposed on the Borrower any specific rate cap or mitigation measures.
(e) Other than as described in the Bank Book, together with the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders by or on behalf of the Borrower or any Guarantor specifically for use in connection with the transactions contemplated hereby, there are no pending complaints filed with the FERC seeking abrogation or modification of a contract for the sale of power by the Borrower or any of its Subsidiaries.
SECTION 4.19. Margin Stock, Etc. None of the transactions contemplated by this Agreement or the other Second Priority Term Loan Documents (including the use of the proceeds received as a result of such transactions) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including Regulations T, U, and X of the Board of Governors of the Federal Reserve System.
SECTION 4.20. No Violations or Defaults. Neither the Borrower nor any Subsidiary of the Borrower is in violation of its organizational documents or in default in the performance or observance of any material obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other material agreement or instrument to which it is a party or by which it or any of its properties may be bound.
SECTION 4.21. Solvency. The present fair saleable value of the assets of each of the Borrower and each Subsidiary of the Borrower exceeds the amount required to pay the probable liability on its existing debts, respectively (whether matured or unmatured, liquidated or
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unliquidated, absolute, fixed or contingent), as they become absolute and matured, and as a result of the consummation of the transactions contemplated herein and in the Bank Book, will continue to exceed such amount.
SECTION 4.22. Capitalization. Each of the Borrower and each Subsidiary of the Borrower does not, and, as a result of the consummation of the transactions contemplated in this Agreement, the other Second Priority Term Loan Documents and the Bank Book, will not, have unreasonably small capital for it to carry on its business as proposed to be conducted.
SECTION 4.23. Other Indebtedness. Neither the Borrower nor any Subsidiary of the Borrower is incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted.
ARTICLE V.
COVENANTS
SECTION 5.01. Reports.
(a) Whether or not required by the rules and regulations of the SEC, so long as any Second Priority Term Loan Obligations are outstanding, the Borrower shall furnish to the Administrative Agent (for delivery to each Lender), within the time periods specified in the SEC's rules and regulations:
(i) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the Borrower were required to file such reports; and
(ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Borrower were required to file such reports.
(b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Borrower's consolidated financial statements by the Borrower's certified independent accountants.
SECTION 5.02. Compliance Certificate.
(a) The Borrower shall deliver to the Administrative Agent (for delivery to each Lender), within 90 days after the end of each fiscal year, an Officer's Certificate stating that a review of the activities of the Borrower and its Subsidiaries during the preceding fiscal year, as applicable, has been made under the supervision of the signing Officer with a view to determining whether the Borrower has kept, observed, performed and fulfilled its obligations under this Agreement, and further stating, as to the Officer signing such certificate, that to the best of his or her knowledge the Borrower has kept, observed, performed and fulfilled each and every covenant contained in this Agreement and is not in default in the performance or observance of any of the terms, provisions and conditions of this Agreement (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Borrower is taking or proposes to take with respect
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thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Second Priority Term Loans borrowed under this Agreement is prohibited or if such event has occurred, a description of the event and what action the Borrower is taking or proposes to take with respect thereto. Such certificate shall include information (i) demonstrating compliance by the Borrower with Section 5.18 (Coverage Ratio; Kilowatt Test) and (ii) calculating Excess Cash Flow for such fiscal quarter or such fiscal year.
(b) So long as not contrary to the then-current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 5.01(a) (Reports) above shall be accompanied by a written statement of the Borrower's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Borrower has violated any provisions of Article V or Article VI hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Second Priority Term Loan Obligations are outstanding, the Borrower shall deliver to the Administrative Agent, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Borrower is taking or proposes to take with respect thereto.
SECTION 5.03. Stay, Extension and Usury Laws. Each of the Borrower and each Guarantor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Agreement; and each of the Borrower and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but shall suffer and permit the execution of every such power as though no such law has been enacted.
SECTION 5.04. Restricted Payments.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly:
(i) (A) declare or pay any dividend or make any other payment or distribution on account of the Borrower's Equity Interests (including any payment in connection with any merger or consolidation involving the Borrower) or to the direct or indirect holders of the Borrower's Equity Interests in their capacity as such, including Permitted Tax Payments (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Borrower or dividends or distributions payable to the Borrower or a Guarantor) or (B) pay any Major Maintenance Expenses;
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(ii) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Borrower) any Equity Interests of the Borrower;
(iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness or any other Indebtedness of the Borrower or any of its Subsidiaries that is contractually subordinated to the Secured Obligations (excluding any intercompany Indebtedness between or among the Borrower and any of the Guarantors);
(iv) make any Restricted Investment;
(all such payments and other actions set forth in these clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless:
(A) such Restricted Payment is made from Excess Cash Flow generated since the Closing Date;
(B) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and
(C) at the time of making any such Restricted Payment that is not a payment on or with respect to, or a purchase, redemption, defeasance or other acquisition or retirement for value of, Subordinated Indebtedness, all amounts then due under all Subordinated Indebtedness have been paid in full; or
(v) use the proceeds of any Indebtedness under any revolving Credit Facility which is First Priority Lien Debt to prepay, repay or redeem the principal of any Second Priority Lien Debt or Third Priority Lien Debt.
SECTION 5.05. Dividend and Other Payment Restrictions Affecting Subsidiaries.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to:
(i) pay dividends or make any other distributions on its Capital Stock to the Borrower or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Borrower or any of its Subsidiaries;
(ii) make loans or advances to the Borrower or any of its Subsidiaries; or
(iii) transfer any of its properties or assets to the Borrower or any of its Subsidiaries.
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However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of:
(A) this Agreement;
(B) the First Priority Term Loan Agreement, the Revolving Loan Agreement, the Indentures and the Notes and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the First Priority Term Loan Agreement, the Revolving Loan Agreement, the Indentures and the Notes; provided, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the First Priority Term Loan Agreement, the Revolving Loan Agreement, the Indentures and the Notes on the Closing Date;
(C) any applicable Legal Requirements;
(D) customary non-assignment provisions in contracts, agreements, leases, permits or licenses entered into or issued in the ordinary course of business and consistent with past practices;
(E) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clauses (i) and (iii) of the preceding paragraph;
(F) any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending the sale or other disposition;
(G) Permitted Refinancing Indebtedness; provided, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(H) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 5.06
(Incurrence of Indebtedness and Issuance of Preferred Equity)
hereof that limit the right of the debtor to dispose of the assets subject to such Liens or to use the proceeds of any such disposition;
(I) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Borrower's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements;
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(J) provisions restricting cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business; and
(K) provisions restricting or encumbering the sale or other disposition of Expansion Assets or the payment of dividends, distributions or similar payments made from cash flow derived exclusively from Expansion Assets, in each case pursuant to the terms of any Expansion Debt incurred pursuant to clause (iv) of the definition of Permitted Debt; provided, that such encumbrance or restriction will not materially adversely affect the Borrower's ability to meet its obligations under this Agreement, and, in the written opinion of the president, chief operating officer or chief financial officer of the Borrower, is required in order to obtain such Expansion Debt and is customary for financings of such type.
SECTION 5.06. Incurrence of Indebtedness and Issuance of Preferred Equity.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise with respect to (collectively, "incur"), any Indebtedness (including Acquired Debt), and the Borrower shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred equity.
(b) Section 5.06(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"):
(i) (A) the incurrence by the Borrower (and the guarantee by its Subsidiaries) of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (i)(A) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Borrower and its Subsidiaries thereunder) not to exceed $800,000,000 less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events or Condemnation Events applied by the Borrower or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facilities or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facilities and effect a corresponding commitment reduction thereunder, and (B) the incurrence by the Borrower (and the guarantee by its Subsidiaries) of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount outstanding under this clause (i)(B) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Borrower and its Subsidiaries thereunder) not to exceed $100,000,000 less the aggregate amount of all Net Proceeds of Asset Sales, Casualty Events and Condemnation Events applied by the Borrower or any of its Subsidiaries since the Closing Date to repay any term Indebtedness under any such Credit Facility or to repay, or cash collateralize letters of credit under, any revolving Indebtedness under any such Credit Facility and effect a corresponding commitment reduction thereunder;
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(ii) the incurrence by the Borrower, CalGen Finance and the Guarantors of Indebtedness represented by the Notes, the related Note Guarantees and the other Note Obligations incurred on the Closing Date, and the exchange notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement;
(iii) the incurrence by the Borrower or any of its Subsidiaries of Expansion Debt; provided, that:
(A) any Expansion Debt incurred by the Excluded Subsidiary is recourse only to the Expansion Assets financed with such Expansion Debt and to other Expansion Assets owned by the Excluded Subsidiary (including any rights of the Excluded Subsidiary under Shared Facilities Arrangements);
(B) if the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved), at least 25% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness;
(C) if the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Expansion Debt is incurred would have been less than 2.0 to 1.0, determined on a Pro Forma basis as if the Expansion Debt had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved);
(1) at least 40% of the cost of such Expansion Assets is financed with Equity Contributions or the proceeds of Perpetual Preferred Stock or Affiliate Subordinated Indebtedness; and
(2) after giving effect to such incurrence, the amount of Expansion Debt incurred pursuant to this clause (iii), together with the aggregate amount of all other Expansion Debt then outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Expansion Debt incurred pursuant to this clause (iii), does not exceed $250,000,000;
(iv) the incurrence by the Borrower or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that
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was permitted by this Agreement to be incurred under clauses (ii),
(iii), (iv) or (x) of this Section 5.06(b);
(v) the incurrence by the Borrower or any Guarantor of intercompany Indebtedness between or among the Borrower and any Guarantors that is subordinated in right of payment to all Secured Obligations on the terms set forth on Exhibit A hereto and is not secured other than by unperfected security interests; provided, however, that (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Borrower or a Guarantor and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Borrower or a Guarantor will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Borrower or such Guarantor, as the case may be, that was not permitted by this clause (v); and provided, further, that any such intercompany Indebtedness must be included in the Collateral.
(vi) the incurrence by the Borrower or any of its Subsidiaries of Hedging Obligations, in connection with Permitted Debt or otherwise, in the ordinary course of business and not for speculative purposes; provided, that (A) such Hedging Obligations will have tenors that expire on or prior to the maturity date (or other expiration) of the underlying Obligation being hedged, and (B) any such Hedging Obligations hedging or managing interest rate risk with respect to a particular series of Notes or loans under this Agreement, the First Priority Term Loan Agreement or the Revolving Loan Agreement will have tenors that expire on or prior to the Stated Maturity of the applicable Notes or loans;
(vii) the incurrence by the Borrower or any of its Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, and performance and surety bonds in the ordinary course of business;
(viii) the incurrence by the Borrower or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days;
(ix) the incurrence by the Borrower of (a) Affiliate Subordinated Indebtedness in an aggregate principal amount not to exceed $250,000,000 at any one time outstanding and (b) Working Capital Facility Indebtedness in an aggregate principal amount not to exceed $750,000,000 at any one time outstanding; and
(x) the incurrence by the Borrower of Third Party Subordinated Indebtedness; provided, that:
(A) the Net Proceeds of the Third Party Subordinated Indebtedness are applied:
(1) to acquire all or substantially all of the assets of, or any Equity Interests in, a business that constitutes a Permitted Business, provided, that in the case of an acquisition of Equity Interests, the business
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is or becomes a Subsidiary of the Borrower and a Guarantor concurrently with such acquisition;
(2) to make a capital expenditure;
(3) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business; or
(4) any combination of the foregoing; and
(B) the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the Third Party Subordinated Indebtedness is incurred would have been at least 2.0 to 1.0, determined on a Pro Forma basis as if the Third Party Subordinated Indebtedness had been incurred at the beginning of such period and the proceeds therefrom had been applied as intended to be applied (but without giving effect to the completion of any construction projects unless actual completion has been achieved).
(c) The Borrower shall not incur, and shall not permit any Subsidiary to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Borrower or such Subsidiary unless such Indebtedness is also contractually subordinated in right of payment to the Second Priority Term Loans, the applicable Second Priority Term Loan Guarantees and the other Second Priority Term Loan Obligations on substantially identical terms or on terms that are more favorable to the Lenders hereunder; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Borrower or any of its Subsidiaries solely by virtue of being unsecured or by virtue of being secured on a junior basis.
(d) For purposes of determining compliance with this Section 5.06, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through
(x) of Section 5.06(b), the Borrower will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section
5.06. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 5.06. Notwithstanding any other provision of this Section 5.06, the maximum amount of Indebtedness that the Borrower or any Subsidiary may incur pursuant to this Section 5.06 shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
SECTION 5.07. Asset Sales; Application of Net Proceeds.
(a) Asset Sales. The Borrower shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless:
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(i) except with respect to an Asset Sale made pursuant to the Existing Purchase Option, the Borrower (or any of its Subsidiaries, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;
(ii) at least 90% of the consideration received in the Asset Sale by the Borrower or such Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash:
(A) any liabilities, as shown on the Borrower's most recent consolidated balance sheet, of the Borrower or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Second Priority Term Loans and the Second Priority Term Loan Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Borrower or such Subsidiary from further liability;
(B) any securities, notes or other obligations received by the Borrower or any such Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Borrower or such Subsidiary into cash, to the extent of the cash received in that conversion; and
(C) in connection with the exercise by a purchaser of an Existing Purchase Option, any amount owed by the Borrower or the applicable Subsidiary to the purchaser under the agreement containing such Existing Purchase Option that is set off by the purchaser against the purchase price;
(iii) if the assets disposed of in such Asset Sale include any component of a Facility that is necessary for the operation of such Facility, the Asset Sale involves the disposition of such Facility as a whole; and
(iv) if the Asset Sale involves the sale of a Facility or all or substantially all the assets of a Facility, (A) such Asset Sale is to a Person other than an Affiliate of the Borrower, and (B) all necessary and appropriate amendments are made to those Major Project Documents applicable to such Facility to remove such Facility from the scope of such Major Project Documents.
(b) Application of Net Proceeds. The Borrower (or the applicable Subsidiary, as the case may be) shall apply the Net Proceeds from each Asset Sale, Casualty Event or Condemnation Event, as follows:
(i) to the Lenders under this Agreement and all other holders of the First Priority Lien Obligations (to the extent required under the applicable First Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such First Priority Lien Obligations that may be purchased, prepaid or redeemed out of such Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of First Priority Lien Obligations required under any First Priority Lien Document);
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(ii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of First Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of First Priority Lien Obligations) in accordance with clause (i) above, to all holders of the Second Priority Lien Obligations (to the extent required under the applicable Second Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Second Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations required under any Second Priority Lien Document); and
(iii) if any such Net Proceeds remain after the offer (and, if applicable, reoffer) to holders of Second Priority Lien Obligations (and any mandatory purchase, prepayment or redemption of Second Priority Lien Obligations) in accordance with clauses (i) and (ii) above, to all holders of the Third Priority Lien Obligations (to the extent required under the applicable Third Priority Lien Documents), to purchase, prepay or redeem the maximum principal amount of such Third Priority Lien Obligations that may be purchased, prepaid or redeemed out of such remaining Net Proceeds (taking into account any mandatory purchase, prepayment or redemption of Third Priority Lien Obligations required under any Third Priority Lien Document).
(c) Mandatory Repayment Offer. The Borrower is required to and shall effectuate each repayment of the Second Priority Term Loans by commencing a Mandatory Repayment Offer as described in Section 2.11 (Mandatory Repayment Offers).
(d) Excess Proceeds; Pro Rata Basis. In the event that any Net Proceeds from an Asset Sale, Casualty Event or Condemnation Event remain after the Borrower has made a Mandatory Repayment Offer (and, if applicable, reoffer) in accordance with Section 2.11 (Mandatory Repayment Offers) and such Net Proceeds have otherwise been applied in accordance with clause (b) above, then the Borrower may use such remaining Net Proceeds for any purpose not otherwise prohibited by the Financing Documents, including the making of Restricted Payments. If the aggregate principal amount of all Secured Obligations having the same priority that are to be prepaid under clause (b) above exceeds the amount of Net Proceeds available therefor, then the Borrower will select the Secured Obligations to be purchased, pro rata based on the aggregate principal amount of all of such Secured Obligations to be prepaid.
SECTION 5.08. Transactions with Affiliates.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Borrower (each, an "Affiliate Transaction"), unless:
(i) the Affiliate Transaction, taken as a whole with all other related Affiliate Transactions, is on terms that are no less favorable to the Borrower and its Subsidiaries, taken as a whole, than those that would have been obtained in a comparable transaction by the Borrower or such Subsidiary with an unrelated Person; and
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(ii) the Borrower delivers to the Administrative Agent (other than with respect to a Shared Facilities Arrangement between or among only the Borrower and/or any of its Subsidiaries):
(A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10,000,000 but less than or equal to $25,000,000, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this Section 5.08 and that such Affiliate Transaction has been approved by a majority of the Board of Directors; and
(B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25,000,000, a positive opinion as to the Fair Market Value of such Affiliate Transaction issued by an accounting, appraisal or investment banking firm of national standing.
(b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 5.08(a):
(i) any employment agreement, employee benefit plan, officer and director indemnification agreement or any similar arrangement entered into by the Borrower or any of its Subsidiaries in the ordinary course of business;
(ii) transactions between or among the Borrower and/or any of the Guarantors (other than Shared Facilities Arrangements);
(iii) transactions with a Person that is an Affiliate of the Borrower (but not a Subsidiary of the Borrower) solely because the Borrower owns, directly or through a Subsidiary, an Equity Interest in, or controls, such Person;
(iv) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Borrower;
(v) any issuance of Equity Interests (other than Disqualified Stock) of the Borrower to Affiliates of the Borrower; provided that such Equity Interests are included in the Collateral;
(vi) Restricted Payments that do not violate the provisions of this Agreement as described in Section 5.04 (Restricted Payments);
(vii) loans or advances to employees in the ordinary course of business not to exceed $1,000,000 in the aggregate at any one time outstanding;
(viii) Permitted Tax Payments;
(ix) transactions under or pursuant to written agreements with Affiliates of the Borrower in place as of the date of this Agreement or any amendment or modification
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thereto, so long as any such amendment or modification meets the requirements of clause (x) or (xi) of this Section 5.08(b);
(x) any amendments or modifications of, or waivers under, any written agreement described under clause (ix) of this 5.08(b) that is not a Major Project Document; provided that no such amendment, modification or waiver alters any such agreement in a manner than is materially adverse to the interests of the Lenders;
(xi) any amendments or modifications of, or waivers under, any Major Project Document, which are permitted by Section 5.10(b) (Business Activities) and are on terms that are no less favorable to the Borrower or its relevant Subsidiary (as certified to the Administrative Agent in an Officer's Certificate) than those that would have been obtained in a comparable transaction by the Borrower or such Subsidiary with an unrelated Person; and
(xii) any agreement to do any of the foregoing.
SECTION 5.09. Liens. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens.
SECTION 5.10. Business Activities.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Borrower and its Subsidiaries taken as a whole.
(b) The Borrower shall, and shall cause its Subsidiaries to, perform all their obligations under the Major Project Documents, and the Borrower shall not, and shall not permit any of its Subsidiaries to, terminate, amend or otherwise modify, or consent to any termination, amendment or modification of, or grant any waiver under, any Major Project Document, unless any failure to so perform or any such termination, amendment, modification or waiver would not, when taken together with all other such failures to perform, terminations, amendments, modifications and waivers since the Closing Date, be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Borrower; provided, however, that the provisions of this paragraph will not apply to any amendment, modification or termination of any Major Project Document required under this Agreement in connection with an Asset Sale.
(c) The Borrower shall, and shall cause its Subsidiaries to, obtain and maintain all permits and approvals necessary for the construction and operation of the Facilities, including applicable exemptions from PUHCA, unless the failure to do so would not reasonably be expected to have a Material Adverse Effect.
(d) The Borrower shall not, and shall not permit any of its Subsidiaries to, use or dispose of any hazardous materials or allow any hazardous materials to be brought onto or stored or used on or transported to or released from the Facilities, other than in accordance with prudent industry practices and in compliance with all applicable Environmental Laws, except to the
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extent such non-compliance, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
SECTION 5.11. Payments for Consent. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of any Second Priority Term Loan or as an inducement to any consent, waiver or amendment of any of the terms or provisions of any Second Priority Term Loan Document unless such consideration is offered to be paid and is paid to all Lenders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
SECTION 5.12. Offer to Prepay Upon Change of Control.
(a) If a Change of Control occurs, the Borrower shall make a Mandatory Repayment Offer on the terms set forth herein and in Section 2.11 (Mandatory Repayment Offers). In such Mandatory Repayment Offer, the Borrower shall offer to prepay each Lender's Second Priority Term Loans in an amount equal to (i) with respect to any such Mandatory Prepayment Offer made on or before April 1, 2009, 101% of the aggregate principal amount of Second Priority Term Loans then outstanding, (ii) with respect to any such Mandatory Prepayment Offer made after April 1, 2009, 100% of the aggregate principal amount of Second Priority Term Loans then outstanding, plus, in each case, accrued and unpaid interest thereon, to but excluding the date of repayment, plus, in each case, any other amount then required to be paid hereunder.
(b) The provisions of this Section 5.12 and of Section 2.11 (Mandatory Repayment Offers) that require the Borrower to make a Mandatory Repayment Offer following a Change of Control shall be applicable whether or not any other provisions of this Agreement are applicable; provided that, the Borrower shall not be required to make a Mandatory Repayment Offer upon a Change of Control if a third party makes the Mandatory Repayment Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Agreement applicable to a Mandatory Repayment Offer required upon a Change of Control and repays all Second Priority Term Loans (and the other amounts required to be paid pursuant to clause (a) above).
SECTION 5.13. Restrictions on Activities of CalGen Finance. The Borrower shall not permit CalGen Finance to hold any material assets, become liable for any material obligations or engage in any significant business activities; provided that, notwithstanding anything to the contrary contained herein, CalGen Finance may be a co-obligor or guarantor with respect to Indebtedness if the Borrower is an obligor on such Indebtedness and the net proceeds of such Indebtedness are received by the Borrower, CalGen Finance or one or more of the Borrower's other Subsidiaries.
SECTION 5.14. Additional Subsidiaries. If the Borrower or any of its Subsidiaries acquires or creates another Subsidiary after the Closing Date, then
(a) that newly acquired or created Subsidiary will (i) become a Guarantor hereunder, (ii) if such Subsidiary's assets and property consist solely of its ownership interests in any Guarantor, become a Holding Company hereunder and
(iii) deliver or cause to be delivered an opinion of counsel reasonably satisfactory to the Administrative Agent within 30 days of the date on which it was acquired or created, and (b) all real and personal property of that Subsidiary will become part of the Collateral within 30
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days of the date on which that Subsidiary was acquired or created pursuant to documentation (including security documents, financing statements, opinions and other documents) reasonably satisfactory to the Administrative Agent and the Collateral Agent.
SECTION 5.15. Limitation on Issuances and Sales of Equity Interests in Subsidiaries.
(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Subsidiary of the Borrower to any Person (other than the Borrower or a Guarantor), unless:
(i) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Subsidiary; and
(ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Sections 2.11 (Mandatory Offers) and 5.07 (Asset Sales; Application of Net Proceeds).
(b) The Borrower shall not permit any of its Subsidiaries to issue any Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Borrower or a Guarantor.
SECTION 5.16. Deposit of Revenues. The Borrower shall, and shall cause its Subsidiaries to, deposit all revenues received by the Borrower and its Subsidiaries, within 10 Business Days of receipt thereof, in the Revenue Account.
SECTION 5.17. Maintenance of Insurance. The Borrower shall, and shall cause its Subsidiaries to, maintain with financially sound and reputable insurance companies, insurance on their property, including the Collateral, in at least such amounts, with such deductibles and against at least such risks as is customary for companies of the same or similar size engaged in the same or similar businesses as those of the Borrower and its Subsidiaries and furnish to the Administrative Agent, upon written request, full information as to such Persons' property and liability insurance carriers. The Borrower shall, and shall cause its Subsidiaries to, cause all their insurance policies to name the Lenders, as a class, as additional insureds with waiver of subrogation and shall cause all its, and its Subsidiaries', property and casualty policies to name the Collateral Agent as loss payee (together with other lien holders as their interests may appear), with the right to receive 30 days notice of any cancellation of or material change in such insurance policies.
SECTION 5.18. Coverage Ratio; Kilowatt Test.
(a) Consolidated Interest Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall cause the Consolidated Interest Coverage Ratio of the Borrower and its Subsidiaries to be equal to or greater than 1.05:1.0.
(b) Consolidated First and Second Priority Lien Debt to Kilowatt Test. As of the last day of each fiscal quarter of the Borrower, the Borrower shall cause the ratio of (a) the aggregate outstanding principal amount of First Priority Term Loans, First Priority Notes, Revolving Loans, Second Priority Term Loans and Second Priority Notes, to (b) the combined Estimated
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Peak Capacity of all the Facilities (including all Facilities in operation and under construction) owned by the Borrower and its Subsidiaries (expressed in kilowatts) to be equal to or less than $235 per kilowatt.
SECTION 5.19. Further Assurances; Ratings. The Borrower and each Guarantor shall perform such reasonable acts as may be necessary to carry out the intent of this Agreement and the other Second Priority Term Loan Documents promptly after written request by the Administrative Agent. The Borrower shall, as promptly as practical after the date hereof, perform all reasonable acts as may be necessary to cause Moody's to issue a credit rating in respect of the Second Priority Term Loans.
SECTION 5.20. Suspension of Certain Covenants. In the event that, from time to time, after giving effect to the suspension of covenants and the event of default provided for in this Section 5.20, the Third Priority Fixed Rate Notes and the Third Priority Floating Rate Notes are rated Baa3 or better by Moody's and BBB- or better by S&P, then the covenants contained in Section 5.04 (Restricted Payments), Section 5.05 (Dividend and Other Payment Restrictions Affecting Subsidiaries), Section 5.06 (Incurrence of Indebtedness and Issuance of Preferred Equity), Section 5.10 (Business Activities), Section 5.16 (Deposit of Revenues) and Section 7.01(i) shall be suspended. In the event that, at any time, neither the Third Priority Fixed Rate Notes nor the Third Priority Floating Rate Notes are rated Baa3 or better by Moody's and BBB- or better by S&P, the covenants and event of default contained in such Sections shall be reinstated.
ARTICLE VI.
SUCCESSORS
SECTION 6.01. Merger, Consolidation, or Sale of Assets.
(a) The Borrower shall not, directly or indirectly: (i) consolidate or merge with or into another Person (whether or not the Borrower is the surviving entity); (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Borrower and its Subsidiaries taken as a whole, in one or more related transactions, to another Person; or (iii) lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person; provided, however, that the foregoing shall not apply to:
(i) a merger of the Borrower with an Affiliate solely for the purpose of reconstituting the Borrower in another jurisdiction; or
(ii) any sale, transfer, assignment, conveyance, lease or other disposition of assets between or among the Borrower and the Guarantors.
(b) Notwithstanding the foregoing, the Borrower is permitted to reorganize as a corporation or a limited liability company in accordance with the procedures established in this Agreement, provided that the Borrower shall have delivered to the Administrative Agent an Opinion of Counsel in the United States reasonably acceptable to the Administrative Agent confirming that such reorganization is not adverse to the Lenders (it being recognized that such
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reorganization shall not be deemed adverse to the Lenders solely because (i) of the accrual of deferred tax liabilities resulting from such reorganization or
(ii) the successor or surviving corporation (A) is subject to income tax as a corporate entity or (B) is considered to be an "includable corporation" of an affiliated group of corporations within the meaning of the Code or any similar state or local law).
SECTION 6.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Borrower in a transaction that is subject to, and that complies with the provisions of,
Section 6.01 (Merger, Consolidation, or Sale of Assets), the successor corporation formed by such consolidation or into or with which the Borrower is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Agreement referring to the "Borrower" shall refer instead to the successor corporation and not to the Borrower), and may exercise every right and power of the Borrower under this Agreement with the same effect as if such successor Person had been named as the Borrower herein; provided, however, that the predecessor Borrower shall not be relieved from the obligation to pay the principal of and interest on or other amounts in respect of the Second Priority Term Loans.
ARTICLE VII.
DEFAULTS AND REMEDIES
SECTION 7.01. Events of Default.
Each of the following is an "Event of Default":
(a) default for 30 days in the payment when due of interest on the Second Priority Term Loans;
(b) default in payment when due of the principal of, or premium, if any, on the Second Priority Term Loans;
(c) failure by the Borrower or any of its Subsidiaries to comply with Section 5.07 (Asset Sales; Application of Net Proceeds), 5.12 (Offer to Prepay Upon Change of Control) or 5.16 (Deposit of Revenues);
(d) failure by Holdings, the Borrower or any of its Subsidiaries for 30 days after written notice from the Administrative Agent or the Lenders holding at least 50% in outstanding aggregate principal amount of the Second Priority Term Loans then outstanding to comply with any of the agreements in this Agreement or the other Second Priority Term Loan Documents;
(e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Borrower or any of its Subsidiaries (or the payment of which is guaranteed by the Borrower or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Agreement, if that default:
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(i) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
(ii) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25,000,000 or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Borrower or the applicable Subsidiary becoming aware of such default;
(f) failure by the Borrower or any of its Subsidiaries to pay final judgments aggregating in excess of $25,000,000 (excluding those covered by insurance), which judgments are not paid, discharged or stayed for a period of 60 days;
(g) the repudiation by Holdings, the Borrower or any of its Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against Holdings, the Borrower or any of its Subsidiaries for any reason; provided that such repudiation or unenforceability relates to Collateral having a Fair Market Value of $25,000,000 or more;
(h) except as permitted by this Agreement, any Second Priority Term Loan Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Second Priority Term Loan Guarantee, and such condition shall not have been cured within 30 days after written notice from the trustee or the holders of at least 50% in aggregate principal amount of outstanding Second Priority Term Loans;
(i) breach by any Person (other than the Borrower or any of its Subsidiaries) of its obligations under, or termination or failure to be in full force and effect of, a Major Project Document (unless such breach, termination or failure to be in full force and effect would not, when taken together with all other such breaches, terminations or failures since the date of this Agreement (other than those that have been cured as contemplated below, including by entering into a replacement agreement), be Materially Adverse, as evidenced by a certificate of the chief financial officer of the Borrower), unless with respect to any Major Project Document such breach is cured, or such Major Project Document is replaced with a substantially similar agreement (it being understood that (a) an agreement will be considered substantially similar if it would not be Materially Adverse and (b) the use of an Affiliate of the Borrower as the counterparty under an agreement replacing the Index Hedge will not by itself be considered Materially Adverse), within 60 days thereafter (or 120 days with respect to the Interest Hedge); and
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(j) the Borrower, any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary, suffer a Bankruptcy Event.
SECTION 7.02. Acceleration. In the case of an Event of Default specified in clause (j) of Section 7.01 (Events of Default), with respect to the Borrower or any of its Subsidiaries, the outstanding Second Priority Term Loans shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Administrative Agent or the Requisite Lenders may declare all the Second Priority Term Loans to be due and payable immediately. Upon any such declaration, the Second Priority Term Loans shall become due and payable immediately.
SECTION 7.03. Other Remedies.
(a) Subject to the Collateral Trust Agreement, if an Event of Default occurs and is continuing, the Administrative Agent may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Second Priority Term Loan Obligations or to enforce the performance of this Agreement and any other Second Priority Term Loan Document.
(b) The Administrative Agent may maintain a proceeding even if it does not possess any of the Second Priority Term Loan Obligations. A delay or omission by the Administrative Agent or any Lender in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 7.04. Waiver of Past Defaults; Rescission. The Requisite Lenders by notice to the Administrative Agent may on behalf of the Lenders waive an existing Default or Event of Default and its consequences hereunder. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Agreement; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. The Requisite Lenders, by written notice to the Administrative Agent, may on behalf of all of the Lenders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived.
SECTION 7.05. Control by Majority. The Requisite Lenders may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Administrative Agent or exercising any trust or power conferred on it. However, the Administrative Agent may refuse to follow any direction that conflicts with law, this Agreement, the other Second Priority Term Loan Documents, that the Administrative Agent determines may be unduly prejudicial to the rights of other Lenders, that may involve the Administrative Agent in personal liability, or that is inconsistent with the Collateral Trust Agreement.
SECTION 7.06. Collection Suit by Administrative Agent. If an Event of Default specified in Section 7.01(a) or (b) (Events of Default) occurs and is continuing, the Administrative Agent is authorized to recover judgment in its own name and as trustee of an express trust against the
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Borrower for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Second Priority Term Loans and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Administrative Agent, its agents and counsel.
SECTION 7.07. Priorities.
Subject to the Collateral Trust Agreement, if the Administrative Agent collects any money pursuant to this Article VII, it shall pay out the money in the following order:
First: to the Administrative Agent and the Lenders on a pro rata basis, their respective agents and attorneys for amounts due under this Agreement and the other Second Priority Term Loan Documents, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Administrative Agent or any of the Lenders and the costs and expenses of collection;
Second: to the Lenders for amounts due and unpaid on the Second Priority Term Loan Obligations for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Second Priority Term Loan Obligations for principal, premium, if any and interest, respectively; and
Third: to the Borrower or to such party as a court of competent jurisdiction shall direct.
The Administrative Agent may fix a record date and payment date for any payment to the Lenders pursuant to this Section 7.07.
ARTICLE VIII.
AGENTS
SECTION 8.01. Appointment of Agents. The Borrower and the Lenders acknowledge and agree that MSSF has acted and shall be credited as sole lead arranger of the Second Priority Term Loans. The Borrower and the Lenders acknowledge and agree that MSSF has acted and shall be credited as sole bookrunner of the Second Priority Term Loans and that MSSF is hereby appointed Administrative Agent hereunder and under the other Second Priority Term Loan Documents. The Borrower and each Lender hereby authorizes the Collateral Agent to act as the Collateral Agent with respect to the Second Priority Term Loan Obligations, and each Lender authorizes the Collateral Agent and the Administrative Agent to enter into and perform their respective obligations under the Collateral Trust Agreement. Each Lender hereby authorizes the Administrative Agent to act as its agent in accordance with the terms hereof and the other Second Priority Term Loan Documents. The Administrative Agent hereby agrees to act upon the express conditions contained herein and the other Second Priority Term Loan Documents, as applicable. The provisions of this Article VIII are solely for the benefit of the Agents and the Lenders and no Obligor shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, the Administrative Agent shall act
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solely as an agent of the Lenders and no Agent does or shall assume or be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower or any of its Subsidiaries. MSSF in its capacity as the sole lead arranger and bookrunner shall not have any duties, liabilities or obligations under the Second Priority Term Loan Documents but shall be entitled to all benefits of this Article VIII.
SECTION 8.02. Powers and Duties. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Second Priority Term Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and in the other Second Priority Term Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Second Priority Term Loan Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Second Priority Term Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Second Priority Term Loan Documents except as expressly set forth herein or therein.
SECTION 8.03. General Immunity.
(a) No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency hereof or any other Second Priority Term Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to the Lenders or by or on behalf of any Obligor to any Agent or any Lender in connection with the Second Priority Term Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Obligor or any other Person liable for the payment of any Second Priority Term Loan Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Second Priority Term Loan Documents or as to the use of the proceeds of the Second Priority Term Loans or as to the existence or possible existence of any Material Adverse Effect, Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Second Priority Term Loans or the component amounts thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by any Agent under or in connection with any of the Second Priority Term Loan Documents except to the extent caused by such Agent's bad faith, gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Second Priority Term Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder
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unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 12.05 (Amendments and Waivers)) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Borrower and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Second Priority Term Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 12.05 (Amendments and Waivers)).
SECTION 8.04. Agents Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Second Priority Term Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with the Borrower or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection herewith and otherwise without having to account for the same to the Lenders.
SECTION 8.05. Lenders' Representations, Warranties and Acknowledgment.
(a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with its Second Priority Term Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of the CalGen Companies. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Second Priority Term Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders.
(b) Each Lender, by delivering its signature page to this Agreement and funding its Second Priority Term Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Second Priority Term Loan Document and each other
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document required to be approved by any Agent, Requisite Lenders or the Lenders, as applicable on the Closing Date.
SECTION 8.06. Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Obligor, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Second Priority Term Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Second Priority Term Loan Documents; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's bad faith, gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.
SECTION 8.07. Successor Administrative Agent. The Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to the Lenders and the Borrower, and the Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Borrower and the Administrative Agent and signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, the Requisite Lenders shall have the right, upon five Business Days' notice to the Borrower, to appoint a successor Administrative Agent; provided, that the Borrower shall have the right to approve any such successor Administrative Agent (such approval not to be unreasonably withheld or delayed) so long as no Default or Event of Default shall have occurred and be continuing. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall promptly transfer to such successor Administrative Agent all sums, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent under the Second Priority Term Loan Documents, whereupon such retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder.
SECTION 8.08. Withholding Tax.
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(a) To the extent required by any applicable Legal Requirement, the Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to any applicable withholding tax, including any withholding tax resulting from any Lenders' failure to deliver the forms or other documentation as required by Section 2.16(e) (Taxes; Withholding, etc). Nothing in this Section 8.08 shall relieve the Borrower of its obligation with respect to Taxes and Other Taxes provided in Section 2.16 (Taxes; Withholding, etc.).
(b) If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
ARTICLE IX.
COLLATERAL AND SECURITY
The Collateral Agent's Liens upon the Collateral shall no longer secure the Second Priority Term Loan Obligations outstanding under this Agreement, and the right of the Lenders to the benefits and proceeds of the Collateral Agent's Liens on Collateral shall terminate and be discharged:
(a) on the Second Priority Term Loan Secured Obligations Termination Date; or
(b) with the prior written consent of each Lender whose consent is required under Section 12.05.
Nothing in this Article IX shall be deemed to restrict the Collateral Agent's rights to release liens on Collateral in accordance with the terms of the Collateral Trust Agreement or as otherwise permitted pursuant to the terms of this Agreement.
ARTICLE X.
RANKING OF LIENS AND COLLATERAL SHARING
EACH LENDER AND EACH AGENT HEREBY ACKNOWLEDGES AND AGREES THAT THE THEIR RESPECTIVE LIEN PRIORITIES, THE DISTRIBUTION OF PROCEEDS OF COLLATERAL, THE EXERCISE OF REMEDIES UNDER THE SECOND PRIORITY TERM LOAN DOCUMENTS, AMENDMENTS AND WAIVERS TO THE SECOND PRIORITY TERM LOAN DOCUMENTS, AND OTHER MATTERS RELATED TO THE COLLATERAL ARE SUBJECT TO AND GOVERNED BY THE COLLATERAL TRUST AGREEMENT. Each Lender and each Agent, by delivering its signature page hereto, funding
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its Second Priority Term Loan on the Closing Date and/or executing an Assignment Agreement (as the case may be), shall be deemed to have (a) acknowledged receipt of, consented to and approved the Collateral Trust Agreement and (b) authorized the Agents to perform their respective obligations thereunder. Each Lender and each Agent further acknowledges that, in certain circumstances related to intercreditor and security matters, the Collateral Trust Agreement provides that, where lenders and/or noteholders hold the same series of Obligations (such as the Second Priority Term Loan Obligations and the Obligations under the Second Priority Notes), such lenders and noteholders will vote as a single class, and the agent or trustee for such lenders or noteholders, as applicable, will vote the obligations of such lenders or noteholders, as applicable, as a class (and not by percentage of lenders or noteholders voting for or against the applicable intercreditor or security matter). Accordingly, in such circumstances under the Collateral Trust Agreement, if the Requisite Lenders hereunder do (or do not) consent, approve, waive or otherwise provide direction to the Administrative Agent with respect to any request, decision, action, or otherwise, then the Administrative Agent shall vote 100% of the Second Priority Term Loan Obligations in favor of such consent, approval or waiver (or rejection thereof), as applicable, all in accordance with the terms of the Collateral Trust Agreement.
ARTICLE XI.
SECOND PRIORITY TERM LOAN GUARANTEE
SECTION 11.01. Guarantee.
(a) Subject to the limitations set forth in Section 12.22 (No Recourse Against the Borrower or the Guarantors) and in Section 11.01(b), the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Administrative Agent, for the benefit of the Lenders making the Second Priority Term Loans and their respective successors, endorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower and each other Guarantor when due (whether at the stated maturity, by acceleration or otherwise) of the Second Priority Term Loan Obligations;
(b) Each Guarantor, and by its making of a Second Priority Term Loan on the Closing Date, each Lender, hereby confirms that it is the intention of all such parties that the Second Priority Term Loan Guarantee(s) of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Second Priority Term Loan Guarantee. To effectuate the foregoing intention, the Administrative Agent, the Lenders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article XI, result in the obligations of such Guarantor under its Second Priority Term Loan Guarantee not constituting a fraudulent transfer or conveyance.
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(c) Each Guarantor agrees that the Second Priority Term Loan Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor under this Article XI without impairing the guarantee of such Guarantor to the extent provided in this Article XI or affecting the rights and remedies of the Administrative Agent or any other Secured Party hereunder.
(d) The guarantee provided in this Article XI shall remain in full force and effect until the Second Priority Term Loan Secured Obligations Termination Date.
(e) With respect to each Guarantor, no payment made by the Borrower, any of the other Guarantors or any other Person, or received or collected by the Administrative Agent or any other Secured Party from the Borrower, any of the other Guarantors or any other Person, by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of any Second Priority Term Loan Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of such Guarantor hereunder, which Guarantor shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Second Priority Term Loan Obligations or any payment received or collected from such Guarantor in respect of the Second Priority Term Loan Obligations), remain liable for the Second Priority Term Loan Obligations outstanding from time to time hereunder up to the maximum amount of such Guarantor's liability hereunder until the Second Priority Term Loan Secured Obligations Termination Date.
SECTION 11.02. Right of Contribution.
(a) Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 11.04 (No Subrogation).
(b) The provisions of this Section 11.02 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the other Second Priority Term Loan Secured Parties, and each Guarantor shall remain liable to the Administrative Agent and the other Second Priority Term Loan Secured Parties for the full amount guaranteed by such Guarantor hereunder.
SECTION 11.03. Subordination. Except as otherwise specifically provided in this Article XI, (a) all existing and future indebtedness of, or other obligations owed by, the Borrower or any of its subsidiaries to any Guarantor is hereby subordinated to all Second Priority Term Loan Obligations, and (b) without the prior written consent of the Administrative Agent, such subordinated indebtedness (including interest thereon) shall not be paid or withdrawn in whole or in part, nor shall any Guarantor accept any payment of or on account of any such indebtedness while the guarantee provided hereunder is in effect. Any payment by the Borrower or any subsidiary thereof in violation of this Section 11.03 shall be received by the relevant Guarantor in trust for the Administrative Agent and the Second Priority Term Loan Secured Parties, and such Guarantor shall cause the same to be paid to the Administrative Agent for the benefit of the Second Priority Term Loan Secured Parties immediately upon demand by the Administrative
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Agent on account of the Second Priority Term Loan Obligations. No Guarantor shall assign all or any portion of such indebtedness while the guarantee provided hereunder remains in effect except upon prior written notice to the Administrative Agent and pursuant to an agreement by which the assignee of any such indebtedness agrees that the assignment is made subject to the terms of this Agreement, and that any attempted assignment of such indebtedness in violation of the provisions hereof shall be void. Nothing in this Section 11.03 shall apply to any repayment of existing or future indebtedness or obligation, distribution, withdrawal of capital or any other payment of any kind or nature whether in cash, in kind, or otherwise, that is permitted to be made to the Guarantor or any of its Affiliates pursuant to and in accordance with the Financing Documents.
SECTION 11.04. No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Administrative Agent or any other Secured Party, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any other Secured Party against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Administrative Agent or any other Secured Party for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until the Second Priority Term Loan Secured Obligations Termination Date. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Second Priority Term Loan Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the other Second Priority Term Loan Secured Parties, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly endorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Second Priority Term Loan Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine, subject to the terms and provisions of the Collateral Trust Agreement.
SECTION 11.05. Amendments, etc. with respect to the Second Priority Term Loan Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Second Priority Term Loan Obligations made by the Administrative Agent or any other Secured Party may be rescinded by the Administrative Agent or such other Secured Party and any of the Second Priority Term Loan Obligations continued, and the Second Priority Term Loan Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any other Secured Party, and any of the Second Priority Term Loan Documents may be amended, modified, supplemented or terminated, in whole or in part, as the requisite parties thereto deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any other Secured Party for the payment of the Second Priority Term Loan Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the
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Second Priority Term Loan Obligations or for the guarantee contained in this Article XI or any property subject thereto.
SECTION 11.06. Guarantee Absolute and Unconditional.
(a) Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Second Priority Term Loan Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guarantee contained in this Article XI or acceptance of the guarantee contained in this Article XI. Each Guarantor agrees that the Second Priority Term Loan Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the Second Priority Term Loan Guarantees. Each Guarantor agrees that all dealings between the Borrower and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Article XI. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Second Priority Term Loan Obligations.
(b) The obligations of each Guarantor hereunder are primary obligations of such Guarantor and are an absolute, unconditional, continuing and irrevocable guaranty of payment and performance of the Second Priority Term Loan Obligations and the other obligations of Guarantor hereunder and not of collectibility, and are in no way conditioned on or contingent upon any attempt to enforce in whole or in part Holdings', the Borrower's or any CalGen Company's liabilities and obligations to the Secured Parties. Each failure by a Guarantor to pay or perform, as the case may be, a Second Priority Term Loan Obligation or any other obligation hereunder shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises.
(c) The Second Priority Term Loan Secured Parties may, at any time and from time to time (whether or not after revocation or termination of the guarantee contained in this Article XI) without the consent of or notice to any Guarantor, except such notice as may be required by the Second Priority Term Loan Documents or applicable law which cannot be waived, without incurring responsibility to any Guarantor, without impairing or releasing the obligations of any Guarantor hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place and terms of payment or performance of, or renew or alter, any Second Priority Term Loan Obligation or any obligations and liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, or in any manner modify, amend or supplement the terms of the Second Priority Term Loan Documents or any documents, instruments or agreements executed in connection therewith, in each case with the consent of Holdings, the Borrower, the CalGen Companies and any Guarantor (in each case, as and to the extent required by this Agreement or the relevant Security Document, as applicable), and the agreements and guarantees herein made shall apply to the Second Priority Term Loan Obligations or such other obligations as changed, extended, renewed, modified, amended, supplemented or altered in any manner;
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(ii) exercise or refrain from exercising any rights against the Borrower, Holdings, any CalGen Company, or others (including any Guarantor) or otherwise act or refrain from acting;
(iii) add or release any other guarantor from its obligations without affecting or impairing the obligations of any Guarantor hereunder;
(iv) settle or compromise any Second Priority Term Loan Obligations or any obligations and liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment or performance of all or any part thereof to the payment or performance of any obligations and liabilities which may be due to the Secured Parties or others;
(v) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner or in any order any property by whomsoever pledged or mortgaged to secure or securing the Second Priority Term Loan Obligations or any liabilities or obligations (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof and/or any offset there against;
(vi) apply any sums by whomsoever paid or howsoever realized to any obligations and liabilities of Holdings, the Borrower or any CalGen Company to the Second Priority Term Loan Secured Parties under the Second Priority Term Loan Documents in the manner provided therein regardless of what obligations and liabilities remain unpaid, except that sums paid by any Guarantor hereunder shall be deemed to have been paid in respect of the applicable obligation of such Guarantor hereunder;
(vii) consent to or waive any breach of, or any act, omission or default under, the Second Priority Term Loan Documents or otherwise amend, modify or supplement (with the consent of the Guarantors, Holdings, the Borrower and the CalGen Companies, as and to the extent required by the Second Priority Term Loan Documents) the Second Priority Term Loan Documents or any of such other instruments or agreements; and/or
(viii) act or fail to act in any manner referred to in this Agreement which may deprive any Guarantor of its right to subrogation against the Borrower or any CalGen Company to recover full indemnity for any payments or performances made pursuant to this Agreement or of its right of contribution against any other party.
(d) No invalidity, irregularity or unenforceability of the Second Priority Term Loan Obligations or invalidity, irregularity, unenforceability or non-perfection of any collateral therefor, shall affect, impair or be a defense to the guarantee contained in this Article XI, which is a primary obligation of each Guarantor.
(e) The guarantee provided hereunder is a continuing guarantee and all obligations to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. In the event that, notwithstanding the provisions of Section 11.06(b) above, the guarantee provided by any Guarantor hereunder shall be deemed revocable in accordance with applicable law, then any such revocation shall become effective only upon receipt by Administrative Agent of written notice of revocation signed by such Guarantor. To
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the extent permitted by applicable law, no revocation or termination hereof shall affect, in any manner, rights arising under hereunder with respect to Second Priority Term Loan Obligations arising prior to receipt by Administrative Agent of written notice of such revocation or termination. Any such revocation or termination shall be deemed to be an Event of Default.
SECTION 11.07. Waiver. Each Guarantor hereby unconditionally and irrevocably waives and relinquishes, to the maximum extent permitted by applicable Legal Requirements, all rights and remedies accorded to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies, including:
(a) any right to require Administrative Agent or the other Secured Parties to proceed against the Borrower, any CalGen Company or any other Person or to proceed against or exhaust any security held by Administrative Agent or any other Secured Party at any time or to pursue any other remedy in Administrative Agent's or any other Secured Party's power before proceeding against such Guarantor;
(b) any defense that may arise by reason of the incapacity, lack of power or authority, death, dissolution, merger, termination or disability of such Guarantor, the Borrower, any other CalGen Company or any other Person or the failure of the Administrative Agent or any other Secured Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of such Guarantor, Holdings, the Borrower, any CalGen Company or any other Person;
(c) promptness, diligence, demand, presentment, protest and notice of any kind, including notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Holdings, the Borrower, any CalGen Company, the Administrative Agent, the other Secured Parties, any endorser or creditor of the foregoing or on the part of any other Person under this or any other instrument in connection with any obligation or evidence of indebtedness held by the Administrative Agent or the other Secured Parties as collateral or in connection with any Second Priority Term Loan Obligation;
(d) any defense based upon an election of remedies by the Administrative Agent or the other Secured Parties, including an election to proceed by non-judicial rather than judicial foreclosure, which destroys or otherwise impairs the subrogation rights of such Guarantor, the right of such Guarantor to proceed against Holdings, the Borrower, any CalGen Company or another Person for reimbursement, or both;
(e) any defense based on any offset against any amounts which may be owed by any Person to such Guarantor for any reason whatsoever;
(f) any defense based on any act, failure to act, delay or omission whatsoever on the part of Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates or the failure by Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates to do any act or thing or to observe or perform any covenant, condition or agreement to be observed or performed by it under the Financing Documents;
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(g) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
(h) any defense setoff or counterclaim which may at any time be available to or asserted by Holdings, the Borrower, any CalGen Company or any of the Borrower's Affiliates thereof against the Administrative Agent, the other Secured Parties or any other Person under the Financing Documents;
(i) any duty on the part of the Administrative Agent or any other Secured Party to disclose to such Guarantor any facts any Secured Party may now or hereafter know about Holdings, the Borrower, any CalGen Company or the Facilities, regardless of whether the Administrative Agent or any other Secured Party has reason to believe that any such facts materially increase the risk beyond that which such Guarantor intends to assume, or have reason to believe that such facts are unknown to such Guarantor, or have a reasonable opportunity to communicate such facts to such Guarantor, since such Guarantor acknowledges that such Guarantor is fully responsible for being and keeping informed of the financial condition of the Borrower and of all circumstances bearing on the risk of non-payment or non-performance of any Second Priority Term Loan Obligation;
(j) any defense based on any change in the time, manner or place of any payment or performance under, or in any other term of, this Agreement or any other Financing Document, or any other amendment, renewal, extension, acceleration, compromise or waiver of or any consent or departure from the terms of this Agreement or any other Financing Document;
(k) any right to assert the bankruptcy or insolvency of Holdings, the Borrower, any CalGen Company or any other Person as a defense hereunder or as the basis for rescission hereof and any defense arising because of the Administrative Agent's or any other Secured Party's election, in any proceeding instituted under the Bankruptcy Law, of the application of Section 1111(b)(2) of the Bankruptcy Law;
(l) any defense based upon any borrowing or grant of a security interest under Section 364 of the Bankruptcy Law; and
(m) any other circumstance (including any statute of limitations), any act or omission by Holdings, the Borrower, any CalGen Company, or any existence of or reliance on any representation by the Administrative Agent, Holdings, the Borrower, any CalGen Company or any Secured Party that might otherwise constitute a defense available to, or discharge of, any guarantor or surety (other than, subject to Section 11.08 (Bankruptcy), the defense of payment or performance of the applicable Obligations guaranteed hereunder).
SECTION 11.08. Bankruptcy.
(a) The obligations of any Guarantor under the guarantee provided in this Article XI shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement of Holdings, the Borrower, any other Guarantor or any Affiliate thereof, or by any defense which Holdings,
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the Borrower, any Guarantor or any Affiliate thereof may have by reason of any order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor shall file, in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law, all claims which such Guarantor may have against Holdings, the Borrower or any CalGen Company relating to any indebtedness of the Borrower or any CalGen Company to such Guarantor, and hereby assigns to the Administrative Agent (for the benefit of itself and the Lenders) all rights of such Guarantor thereunder. If any Guarantor does not file any such claim, the Administrative Agent, as attorney-in-fact for such Guarantor, is hereby authorized to do so in the name of such Guarantor or, in the Administrative Agent's discretion, to assign the claim to a nominee and to cause proofs of claim to be filed in the name of the Administrative Agent's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. The Administrative Agent or its nominee shall have the sole right to accept or reject any plan proposed in any such proceeding and to take any other action which a party filing a claim is entitled to take. In all such cases, whether in administration, bankruptcy or otherwise, the person authorized to pay such a claim shall pay the same to the Administrative Agent to the extent of any Second Priority Term Loan Obligations which then remain unpaid or unperformed, and, to the full extent necessary for that purpose, each Guarantor hereby assigns to the Administrative Agent all of such Guarantor's rights to all such payments or distributions to which such Guarantor would otherwise be entitled; provided, however, that such Guarantor's obligations hereunder shall not be satisfied except to the extent that the Administrative Agent receives cash by reason of any such payment or distribution. If the Administrative Agent receives anything hereunder other than cash, the same shall be held as collateral for amounts due under the guarantee contained in this Article XI.
(c) Each Guarantor hereby irrevocably waives, to the extent it may do so under applicable Legal Requirements, any protection to which it may be entitled under Sections 365(c)(1), 365(c)(2) and 365(e)(2) of the Bankruptcy Law or equivalent provisions of the laws or regulations of any other jurisdiction with respect to any proceedings, or any successor provision of law of similar import, in the event of any Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company. Specifically, in the event that the trustee (or similar official) in a Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company or the debtor-in-possession takes any action (including the institution of any action, suit or other proceeding for the purpose of enforcing the rights of Holdings, the Borrower, or any Guarantor under this Agreement or any Security Document), no Guarantor shall assert any defense, claim or counterclaim denying liability hereunder on the basis that this Agreement or any Security Document is an executory contract or a "financial accommodation" that cannot be assumed, assigned or enforced or on any other theory directly or indirectly based on Section 365(c)(1), 365(c)(2) or 365(e)(2) of the Bankruptcy Law, or equivalent provisions of the law or regulations of any other jurisdiction with respect to any proceedings or any successor provision of law of similar import. If a Bankruptcy Event with respect to Holdings, the Borrower or any CalGen Company shall occur, each Guarantor agrees, after the occurrence of such Bankruptcy Event, to reconfirm in writing, to the extent permitted by applicable Legal Requirements, its pre-petition waiver of any protection to which it may be entitled under Sections 365(c)(1), 365(c)(2) and 365(e)(2) of the Bankruptcy Law or equivalent provisions of the laws or regulations of any other jurisdiction with respect to proceedings and, to give effect to such waiver, each Guarantor consents to the assumption and enforcement of each provision of the guarantee contained in this
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Article XI and any other provision hereof and in any other Second Priority Term Loan Document by the debtor-in-possession or Holdings', the Borrower's or any CalGen Company's trustee in bankruptcy, as the case may be.
SECTION 11.09. Reinstatement. The guarantee contained in this Article XI shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Second Priority Term Loan Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Holdings, the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Holdings, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.
SECTION 11.10. Payments. Each Guarantor shall make all payments due hereunder in accordance with Section 2.12 (General Provisions Regarding Payments).
ARTICLE XII.
MISCELLANEOUS
SECTION 12.01. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to the Borrower or any Guarantor or the Administrative Agent shall be sent to such Person's address as set forth on Appendix B or in the other relevant Second Priority Term Loan Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to the Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to the Administrative Agent shall be effective until received by the Administrative Agent. Documents, notices or reports required to be delivered to the Lenders pursuant to Sections 2.11 (Mandatory Repayment Offers), 5.01(a) (Reports), 5.02 (Compliance Certificate) and 5.12 (Offer to Prepay Upon Change of Control) may be delivered electronically and posted electronically on IntraLinks/IntraAgency or other relevant website to which the Lenders have access (whether a commercial, third-party website or whether sponsored by Administrative Agent), if any; provided that (i) the Administrative Agent shall deliver paper copies of such reports to any Lender upon written request therefor; and (ii) the Administrative Agent shall notify (which may be by facsimile or electronic mail) each Lender of the posting of any such reports and provide to each Lender by email electronic versions (i.e., soft copies) of such reports.
SECTION 12.02. Expenses.
The Borrower agrees to pay promptly, without duplication among the separate clauses of this Section 12.02 and without duplication of amounts paid under the Purchase Agreement or the Revolving Loan Agreement or any other Financing Document:
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(a) all the costs incurred after the Closing Date of furnishing all opinions by counsel for the Borrower and the other Obligors;
(b) the reasonable fees, expenses and disbursements of counsel to the Sole Lead Arranger in connection with the administration of the Second Priority Term Loan Documents and the negotiation, preparation and execution of any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by the Borrower;
(c) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of the Secured Parties pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Security Documents;
(d) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers if reasonably required in connection with the administration or enforcement of this Agreement;
(e) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) reasonably required in connection with the custody or preservation of any of the Collateral; and
(f) after the occurrence of a Default or an Event of Default, all costs and expenses, including attorneys' fees and costs of settlement, incurred by any Agent and the Lenders in enforcing any Second Priority Term Loan Obligations of or in collecting any payments due from any Obligor hereunder or under the other Second Priority Term Loan Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Second Priority Term Loan Guarantees) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any Bankruptcy Case or Insolvency Proceeding.
SECTION 12.03. Indemnity.
(a) In addition to the payment of costs and expenses pursuant to
Section 12.02 (Expenses), whether or not the transactions contemplated hereby shall be consummated, the Borrower and the Guarantors agree to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless the Administrative Agent and the Lenders and each of their respective Affiliates and each and all of the directors, officers, partners, trustees, employees, attorneys and agents, and (in each case) their respective heirs, representatives, successors and assigns (each of the foregoing, an "Indemnitee") from and against any and all Indemnified Liabilities; provided, no Indemnitee shall be entitled to indemnification hereunder with respect to any Indemnified Liability to the extent such Indemnified Liability is found by a final and nonappealable decision of a court of competent jurisdiction to have resulted directly and primarily from the bad faith, gross negligence or willful misconduct of such Indemnitee.
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(b) All amounts due under Section 12.03(a) shall be payable not later than 10 days after written demand therefor.
(c) To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in Section 12.03(a) may be unenforceable in whole or in part because they are violative of any law or public policy, the Borrower and the Guarantors shall contribute the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.
(d) The Borrower and the Guarantors shall not assert any claim against any Indemnitee, on any theory of liability, for any lost profits or special, indirect or consequential damages or (to the fullest extent lawful) any punitive damages arising out of, in connection with, or as a result of, this Agreement or any other Second Priority Term Loan Document or any agreement or instrument or transaction contemplated hereby or relating in any respect to any Indemnified Liability, and the Borrower and the Guarantors hereby forever waive, release and agree not to sue upon any claim for any such lost profits or special, indirect, consequential or (to the fullest extent lawful) punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.
(e) The agreements in this Section 12.03 shall survive repayment of the Second Priority Term Loans and all other amounts payable hereunder.
SECTION 12.04. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by the Borrower and the Guarantors at any time or from time to time subject to the consent of the Administrative Agent, without prior written notice to such Person or to any other Person (other than the Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of the Borrower or any Guarantor against and on account of the obligations and liabilities of such party to such Lender hereunder, and under the other Second Priority Term Loan Documents, including all claims of any nature or description arising out of or connected hereto, or with any other Second Priority Term Loan Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Second Priority Term Loans or any other amounts due hereunder shall have become due and payable pursuant to Article II and although such obligations and liabilities, or any of them, may be contingent or unmatured.
SECTION 12.05. Amendments and Waivers.
(a) Requisite Lenders' Consent. Subject to Section 12.05(e), no amendment, modification, termination or waiver of any provision of the Second Priority Term Loan Documents, or consent to any departure by any Obligor therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders and any additional consents required by Sections 12.05(b) and (c).
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(b) Affected Lenders' Consent. No amendment, modification, termination, or consent shall be effective if the effect thereof would:
(i) extend the scheduled final maturity of any Second Priority Term Loan or Second Priority Term Loan Note outstanding to any Lender without the prior written consent of that Lender;
(ii) waive, reduce or postpone any scheduled repayment (but not prepayment) due to any Lender without the prior written consent of that Lender;
(iii) reduce the rate of interest on any Second Priority Term Loan (other than any waiver of any increase in the interest rate applicable to any Second Priority Term Loan pursuant to Section 2.07 (Default Interest)) payable to any Lender or reduce or extend any fee payable hereunder to any Lender without the prior written consent of that Lender;
(iv) reduce the principal amount of any Second Priority Term Loan outstanding to any Lender without the prior written consent of that Lender;
(v) amend, modify, terminate or waive any provision of this Section 12.05(b), as it applies to any Lender without the prior written consent of that Lender;
(vi) amend the definition of "Requisite Lenders" or "Pro Rata Share" without the prior written consent of all Lenders;
(vii) release any Collateral from the Liens created by the Security Documents, except as specifically provided for in this Agreement and the Security Documents, without the prior written consent of all Lenders;
(viii) release any Guarantor from its obligations under its Second Priority Term Loan Guarantee(s) or otherwise consent to the assignment or transfer by any Obligor of any of its rights and obligations under any Second Priority Term Loan Document without the prior written consent of all Lenders; or
(ix) amend or modify any provision which requires pro rata payments among and as between the Lenders without the prior written consent of all Lenders
(c) Other Consents. No amendment, modification, termination or waiver of any provision of the Second Priority Term Loan Documents, or consent to any departure by any Obligor therefrom, shall amend, modify, terminate or waive any provision of Article VIII as the same applies to the Administrative Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of the Administrative Agent.
(d) Execution of Amendments, etc. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on
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any Obligor in any case shall entitle any Obligor to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 12.05 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by an Obligor, on such Obligor.
(e) Certain Amendments. Notwithstanding the preceding provisions of this Section 12.05, the Borrower and the Administrative Agent may amend or supplement the Second Priority Term Loan Documents without the consent of any Lender:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for the assumption of the Borrower's obligations to the Lenders by a successor to the Borrower pursuant to Article VI hereof;
(iii) to make any change that would provide any additional rights or benefits to the Lenders or that does not adversely affect the legal rights hereunder of any Lender;
(iv) to allow any Subsidiary of the Borrower to provide a Second Priority Term Loan Guarantee or allow any Guarantor to execute a supplemental Guarantee with respect to the Second Priority Term Loan Obligations;
(v) to make, complete or confirm any grant of Collateral permitted or required by this Agreement or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Agreement or any of the Security Documents;
(vi) to conform the text of this Agreement, the Second Priority Term Loan Notes or the Security Documents to any provision of the Description of New Term Loans or Description of Notes section of the Offering Memorandum to the extent that such provision of the Description of New Term Loans or Description of Notes section of the Offering Memorandum was intended to be a verbatim recitation of a provision of this Agreement, the Second Priority Term Loans or the Security Documents; or
(vii) to reflect any waiver or termination of any right arising under the provisions of this Agreement that otherwise would be enforceable by any holder of the Notes, if such waiver or termination is set forth in the indentures governing such Notes, provided that no such waiver or amendment shall adversely affect the rights of the Lenders.
SECTION 12.06. Successors and Assigns; Participations.
(a) Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders and the other parties hereto. No Obligor's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Obligor without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated
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hereby, Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Register. The Borrower, the Administrative Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Second Priority Term Loan Commitments and Second Priority Term Loans listed therein for all purposes hereof, and no assignment or transfer of any such Second Priority Term Loan Commitment or Second Priority Term Loan (including any Second Priority Term Loan represented by a Second Priority Term Loan Note) shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by the Administrative Agent and recorded in the Register as provided in Section 12.06(e). Prior to such recordation, all amounts owed with respect to the applicable Second Priority Term Loan Commitment or Second Priority Term Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Second Priority Term Loan Commitments or Second Priority Term Loans.
(c) Right to Assign. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including all or a portion of its Second Priority Term Loan Commitment or Second Priority Term Loans owing to it or other Second Priority Term Loan Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Second Priority Term Loan and any related Second Priority Term Loan Commitments):
(i) to any Person meeting the criteria of clause (a) of the definition of the term of "Eligible Assignee" upon the giving of notice to the Borrower and the Administrative Agent; and
(ii) to any Person meeting the criteria of clause (b) of the definition of the term of "Eligible Assignee";
provided, further each such assignment pursuant to this Section 12.06(c) shall be in an aggregate amount of not less than $1,000 (or such lesser amount as may be agreed to by the Borrower and the Administrative Agent or as shall constitute the aggregate amount of the Second Priority Term Loan Commitments and Second Priority Term Loans outstanding to the assigning Lender).
(d) Mechanics; Fee. The assigning Lender and the assignee thereof shall execute and deliver to the Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to the Administrative Agent pursuant to Section 2.16(e) (Taxes; Withholding, etc.).
(e) Notice of Assignment. Upon its receipt of a duly executed and completed Assignment Agreement (and any forms, certificates or other evidence required by this
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Agreement in connection therewith), the Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to the Borrower and shall maintain a copy of such Assignment Agreement.
(f) Representations and Warranties of Assignee. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, and without limiting any other representation or warranty contained in any such Assignment Agreement, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Second Priority Term Loan Commitments or Second Priority Term Loans, as the case may be; and (iii) it shall make or invest in, as the case may be, its Second Priority Term Loan Commitments or Second Priority Term Loans for its own account in the ordinary course of its business and without a view to distribution of such Second Priority Term Loan Commitments or Second Priority Term Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 12.06, the disposition of such Second Priority Term Loan Commitments or Second Priority Term Loans or any interests therein shall at all times remain within its exclusive control).
(g) Effect of Assignment. Subject to the terms and conditions of this Section 12.06, as of the "Effective Date" specified in the applicable Assignment Agreement:
(i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof;
(ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section
12.08 (Survival of Representations, Warranties and Agreements) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the Second Priority Term Loan Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); and
(iii) if any such assignment occurs after the issuance of any Second Priority Term Loan Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Second Priority Term Loan Notes to the Administrative Agent for cancellation, and thereupon the Borrower shall issue and deliver new Second Priority Term Loan Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new outstanding Second Priority Term Loans of the assignee and/or the assigning Lender.
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(h) Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than the Borrower, any of its Restricted Subsidiaries or any of its Affiliates) in all or any part of its Second Priority Term Loans or in any other Second Priority Term Loan Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would:
(i) extend the final scheduled maturity of any Second Priority Term Loan or Second Priority Term Loan Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Second Priority Term Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof);
(ii) consent to the assignment or transfer by any Obligor of any of its rights and obligations under this Agreement; or
(iii) release all or substantially all of the Collateral under the Security Documents (except as expressly provided in the Second Priority Term Loan Documents) supporting the Second Priority Term Loan Obligations hereunder in which such participant is participating.
The Borrower agrees that each participant shall be entitled to the benefits of Sections 2.14(c) (Making or Maintaining Second Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy) and 2.16 (Taxes; Withholding, etc.) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.14 (Making or Maintaining Second Priority Term Loans) or 2.15 (Increased Costs; Capital Adequacy) than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with the Borrower's prior written consent and (ii) a participant that would be a Non-U.S. Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 (Taxes; Withholding, etc.) unless the Borrower is notified of the participation sold to such participant and such participant agrees, for the benefit of the Borrower, to comply with Section 2.16 (Taxes; Withholding, etc.) as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 12.04 (Set-Off) as though it were a Lender, provided such participant agrees to be subject to Section 2.13 (Ratable Sharing) as though it were a Lender.
(i) Certain Other Assignments.
(i) In addition to any other assignment permitted pursuant to this Section 12.06, any Lender may assign and/or pledge all or any portion of its Second Priority Term Loans, the other Second Priority Term Loan Obligations owed by or to such
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Lender, and its Second Priority Term Loan Notes, if any, to secure obligations of such Lender including (A) to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank and (B) with respect to any Lender that is a fund that invests in bank loans, to any trustee or holder of obligations owed, or securities issued by, such fund as security for such obligations or securities or to any other representative of such holders; provided, no Lender, as between the Borrower and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, trustee or such holder of obligations be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
(ii) At the request of the Borrower in connection with the payment in full of all of the Second Priority Term Loan Obligations, whether by voluntary or mandatory prepayment thereof or on the Maturity Date or otherwise, each Lender shall execute and deliver to the Borrower (or to such Person(s) as the Borrower requests) such documents and instruments as the Borrower reasonably requests to assign all of such Lender's Second Priority Term Loan Obligations (together with all of such Lender's right, title and interest in, to and under all the Second Priority Term Loan Documents) to such Person(s) as the Borrower may direct; provided, that (A) upon the effectiveness of such assignment the Borrower shall execute and deliver to each Lender an instrument pursuant to which the Borrower and the Guarantors release such Lender from all claims under this Agreement and all of the other Second Priority Term Loan Documents and (B) such assignment shall be without recourse to and without any representations or warranties from the assigning Lender. If any such assignment occurs after the issuance to it of any Second Priority Term Loan Notes hereunder, then upon the effectiveness of such assignment, the assigning Lender shall deliver all of its Second Priority Term Loan Notes to the Borrower for cancellation or re-issuance to the new Lender.
SECTION 12.07. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.
SECTION 12.08. Survival of Representations, Warranties and Agreements. All agreements made herein shall survive the execution and delivery hereof and the making of any Second Priority Term Loan. Notwithstanding anything herein or implied by law to the contrary, the agreements of the Borrower and the Guarantors set forth in Sections 2.14(c) (Making or Maintaining Second Priority Term Loans), 2.15 (Increased Costs; Capital Adequacy), 2.16 (Taxes; Withholding, etc.), 12.02 (Expenses), 12.03 (Indemnity), 12.04 (Set-Off), 12.15 (Consent to Jurisdiction), 12.16 (Waiver of Jury Trial) and 12.17 (Confidentiality) and the agreements of Lenders set forth in Sections 2.13 (Ratable Sharing), 8.03(b) (General Immunity) and 8.06 (Right to Indemnity) shall survive the payment of the Second Priority Term Loans and the termination hereof.
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SECTION 12.09. No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Second Priority Term Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Second Priority Term Loan Documents. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
SECTION 12.10. Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Obligor or any other Person or against or in payment of any or all of the Second Priority Term Loan Obligations. To the extent that any Obligor makes a payment or payments to the Administrative Agent or the Lenders (or to the Administrative Agent, on behalf of the Lenders), or the Administrative Agent or the Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
SECTION 12.11. Severability. In case any provision in or obligation under any Second Priority Term Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 12.12. Second Priority Term Loan Obligations Several; Independent Nature of Lenders' Rights. The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or Second Priority Term Loan Commitment of any other Lender hereunder. Nothing contained herein or in any other Second Priority Term Loan Document, and no action taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
SECTION 12.13. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
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SECTION 12.14. Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof.
SECTION 12.15. Consent to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING HERETO OR ANY OTHER SECOND PRIORITY TERM LOAN DOCUMENT, OR ANY OF THE SECOND PRIORITY TERM LOAN OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY HERETO, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE OBLIGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 12.01 (NOTICES); (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE OBLIGOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES THAT THE AGENTS AND THE LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 12.16. Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER SECOND PRIORITY TERM LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 12.16 AND
118
EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER SECOND PRIORITY TERM LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE SECOND PRIORITY TERM LOAN OBLIGATIONS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 12.17. Confidentiality.
Each Lender shall hold all non-public information regarding the Borrower and its business identified as such by the Borrower and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender's customary procedures for handling confidential information of such nature, it being understood and agreed by the Borrower that, in any event, a Lender may make:
(i) disclosures of such information to Affiliates of such Lender and to their agents and advisors (and to other Persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 12.17);
(ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Second Priority Term Loan Obligations or any participations therein;
(iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Obligors received by it from any of the Agents or any Lender, and
(iv) disclosures required or requested by any governmental agency or representative thereof or by the National Association of Insurance Commissioners or pursuant to legal or judicial process; provided, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information.
SECTION 12.18. Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Second Priority Term Loan Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Second Priority Term Loan Obligations shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder
119
equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Second Priority Term Loan Obligations are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Second Priority Term Loan Obligations or be refunded to the Borrower.
SECTION 12.19. Counterparts; Execution by Facsimile.
(a) This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
(b) The delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
SECTION 12.20. Effectiveness. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Borrower and the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.
SECTION 12.21. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement must include:
(i) a statement that the Person making such certificate or opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.
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SECTION 12.22. No Recourse Against the Borrower or the Guarantors.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT OR ANY OTHER SECOND PRIORITY TERM LOAN DOCUMENT, THE SECOND PRIORITY TERM LOANS AND THE SECOND PRIORITY TERM LOAN GUARANTEES ARE NON-RECOURSE SECURED OBLIGATIONS OF THE BORROWER AND THE APPLICABLE GUARANTORS, RESPECTIVELY. THE ONLY RECOURSE A LENDER WILL HAVE WITH RESPECT TO THE PAYMENT OF PRINCIPAL OF, OR INTEREST OR PREMIUM ON, THE SECOND PRIORITY TERM LOAN OBLIGATIONS (WHETHER UNDER THIS AGREEMENT OR PURSUANT TO THE GUARANTEES) WILL BE ENFORCEMENT OF ITS RIGHTS AGAINST THE COLLATERAL PURSUANT TO THE SECURITY DOCUMENTS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
CALPINE GENERATING COMPANY, LLC,
as the Borrower

By: /s/ ZAMIR RAUF
    --------------------------------
    Name: Zamir Rauf
    Title: Vice President	

[Second Priority Credit and Guarantee Agreement - Calpine Generating Company, 
LLC]
MORGAN STANLEY SENIOR FUNDING,
INC., as Administrative Agent and a Lender

By: /s/ LUCY K. GALBRAITH
    --------------------------------
    Name:
    Title:	

MORGAN STANLEY SENIOR FUNDING, INC.,
as Sole Lead Arranger and Sole Bookrunner

By: /s/ LUCY K. GALBRAITH
    --------------------------------
    Name:
    Title:	

[Second Priority Credit and Guarantee Agreement - Calpine Generating Company, 
LLC]
UNION BANK OF CALIFORNIA, N.A., as a
Lender

By: /s/ W. T. SAURENMANN
    --------------------------------
    Name: W. T. Saurenmann
    Title: SVP	

[Second Priority Credit and Guarantee Agreement - Calpine Generating Company, 
LLC]
THE GUARANTORS:
CALGEN EXPANSION COMPANY, LLC
CPN FREESTONE, LLC
CALPINE FREESTONE, LLC
CALPINE FREESTONE ENERGY GP, LLC
CALPINE CHANNEL ENERGY CENTER LP, LLC
CALPINE CHANNEL ENERGY CENTER GP, LLC
CHANNEL POWER GP, LLC
CALGEN EQUIPMENT FINANCE HOLDINGS, LLC
CALGEN PROJECT EQUIPMENT FINANCE
COMPANY ONE, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY
THREE LLC
CALGEN EQUIPMENT FINANCE COMPANY, LLC
NUECES BAY ENERGY LLC
CALPINE NORTHBROOK SOUTHCOAST INVESTORS,
LLC
CALPINE CORPUS CHRISTI ENERGY GP, LLC
ZION ENERGY LLC
LOS MEDANOS ENERGY CENTER, LLC
MORGAN ENERGY CENTER, LLC
CARVILLE ENERGY LLC
DECATUR ENERGY CENTER, LLC
CALPINE ONETA POWER I, LLC
CALPINE ONETA POWER II, LLC
CALPINE BAYTOWN ENERGY CENTER LP, LLC
CALPINE BAYTOWN ENERGY CENTER GP, LLC
BAYTOWN POWER GP, LLC
COLUMBIA ENERGY LLC
DELTA ENERGY CENTER, LLC
CALGEN PROJECT EQUIPMENT FINANCE COMPANY
TWO, LLC
PASTORIA ENERGY FACILITY L.L.C.
CALPINE PASTORIA HOLDINGS, LLC
Executing this Agreement on behalf of and
so as to bind each of the limited liability
companies named above under the caption
"The Guarantors"

By: /s/ ZAMIR RAUF
    --------------------------------
    Name: Zamir Rauf
    Title: Vice President	

[Second Priority Credit and Guarantee Agreement - Calpine Generating Company, 
LLC]
THE GUARANTORS:
FREESTONE POWER GENERATION LP
CALPINE FREESTONE ENERGY, LP
CALPINE POWER EQUIPMENT LP
CHANNEL POWER, LP
CHANNEL ENERGY CENTER, LP
CALPINE CORPUS CHRISTI ENERGY, LP
CORPUS CHRISTI COGENERATION LP
CALPINE ONETA POWER, L.P.
BAYTOWN ENERGY CENTER, LP
BAYTOWN POWER, LP
Executing this Agreement on behalf of and
so as to bind each of the limited
partnerships named above under the caption
"The Guarantors"

By: /s/ ZAMIR RAUF
    --------------------------------
    Name: Zamir Rauf
    Title: Vice President	

[Second Priority Credit and Guarantee Agreement - Calpine Generating Company, 
LLC]
 
APPENDIX A
TO SECOND PRIORITY TERM LOAN AGREEMENT
INITIAL SECOND PRIORITY TERM LOAN COMMITMENTS

                                          Second Priority
               Lender                   Term Loan Commitment    Pro Rata Share
-----------------------------------     --------------------    --------------
Morgan Stanley Senior Funding, Inc.        $85,000,000.00             85%

Union Bank of California, N.A.             $15,000,000.00             15%
                                        --------------------    --------------
Total                                      $100,000,000.00            100%
                                        ====================    ==============	

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APPENDIX B
TO SECOND PRIORITY TERM LOAN AGREEMENT
NOTICE ADDRESSES

Administrative Agent's
Principal Office:                       Morgan Stanley Senior Funding, Inc.
                                        as the Administrative Agent
                                        1585 Broadway
                                        New York, NY 10036
                                        Attention: Lisa Malone
                                        Phone: (212) 537-1312
                                        Facsimile: (212) 537-1867
                                        E-mail: lisa.malone@morganstanley.com

Collateral Agent:                       Wilmington Trust Company
                                        Rodney Square North
                                        1100 North Market Street
                                        Wilmington, DE 19890-1615
                                        Attn: Kristin Long

Borrower:                               Calpine Generating Company, LLC
                                        50 West San Fernando Street
                                        San Jose,  CA 95113
                                        Attn:  Chief Financial Officer
                                        Fax:  (408) 995- 0505
                                        Phone:  (408) 995- 5115

Each Guarantor:                         c/o Calpine Generating Company, LLC
                                        50 West San Fernando Street
                                        San Jose,  CA 95113
                                        Attn:  Chief Financial Officer
                                        Fax:  (408) 995- 0505
                                        Phone:  (408) 995- 5115	

B-1
EXHIBIT A
TO SECOND PRIORITY TERM LOAN AGREEMENT
FORM OF SUBORDINATION TERMS
[TO BE INCLUDED AS AN ARTICLE IN THE INSTRUMENT EVIDENCING "AFFILIATE
SUBORDINATED INDEBTEDNESS" INCURRED PURSUANT TO THIS AGREEMENT, THIRD PARTY SUBORDINATED INDEBTEDNESS INCURRED PURSUANT TO THIS AGREEMENT, AND AS OTHERWISE REQUIRED BY THIS AGREEMENT]
[THE COLLATERAL AGENT SHALL EITHER BE A PARTY TO OR A THIRD PARTY BENEFICIARY OF THESE SUBORDINATION TERMS]
ARTICLE [__]
SUBORDINATION
Section [__].1. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Collateral Trust Agreement, dated as of March 23, 2004, among Calpine CalGen Holdings, Inc., Calpine Generating Company, LLC ("CalGen"), CalGen Finance Corp., the guarantors party thereto from time to time (the "Guarantors"), the Secured Debt Representatives party thereto and Wilmington Trust Company, as collateral agent (the "Collateral Agent"), as in effect on the date hereof. As used in this Article, the following terms shall have the following respective meanings:
"Junior Claimant" means [INSERT NAME OF LENDER UNDER 
SUBORDINATED DEBT].
"Proceeding" means any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding of or against the Subordinated Debtor or its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of the Subordinated Debtor, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of the Subordinated Debtor, or (d) other marshalling of the assets of the Subordinated Debtor.
"Senior Claimants" means the holders of Senior Obligations.
"Senior Claim Documents" means the Secured Debt Documents other than the Other Junior Lien Debt Documents.
"Senior Claims" means, collectively, (a) the principal of, and premium, if any, and interest on, the Senior Obligations (in each case, including, without limitation, any interest accruing thereon at the legal rate after the commencement of any Proceeding and any additional interest that would have accrued thereon but for the commencement of
A-1
such Proceeding), and (b) all other Obligations of the Subordinated Debtor to the Senior Claimants, whether now existing or hereafter incurred or created, under or with respect to the Senior Claim Documents or any replacement, supplement to or refinancing of the Senior Obligations.
"Senior Obligations" means all Secured Obligations other than the Other Junior Lien Obligations.
"Senior Obligations Termination Date" means the date on which all Senior Obligations (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Senior Claim Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Senior Claim Documents), all commitments to extend credit under all Senior Claim Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Senior Claim Documents have been cancelled, terminated or cash collateralized at 102.5% of the aggregate undrawn amount.
"Subordinated Debt" means all indebtedness owing to Junior Claimant arising under or in respect of the Subordinated Debt Documents.
"Subordinated Debt Documents" means [DESCRIBE SUBORDINATED DEBT INSTRUMENT], any promissory note or other instrument relating thereto and any other documents or instruments directly relating to the foregoing (in each case, including any amendments, replacements or substitutions thereof).
"Subordinated Debtor" means [INSERT CALGEN OR 
GUARANTOR INCURRING THE SUBORDINATED DEBT].
Section [_].2. Certain Subordination Terms. Until the Senior Obligations Termination Date, and notwithstanding anything in the Subordinated Debt Documents to the contrary:
[__].2.1. Except as permitted under the Senior Claim Documents, the Subordinated Debtor shall not, directly or indirectly, make any payment of principal, interest or otherwise on or in respect of the Subordinated Debt.
[__].2..2. Except for the right to accept payments as provided in Section [__].2.1 or [__].2.5(b), Junior Claimant shall not demand, sue for or accept from the Subordinated Debtor or any other Person any such payment or collateral, nor take any other action to enforce or collect upon any such payment or to enforce its rights to receive any such payment, in either case in respect of the Subordinated Debt, provided, however, that nothing herein shall limit the right or ability of Junior Claimant (i) to receive payments from the Subordinated Debtor in respect of the Subordinated Debt as provided in
Section [__].2.1 so long as no default or event of default under any Secured Debt Document has occurred and is continuing, or (ii) to accelerate the maturity of the Subordinated Debt at any time after all of the Senior Claims have been accelerated; and provided further, that in the event that after an
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acceleration any of the Senior Claimants rescind the acceleration of the Senior Claims, and provide written notice to Junior Claimant thereof, or Junior Claimant otherwise becomes aware of such rescission, Junior Claimant shall rescind the acceleration of the Subordinated Debt.
[__].2.3. Neither the Subordinated Debtor nor Junior Claimant shall take any action prejudicial to or inconsistent with the Senior Claimants' priority position over Junior Claimant created by this Article, including, without limitation, any action which will hinder, delay or otherwise prevent the Senior Claimants from taking any action they deem necessary to enforce rights with respect to the Senior Claims or the Lien of the Senior Claim Documents. The Junior Claimant shall not take any action or otherwise act to contest on account of the Subordinated Debt (i) the validity or priority of any Liens or security interests granted to, or for the benefit of, the Senior Claimants, (ii) the relevant rights and duties of the Senior Claimants with respect to Junior Claimant on account of any Subordinated Debt as established in this Article or (iii) the Senior Claimants' exercise of remedies in accordance with the Senior Claim Documents.
[__].2.4. Each document or instrument evidencing Subordinated Debt shall bear a legend providing that payment of the Subordinated Debt thereunder has been subordinated to prior payment of the Senior Claims in the manner and to the extent set forth in this Article.
[__].2.5. Junior Claimant shall not commence or join with any other creditor or creditors of the Subordinated Debtor in commencing any Proceeding against the Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor--ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], but may join in any Proceeding after it has commenced. At any general meeting of creditors of Subordinated Debtor, [CalGen, CalGen Holdings or any Guarantor--ADD ALL THAT ARE NOT SUBORDINATED DEBTORS], or in the event of any Proceeding, if all Senior Claims have not been paid in full in cash at such time, the Collateral Agent on behalf of the Senior Claimants is hereby irrevocably authorized at any such meeting or in any such Proceeding:
(a) To enforce claims comprising Subordinated Debt in the name of Junior Claimant, by proof of debt, proof of claim, suit or otherwise;
(b) To collect any assets of the Subordinated Debtor distributed, divided or applied by way of dividend or payment as a result of a Proceeding, or such securities issued, on account of Subordinated Debt as a result thereof and apply the same, or the proceeds of any realization upon the same that the Senior Claimants in their discretion elect to effect, to Senior Claims until all Senior Claims shall have been paid in full in cash (the Senior Claimants hereby agreeing to render any surplus to Junior Claimant and/or other subordinated creditors, as their interests appear, or to interplead such surplus with a court of competent jurisdiction); and
(c) To take generally any action in connection with any such meeting or proceeding which Junior Claimant might otherwise take in respect of the Subordinated Debt and claims relating thereto.
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After the commencement of any such Proceeding, Junior Claimant may inquire in writing of the Collateral Agent on behalf of the Senior Claimants whether the respective Senior Claimants intend to exercise the foregoing rights with respect to the Subordinated Debt. Should the Senior Claimants fail, at least 20 days before the deadline therefor, either to file a proof of claim with respect to the Subordinated Debt and to furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in writing that the Senior Claimants intend to exercise their rights to assert the Subordinated Debt in the manner hereinabove provided, Junior Claimant may, but shall not be required to, proceed to file a proof of claim with respect to the Subordinated Debt and take such further steps with respect thereto, not inconsistent with this Article, as Junior Claimant may deem proper.
[__].2.6. Upon the occurrence and during the continuation of an event of default under a Secured Debt Document, Junior Claimant may, but shall have no obligation to, upon not less than 10 days prior written notice to the Collateral Agent, purchase all of the outstanding Senior Obligations owing to the Senior Claimants by irrevocably tendering, in immediately available funds, full payment of the Purchase Price (as defined below) to the Senior Claimants:
(a) The Purchase Price shall be equal to the total amount of Senior Claims at the time of acceleration (assuming such obligations have been accelerated);
(b) Any such purchase by Junior Claimant shall be without warranty by, or recourse to, the Senior Claimants, except with respect to the legal and beneficial ownership by the Senior Claimants of the Obligations so purchased, free and clear of all Liens and rights of others; and
(c) Concurrently with any such purchase, the Senior Claimants shall forthwith sell, assign, transfer and convey to Junior Claimant all of their right, title and interest in and to the Senior Obligations, and all Liens and other security interests in favor of the Senior Claimants securing the obligations of the Subordinated Debtor in connection therewith.
Section [__].3. Senior Claim Documents. The Junior Claimant acknowledges that it has been provided with a copy of the Senior Claim Documents and has read and is familiar with the provisions thereof.
Section [__].4. Time of Filing. Notwithstanding the time of filing, attachment or recording of any document or other instrument, it is agreed by Junior Claimant that any Liens arising under or pursuant to the Senior Claim Documents shall be senior to any Liens arising in favor of Junior Claimant as part of or relating to the Subordinated Debt Documents, if any; provided, however, that nothing herein shall be deemed to permit Junior Claimant to obtain any such Liens.
Section [__].5. Wrongful Collections. Should any payment on account of, or any collateral for any part of, the Subordinated Debt be received by Junior Claimant in violation of this Article, such payment or collateral shall be delivered forthwith to the Collateral Agent by
A-4
the recipient for application to Senior Claims, in the form received. The Collateral Agent is irrevocably authorized to supply any required endorsement or assignment which may have been omitted. Until so delivered, any such payment or collateral shall be held by the recipient in trust for the Senior Claimants and shall not be commingled with other funds or property of the recipient.
Section [__].6. Ownership of Subordinated Debt; Amendment of Subordinated Debt Documents.
[__].6.1. The Junior Claimant represents and warrants that it is the lawful owner of the Subordinated Debt. Any security interest in the Junior Claimant's interest in the Subordinated Debt will at all times be subject to the rights of the Senior Claimants hereunder. The Junior Claimant agrees that it may not assign all or any portion of the Subordinated Debt or any of its rights or remedies under the Subordinated Debt Documents unless any assignee expressly agrees in writing for the benefit of the Collateral Agent that it takes such Subordinated Debt subject in all respects to the rights of the Senior Claimants hereunder.
[__].6.2. The Subordinated Debt Documents may not be amended so as to have an adverse effect upon the Senior Claims or the Subordinated Debtor's ability to pay the Senior Claims at any time.
Section [__].7. Waivers. The Collateral Agent and the Senior Claimants are hereby authorized to demand specific performance of this Article, whether or not the Subordinated Debtor shall have complied with the provisions hereof applicable to it, at any time when Junior Claimant shall have failed to comply with any provision hereof applicable to it. Junior Claimant hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance hereof in any action brought therefor by the Senior Claimants. Junior Claimant (a) further waives presentment, notice and protest in connection with all negotiable instruments evidencing Senior Claims or Subordinated Debt to which Junior Claimant may be a party, notice of the acceptance of this Article by the Senior Claimants, notice of any loan made, extension granted or other action taken in reliance hereon, and all demands and notices of every kind in connection with this Article, Senior Claims or time of payment of Senior Claims or Subordinated Debt and (b) hereby assents to any renewal, extension or postponement of the time of payment of Senior Claims or any other indulgence with respect thereto, to any increase in the amount of Senior Claims, to any substitution, exchange or release of collateral therefor and to the addition or release of any person primarily or secondarily liable thereon and assents to the provisions of any instrument, security or other writing evidencing Senior Claims.
Section [__].8. Subrogation; No Impairment of Subordinated Debtor's Obligations. Subject to and from and after the Senior Obligations Termination Date, Junior Claimant shall be subrogated to the rights of the Senior Claimants to receive payments or distributions of cash, property or securities of the Subordinated Debtor applicable to the Senior Claims until all amounts owing on the Subordinated Debt shall be paid in full. For purposes of such subrogation, no payments or distributions to the Senior Claimants to which Junior Claimant would be entitled but for the provisions of this Article, and no payments paid over by Junior
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Claimant to Senior Claimants pursuant to this Article shall, as among the Subordinated Debtor, its creditors other than the Senior Claimants, and Junior Claimant, be deemed to be a payment or distribution on account of the Subordinated Debt, it being understood that the provisions of this Article are intended solely for the purpose of defining the relative rights of Junior Claimant and the Senior Claimants. Nothing contained in this Article is intended to or shall impair, as between the Subordinated Debtor and Junior Claimant, the obligation of the Subordinated Debtor, which is absolute and unconditional, to pay to Junior Claimant the principal of and the premium, if any, and the interest on the Subordinated Debt, and all other amounts payable by the Subordinated Debtor under the Subordinated Debt Documents, as and when the same shall become due and payable, or to affect the relative rights of Junior Claimant and creditors of Subordinated Debtor other than the Senior Claimants.
Section [__].9. Reinstatement. The obligations of Junior Claimant under this Article shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Claim, or any other payment to any holder of any Senior Claim in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Claims upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Subordinated Debtor or any substantial part of its property, or otherwise, all as though such payment had not been made.
Section [__].10. Bankruptcy. This Article shall remain in full force and effect as between Junior Claimant and the Senior Claimants notwithstanding the occurrence of any Proceeding affecting the Subordinated Debtor.
Section [__].11. Further Assurances. The Subordinated Debtor and Junior Claimant shall execute and deliver to the Senior Claimants such further instruments and shall take such further action as the Senior Claimants may at any time or times reasonably request in order to carry out the provisions and intent of this Article.
Section [__].12. Successors and Assigns. The provisions of this Article shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Junior Claimant nor the Senior Claimants shall have a duty to preserve rights against prior parties in any property of any kind received hereunder. Nothing contained herein shall impose on the Senior Claimants any duties with respect to any property of the Subordinated Debtor or Junior Claimant received hereunder.
Section [__].13. Governing Law. This Article is intended to take effect as a sealed instrument, shall be binding upon the parties hereto and their respective executors, administrators, other legal representatives, successors and assigns, and shall inure to the benefit of the Senior Claimants, their respective successors and assigns and shall be governed by the laws of the State of New York without reference to principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law). The parties hereto intend and agree that this Article shall remain binding on such parties (other than the Subordinated Debtor) notwithstanding the termination (except upon the payment in full of Senior Claims in cash) or unenforceability of this Article as against the Subordinated Debtor.
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EXHIBIT B
TO SECOND PRIORITY TERM LOAN AGREEMENT
FORM OF
ASSIGNMENT AGREEMENT
Date: _______ __, ____
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Calpine Generating Company, LLC
50 West San Fernando Avenue, 5th Floor
San Jose, CA 95113
Attention: President
Re: Calpine Generating Company, LLC - Assignment Agreement
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Second Priority Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Second Priority Term Loan Agreement and used herein shall have the meanings given to them in the Second Priority Term Loan Agreement.
As of [INSERT EFFECTIVE DATE OF ASSIGNMENT] (the "Effective Date"),
[INSERT NAME OF ASSIGNOR] (the "Assignor") irrevocably sells, transfers, conveys and assigns, without recourse, representation or warranty (except as expressly set forth herein), to [INSERT NAME OF ASSIGNEE] (the "Assignee"), and the Assignee irrevocably purchases from the Assignor and assumes (as more particularly described in Schedule I hereto), (a) [INSERT PERCENTAGE OF SECOND PRIORITY TERM LOANS TO BE ASSIGNED]% of the Second Priority Term Loans under the Second Priority Term Loan Agreement (which represents $[INSERT AMOUNT OF SECOND PRIORITY TERM LOANS TO BE ASSIGNED]) and (b) all rights, benefits, obligations, liabilities, and indemnities related to such Second Priority Term Loans under and in connection with the Second Priority Term Loan Agreement and the other Second Priority Term Loan Documents (the "Assigned Portion").
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In addition, this Assignment Agreement constitutes notice to the Administrative Agent, pursuant to Section 12.06 of the Second Priority Term Loan Agreement, of the assignment and delegation to the Assignee of the Assigned Portion of the Second Priority Term Loans of the Assignor outstanding under the Second Priority Term Loan Agreement as of the Effective Date, subject to its written consents.
All accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period of time prior to the Effective Date shall be payable to the Assignor, and all accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period from and after the Effective Date shall be payable to the Assignee. The Assignor and Assignee each agree to hold in trust for the other any such amounts that it receives pursuant to any Second Priority Term Loan Document and to which the other party is entitled.
The Assignee confirms and agrees that in becoming a Lender and in making its Second Priority Term Loans under the Second Priority Term Loan Agreement, such actions have and will be made without recourse to, or representation or warranty by, the Administrative Agent, except for the representations expressly set forth below.
The Assignor represents and warrants that it is legally authorized to enter into and deliver this Assignment Agreement, that its existing aggregate Second Priority Term Loans are as set forth on Schedule I hereto, that it is the legal and beneficial owner of the Assigned Portion and that it has not created any adverse claim on its interest in the Assigned Portion. Except as set forth in the previous sentence, the Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made pursuant to or in connection with this Assignment Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Assignment Agreement, the Second Priority Term Loan Agreement, any other Second Priority Term Loan Document or any other instrument or document furnished pursuant hereto or thereto, including the financial condition of any CalGen Company or the performance or observance by any Lender or any of the Agents of any of its obligations under the Second Priority Term Loan Agreement, any other Second Priority Term Loan Document or any other instrument or document furnished pursuant hereto or thereto.
The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and that it is legally authorized to enter into and deliver this Assignment Agreement, (ii) it has experience and expertise in the making of or investing in loans such as the applicable Second Priority Term Loans and (iii) it will make or invest in its Second Priority Term Loans for its own account in the ordinary course of business and without a view to the distribution of such Second Priority Term Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws, (b) confirms that it has received a copy of the Second Priority Term Loan Agreement, together with copies of the most recent financial statements delivered pursuant to Section 3.19 of the Second Priority Term Loan Agreement and copies of the documents which were required to be delivered under the Second Priority Term Loan Agreement as a condition to the making of Second Priority Term Loans thereunder and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (c) agrees that it will perform in accordance with their terms all of the obligations
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which by the terms of the Second Priority Term Loan Agreement and the other Second Priority Term Loan Documents are required to be performed by it as a Lender, (d) acknowledges that it has received copies of, consented to and approved the Collateral Trust Agreement, and authorizes the Agents to perform their respective obligations thereunder and (e) attaches the forms prescribed by applicable Governmental Authorities as to the Assignee's status for purposes of determining exemption from withholding taxes with respect to all payments to be made to the Assignee under any of the Second Priority Term Loan Documents or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty. In addition, the Assignee, independently and without reliance upon the Assignor, the Administrative Agent, any other Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, shall continue to make its own credit decisions in taking or not taking action under the Second Priority Term Loan Agreement, the other Second Priority Term Loan Documents and the other instruments and documents delivered in connection therewith. ASSIGNEE HEREBY ACKNOWLEDGES AND AGREES THAT ITS LIEN PRIORITIES, THE DISTRIBUTION OF PROCEEDS OF COLLATERAL, THE EXERCISE OF REMEDIES UNDER THE Second PRIORITY TERM LOAN AGREEMENT, AMENDMENTS AND WAIVERS TO THE Second PRIORITY TERM LOAN DOCUMENTS, AND OTHER MATTERS RELATED TO THE COLLATERAL ARE SUBJECT TO AND GOVERNED BY THE COLLATERAL TRUST AGREEMENT.
Following the execution of this Assignment Agreement, it will be delivered to the Administrative Agent for recording by the Administrative Agent pursuant to Section 12.06 of the Second Priority Term Loan Agreement, effective as of the Effective Date. The Assignor attaches hereto the Second Priority Term Loan Note held by it, if any, evidencing the Assigned Portion and (i) upon request by the Assignee, will request that the Administrative Agent exchange the attached Second Priority Term Loan Note for a new Second Priority Term Loan Note, payable to the Assignee and (ii) if the Assignor has retained any interest, may request that the Administrative Agent exchange the attached Second Priority Term Loan Note for a new Second Priority Term Loan Note, payable to the Assignor, and in each case in amounts which reflect the assignment being made hereby and after giving effect to any other assignments which have become effective on the Effective Date.
Except as otherwise provided in the Second Priority Term Loan Agreement, effective as of the Effective Date:
(a) the Assignee:
(i) shall be deemed automatically to have become a party to the Second Priority Term Loan Agreement, have all the rights and obligations of a "Lender" under the Second Priority Term Loan Agreement and the other Second Priority Term Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph of this Assignment Agreement, and hereby expressly confirms its undertakings regarding its appointments and indemnity obligations provided for in Article XII of the Second Priority Term Loan Agreement; and
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(ii) agrees to be bound by the terms and conditions set forth in the Second Priority Term Loan Agreement and the other Second Priority Term Loan Documents as if it were an original signatory thereto; and
(b) the Assignor shall be released from its obligations and shall relinquish its rights under the Second Priority Term Loan Agreement and the other Second Priority Term Loan Documents to the extent specified in the second paragraph of this Assignment Agreement, except with regard to those provisions that expressly survive the termination of the Second Priority Term Loan Agreement to the extent such provisions relate to the time prior to the Effective Date.
The Assignee hereby advises each of you of the following administrative details with respect to the assigned Second Priority Term Loan Commitments and Second Priority Term Loans:
(A) Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
(B) Payment Instructions:
[ASSIGNEE TO COMPLETE.]
The Assignee has attached hereto the forms, certificates or other evidence required by Section 2.16(e) of the Second Priority Term Loan Agreement no later than the date of acceptance hereof by the Administrative Agent. The Assignee has also attached hereto any powers of attorney or other public or private documents requested by the Collateral Agent which are necessary to enable the Collateral Agent to enforce any of the Security Documents on behalf of the Secured Parties.
The Administrative Agent shall notify the Borrower of any such assignments.
This Assignment Agreement may be executed by the Assignor and Assignee in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same agreement. The delivery of an executed signature page of this Assignment Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. The parties hereto hereby agree to execute and deliver such other documents or instruments as shall be necessary to effect the purposes of this Assignment Agreement.
This Assignment Agreement shall be governed by the laws of the State of New York without regard to the conflicts of law provisions thereof, other than sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York.
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(signature page follows)
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IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Assignment Agreement as of the date first written above.
[INSERT NAME OF ASSIGNOR]
By: ________________________________________
Name:
Title:
[INSERT NAME OF ASSIGNEE]
By: ________________________________________
Name:
Title:
Accepted and acknowledged
for recording in the Register
this ____ day of ________, ____
MORGAN STANLEY SENIOR FUNDING, INC.
By: ________________________________________ Name:
Title:
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[INCLUDE THE FOLLOWING ACKNOWLEDGEMENTS AND AGREEMENTS IN RESPECT OF ASSIGNMENTS
FOR LESS THAN $1,000 IF SUCH ASSIGNMENT IS FOR AN AMOUNT THAT DOES NOT CONSTITUTE THE AGGREGATE AMOUNT OF THE SECOND PRIORITY TERM LOANS OUTSTANDING TO THE ASSIGNOR:]
Acknowledged and Agreed:
MORGAN STANLEY SENIOR FUNDING, INC.
By: ________________________________________ Name:
Title:
CALPINE GENERATING COMPANY, LLC
By: ________________________________________ Name:
Title:
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SCHEDULE I
to Assignment Agreement
Second Priority Term Loans

    AGGREGATE AMOUNT OF SECOND                  AMOUNT OF SECOND PRIORITY                 PERCENTAGE OF ASSIGNED
PRIORITY TERM LOANS FOR ALL LENDERS                TERM LOANS ASSIGNED                  SECOND PRIORITY TERM LOANS
                                                                                                                   %
                                                                                                                   %
                                                                                                                   %
                                                                                                                   %
                                                                                                                   %	

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EXHIBIT C
TO SECOND PRIORITY TERM LOAN AGREEMENT
[LETTERHEAD OF NON-U.S. LENDER]
FORM OF CERTIFICATE RE: NON-BANK STATUS
Certificate Date: _______ __, ____
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Re: Calpine Generating Company, LLC - Non-Bank Status
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Second Priority Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Second Priority Term Loan Agreement and used herein shall have the meanings given to them in the Second Priority Term Loan Agreement.
[INSERT NAME OF NON-U.S. LENDER] (the "Non-U.S. Lender") is providing this certificate pursuant to Section 2.16(e) of the Second Priority Term Loan Agreement. The Non-U.S. Lender hereby represents and warrants as follows:
1. The Non-U.S. Lender is the sole record and beneficial owner of the Second Priority Term Loans or the obligations evidenced by Second Priority Term Loan Note in respect of which it is providing this certificate.
2. The Non-U.S. Lender is not a "bank" for purposes of Section 871(h) or 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In this regard, the Non-U.S. Lender further represents and warrants that:
(a) the Non-U.S. Lender is not subject to regulatory or other Legal Requirements as a bank in any jurisdiction; and
(b) the Non-U.S. Lender has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental
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Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other Legal Requirements.
3. The Non-U.S. Lender is not a 10 percent shareholder of the Borrower within the meaning of Section 871(h) or 881(c)(3)(B) of the Code.
4. The Non-U.S. Lender is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 871(h) or 881(c)(3)(C) of the Code.
(signature page follows)
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IN WITNESS WHEREOF, the undersigned has duly executed this certificate by its respective authorized representative as of the day and year first above written.
[INSERT NAME OF NON-U.S. LENDER]
By:________________________________________
Name:
Title:
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EXHIBIT D
TO SECOND PRIORITY TERM LOAN AGREEMENT
[LETTERHEAD OF THE BORROWER]
FORM OF
CONTINUATION NOTICE
Date: _____ __, ____
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Re: Calpine Generating Company, LLC - Continuation Notice
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Second Priority Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Second Priority Term Loan Agreement and used herein shall have the meanings given to them in the Second Priority Term Loan Agreement.
The Borrower hereby gives you notice, irrevocably, pursuant to Section 2.06 of the Second Priority Term Loan Agreement, that the Borrower hereby requests a [CONTINUATION] [CONVERSION] of Second Priority Term Loans under the Second Priority Term Loan Agreement and, in connection therewith, sets forth below the information relating to such [CONTINUATION] [CONVERSION] (the "Proposed [CONTINUATION] [CONVERSION]") as required by Section 2.06 of the Second Priority Term Loan Agreement.
(a) The Borrower hereby requests that Second Priority Term Loans be [CONTINUED] [CONVERTED] as follows:
(i) The first day of the new Interest Period in respect of the Proposed [CONTINUATION] [CONVERSION] shall be ________ __, ____ (which is a Business Day).
(ii) [IF SUCH SECOND PRIORITY TERM LOANS ARE TO BE CONTINUED WITH NO CHANGE IN ANY TYPE OF LOAN(1):] $___________ of the currently outstanding principal amount of

(1) LIBOR Rate Loans may only be continued in a minimum amount equal to $5,000,000 and in integral multiples of $1,000,000 in excess of that amount.

D-1
Second Priority Term Loans currently being maintained as Second Priority Term Loans with an Interest Period of [ONE] [TWO] [THREE]
[SIX] month(s), the last day of which is the day immediately preceding the first day of the Proposed Continuation referred to in clause (i) above, should be continued as $__________ of Second Priority Term Loans with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s).
(iii) [IF SUCH SECOND PRIORITY TERM LOANS ARE TO BE CONVERTED:] $___________ of the currently outstanding principal amount of Second Priority Term Loans which are [BASE RATE LOANS] [LIBOR RATE LOANS(2)] with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s), the last day of which is the day immediately preceding the first day of the Proposed Conversion referred to in clause (i) above, should be converted to [BASE RATE LOANS] [LIBOR RATE LOANS] with an Interest Period of [ONE] [TWO] [THREE] [SIX] month(s).
(b) The Borrower hereby certifies that, as of the date hereof, no Default or Event of Default has occurred and is continuing.
(signature page follows)

(2) LIBOR Rate Loans may only be converted upon the expiration of the Interest Period applicable to such LIBOR Rate Loan.
IN WITNESS WHEREOF, the Borrower has caused this Continuation Notice to be executed and delivered by a duly authorized officer of the Borrower on the date first written above.
CALPINE GENERATING COMPANY, LLC
By:________________________________________
Name:
Title:
D-2
EXHIBIT E
TO SECOND PRIORITY TERM LOAN AGREEMENT
CALPINE GENERATING COMPANY, LLC
50 WEST SAN FERNANDO STREET
SAN JOSE, CALIFORNIA 95113
FORM OF FUNDING NOTICE
Certificate Date: March __, 2004(1)
Morgan Stanley Senior Funding, Inc.
as the Administrative Agent
1585 Broadway
New York, NY 10036
Attention: Lisa Malone
Re: Calpine Generating Company, LLC - Funding Notice
Ladies and Gentlemen:
Reference is made to the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Second Priority Term Loan Agreement"), among Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors (and permitted assigns) in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto. Unless otherwise defined herein, terms defined in the Second Priority Term Loan Agreement and used herein shall have the meanings given to them in the Second Priority Term Loan Agreement.
The Borrower hereby gives you notice in accordance with Section 2.01 of the Second Priority Term Loan Agreement that the Borrower irrevocably requests that a Second Priority Term Loan be made on March 23, 2004 (which date is a Business Day), which shall be a LIBOR Rate Loan in an aggregate principal amount of $100,000,000 with an initial Interest Period ending March 31, 2004.
(signature page follows)

(1) The Borrower must deliver the Funding Notice to the Administrative Agent or before the date which is three Business Days prior to the Closing Date.

E-1
IN WITNESS WHEREOF, the Borrower has caused this Funding Notice to be executed and delivered by a duly authorized officer of the Borrower on the date first written above.
CALPINE GENERATING COMPANY, LLC
By:________________________________________
Name:
Title:
E-2
EXHIBIT F
TO SECOND PRIORITY TERM LOAN AGREEMENT
FORM OF SECOND PRIORITY TERM NOTE
THIS SECOND PRIORITY TERM LOAN NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND IS SUBJECT TO TREASURY REGULATIONS REGARDING THE REPORTING OF ORIGINAL ISSUE DISCOUNT. HOLDERS MAY CONTACT THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 50 WEST SAN FERNANDO STREET, 5TH FLOOR, SAN JOSE, CALIFORNIA 95113, WHO WILL PROVIDE UPON REQUEST INFORMATION RELATING TO ORIGINAL ISSUE DISCOUNT, INCLUDING THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY.
$__________________ _____________, ________
FOR VALUE RECEIVED, the undersigned, Calpine Generating Company, LLC, a Delaware limited liability company (the "Borrower"), hereby unconditionally promises to pay to the order of ________________________ (the "Lender") the principal sum in immediately available funds, of ________________________ or such lesser amount as may be outstanding from time to time hereunder pursuant to the Second Priority Term Loan Agreement (as defined below). The Borrower further agrees to pay interest in like money at the Principal Office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.05 of the Second Priority Term Loan Agreement.
The holder of this Second Priority Term Loan Note is authorized to endorse on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, the date and amount of each payment or prepayment of principal hereof, each continuation hereof and the length of each Interest Period with respect hereto. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrower in respect of any Second Priority Term Loan.
This Second Priority Term Loan Note (a) is one of the Second Priority Term Loan Notes referred to in the Credit and Guarantee Agreement, dated as of March 23, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Second Priority Term Loan Agreement"), among the Borrower, the guarantors from time to time party thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (with its successors and permitted assigns in such capacity, the "Administrative Agent") and each of the other agents and arrangers listed on the signature pages thereto; (b) is subject to the provisions of the Second Priority Term Loan Agreement and (c) is subject to voluntary and mandatory prepayment in whole or in part as provided in the Second Priority Term Loan Agreement. This Second Priority Term Loan Note is secured and guaranteed as provided in the Second Priority Term Loan Documents. Reference is hereby made to the Second Priority Term
F-1
Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Second Priority Term Loan Note in respect thereof.
Upon the occurrence of any Event of Default, all principal and all accrued interest then remaining unpaid on this Second Priority Term Loan Note shall become, or may be declared to be, immediately due and payable, all as provided in, and subject to, the Second Priority Term Loan Agreement.
All parties now and hereafter liable with respect to this Second Priority Term Loan Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.
This Second Priority Term Loan Note is subject to the limitations on recourse set forth in Section 12.22 of the Second Priority Term Loan Agreement.
Repayments of principal, interest and all other amounts due with respect to or in connection with this Second Priority Term Loan Note are subject to the terms of the Collateral Trust Agreement (as defined in the Second Priority Term Loan Agreement).
Unless otherwise defined herein, terms defined in the Second Priority Term Loan Agreement and used herein shall have the meanings given to them in the Second Priority Term Loan Agreement.
This Second Priority Term Loan Note has been delivered in New York, New York and shall be deemed to be a contract made under, governed by and construed in accordance with the laws of the State of New York without regard to the conflict of law provisions thereof (other than sections 5-1401 and 5-1402 of the General Obligations Law of the state of New York).
CALPINE GENERATING COMPANY, LLC
By:________________________________________
Name:
Title:
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Schedule A
to Second Priority Term Loan Note
SECOND PRIORITY TERM LOANS AND REPAYMENTS OF SECOND PRIORITY TERM LOANS

Date    Amount of Second Priority Term Loans    Type of Loan    Interest Period    Amount of Principal Repaid    Notation Made By
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EXHIBIT G
TO SECOND PRIORITY TERM LOAN AGREEMENT
FORM OF OPINIONS
[SEE ATTACHED]
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SCHEDULE A
TO SECOND PRIORITY TERM LOAN AGREEMENT
THIRD PARTY PROJECT DOCUMENTS
Baytown
1. Energy Services Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents dated as of August 13, 2002.
2. Services Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents, dated as of August 13, 2002.
3. Ground Lease and Easement Agreement, dated as of January 12, 2000, between Bayer Corporation and Baytown Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.), as amended by Amendment of Project Documents, dated as of August 13, 2002.
Carville
1. Energy Services Agreement, dated as of December 28, 1999, between Cos-Mar Incorporated and Carville Energy LLC, as amended by Amendment No. 1 to Energy Services Agreement, dated as of April 30, 2000, and Amendment No. 2 to Energy Services Agreement, dated as of June 26, 2001.
2. Agreement for Purchased Power from Qualified Cogeneration Facility, dated as of August 31, 2002, between Entergy Gulf States, Inc. and Carville Energy LLC.
Channel
1. Energy Services Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.).
2. Facility Services Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction Finance Company, L.P.).
3. Operating Lease Agreement, dated as of January 25, 2000, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P. (as assignee of Calpine Construction
Schedule A-1
Finance Company, L.P.), as amended by Amendment No. 1 to Operating Lease Agreement, dated as of March 30, 2001.
4. Amended and Restated Ground Lease and Easement Agreement, dated as of October 30, 2001, between Lyondell-Citgo Refining LP and Channel Energy Center, L.P.
Columbia
1. Energy Services Agreement, dated as of August 15, 2000, between Eastman Chemical Company and Columbia Energy LLC, as amended by First Amendment to Energy Services Agreement, dated as of August 1, 2001, and Second Amendment to Energy Services Agreement, dated as of October 1, 2002.
2. Amended and Restated Ground Lease Agreement, dated as of August 1, 2001, between Eastman Chemical Company and Columbia Energy LLC, as amended by First Amendment to Amended and Restated Ground Lease Agreement, dated as of October 22, 2002.
Corpus Christi
1. Energy Services Agreement. dated as of March 23, 1999. between Corpus Christi Cogeneration LP (as assignee of Nueces Bay Energy LLC) and Citgo Refining and Chemicals, L.P., as amended by Amendment No. 1 to Energy Services Agreement, dated as of March 22, 2001, and Second Amendment of Energy Services Agreement, dated as of August 24, 2001.
2. Restated Energy Services Agreement - Steam, dated as of July 26, 2002, between Corpus Christi Cogeneration LP and Elementis Chromium L.P.
3. Energy Services Agreement, dated as of July 24, 2003, between Corpus Christi Cogeneration LP and Flint Hills Resources, LP.
4. Project Site Lease Agreement, dated as of June 21, 1999, between Corpus Christi Cogeneration LP (as assignee of Nueces Bay Energy LLC) and Citgo Refining and Chemicals, L.P., as amended by First Amendment of Project Site Lease Agreement, dated as of August 24, 2001.
Decatur
1. Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 31, 2001, between Solutia Inc. and Decatur Energy Center, LLC, as amended by First Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of June 28, 2001, Second Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of August 13, 2001, Third Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of October 31, 2001, Fourth Amendment
Schedule A-2
to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of January 28, 2002, and Fifth Amendment to Second Amended and Restated Lease, Steam Sales and Shared Services Agreement, dated as of October 7, 2002.
2. Power Purchase Agreement, dated as of June 21, 2002, between Decatur Energy Center, LLC and Tennessee Valley Authority.
Delta
1. Merchant Plant Lease, dated as of April 13, 2000, between The Dow Chemical Company and Delta Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Merchant Plant Lease, dated as of July 31, 2001, Second Amendment to Merchant Plant Lease, dated as of December 14, 2001, Third Amendment to Merchant Plant Lease, dated as of February 20, 2003, and Fourth Amendment to Merchant Plant Lease, dated as of February 20, 2003.
2. Must-Run Service Agreement, dated as of February 10, 2003, between Delta Energy Center LLC and California Independent System Operator Corporation and Offer Letter from Delta Energy Center LLC to California Independent System Operator Corporation for Provision of RMR Services in 2004.
Freestone
None.
Los Medanos
1. Energy Purchase and Sale Agreement, dated as of December 21, 1998, between USS-POSCO Industries and Los Medanos Energy Center, LLC (as successor in interest to Pittsburg District Energy Facility, LLC), as amended by Modification Agreement (First Amendment to Energy Purchase and Sale Agreement), dated as of June 30, 1999, and Second Amendment to Energy Purchase and Sale Agreement, dated as of April 30, 2001
2. Ground Lease Agreement, dated as of October 4, 1999, between USS-POSCO Industries and Los Medanos Energy Center, LLC (as successor in interest to Pittsburg District Energy Facility, LLC), as amended by First Amendment to Ground Lease Agreement, dated as of August 25, 2000, Second Amendment to Ground Lease Agreement, dated as of October 30, 2000, Third Amendment to Ground Lease Agreement, dated as of July 6, 2001, and Fourth Amendment to Ground Lease Agreement, dated as of May 31, 2002.
3. Energy Supply Arrangements with Dow comprising: Binding Letter of Intent, dated as of December 10, 2002, among The Dow Chemical Company, Los Medanos Energy Center, LLC, Calpine Pittsburg, LLC, and Delta Energy Center, LLC; Steam Supply Agreement, dated as of December 10, 2002, between Calpine Pittsburg, LLC and Los Medanos Energy Center, LLC; and Agreement Regarding Power and Steam Supply, dated as of
Schedule A-3
December 10, 2002, among Calpine Pittsburg, LLC, Los Medanos Energy Center, LLC, and Delta Energy Center, LLC.
4. Amended and Restated Must-Run Service Agreement, dated June 17, 2003, between Los Medanos Energy Center, LLC and California Independent System Operator Corporation.
Morgan
1. Project Agreement, dated as of June 1, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Project Agreement, dated as of August 20, 2001.
2. Energy Sales Agreement, dated as of June 1, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment to Energy Sales Agreement, dated as of August 20, 2001, and Second Amendment to Energy Sales Agreement, dated as of July 31, 2003.
3. Site Interface Agreement, dated as of September 29, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.).
4. Land Lease, dated as of September 29, 2000, between BP Amoco Chemical Company and Morgan Energy Center, LLC (as assignee of Calpine Construction Finance Company, L.P.), as amended by First Amendment of Land Lease and Memorandum of Lease and Grant of Easements, dated as of August 20, 2001, and Second Amendment of Land Lease and Memorandum of Lease and Grant of Easements, dated as of December 13, 2001.
5. Power Purchase Agreement, dated as of June 19, 2003, between Morgan Energy Center, LLC and Tennessee Valley Authority.
Oneta
None.
Pastoria
1. Ground Lease, dated as of July 19, 2001, between Tejon Ranchcorp and Pastoria Energy Facility L.L.C., as amended by Landlord Non-disturbance and Consent Agreement, dated as of September 28, 2001.
Zion
Schedule A-4
1. Amended and Restated Fuel Conversion Services Agreement, dated as of April 28, 2003, between Zion Energy LLC and Wisconsin Electric Power Company.
Schedule A-5
SCHEDULE 2.09
TO SECOND PRIORITY TERM LOAN AGREEMENT
AMORTIZATION SCHEDULE

                                  PERCENTAGE OF ORIGINAL PRINCIPAL
 PAYMENT DATE                      AMOUNT PAYABLE ON SUCH DATE
 ------------                      ---------------------------
July 1, 2008                                  0.250%

October 1, 2008                               0.250%

January 1, 2009                               0.250%

April 1, 2009                                 0.250%

July 1, 2009                                  0.250%

October 1, 2009                               0.250%

January 1, 2010                               0.250%	

All remaining principal of the Second Priority Term Loans will be payable on April 1, 2010.
Schedule 2.09-1
SCHEDULE 4.01
TO SECOND PRIORITY TERM LOAN AGREEMENT
CAPITAL STRUCTURE
[SEE ATTACHED]
Schedule 4.01-1
SCHEDULE 4.11
TO SECOND PRIORITY TERM LOAN AGREEMENT
LITIGATION
We are party from time to time to various litigation matters arising in the normal course of business. On July 22, 2003, PG&E filed with CPUC a complaint and request for immediate issuance of an order to show cause against Calpine, CPN Pipeline Company, CES, Calpine Natural Gas Company and LGS. The complaint requests that CPUC issue an order requiring the defendants to (i) show cause why they should not be ordered to cease and desist from using any direct interconnections between the facilities of CPN Pipeline Company and those of LGS, unless such parties first seek and obtain regulatory approval from CPUC, and (ii) pay to PG&E any underpayments of PG&E's tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS' direct interconnections to any entity other than PG&E. The complaint also seeks an order permanently enjoining LGS and any entity other than PG&E from entering into or utilizing direct interconnections with LGS, and directing defendants to pay to PG&E any underpayments of PG&E's tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS' direct interconnections to any entity other than PG&E. The complaint also alleges that various natural gas consumers, including Calpine-affiliated generation facilities within California, are engaged with defendants in the acts complained of, and that the defendants unlawfully bypass PG&E's system and operate as an unregulated local distribution company within PG&E's service territory. On August 27, 2003, Calpine filed its answer and a motion to dismiss, which was denied on October 16, 2003.
On January 15, 2004, PG&E, the Calpine entities and LGS entered into the Settlement which would resolve all issues raised by the complaint. Although the Settlement became effective as of January 15, 2004, certain of its terms will only become effective upon approval of the Settlement by CPUC, and in the event that CPUC does not approve the Settlement certain of its provisions will become null and void. Upon approval of the Settlement by CPUC, PG&E would be paid $2.7 million and the parties would release all claims relating to prior periods. PG&E also would agree not to pursue any new claim of unauthorized public utility activity against the Calpine entities named in the complaint, except insofar as such new claim raises matters not raised in the complaint, or with respect to a change in the facts and circumstances relating to alleged unauthorized public utility activity from those facts and circumstances existing as of January 15, 2004. As provided by the Settlement. the direct interconnections between CPN Pipeline and LGS have been shut down pending possible future regulatory action.
In accordance with the procedural schedule adopted by the presiding administrative law judge, a settlement meeting was conducted pursuant to CPUC settlement procedures on January 26, 2004. The settling parties filed a motion for approval of the Settlement on February 6. Comments on the Settlement were due March 8, and no party filed comments opposing any provision of the settlement agreement. Reply comments are due March 23.
Schedule 4.11-1
The complaint does not name us or our facilities as defendants. However, if the Settlement is not approved, there can be no assurances that this litigation will not adversely affect CPN Pipeline Company's ability to perform its obligations under the Cotenancy, Operating and Maintenance Agreement among CPN Pipeline Company, Gilroy Energy Center, LLC, the Delta facility and the Los Medanos facility.
On June 11, 2003, the Estate of Darrell Jones and the Estate of Cynthia Jones filed a complaint against Calpine in the U.S. District Court, Western District of Washington. Calpine purchased Goldendale Energy, Inc., a Washington corporation, from Darrell Jones. The agreement provided, among other things, that upon substantial completion of the Goldendale facility, Calpine would pay Mr. Jones (i) $6.0 million and (ii) $18.0 million less $0.2 million per day for each day that elapsed between July 1, 2002 and the date of substantial completion. Substantial completion of the Goldendale facility has not occurred and the daily reduction in the payment amount has reduced the $18.0 million payment to zero. The complaint alleges that by not achieving substantial completion by July 1, 2002, Calpine breached its contract with Mr. Jones, violated a duty of good faith and fair dealing, and caused an inequitable forfeiture. The complaint seeks damages in an unspecified amount in excess of $75,000. On July 28, 2003, Calpine filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The court granted Calpine's motion to dismiss the complaint on March 10, 2004. The plaintiffs may appeal, and could also seek reconsideration of the decision.
The ultimate outcome of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated.
Schedule 4.11-1
SCHEDULE 4.18 (B)
TO SECOND PRIORITY TERM LOAN AGREEMENT
QUALIFYING FACILITIES
1. Baytown Energy Center, LP
2. Carville Energy LLC
3. Channel Energy Center, LP
4. Corpus Christi Cogeneration LP
5. Columbia Energy LLC
6. Decatur Energy Center, LLC
7. Los Medanos Energy Center LLC
8. Morgan Energy Center, LLC
Schedule 4.18(b)-1
SCHEDULE 4.18(C)
TO SECOND PRIORITY TERM LOAN AGREEMENT
EXEMPT WHOLESALE GENERATORS
1. Delta Energy Center, LLC
2. Goldendale Energy Center, LLC
3. Pastoria Energy Center L.L.C.
4. Freestone Power Generation LP
5. Calpine Oneta Power, L.P.
6. Zion Energy LLC
Schedule 4.18(c)
 
EXHIBIT 10.3.1
CALPINE CORPORATION
1996 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the interests of Calpine Corporation, a Delaware corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible employees may elect to have a portion of their base salary invested each year in special option grants,
- the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non-employee Board members shall automatically receive option grants at periodic intervals to purchase shares of Common Stock, and
- the Director Fee Option Grant Program under which non-employee Board members may elect to have all or any portion of their annual retainer fee otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary Option Grant and Stock Issuance Programs shall be administered by the Board. Beginning with the Section 12 Registration Date, the Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders and shall have sole and exclusive authority to administer the Salary Investment Option Grant Program with respect to all eligible individuals.
B. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. The members of the Secondary Committee may be Board members who are Employees eligible to receive discretionary option grants or direct stock issuances under the Plan or any other stock option, stock appreciation, stock bonus or other stock plan of the Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant, Salary Investment
2
Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance Programs under its jurisdiction or any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan.
F. Administration of the Automatic Option Grant and Director Fee Option Grant Programs shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under those programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly compensated individuals shall be eligible to participate in the Salary Investment Option Grant Program.
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C. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and
(ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive stock issuances, the time or times when such issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration for such shares.
D. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the Automatic Option Grant Program shall be limited to (i) those individuals serving as non-employee Board members on the Underwriting Date who have not previously received a stock option grant from the Corporation, (ii) those individuals who first become non-employee Board members after the Underwriting Date, whether through appointment by the Board or election by the Corporation's stockholders, and (iii) those individuals who continue to serve as non-employee Board members at one or more Annual Stockholders Meetings held after the Underwriting Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive an option grant under the Automatic Option Grant Program at the time he or she first becomes a non-employee Board member, but shall be eligible to receive periodic option grants under the Automatic Option Grant Program while he or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in the Director Fee Option Grant Program.
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V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock reserved for issuance over the term of the Plan shall not exceed 57,555,845 shares. Such authorized share reserve is comprised of (i) the number of shares which remain available for issuance, as of the Plan Effective Date, under the Predecessor Plan as last approved by the Corporation's stockholders, including the shares subject to the outstanding options to be incorporated into the Plan and the additional shares which would otherwise be available for future grant, plus (ii) an additional increase of 36,780,461.
B. [DELETED]
C. No one person participating in the Plan may receive options, separately exercisable stock appreciation rights and direct stock issuances for more than 4,000,000 shares of Common Stock in the aggregate per calendar year, beginning with the 1996 calendar year.
D. Shares of Common Stock subject to outstanding options (including options incorporated into this Plan from the Predecessor Plan) shall be available for subsequent issuance under the Plan to the extent those options expire or terminate for any reason prior to exercise in full. Unvested shares issued under the Plan and subsequently cancelled or repurchased by the Corporation, at the original issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. However, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance.
5
E. If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under this Plan per calendar year, (iii) the number and/or class of securities for which grants are subsequently to be made under the Automatic Option Grant Program to new and continuing non-employee Board members, (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding option under the Plan and (v) the number and/or class of securities and price per share in effect under each outstanding option incorporated into this Plan from the Predecessor Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive.
6
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Six and the documents evidencing the option, be payable in one or more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale.
7
Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
8
2. The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:
(i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may, in connection with the Optionee's estate plan, be assigned in whole or in part during the Optionee's lifetime either as (i) a gift to one or more members of Optionee's Immediate Family, to a trust in which Optionee and/or one or more such family members hold more than fifty percent (50%) of the beneficial interest or an entity
9
which more than fifty percent (50%) of the voting interests are owned by Optionee and/or one or more such family members, or (ii) pursuant to a domestic relations order. The assigned portion shall be exercisable only by the person or persons who acquire a proprietary interest in the option plan pursuant to such assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Seven shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date.
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III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall not so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had
11
the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan and (iii) the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to grant options under the Discretionary Option Grant Program which will automatically accelerate in the event the Optionee's Service subsequently terminates by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction in which those options are assumed or replaced and do not otherwise accelerate. Any options so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. In addition, the Plan Administrator may provide that one or more of the Corporation's outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate, and the shares subject to those terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority to grant options under the Discretionary Option Grant Program which will automatically accelerate in the event the Optionee's Service subsequently terminates by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control. Each option so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. In addition, the Plan Administrator may provide that one or more of the Corporation's outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate, and the shares subject to those terminated repurchase rights shall accordingly vest in full.
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G. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. RETIREMENT
For any option granted after September 1, 2002, if the Optionee has completed at least twelve (12) months of Service after the grant date and then ceased Service due to Retirement, all outstanding options held by such Optionee shall automatically accelerate so that each option shall become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Upon Retirement, the Optionee shall have a period of thirty-six (36) months to exercise such options, provided that no option shall be exercisable after the expiration of its term.
V. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program (including outstanding options incorporated from the Predecessor Plan) and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new grant date.
VI. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights and/or limited stock appreciation rights.
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B. The following terms shall govern the grant and exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (b) the aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it is approved by the Plan Administrator, either at the time of the actual option surrender or at any earlier time. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (a) five (5) business days after the receipt of the rejection notice or (b) the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual holding one or more options with such a limited stock appreciation right shall have the unconditional right (exercisable for a thirty
(30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation, to the
14
extent the option is at the time exercisable for vested shares of Common Stock. In return for the surrendered option, the Optionee shall receive a cash distribution from the Corporation in an amount equal to the excess of (A) the Take-Over Price of the shares of Common Stock which are at the time vested under each surrendered option (or surrendered portion thereof) over (B) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution.
(iv) The balance of the option (if any) shall remain outstanding and exercisable in accordance with the documents evidencing such option.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years (if any) for which the Salary Investment Option Grant Program is to be in effect and to select the Section 16 Insiders and other highly compensated Employees eligible to participate in the Salary Investment Option Grant Program for those calendar year or years. Each selected individual who elects to participate in the Salary Investment Option Grant Program must, prior to the start of each calendar year of participation, file with the Plan Administrator (or its designate) an irrevocable authorization directing the Corporation to reduce his or her base salary for that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete discretion to determine whether to approve the filed authorization in whole or in part. To the extent the Primary Committee approves the authorization, the individual who filed that authorization shall be granted an option under the Salary Investment Grant Program on or before the last trading day in January for the calendar year for which the salary reduction is to be in effect. All grants under the Salary Investment Option Grant Program shall be at the sole discretion of the Primary Committee.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment
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of the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable in a series of twelve (12) successive equal monthly installments upon the Optionee's completion of each calendar month of Service in the calendar year for which the salary reduction is in effect. Each option shall have a maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease Service for any reason while holding one or more options under this Article Three, then each such option shall remain exercisable, for any or all of the shares for which the option is exercisable at the time of such cessation of Service, until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the two (2)-year period measured from the date of such cessation of Service. Should the Optionee die while holding one or more options under this Article Three, then each such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee's cessation of Service (less any shares subsequently purchased by Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such right of exercise shall lapse, and the option shall terminate, upon the earlier of (i) the expiration of the ten (10)-year option term or (ii) the two
(2)-year period measured from the date of the Optionee's cessation of Service. However, the option shall, immediately upon the Optionee's cessation of Service for any reason, terminate and cease to remain outstanding with respect to
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any and all shares of Common Stock for which the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall be assumed by the successor corporation (or parent thereof) in the Corporate Transaction and shall remain exercisable for the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the two (2)-year period measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall immediately become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until the earlier or (i) the expiration of the ten (10)-year option term or (ii) the expiration of the two (2)-year period measured from the date of the Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding automatic option grants. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board or any Plan Administrator shall be required in connection with such option surrender and cash distribution.
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D. The grant of options under the Salary Investment Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the performance objectives to be attained,
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(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse between installments, and
(iv) the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement.
2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-
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money note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the cessation of the Participant's Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent (i) those repurchase/cancellation rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's repurchase/cancellation rights remain outstanding under the Stock Issuance Program, to provide that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant's Service should subsequently terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction in which those repurchase/cancellation rights are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's repurchase/cancellation rights remain outstanding under the Stock Issuance Program, to provide that those rights shall automatically terminate in whole or in part, and the shares of Common Stock
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subject to those terminated rights shall immediately vest, in the event the Participant's Service should subsequently terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified below:
1. Each individual serving as a non-employee Board member on the Underwriting Date shall automatically be granted at that time a Non-Statutory Option to purchase 10,000 shares of Common Stock(1), provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary and has not previously received a stock option grant from the Corporation.
2. Each individual who is first elected or appointed as a non-employee Board member at any time after the Underwriting Date shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase 20,000 shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held after the Underwriting Date, each individual who is to continue to serve as an Eligible Director, whether or not that individual is standing for re-election to the Board at that particular Annual Meeting, shall automatically be granted a Non-Statutory Option to purchase 3,500 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. There shall be no limit on the number of such 3,500-share option grants any one Eligible Director may receive over his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) or who have otherwise received a stock option grant from the Corporation prior to the Underwriting Date shall be eligible to receive one or more such annual option grants over their period of continued Board service.

(1) Prior to adjustment for each of the two-for-one stock splits that became effective on October 7, 1999, June 8, 2000 and November 14, 2000.

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B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares. Each initial 10,000(2) or 20,000-share grant (as the case may be) shall vest, and the Corporation's repurchase right shall lapse, in a series of four (4) successive equal annual installments upon the Optionee's completion of each year of Board service over the four (4)-year period measured from the option grant date. Each annual 3,500-share grant shall vest, and the Corporation's repurchase right shall lapse, upon the Optionee's completion of one (1) year of Board service measured from the automatic grant date.
E. TERMINATION OF BOARD SERVICE. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in which to exercise each such option.

(2) Prior to adjustment for each of the two-for-one stock splits that became effective on October 7, 1999, June 8, 2000 and November 14, 2000.

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(ii) During the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option is exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of Board service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Board service for any reason other than death or Permanent Disability, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Immediately following the consummation of the Corporate Transaction, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to such option and
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may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding automatic option grants. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board or any Plan Administrator shall be required in connection with such option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any portion of the annual retainer fee otherwise payable in cash for his or her service on the Board to the acquisition of a special option grant under this Director Fee Option Grant Program. Such election must be filed with the Corporation's Chief Financial Officer prior to the first day of the calendar year for which the annual retainer fee which is the subject of that election is otherwise payable. Each non-employee Board member who files such a timely election shall automatically be granted an option under this Director Fee Option Grant Program on the first trading day in January in the calendar year for which the annual retainer fee which is the subject of that election would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
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A is the portion of the annual retainer fee subject to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable for fifty percent (50%) of the option shares upon the Optionee's completion of six (6) months of Board service in the calendar year for which his or her election under this Director Fee Option Grant Program is in effect, and the balance of the option shares shall become exercisable in a series of six (6) successive equal monthly installments upon the Optionee's completion of each additional month of Board service during that calendar year. Each option shall have a maximum term of ten (10) years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board service for any reason (other than death or Permanent Disability) while holding one or more options under this Director Fee Option Grant Program, then each such option shall remain exercisable, for any or all of the shares for which the option is exercisable at the time of such cessation of Board service, until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the two (2)-year period measured from the date of such cessation of Board service. However, each option held by the Optionee under this Director Fee Option Grant Program at the time of his or her cessation of Board service shall immediately terminate and cease to remain outstanding with respect to any and all shares of Common Stock for which the option is not otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a Board member cease by reason of death or Permanent Disability, then each option held by such Optionee under this Director Fee Option Grant Program shall immediately become exercisable for all the shares of Common Stock at the time subject to that option, and the option may be exercised for any or all of those shares as fully-vested shares until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the two (2)-year period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while holding one or more options under this Director
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Fee Option Grant Program, then each such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee's cessation of Board service (less any shares subsequently purchased by Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such right of exercise shall lapse, and the option shall terminate, upon the earlier of (i) the expiration of the ten (10)-year option term or (ii) the two (2)-year period measured from the date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee remains a Board member, each outstanding option held by such Optionee under this Director Fee Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall be assumed by the successor corporation (or parent thereof) in the Corporate Transaction and shall remain exercisable for the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the two (2)-year period measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Director Fee Option Grant Program shall automatically accelerate so that each such option shall immediately become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until the earlier or (i) the expiration of the ten (10)-year option term or (ii) the expiration of the two
(2)-year period measured from the date of the Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding
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automatic option grants. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board or any Plan Administrator shall be required in connection with such option surrender and cash distribution.
D. The grant of options under the Director Fee Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested shares of Common Stock under the Plan (other than the options granted or the shares issued under the Automatic Option Grant or Director Fee Option Grant Program) with the right to use shares of Common Stock in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder.
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Stock Delivery: The election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan Effective Date. However, the Salary Investment Option Grant Program shall not be implemented until such time as the Primary Committee may deem appropriate. Options may be granted under the Discretionary Option Grant or Automatic Option Grant Program at any time on or after the Plan Effective Date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and no further option grants or direct stock issuances shall be made under the Predecessor Plan after the Section 12 Registration Date. All options outstanding under the Predecessor Plan on the Section 12 Registration Date shall be incorporated into the Plan at that time and shall be treated as outstanding options under the Plan. However, each outstanding option so incorporated shall continue to be governed solely by the terms of the documents evidencing such option, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation) the option/vesting acceleration provisions of Article Two relating to Corporate Transactions and Changes in Control, may, in the Plan Administrator's discretion, be extended to one or more options incorporated from the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) July 16, 2006, (ii) the date on which all shares available for
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issuance under the Plan shall have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with a Corporate Transaction. Upon such plan termination, all outstanding option grants and unvested stock issuances shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant and Salary Investment Option Grant Programs and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
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VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.
35
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following stockholder-approved
36
transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Calpine Corporation, a Delaware corporation, and its successors.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock option grant in effect for non-employee Board members under Article Six of the Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to participate in the Automatic Option Grant Program in accordance with the eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question, as such price is reported on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the
37
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is to be sold in the initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the Underwriting Date, the Fair Market Value shall be determined by the Plan Administrator, after taking into account such factors as it deems appropriate.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept.
O. IMMEDIATE FAMILY of Optionee shall mean Optionee's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister in law, including adoptive relationships.
P. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422.
Q. INVOLUNTARY TERMINATION shall mean the termination of the Service of any individual which occurs by reason of:
38
(i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and participation in any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent.
R. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary).
S. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
T. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422.
U. OPTIONEE shall mean any person to whom an option is granted under the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option Grant or Director Fee Option Grant Program.
V. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
39
W. PARTICIPANT shall mean any person who is issued shares of Common Stock under the Stock Issuance Program.
X. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant and Director Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.
Y. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as set forth in this document.
Z. PLAN ADMINISTRATOR shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction.
AA. PLAN EFFECTIVE DATE shall mean July 17, 1996, the date on which the Plan was adopted by the Board.
AB. PREDECESSOR PLAN shall mean the Corporation's pre-existing Stock Option Plan in effect immediately prior to the Plan Effective Date hereunder.
AC. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders and to administer the Salary Investment Option Grant Program with respect to all eligible individuals.
AD. RETIREMENT shall mean voluntary termination of Service by the Optionee after meeting either of the following criteria: (i) attainment of age 60 and completion of 10 years of
40
Service, or (ii) attainment of age 55 and completion of a number of years of Service that, when added to current age, equals at least 70.
AE. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary investment grant program in effect under the Plan.
AF. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AG. SECTION 12 REGISTRATION DATE shall mean the date on which the Common Stock is first registered under Section 12(g) of Section 16 of the 1934 Act.
AH. SECTION 16 INSIDER shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
AI. SERVICE shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance.
AJ. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York Stock Exchange.
AK. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program.
AL. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under the Plan.
AM. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
41
AN. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share.
AO. TAXES shall mean the Federal, state and local income and employment tax liabilities incurred by the holder of Non-Statutory Options or unvested shares of Common Stock in connection with the exercise of those options or the vesting of those shares.
AP. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).
AQ. UNDERWRITING AGREEMENT shall mean the agreement between the Corporation and the underwriter or underwriters managing the initial public offering of the Common Stock.
AR. UNDERWRITING DATE shall mean the date on which the Underwriting Agreement is executed and priced in connection with an initial public offering of the Common Stock.
* * * * *
42
CALPINE CORPORATION
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees, non-employee members of the Board or of the board of directors of any Parent or Subsidiary and consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable nor assignable by Optionee other than by will or by the laws of descent and distribution following Optionee's death and may be exercised, during Optionee's lifetime, only by Optionee. However, if this option is designated a Non-Statutory Option in the Grant Notice, then this option may be assigned in whole or in part during Optionee's lifetime either as (i) as a gift to one or more members of Optionee's Immediate Family, to a trust in which Optionee and/or one or more such family members hold more than fifty percent (50%) of the beneficial interest or an entity in which more than fifty percent (50%) of the voting interests are owned by Optionee and/or one or more such family members, or (ii) pursuant to a domestic relations order. The assigned portion shall be exercisable only by the person or persons who acquire a proprietary interest in the option pursuant to such assignment. The terms applicable to the assigned portion shall be the same as those in effect for this option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.
4. DATES OF EXERCISE
This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason (other than death, Permanent Disability, Retirement, or Misconduct) while this option is outstanding, then Optionee shall have a period of three (3) months (commencing with the date of such cessation of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date.
(ii) If Optionee dies while this option is outstanding, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution shall have the right to exercise this option. Such right shall lapse, and this option shall cease to be outstanding, upon the earlier of (A) the expiration of the twelve (12)- month period measured from the date of Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent Disability while this option is outstanding, then Optionee shall have a period of twelve (12) months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be exercisable at any time after the Expiration Date.
(iv) Should Optionee cease Service by reason of Retirement while this option is outstanding, then Optionee shall have a period of thirty-six (36) months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be exercisable at any time after the Expiration Date.
(v) If the Optionee completed at least 12 months of Service after the Grant Date and then ceased Service by reason of Retirement, this option shall become immediately vested and fully exercisable for all Option Shares (including Option Shares not previously vested) during the limited period of post-Service exercisability. If the Optionee ceased Service in any circumstances other than those described in the preceding sentence, this option may not be exercised in the aggregate during the limited period of post-Service exercisability for more than the number of vested Option Shares for which the option is exercisable at the time of Optionee's cessation of Service. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any vested Option Shares for which the option has not been exercised. However, this option shall, immediately upon
2.
Optionee's cessation of Service for any reason other than Retirement as described in the first sentence of this paragraph, terminate and cease to be outstanding with respect to any Option Shares in which Optionee is not otherwise at that time vested or for which this option is not otherwise at that time exercisable.
(vi) Should Optionee's Service be terminated for Misconduct, then this option shall terminate immediately and cease to remain outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) This option, to the extent outstanding at the time of a Corporate Transaction but not otherwise fully exercisable, shall automatically accelerate so that this option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the Option Shares at the time subject to this option and may be exercised for any or all of those Option Shares as fully-vested shares of Common Stock. No such acceleration of this option, however, shall occur if and to the extent: (i) this option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof) or (ii) this option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested Option Shares at the time of the Corporate Transaction (the excess of the Fair Market Value of those Option Shares over the aggregate Exercise Price payable for such shares) and provides for subsequent pay-out in accordance with the same option exercise/vesting schedule set forth in the Grant Notice. The determination of option comparability under clause (i) shall be made by the Plan Administrator, and such determination shall be final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in
3.
order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any stockholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(i) Execute and deliver to the Corporation a Notice of Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but only to the extent authorized by the Plan Administrator in accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or
(D) to the extent the option is exercised for vested Option Shares, through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable written instructions (I) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (II) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction.
Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Notice of Exercise delivered to the Corporation in connection with the option exercise.
4.
(iii) Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee's assigns and the legal representatives, heirs and legatees of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. FINANCING. The Plan Administrator may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a full-recourse promissory note payable to the Corporation. The terms of any such promissory note (including the interest rate, the requirements for collateral and the terms of repayment) shall be established by the Plan Administrator in its sole discretion.
5.
14. CONSTRUCTION. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option.
15. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules.
16. EXCESS SHARES. If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may without stockholder approval be issued under the Plan, then this option shall be void with respect to those excess shares, unless stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of the Plan.
17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event this option is designated an Incentive Option in the Grant Notice, the following terms and conditions shall also apply to the grant:
(i) This option shall cease to qualify for favorable tax treatment as an Incentive Option if (and to the extent) this option is exercised for one or more Option Shares: (A) more than three (3) months after the date Optionee ceases to be an Employee for any reason other than death or Permanent Disability or (B) more than twelve (12) months after the date Optionee ceases to be an Employee by reason of Permanent Disability.
(ii) No installment under this option shall qualify for favorable tax treatment as an Incentive Option if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which such installment first becomes exercisable hereunder would, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other securities for which this option or any other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should such One Hundred Thousand Dollar ($100,000) limitation be exceeded in any calendar year, this option shall nevertheless become exercisable for the excess shares in such calendar year as a Non-Statutory Option.
(iii) Should the exercisability of this option be accelerated upon a Corporate Transaction, then this option shall qualify for favorable tax treatment as an Incentive Option only to the extent the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option first becomes exercisable in the calendar year in which the Corporate Transaction
6.
occurs does not, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other securities for which this option or one or more other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should the applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the calendar year of such Corporate Transaction, the option may nevertheless be exercised for the excess shares in such calendar year as a Non-Statutory Option.
(iv) Should Optionee hold, in addition to this option, one or more other options to purchase Common Stock which become exercisable for the first time in the same calendar year as this option, then the foregoing limitations on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.
18. LEAVE OF ABSENCE. The following provisions shall apply upon the Optionee's commencement of an authorized leave of absence:
(i) The exercise schedule in effect under the Grant Notice shall be frozen as of the first day of the authorized leave, and this option shall not become exercisable for any additional installments of the Option Shares during the period Optionee remains on such leave.
(ii) Should Optionee resume active Employee status within sixty (60) days after the start date of the authorized leave, Optionee shall, for purposes of the exercise schedule set forth in the Grant Notice, receive Service credit for the entire period of such leave. If Optionee does not resume active Employee status within such sixty (60)-day period, then no Service credit shall be given for the period of such leave.
(iii) If the option is designated as an Incentive Option in the Grant Notice, then the following additional provision shall apply:
If the leave of absence continues for more than three (3) months, then this option shall automatically convert to a Non-Statutory Option under the Federal tax laws at the end of the three (3)-month period measured from the ninety-first
(91st) day of such leave, unless the Optionee's reemployment rights are guaranteed by statute or by written agreement. Following any such conversion of the option, all subsequent exercises of such option, whether effected before or after Optionee's return to active Employee status, shall result in an immediate taxable event, and the Corporation shall be required to collect from Optionee the Federal, state and local income and employment withholding taxes applicable to such exercise.
7.
(iv) In no event shall this option become exercisable for any additional Option Shares or otherwise remain outstanding if Optionee does not resume Employee status prior to the Expiration Date of the option term.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8.
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Calpine Corporation (the "Corporation") that I elect to purchase ____________ shares of the Corporation's Common Stock (the "Purchased Shares") at the option exercise price of $____________ per share (the "Exercise Price") pursuant to that certain option (the "Option") granted to me under the Corporation's 1996 Stock Incentive Plan on __________________, ______.
Concurrently with the delivery of this Exercise Notice to the Corporation, I shall hereby pay to the Corporation the Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Corporation (or other documents) evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special broker-dealer sale and remittance procedure specified in my agreement to effect payment of the Exercise Price.
________________________,______
Date

Optionee
Address:_______________________________

Print name in exact manner
it is to appear on the
stock certificate:

Address to which certificate
is to be sent, if different
from address above:

Social Security Number:

Employee Number:
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation.
F. CORPORATION shall mean Calpine Corporation, a Delaware corporation.
G. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per share as specified in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value
A-1.
shall be the closing selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as specified in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby.
N. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422.
O. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or any other individual in the Service of the Corporation (or any Parent or Subsidiary).
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422.
Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form attached hereto as Exhibit I.
R. OPTION SHARES shall mean the number of shares of Common Stock subject to the option as specified in the Grant Notice.
S. OPTIONEE shall mean the person to whom the option is granted as specified in the Grant Notice.
T. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
A-2.
U. PERMANENT DISABILITY shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more.
V. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as amended fro time to time.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its administrative capacity under the Plan.
X. RETIREMENT shall mean voluntary termination of Service by the Optionee after meeting either of the following criteria: (i) attainment of age 60 and completion of 10 years of Service, or (ii) attainment of age 55 and completion of a number of years of Service that, when added to current age, equals at least 70.
Y. SERVICE shall mean the Optionee's performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor.
Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New York Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
A-3.
 
EXHIBIT 10.3.7
CONSULTING CONTRACT
BETWEEN
CALPINE CORPORATION
AND
GEORGE J. STATHAKIS
CALENDAR YEAR - 2004
TABLE OF CONTENTS

                                                                      Page
                                                                      ----
1. SCOPE OF SERVICES                                                    1

2. TERM                                                                 1

3. COMPENSATION                                                         1

4. WARRANTY                                                             2

5. INDEPENDENT CONTRACTOR                                               2

6. INSURANCE                                                            2

7. INDEMNITY                                                            2

8. ASSIGNMENT AND SUBCONTRACTING                                        2

9. CONFIDENTIALITY                                                      3

10. JURISDICTION                                                        3

11. PUBLICATION                                                         3

12. SURVIVAL                                                            3

13. ENTIRE CONTRACT AND AMENDMENTS                                      3

14. BINDING EFFECT                                                      4	

CONSULTING CONTRACT
THIS CONSULTING CONTRACT ("Contract") is made and entered into effective as January 1, 2004 (the "Effective Date") between Calpine Corporation, a Delaware corporation, of 50 West San Fernando Street, San Jose, California 95113 ("CALPINE") and GEORGE J. STATHAKIS, 120 Montgomery Street, 13th Floor, San Francisco, California 94104 ("CONSULTANT"), with reference to the following:
In consideration of the mutual agreements herein contained, it is agreed as follows:
1. SCOPE OF SERVICES
CONSULTANT agrees to provide advice and guidance on various management issues to the President and members of his senior staff.
2. TERM
2.0 This Contract shall be for a term lasting from the Effective Date until December 31, 2004, unless earlier terminated pursuant to this Contract or extended by mutual agreement of the parties.
2.1 Notwithstanding the above, either party may terminate this Contract at any time by giving thirty (30) days written notice to the other party, provided, however, that any payments due and payable upon termination shall be paid.
3. COMPENSATION
Compensation to CONSULTANT for services rendered shall be as follows:
(a) CALPINE will pay CONSULTANT a monthly retainer (the "Retainer") of Five Thousand Dollars ($5,000.00), commencing January 1, 2004, which amount will be payable at the beginning of each month under the term hereof.
(b) In addition to the cash compensation stated in (a) above, CALPINE will grant to CONSULTANT stock options under the Discretionary Option Grant Program of the Calpine Corporation 1996 Stock Incentive Plan to purchase 10,000 shares. The grant will be effective January 1, 2004; the option price for this grant will be the fair market value of Calpine Corporation stock at the close of business on the effective date of the grant. The options will be vest in twelve monthly installments and have a ten year term.
(c) In addition to the above, CALPINE agrees to reimburse CONSULTANT for all travel and other actual out-of-pocket expenses incurred in support of this Contract. Such expenses will not be incurred by CONSULTANT without prior approval of CALPINE. CONSULTANT shall furnish copies of all receipts with invoices for expenses incurred in support of this Contract.
4. WARRANTY
CONSULTANT assumes professional and technical responsibility for performance of Services to be provided hereunder in accordance with recognized professional standards. If within one year following completion of the Services, the Services fail to meet the aforesaid standards, and CALPINE promptly advises CONSULTANT in writing, CONSULTANT agrees to re-perform deficient Services without charge to CALPINE up to a maximum amount equivalent to the compensation received for the deficient Services rendered.
1
5. INDEPENDENT CONTRACTOR
5.1 CONSULTANT acknowledges and agrees that it enters into this Contract as an independent contractor. Under no circumstances shall CONSULTANT look to CALPINE as its employer, nor as a partner, agent or principal. CONSULTANT shall not be entitled to any benefits accorded to CALPINE's employees including, without limitation, workers compensation, disability insurance, and vacation or sick pay. CONSULTANT shall be responsible for providing, at its expense and in its name, disability, workers' compensation or other insurance as well as licenses and permits usual or necessary for conducting the Services hereunder.
5.2 CONSULTANT shall pay, when and as due, any and all taxes incurred as a result of CONSULTANT's compensation hereunder, including estimated taxes. CONSULTANT hereby indemnifies CALPINE for any claims, lost costs, fees, liabilities, damages or injuries suffered by CALPINE arising out of CONSULTANT's breach of this section.
5.3 CONSULTANT represents that he or she has the qualifications and ability to perform the Services in a professional manner, without the advice, control or supervision of CALPINE. CONSULTANT shall be solely responsible for the professional performance of the Services, and shall receive no assistance, direction or control from CALPINE. CONSULTANT shall have sole discretion and control of its work and the manner in which it is performed.
6. INSURANCE
6.1 CONSULTANT shall maintain in full force and effect during the term of this Contract, the insurance described below, as well as such other insurance as deemed reasonably necessary by CALPINE to insure the services performed hereunder.

6.1.1    Automobile liability insurance covering owned,
         non-owned and hired automobiles for a combined single
         limit of $100,000/$300,000 for bodily injury and
         property damage.	

6.2 CONSULTANT shall, upon request, furnish certificates showing that the above insurance will be in effect during the term of this Contract and shall specify that CALPINE must be given, in writing, thirty (30) days notice of cancellation, termination, or alternation of the policies evidenced by certificates. It is acknowledged, understood and agreed that no payment shall be due from CALPINE under this Contract at any time when CONSULTANT is not in full compliance with this provision dealing with insurance.
7. INDEMNITY
7.1 CALPINE agrees to indemnify CONSULTANT and hold him harmless against any claim by any person that CONSULTANT's performance arising from or in connection with CONSULTANT's relationship with CALPINE renders CONSULTANT liable to such person, and against any losses or damages suffered by CALPINE and its affiliates as a result of any such claim (including legal fees and expenses); provided, however, that such indemnity will not extend to any action taken or omitted by CONSULTANT as a result of gross negligence or willful misconduct.
7.2 CONSULTANT shall not be liable for any consequential or indirect damages occurring as a result of any recommendation, opinion or advice given by CONSULTANT, or from any implementation of CONSULTANT's recommendations by CALPINE, or from any other services performed hereunder by CONSULTANT for CALPINE.
8. ASSIGNMENT AND SUBCONTRACTING
2
CONSULTANT shall not have the right to assign this Contract or subcontract any of the work without the prior written consent of CALPINE. CONSULTANT shall supervise all work subcontracted by CONSULTANT in performing the Services and shall be responsible for all work performed by a subcontractor as if CONSULTANT itself had performed such work. The assignment or subcontracting of any work to subcontractors shall not relieve CONSULTANT from any of its obligations under this Contract with respect to the Services.
9. CONFIDENTIALITY
All data, information, work papers, technology and reports furnished or disclosed by CALPINE to CONSULTANT or its personnel in the course of performing the Services ("Information") are and shall remain the sole property of CALPINE and shall be kept confidential by CONSULTANT, and shall be delivered over to CALPINE at CALPINE's request. CONSULTANT agrees not to divulge all or any part of the Information to third parties, without the prior written consent of CALPINE, unless:
(a) The Information is known to CONSULTANT prior to obtaining the same from CALPINE;
(b) The Information is, at the time of disclosure by CONSULTANT, then in the public domain; or
(c) The Information is obtained by CONSULTANT from a third party who did not receive same, directly or indirectly, from CALPINE and who has no obligation of secrecy with respect thereto.
CONSULTANT further agrees that it will not, without the prior written consent of CALPINE, disclose to any third party any of such Information developed or obtained by CONSULTANT in the performance of this Contract. If so requested by CALPINE, CONSULTANT further agrees to require its employees to execute a nondisclosure agreement prior to performing Services under this Contract.
10. JURISDICTION
This Contract shall be governed by and be construed in accordance with the laws of the State of California.
11. PUBLICATION
CONSULTANT shall not use CALPINE's name or trademarks, photographs or otherwise claim any affiliation with CALPINE in any publication or public forum without obtaining prior written approval from CALPINE.
12. SURVIVAL
The rights and obligations of the parties, which, by their nature, are normally intended to survive the termination or completion of this Contract shall remain in full force and effect following termination of this Contract for any reason.
13. ENTIRE CONTRACT AND AMENDMENTS
This Contract, together with Exhibits and Schedules, if any, attached hereto, all of which are incorporated herein as part of this Contract by this reference, and together with all purchase orders, contain the entire agreement between the parties hereto with respect to the subject matter hereof. No amendment to this Contract or to any purchase order shall be binding upon either party hereto, unless it is in writing and executed on behalf of each party hereto by a duly authorized representative and expressly specified as such.
3
 
14. BINDING EFFECT
This Contract shall be binding upon and inure to the benefit of the parties hereto, and to their successors and permitted assigns.
IN WITNESS WHEREOF, this Contract is executed effective as of the day and year first above written.

CALPINE:                                    CONSULTANT:

CALPINE CORPORATION                         GEORGE J. STATHAKIS

By: _______________________________         By: ________________________________

Title: Executive Vice President             Title: _____________________________

Date: _____________________________         Date: ______________________________	

4
 
.
.
.
EXHIBIT 12.1
CALPINE CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
YTD 2003

                                                                                       YEAR ENDED DECEMBER 31,
                                                                       -----------------------------------------------------------
                                                                         1999       2000        2001         2002         2003
                                                                       ---------  ---------  -----------  -----------  -----------
                                                                                           (IN THOUSANDS)
COMPUTATION OF EARNINGS:
Pretax income before adjustment for minority interests in
consolidated subsidiaries and income or loss from equity investees ..   140,454    537,242      862,289       24,909       60,246
Fixed charges .......................................................   165,354    355,093      790,929    1,088,775    1,254,654
Amortization of capitalized interest ................................       331        447        2,425       11,980       19,539
Distributed income of equity investees ..............................    43,318     29,979        5,983       14,117      141,627
Interest capitalized ................................................   (47,300)  (206,973)    (498,723)    (575,446)    (444,584)
Minority interest in pretax income of subsidiaries that have not
incurred fixed charges ..............................................       265       (895)          --           --           --
Distribution of HIGH TIDES ..........................................    (2,565)   (45,076)     (62,412)     (62,632)     (46,610)
                                                                       --------   --------   ----------   ----------   ----------
Total Earnings ......................................................   299,857    669,817    1,100,491      501,703      984,872
COMPUTATION OF FIXED CHARGES:
Interest expensed and capitalized ...................................   150,548    288,863      695,344      989,136    1,170,687
Estimate of interest within rental expense ..........................    12,241     21,154       33,173       37,007       37,357
Distributions on HIGH TIDES .........................................     2,565     45,076       62,412       62,632       46,610
                                                                       --------   --------   ----------   ----------   ----------
Total fixed charges .................................................   165,354    355,093      790,929    1,088,775    1,254,654
RATIO OF EARNINGS TO FIXED CHARGES ..................................     1.81x      1.89x        1.39x           --           --(i)	

(i) For the year ended December 31, 2003, the Company had an earnings-to-fixed-charges coverage deficiency of approximately $269.8 million, primarily as a result of (1) a pre-tax charge to earnings of $64.4 million for equipment cancellation and asset impairment and $16.4 million for long-term service agreement cancellation charges, (2) increased interest costs due to recent debt financings to support our growth, and (3) a decrease in average spark spreads per megawatt-hour and higher fuel expense in 2003 as compared with the same period in 2002.

1
  
EXHIBIT 21.1
SUBSIDIARIES OF CALPINE CORPORATION
AS OF DECEMBER 31, 2003,
AT LEAST 50% OWNED BY CALPINE CORPORATION

1066917 Ontario Inc.                                          Ontario
985365 Alberta Ltd.                                           Alberta
Acadia Partners Pipeline, LLC                                 Louisiana
Acadia Power Partners, LLC                                    Delaware
Addis Energy Center, LLC                                      Delaware
Amelia Energy Center, LP                                      Delaware
Anacapa Land Company, LLC                                     Delaware
Anderson Springs Energy Company                               California
Androscoggin Energy, Inc.                                     Illinois
Auburndale GP, LLC                                            Delaware
Auburndale Holdings, LLC                                      Delaware
Auburndale LP, LLC                                            Delaware
Auburndale Peaker Energy Center, LLC                          Delaware
Auburndale Power Partners, Limited Partnership                Delaware
Augusta Development Company, LLC                              Delaware
Aviation Funding Corp.                                        Delaware
Bayou Verret Energy LLC                                       Delaware
Baytown Energy Center, LP                                     Delaware
Baytown Power GP, LLC                                         Delaware
Baytown Power, LP                                             Delaware
Bellingham Cogen, Inc.                                        California
Berrien Energy Center, LLC                                    Delaware
Bethpage Cogeneration Limited Partnership                     Delaware
Bethpage Energy Center 3, LLC                                 Delaware
Bethpage Fuel Management Inc.                                 Delaware
Blue Heron Energy Center, LLC                                 Delaware
Blue Spruce Energy Center, LLC                                Delaware
Broad River Energy LLC                                        Delaware
Broad River Holdings, LLC                                     Delaware
Calgary Energy Centre ULC                                     Nova Scotia
CCFC II Equipment Finance Company, LLC                        Delaware
CCFC II Equipment Finance Holdings, LLC                       Delaware
CCFC II Development Company, LLC                              Delaware
CCFC II Project Equipment Finance Company One, LLC            Delaware
CCFC II Project Equipment Finance Company Three, LLC          Delaware
CCFC II Project Equipment Finance Company Two, LLC            Delaware
Calpine Acadia Holdings, LLC                                  Delaware
Calpine Administrative Services Company, Inc.                 Delaware
Calpine Agnews, Inc.                                          California
Calpine Amelia Energy Center GP, LLC                          Delaware
Calpine Amelia Energy Center LP, LLC                          Delaware
Calpine Auburndale Holdings, LLC                              Delaware
Calpine Auburndale, LLC                                       Delaware
Calpine Baytown Energy Center GP, LLC                         Delaware
Calpine Baytown Energy Center LP, LLC                         Delaware
Calpine c*Power, Inc.                                         Delaware
Calpine CCFC II Holdings, Inc.                                Delaware
Calpine California Development Company, LLC                   Delaware
Calpine California Energy Finance, LLC                        Delaware
Calpine California Equipment Finance Company, LLC             Delaware
Calpine California Holdings, Inc.                             Delaware
Calpine Calistoga Holdings, LLC                               Delaware

1 of 8	

Calpine Canada Energy Finance  ULC                            Nova Scotia
Calpine Canada Energy Finance II ULC                          Nova Scotia
Calpine Canada Energy Ltd.                                    Nova Scotia
Calpine Canada Natural Gas Partnership                        Alberta
Calpine Canada Power Ltd.                                     Alberta
Calpine Canada Resources Company                              Alberta
Calpine Canada TriGas, Ltd.                                   Alberta
Calpine Canada Whitby Holdings Company                        Alberta
Calpine Capital Trust                                         Delaware
Calpine Capital Trust II                                      Delaware
Calpine Capital Trust III                                     Delaware
Calpine Capital Trust IV                                      Delaware
Calpine Capital Trust V                                       Delaware
Calpine CCFC GP, Inc.                                         Delaware
Calpine CCFC Holdings, Inc.                                   Delaware
Calpine CCFC LP, Inc.                                         Delaware
Calpine Central Texas GP, Inc.                                Delaware
Calpine Central, Inc.                                         Delaware
Calpine Central, L.P.                                         Delaware
Calpine Central-Texas, Inc.                                   Delaware
Calpine Channel Energy Center GP, LLC                         Delaware
Calpine Channel Energy Center LP, LLC                         Delaware
Calpine Clear Lake Energy GP, LLC                             Delaware
Calpine Clear Lake Energy, LP                                 Delaware
Calpine Cogeneration Corporation                              Delaware
Calpine Construction Finance Company II, LLC                  Delaware
Calpine Construction Finance Company, L.P.                    Delaware
Calpine Construction Management Company, Inc.                 Delaware
Calpine Corpus Christi Energy GP, LLC                         Delaware
Calpine Corpus Christi Energy, LP                             Delaware
Calpine Decatur Pipeline, Inc.                                Delaware
Calpine Decatur Pipeline, L.P.                                Delaware
Calpine Development Holdings, Inc.                            Delaware
Calpine East Fuels, Inc.                                      Delaware
Calpine Eastern Corporation                                   Delaware
Calpine Edinburg, Inc.                                        Delaware
Calpine Energy Centre L.P.                                    Alberta
Calpine Energy Finance Luxembourg S.a.r.l.                    Luxembourg
Calpine Energy Holdings Limited                               Alberta
Calpine Energy Services Canada Ltd.                           Alberta
Calpine Energy Services Canada Partnership                    Alberta
Calpine Energy Services Holdings, Inc.                        Delaware
Calpine Energy Services UK Limited                            United Kingdom
Calpine Energy Services, L.P.                                 Delaware
Calpine European Finance LLC                                  Delaware
Calpine Finance Company                                       Delaware
Calpine Foundation                                            Delaware
Calpine Freestone Energy GP, LLC                              Delaware
Calpine Freestone Energy, LP                                  Delaware
Calpine Freestone, Inc.                                       Delaware
Calpine Fuels Corporation                                     Delaware
Calpine Fuels Texas Limited Partnership                       Texas
Calpine Construction Finance Company II, LLC                  Delaware
Calpine/Gentex Lost Pines, LP                                 Texas
Calpine Geysers Company, L.P.                                 Delaware
Calpine Gilroy 1, Inc.                                        Delaware

2 of 8	

Calpine Gilroy 2, Inc.                                        Delaware
Calpine Gilroy Cogen, L.P.                                    Delaware
Calpine Global Investments, S.L.                              Spain
Calpine Global Services Company, Inc.                         Delaware
Calpine Gordonsville GP Holdings, LLC                         Delaware
Calpine Gordonsville I, Inc.                                  Delaware
Calpine Gordonsville LP Holdings, LLC                         Delaware
Calpine Gordonsville, Inc.                                    Delaware
Calpine Greenleaf Holdings, Inc.                              Delaware
Calpine Greenleaf, Inc.                                       Delaware
Calpine Hermiston, LLC                                        Delaware
Calpine Hidalgo Design, L.P.                                  Delaware
Calpine Hidalgo Energy Center, L.P.                           Texas
Calpine Hidalgo Holdings, Inc.                                Delaware
Calpine Hidalgo Power GP, LLC                                 Delaware
Calpine Hidalgo Power, LP                                     Delaware
Calpine Hidalgo, Inc.                                         Delaware
Calpine International Holdings, Inc.                          Delaware
Calpine International Indonesia B.V.                          The Netherlands
Calpine International Investment B.V.                         The Netherlands
Calpine Island Cogeneration Project, Inc.                     Canada
Calpine Jersey Cogen, Inc.                                    Delaware
Calpine Kennedy Airport, Inc.                                 Delaware
Calpine Kennedy Operators Inc.                                New York
Calpine KIA, Inc.                                             New York
Calpine King City Cogen Inc.                                  California
Calpine King City, Inc.                                       Delaware
Calpine King City, LLC                                        Delaware
Calpine Leasing Inc.                                          Delaware
Calpine Long Island, Inc.                                     Delaware
Calpine Lost Pines Operations, Inc.                           Delaware
Calpine Louisiana Pipeline Company                            Delaware
Calpine Magic Valley Pipeline, Inc.                           Delaware
Calpine Magic Valley Pipeline, L.P.                           Delaware
Calpine Marketing LLC                                         Delaware
Calpine Monterey Cogeneration, Inc.                           Delaware
Calpine Morris, LLC                                           Delaware
Calpine MVP, Inc.                                             Delaware
Calpine Natural Gas GP, LLC                                   Delaware
Calpine Natural Gas Holdings Limited                          Alberta
Calpine Natural Gas Holdings, LLC                             Delaware
Calpine Natural Gas L.P.                                      Delaware
Calpine Natural Gas Services Limited                          Alberta
Calpine NCTP GP, LLC                                          Delaware
Calpine NCTP, LP                                              Delaware
Calpine Newark, LLC                                           Delaware
Calpine Northbrook Corporation of Maine, Inc.                 Illinois
Calpine Northbrook Energy Holdings, LLC                       Delaware
Calpine Northbrook Energy Marketing, LLC                      Delaware
Calpine Northbrook Energy, LLC                                Delaware
Calpine Northbrook Holdings Corporation                       Delaware
Calpine Northbrook Investors, LLC                             Delaware
Calpine Northbrook Project Holdings, LLC                      Delaware
Calpine Northbrook Services, LLC                              Delaware
Calpine Northbrook Southcoast Investors, LLC                  Delaware
Calpine NTC, LP                                               Delaware

3 of 8	

Calpine Oneta Power I, LLC                                    Delaware
Calpine Oneta Power II, LLC                                   Delaware
Calpine Oneta Power, L.P.                                     Delaware
Calpine Operating Management Company, Inc.                    Delaware
Calpine Operating Services Company, Inc.                      Delaware
Calpine Parlin, LLC                                           Delaware
Calpine Pasadena Cogeneration, Inc.                           Delaware
Calpine Pasadena Energy GP, LLC                               Delaware
Calpine Pasadena Energy, LP                                   Delaware
Calpine Pastoria Holdings, LLC                                Delaware
Calpine Peaker Holdings 2, LLC                                Delaware
Calpine Peaker Holdings, LLC                                  Delaware
Calpine Philadelphia, Inc.                                    Delaware
Calpine Pittsburg, LLC                                        Delaware
Calpine Power Company                                         California
Calpine Power Equipment LP                                    Texas
Calpine Power Management, Inc.                                Delaware
Calpine Power Management, LP                                  Texas
Calpine Power Services, Inc.                                  Delaware
Calpine Power, Inc.                                           Virginia
Calpine PowerAmerica, Inc.                                    Delaware
Calpine PowerAmerica, LP                                      Texas
Calpine PowerAmerica-CA, LLC                                  Delaware
Calpine PowerAmerica-MA, LLC                                  Delaware
Calpine PowerAmerica-ME, LLC                                  Delaware
Calpine PowerAmerica-OR, LLC                                  Delaware
Calpine PowerAmerica-PA, LLC                                  Delaware
Calpine Producer Services, L.P.                               Texas
Calpine Project Holdings, Inc.                                Delaware
Calpine Project Investments, Inc.                             California
Calpine Pryor, Inc.                                           Delaware
Calpine Rumford I, Inc.                                       Delaware
Calpine Rumford, Inc.                                         Delaware
Calpine Rumford, LP                                           Delaware
Calpine Schuylkill, Inc.                                      Delaware
Calpine Siskiyou Geothermal Partners, L.P.                    California
Calpine Sonoma, Inc.                                          California
Calpine Sonoran Pipeline LLC                                  Delaware
Calpine Stony Brook Operators, Inc.                           New York
Calpine Stony Brook Power Marketing, LLC                      Delaware
Calpine Stony Brook, Inc.                                     New York
Calpine Sumas, Inc.                                           California
Calpine TCCL Holdings, Inc.                                   Delaware
Calpine Texas Cogeneration, Inc.                              Delaware
Calpine Texas Pipeline GP, Inc.                               Delaware
Calpine Texas Pipeline LP, Inc.                               Delaware
Calpine Texas Pipeline, L.P.                                  Delaware
Calpine Thermal Power, Inc.                                   California
Calpine Tiverton I, Inc.                                      Delaware
Calpine Tiverton, Inc.                                        Delaware
Calpine UK Energy Finance Public Limited Company              United Kingdom
Calpine UK Holdings Limited                                   United Kingdom
Calpine UK Operations Limited                                 United Kingdom
Calpine ULC I Holding, LLC                                    Delaware
Calpine University Power, Inc.                                Delaware
Calpine Vapor, Inc.                                           California

4 of 8	

Calpine Westbrook, LLC                                        Delaware
Carville Energy LLC                                           Delaware
CCFC Development Company, LLC                                 Delaware
CCFC Equipment Finance Company, LLC                           Delaware
CCFC Finance Corp.                                            Delaware
CCFC Project Equipment Finance Company One, LLC               Delaware
Celtic Power Corporation                                      Delaware
CES GP, LLC                                                   Delaware
CES Marketing II, LLC                                         Delaware
CES Marketing III, LLC                                        Delaware
CES Marketing IV, L.P.                                        Delaware
CES Marketing V, L.P.                                         Delaware
CG Cogen, LLC                                                 Delaware
CGC Dighton, LLC                                              Delaware
Channel Energy Center, LP                                     Delaware
Channel Power GP, LLC                                         Delaware
Channel Power, LP                                             Delaware
Chippokes Energy Center, LLC                                  Delaware
Clear Lake Cogeneration Limited Partnership                   Texas
Cloverdale Geothermal Energy Partners LLC                     California
CNEM Holdings, LLC                                            Delaware
CogenAmerica Asia Inc.                                        Delaware
CogenAmerica Parlin Supply Corp.                              Delaware
Columbia Energy LLC                                           Delaware
Corpus Christi Cogeneration L.P.                              Delaware
CPN 3rd Turbine, Inc.                                         Delaware
CPN Acadia, Inc.                                              Delaware
CPN Aidlin, Inc.                                              Delaware
CPN Berks Generation, Inc.                                    Delaware
CPN Berks, LLC                                                Delaware
CPN Bethpage 3rd Turbine, Inc.                                Delaware
CPN Cascade, Inc.                                             Delaware
CPN Clear Lake, Inc.                                          Delaware
CPN Decatur Pipeline, Inc.                                    Delaware
CPN Delta Holdings LLC                                        Delaware
CPN East Fuels, LLC                                           Delaware
CPN Energy Services GP, Inc.                                  Delaware
CPN Energy Services LP, Inc.                                  Delaware
CPN Freestone, Inc.                                           Delaware
CPN Funding, Inc.                                             Delaware
CPN Haywood Holdings, LLC                                     Delaware
CPN Hermiston, LLC                                            Delaware
CPN Insurance Corporation                                     Hawaii
CPN Morris, Inc.                                              Delaware
CPN Oxford, Inc.                                              Delaware
CPN Pipeline Company                                          Delaware
CPN Pleasant Hill Operating, LLC                              Delaware
CPN Pleasant Hill, LLC                                        Delaware
CPN Power Services GP, LLC                                    Delaware
CPN Power Services, LP                                        Delaware
CPN Pryor Funding Corporation                                 Delaware
CPN Telephone Flat, Inc.                                      Delaware
CPN Texas Central Fuels, L.P.                                 Texas
Creed Energy Center, LLC                                      Delaware
DEC Holdings, LLC                                             Delaware
Decatur Energy Center, LLC                                    Delaware

5 of 8	

DEC-LMEC Pipeline, LLC                                        Delaware
Deer Park Power GP, LLC                                       Delaware
Deer Park Power, LP                                           Delaware
Delta Energy Center, LLC                                      Delaware
Dighton Power Associates Limited Partnership                  Massachusetts
East Altamont Energy Center, LLC                              Delaware
Energypro Construction Partners                               New York
Feather River Energy Center, LLC                              Delaware
Fergas S.r.L.                                                 Italy
Fond du Lac Energy Center, LLC                                Wisconsin
Fox Energy Company LLC                                        Wisconsin
Freestone Power Equipment, LP                                 Texas
Freestone Power Generation LP                                 Texas
GEC Bethpage Inc.                                             Delaware
GEC Holdings, LLC                                             Delaware
Geothermal Energy Partners LLC                                California
Geysers Power Company II, LLC                                 Delaware
Geysers Power Company, LLC                                    Delaware
Geysers Power I Company                                       Delaware
Gilroy Energy Center, LLC                                     Delaware
Goldendale Energy Center, LLC                                 Delaware
Goose Haven Energy Center, LLC                                Delaware
Gordonsville Energy, L.P.                                     Delaware
Greys Ferry Cogeneration Partnership                          Pennsylvania
Hammond Energy LLC                                            Delaware
Haywood Energy Center, LLC                                    Delaware
Healdsburg Energy Company, L.P.                               California
Hermiston Power Partnership                                   Oregon
Hillabee Energy Center, LLC                                   Delaware
Idlewild Fuel Management Corp.                                Delaware
Inland Empire Energy Center, LLC                              Delaware
JMC Bethpage, Inc.                                            Delaware
JOQ Canada, Inc.                                              Delaware
KIAC Partners                                                 New York
King City Energy Center, LLC                                  Delaware
King City Holdings, LLC                                       Delaware
Lake Wales Energy Center, LLC                                 Delaware
Lambie Energy Center, LLC                                     Delaware
Lawrence Energy Center, LLC                                   Delaware
Lone Oak Energy Center, LLC                                   Delaware
Los Esteros Critical Energy Facility, LLC                     Delaware
Los Medanos Energy Center LLC                                 Delaware
Magic Valley Gas Pipeline GP, LLC                             Delaware
Magic Valley Gas Pipeline, LP                                 Delaware

MEP Pleasant Hill, LLC                                        Delaware
Moapa Energy Center, LLC                                      Delaware
Mobile Energy L L C                                           Delaware
Modoc Power, Inc.                                             California
Morgan Energy Center, LLC                                     Delaware
Mount Hoffman Geothermal Company, L.P.                        California
Mt. Vernon Energy LLC                                         Delaware
Nissequogue Cogen Partners                                    New York
Northwest Cogeneration, Inc.                                  California
NTC Five, Inc.                                                Delaware
NTC GP, LLC                                                   Delaware

6 of 8	

Nueces Bay Energy LLC                                         Delaware
O.L.S. Energy-Agnews, Inc.                                    Delaware
Odyssey Land Acquisition Company                              Delaware
Otay Mesa Energy Center, LLC                                  Delaware
Paducah Energy Center, LLC                                    Delaware
Pajaro Energy Center, LLC                                     Delaware
Palmetto Energy Center, LLC                                   Delaware
Pasadena Cogeneration L.P.                                    Delaware
Pastoria Energy Facility L.L.C.                               Delaware
Phipps Bend Energy Center, LLC                                Delaware
Pine Bluff Energy, LLC                                        Delaware
Polsky SCQ Services, Inc. aka                                 Quebec
"Les Services Polsky SCQ Inc."
Power Contract Financing, L.L.C.                              Delaware
Power Investors, L.L.C.                                       Wisconsin
Power Systems MFG., LLC                                       Delaware
Quintana Canada Holdings, LLC                                 Delaware
Quintana Minerals (USA) Inc.                                  Delaware
Riverside Energy Center, LLC                                  Wisconsin
Riverview Energy Center, LLC                                  Delaware
RockGen Energy LLC                                            Wisconsin
Rocky Mountain Energy Center, LLC                             Delaware
Rumford Power Associates Limited Partnership                  Maine
Russell City Energy Center, LLC                               Delaware
Saltend Cogeneration Company Limited                          United Kingdom
San Joaquin Valley Energy Center, LLC                         Delaware
Santa Rosa Energy Company                                     California
Silverado Geothermal Resources, Inc.                          California
Sonoma Geothermal Partners, L.P.                              California
South Point Energy Center, LLC                                Delaware
South Point Holdings, LLC                                     Delaware
Stony Brook Cogeneration, Inc.                                Delaware
Stony Brook Fuel Management Corp.                             Delaware
Sutter Dryers, Inc.                                           California
Tahoma Energy Center, LLC                                     Delaware
TBG Cogen Partners                                            New York
Texas City Cogeneration, L.P.                                 Texas
Texas Cogeneration Company                                    Delaware
Texas Cogeneration Five, Inc.                                 Delaware
Texas Cogeneration One Company                                Delaware
Thermal Power Company                                         California
Thomassen Services Australia Pty Ltd.                         Australia
Thomassen Turbine Systems B.V.                                The Netherlands
Thompson Creek Energy LLC                                     Delaware
Tiverton Power Associates Limited Partnership                 Rhode Island
Towantic Energy, L.L.C.                                       Delaware
Turner Energy Center, LLC                                     Delaware
Valladolid International Investments, S. de R.L. de C.V.      Mexico
Venture Acquisition Company                                   Delaware
Vineyard Energy Center, LLC                                   Delaware
Waterford Energy Center, LLC                                  Delaware
Watsonville Energy Center, LLC                                Delaware
Wawayanda Energy Center, LLC                                  Delaware
Westbrook Energy Center, LLC                                  Delaware
Westbrook,  L.L.C.                                            Delaware
Whatcom Cogeneration Partners, L.P.                           Delaware

7 of 8	

Whitby Cogeneration Limited Partnership                       Canada
Wolfskill Energy Center, LLC                                  Delaware
Yuba City Energy Center, LLC                                  Delaware
Zion Energy LLC                                               Delaware	

8 of 8
 
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-72583, 333-87427, 333-40652, 333-56712, 333-59786, 333-66078, 333-67446, 333-71966, 333-76880, and 333-85654 on Form S-3 and Registration Statement No. 333-16529, 333-34002, 333-37366, 333-59200, 333-106733, and 333-106729 on Form S-8 of Calpine Corporation of our report dated March 10, 2003 (October 21, 2003 as to paragraph two of Note 10 and March 22, 2004 as to paragraphs six and eight of Note 10), which report expresses an unqualified opinion and includes emphasis paragraphs relating to the adoption of new accounting standards in 2002 and 2001 and the reclassification of the 2002 and 2001 consolidated financial statements, appearing in this Form 10-K of Calpine Corporation.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
March 22, 2004	

EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration Statement No. 333-72583, 333-87427, 333-40652, 333-56712, 333-59786, 333-66078, 333-67446, 333-71966, 333-76880, and 333-85654 on Form S-3; and 333-16529, 333-34002, 333-37366, and 333-59200 on Form S-8 of Calpine Corporation of our report dated March 23, 2004 relating to the financial statements and the financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Los Angeles, CA
March 23, 2004	

EXHIBIT 23.3
[NSA II LETTERHEAD]
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
We hereby consent to the incorporation by reference on Form 10-K of Calpine Corporation (the "Company") and to the references to this firm for the Company's estimated domestic proved reserves contained on Form 10-K for the year ended December 31, 2003.
NETHERLAND, SEWELL & ASSOCIATES, INC.
Very truly yours,

                                        /s/ J. Carter Henson, Jr.
                                        -------------------------
                                        J. Carter Henson, Jr.
                                        Senior Vice President

Houston, Texas
March 11, 2004	

Please be advised that the digital document you are viewing is provided by Netherland, Sewell & Associates Inc. (NSAI) as a convenience to our clients. The digital document is intended to be substantively the same as the original signed document maintained by NSAI. The digital document is subject to the parameters, limitations, and conditions stated in the original document. In the event of any differences between the digital document and the original document, the original document shall control and supersede the digital document.
 
EXHIBIT 23.4
[GILBERT LAUSTSEN JUNG ASSOCIATES LTD LETTERHEAD]
GILBERT LAUSTSEN JUNG
 ASSOCIATES LTD. Petroleum Consultants
4100, 400-3rd Avenue S.W., Calgary, Alberta, Canada T2P 4H2 (403) 266-9500 Fax (403) 262-1855
LETTER OF CONSENT
We hereby consent to the incorporation by reference on Form 10-K of Calpine Corporation (the "Company") and to the references to this firm for the Company's estimated Canadian proved reserves contained on Form 10-K for the year ended December 31, 2003.
Yours truly,
GILBERT LAUSTSEN JUNG ASSOCIATES LTD.
ORIGINALLY SIGNED BY
Myron J. Hladyshevsky, P. Eng.
Vice-President
Calgary, Alberta
March 8, 2004
 
EXHIBIT 31.1
CERTIFICATION OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter Cartwright, the Chairman, President and Chief Executive Officer of Calpine Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Calpine Corporation (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 24, 2004

                                                       /s/ Peter Cartwright
                                                     ------------------------
                                                        Peter Cartwright
                                                     Chairman, President and
                                                     Chief Executive Officer
                                                       Calpine Corporation	

EXHIBIT 31.2
CERTIFICATION OF THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert D. Kelly, the Executive Vice President and Chief Financial Officer of Calpine Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Calpine Corporation (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 24, 2004

                                                     /s/ Robert D. Kelly
                                                 -----------------------------
                                                        Robert D. Kelly
                                                 Executive Vice President and
                                                    Chief Financial Officer
                                                      Calpine Corporation	

EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Calpine Corporation (the "Company") on Form 10-K for the period ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge, based upon a review of the Report:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

/s/ Peter Cartwright                             /s/ Robert D. Kelly
------------------------                         ------------------------------
Peter Cartwright                                 Robert D. Kelly
Chairman, President and                          Executive Vice President and
Chief Executive Officer                          Chief Financial Officer
Calpine Corporation                              Calpine Corporation

Dated: March 24, 2004	

A signed original of this written statement required by Section 906 has been provided to Calpine Corporation and will be retained by Calpine Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
 
Exhibit 99.1
ACADIA POWER PARTNERS, LLC
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
.
.
.
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
INDEX
DECEMBER 31, 2003, 2002 AND 2001

                                                                         PAGE(S)
REPORT OF INDEPENDENT AUDITORS...............................................1

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets..................................................2

Consolidated Statements of Operations........................................3

Consolidated Statements of Members' Capital..................................4

Consolidated Statements of Cash Flows........................................5

Notes to Consolidated Financial Statements..............................6 - 13	

REPORT OF INDEPENDENT AUDITORS
To the Members of
Acadia Power Partners, LLC and subsidiary
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, members' capital and cash flows present fairly, in all material respects, the financial position of Acadia Power Partners, LLC and subsidiary (the "Company") at December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Houston, TX

March 11, 2004	

1
 
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002

                                                     2003              2002
                                                                    (Unaudited)
ASSETS
Current assets
    Cash and cash equivalents                    $  3,286,987      $  1,362,059
    Accounts receivable - trade                            --         3,625,690
    Accounts receivable - related parties           6,187,895         3,559,853
    Inventory                                       1,773,860         1,282,608
    Other current assets                            2,967,907         2,881,420
                                                 ------------      ------------
        Total current assets                       14,216,649        12,711,630
Plant and equipment, net (Note 4)                 474,560,519       496,098,322
Noncurrent assets
    Other noncurrent assets                         4,167,438         1,606,800
    Deferred transmission credits                          --           861,705
                                                 ------------      ------------
        Total assets                             $492,944,606      $511,278,457
                                                 ============      ============

LIABILITIES AND MEMBERS' CAPITAL
Current liabilities
    Accounts payable - trade                     $  2,600,697      $  3,985,479
    Accounts payable - related parties                324,978                --
    Accrued liabilities                               784,810           222,291
                                                 ------------      ------------
        Total current liabilities                   3,710,485         4,207,770

Commitments and Contingencies (Note 8)

Members' capital                                  489,234,121       507,070,687
                                                 ------------      ------------
        Total liabilities and members' equity    $492,944,606      $511,278,457
                                                 ============      ============	

The accompanying notes are an integral part of these consolidated financial statements.
2
 
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                                    2003              2002              2001
                                                                                   (Unaudited)       (Unaudited)
REVENUES
Nonaffiliated                                                   $ 16,053,598       $23,784,443       $       --
Related parties                                                   66,992,531        25,317,550               --
                                                                ------------       -----------       ----------
Total revenues                                                    83,046,129        49,101,993               --
POWER, PLANT GENERATING AND MARKETING EXPENSE
Plant operating expense                                           12,750,635         4,997,390               --
Depreciation expense                                              13,919,584         6,579,496               --
Purchased power expense - related parties                          2,117,600         7,839,121               --
                                                                ------------       -----------       ----------
Total power plant generating and marketing expense                28,787,819        19,416,007               --
                                                                ------------       -----------       ----------
Income from operations                                            54,258,310        29,685,986               --

OTHER INCOME AND EXPENSES
Contract termination gain (Note 7)                               105,500,000                --               --
Other income (expense)                                               (49,898)            3,139               --
                                                                ------------       -----------       ----------
Net income                                                      $159,708,412       $29,689,125       $       --
                                                                ============       ===========       ==========	

The accompanying notes are an integral part of these consolidated financial statements.
3
 
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                            CALPINE ACADIA       ACADIA POWER        TOTAL MEMBERS'
                                             HOLDINGS, LLC       HOLDINGS, LLC          CAPITAL
BALANCES AT JANUARY 1, 2001 (UNAUDITED)      $  96,177,478       $  96,177,478       $ 192,354,956

Non-cash contributions                           5,345,490          (5,345,490)                 --
Cash contributions                             108,852,192         119,543,172         228,395,364
                                             -------------       -------------       -------------
BALANCES AT DECEMBER 31, 2001 (UNAUDITED)      210,375,160         210,375,160         420,750,320

Cash contributions                              40,284,962          40,284,962          80,569,924
Distributions                                  (11,969,341)        (11,969,341)        (23,938,682)
Net income                                      14,844,562          14,844,563          29,689,125
                                             -------------       -------------       -------------
BALANCES AT DECEMBER 31, 2002 (UNAUDITED)      253,535,343         253,535,344         507,070,687

Distributions                                 (136,977,283)        (40,567,695)       (177,544,978)
Net income                                      79,854,206          79,854,206         159,708,412
Interest on distributions                       (3,822,083)          3,822,083                  --
                                             -------------       -------------       -------------
BALANCES AT DECEMBER 31, 2003                $ 192,590,183       $ 296,643,938       $ 489,234,121
                                             =============       =============       =============	

The accompanying notes are an integral part of these consolidated financial statements.
4
 
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                                   2003               2002               2001
                                                                                   (Unaudited)        (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                    $ 159,708,412       $ 29,689,125       $          --
Adjustments to reconcile net income to net cash provided
 by operating activities
     Depreciation                                                13,919,584          6,579,496                  --
Changes in operating assets and liabilities
     Accounts receivable
        Trade                                                     3,625,690         (3,625,690)                 --
        Related parties                                          (2,628,042)         1,785,637                  --
     Inventory                                                     (491,252)        (1,282,608)                 --
     Other current assets                                           (86,487)        (2,881,420)                 --
     Noncurrent assets                                           (1,698,933)        (2,468,505)                 --
     Accounts payable and accrued liabilities
        Trade                                                      (822,263)       (13,386,296)                 --
        Related parties                                             324,978         (5,345,490)                 --
                                                              -------------       ------------       -------------
     Net cash provided by operating
     activities                                                 171,851,687          9,064,249                  --
                                                              -------------       ------------       -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment                                 (6,294,795)       (76,011,435)       (217,855,140)
Cash proceeds from sales and use tax refund                      13,913,014                 --                  --
                                                              -------------       ------------       -------------
     Net cash provided by (used for)
     investing activities                                         7,618,219        (76,011,435)       (217,855,140)
                                                              -------------       ------------       -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions                                                            --         80,569,924         228,395,364
Distributions                                                  (177,544,978)       (23,938,682)                 --
                                                              -------------       ------------       -------------
     Net cash provided by (used for)
     investing activities                                      (177,544,978)        56,631,242         228,395,364
                                                              -------------       ------------       -------------
     Net increase (decrease) in cash and
     cash equivalents                                             1,924,928        (10,315,944)         10,540,224
CASH AND CASH EQUIVALENTS
Beginning                                                         1,362,059         11,678,003           1,137,779
                                                              -------------       ------------       -------------
Ending                                                        $   3,286,987       $  1,362,059       $  11,678,003
                                                              =============       ============       =============	

The accompanying notes are an integral part of these consolidated financial statements.
5
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

1. BACKGROUND AND NATURE OF BUSINESS
These financial statements consolidate the accounts of Acadia Power Partners, LLC (the "Company"), a Delaware limited liability company, and its wholly owned subsidiary, Acadia Partners Pipeline, LLC (the "Subsidiary"). All intercompany balances have been eliminated. All information as of December 31, 2002 and for the two years then ended included in these financial statements is unaudited.
The Company, an electric generation company, was formed on October 8, 1999, for the purpose of designing, developing, constructing, owning, and operating a power generation project located in Louisiana. At formation, Cleco Midstream Resources, LLC ("Cleco"), a Louisiana limited liability company, and IEP USA Holdings, LLC ("IEP"), a Delaware limited liability company, owned 70 percent and 30 percent interests in the Company, respectively. The Subsidiary was formed on June 26, 2000, with the Company as the sole member.
In February 2000 Cleco and IEP transferred their respective ownership interests in the Company to Acadia Power Holdings, LLC ("Acadia Holdings"), a Louisiana limited liability company, and Calpine Acadia Holdings, LLC ("CAH"), a Delaware limited liability company and subsidiary of Calpine Corporation ("Calpine"). CAH and Acadia Holdings (collectively, the "Members") entered into the Amended and Restated Limited Liability Company Agreement (the "Agreement") dated February 29, 2000. Under the Agreement, the Company constructed, owns and operates a 1,160-megawatt (MW) natural gas-fired electric generation plant (the "Facility") located in Acadia Parish, Louisiana. Each member holds a 50 percent interest in the Company as of December 31, 2003 and 2002. The Members share in profits and losses of the Company in proportion of their ownership interests. The Company is governed by an executive committee with two representatives from each Member.
Construction on the Facility began in mid 2000 and the dates of commercial operations for Phase I and Phase II were July 2002, and August 2002, respectively. The Agreement will continue 49 years after the date that commercial operations begin. The Company was in the development stage until July 2002, when commercial operations began.
2. BUSINESS RISKS
Several current issues in the power industry could have an effect on the Company's financial performance. Some of the business risks which could cause future results to differ from expectations include (1) legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the electric utility industry; (2) the extent and timing of the entry of additional competition in the market in which we operate;
(3) state, federal and other rate regulations in the areas in which we do business; (4) changes in or application of environmental and other laws and regulations to which we are subject; (5) changes in market conditions, including developments in energy and commodity supply, volume and pricing;
(6) weather and other natural phenomena; (7) and the direct or indirect effects on our business resulting from the financial difficulties of competitors of the Company, including but not limited to, their effects on liquidity in the trading and power industry, and its effects on the capital markets views of the energy or trading industry.
6
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The most significant estimates with regard to these financial statements relate to the useful lives and carrying value of our generation facility and related assets and depreciation. Additionally, we periodically review our assets for impairment requiring us to estimate future revenues and cash flows over the useful lives of the assets.
OPERATIONAL DATA
Operational data including, but not limited to, megawatt ("MW") and megawatt hours ("MWh") throughout these financial statements are unaudited.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount of these instruments approximates fair value because of their short maturity.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
Accounts receivable and payable represent amounts due from customers and owed to vendors, respectively.
INVENTORIES
The Company's inventories primarily include small parts. Inventory is valued at the lower of cost or market using the average cost method. Costs for large replacement parts estimated to be used within one year are determined using the specific identification method. For other replacement parts, costs are generally determined using the weighted average cost method.
OTHER CURRENT ASSETS
Other current assets include prepaid expenses for insurance and long-term service agreement (LTSA) payments and deferred transmission credits (Note 6).
MAJOR MAINTENANCE
As major maintenance occurs, and as parts are replaced on the plants' steam and combustion turbines, the costs are either expensed or transferred to property, plant and equipment and depreciated over the parts' estimated useful lives, generally three to six years, depending on the nature of maintenance activity performed under the service agreement.
LONG-LIVED ASSETS
In accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates the impairment of long-lived assets, based on the projection of undiscounted pre-interest expense and pre-tax expense cash flows whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. In the
7
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values. No impairment charge has been recorded to date.
CONCENTRATION OF CREDIT RISK
The financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. The Company's revenues are primarily from sales to Calpine Energy Services, L.P. ("CES"), a subsidiary of Calpine.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable and accounts payable, approximate their respective fair value because of their short maturity.
INCOME TAXES
The Company is a limited liability company and, for income tax purposes, is treated as a partnership. The Company's taxable income or loss is therefore passed through to its members and reported on the respective members' tax returns. Accordingly, there is no income tax provision or current or deferred taxes in these financial statements.
DEFERRED TRANSMISSION CREDITS
The Company defers the costs associated with transmission interconnect upgrades and amortizes them as the Company receives transmission credits or reimbursements from the transmission system operator (Note 6).
REVENUE RECOGNITION
The Company has entered into tolling agreements that have been accounted for as operating leases. The Company recognizes revenue based on a rate that is straight-lined over the term of the lease (Note 5).
RECLASSIFICATIONS
We have made certain reclassifications in the consolidated financial statements for the prior year to conform to the current years presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset and requires that a liability for an asset retirement obligation be recognized when incurred, recorded at fair value and classified as a liability in the balance sheet. When the liability is initially recorded, the entity capitalizes the cost and increases the carrying value of the related long-lived asset. Asset retirement obligations represent future liabilities, and, as a result, accretion expense will be accrued on this liability until the obligation is satisfied. At the same time, the capitalized cost will be depreciated over the estimated useful life of the related asset. At the settlement date, the entity will settle the obligation for its recorded amount or recognize a gain or loss upon settlement. The adoption of SFAS No. 143 had no material impact on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when
8
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

the liability is incurred. Previous guidance required the liability to be recorded at the date of commitment to an exit or disposal plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Company has adopted the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002; however, no restructuring costs have been incurred to date.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). This Interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, the Interpretation clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing the guarantee. The Company adopted the disclosure requirements of FIN 45 for the fiscal year ended December 31, 2002, and the recognition provisions on January 1, 2003. Adoption of this Interpretation did not have a material impact on the Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB 51 ("FIN 46"). FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Historically, entities have generally been consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The objectives of FIN 46 are to provide guidance on the identification of Variable Interest Entities ("VIE") for which control is achieved through means other than a controlling financial interest, and how to determine which business enterprise, as the Primary Beneficiary, should consolidate the VIE. This new model for consolidation applies to an entity in which either (1) the entity lacks sufficient equity to absorb expected losses without additional subordinated financial support or (2) its at-risk equity holders as a group are not able to make decisions that have a significant impact on the success or failure of the entity's ongoing activities.
In December 2003, the FASB modified FIN 46 ("FIN 46-R") to make certain technical corrections and to address certain implementation issues. FIN 46, as originally issued, was effective immediately to VIEs created or acquired after January 31, 2003. FIN 46-R delayed the effective date of the interpretation to no later than March 31, 2004 (for calendar-year enterprises), except for Special Purpose Entities (SPEs) which the effective date is December 31, 2003. The Company expects to adopt the provisions of FIN 46-R for the Company's variable interests in all non-SPE VIEs as of March 31, 2004. The Company has no interests in VIE's and, therefore, does not anticipate that FIN 46-R will have any material impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of SFAS No. 150 on January 1, 2003 did not have any impact on the Company's consolidated financial statements.
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ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

4. PLANT AND EQUIPMENT, NET
Plant and equipment, net is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets, generally 35 years for our power plant assets, including interconnect pipelines, with an estimated salvage value of 10 percent of the original cost. As of December 31, 2003 and 2002, the components of property, plant and equipment were as follows:

                                              2003                2002
                                                               (Unaudited)
Power plant and related equipment
     Buildings, Machinery & Equipment    $ 492,281,981      $  499,900,200
     Land                                    2,777,618           2,777,618
Less:  Accumulated depreciation            (20,499,080)         (6,579,496)
                                         -------------      --------------
Plant and equipment, net                 $ 474,560,519      $  496,098,322
                                         -------------      --------------	

In 2002 the Company filed for refunds of sales and use taxes paid during construction, pursuant to Louisiana's Enterprise Zone Program. The sales and use taxes were paid over a period from January 2001 through December 2002 and capitalized as a part of the cost for plant and equipment acquired by the Company. Total refunds of $13,913,014 were recorded as a reduction of plant and equipment.
5. RELATED PARTIES
The Company entered into a tolling agreement dated July 27, 2001, with CES, which is effective for 20 years beginning July 1, 2002. Under the agreement, the Company has granted CES the right to receive the output of one train of the Facility consisting of approximately one-half of the full capacity. In accordance with the terms of the contract, CES will supply all fuel necessary to generate the energy it takes and will pay the Company a capacity charge as well as an operation and maintenance fee. This arrangement is being accounted for as an operating lease. The rate established in this agreement varies in the future, and therefore the Company recognizes revenue based on a rate that is straight-lined over the life of the lease. The Company recognized revenues of $46,134,331, $25,317,550 and $0 in 2003, 2002 and 2001, respectively, based on this agreement, of which $4,167,438 and $1,606,800 are recorded as other noncurrent asset as of December 31, 2003 and 2002, respectively.
On May 10, 2003 the Company has entered into a second tolling agreement with CES effective through June 30, 2022. The agreement was completed concurrently with the termination of a previous tolling agreement dated October 9, 2000, with Aquila Energy Marketing Corporation ("Aquila"), which was effective for 20 years beginning July 1, 2002 (Notes 6 and 7). This CES agreement is similar in nature to the agreement described above. Under this agreement, the Company has granted CES the right to receive the output of the second train of the Facility consisting of approximately one-half of the full capacity of the Facility. In accordance with the terms of the contract, CES will supply fuel necessary to generate the energy it takes and will pay the Company a capacity charge as well as an operation and maintenance fee. This agreement is
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ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

being accounted for as an operating lease. The rate established in the agreement is fixed and therefore the lease revenues are recognized on a straight-line basis. The Company recorded revenues of $20,858,200, $0 and $0 in 2003, 2002 and 2001, respectively, based on this agreement.
The Company's revenue from the agreements above includes $2,117,600 and $7,260,033 in 2003 and 2002, respectively, for sale of purchased power to CES. Cost of this power was recorded as purchase power expense - related parties.
As a result of the two 20-year tolling agreements with CES, all of the output from the Acadia Power Plant is currently marketed by CES.
The Company's accounts receivable related to the agreements noted above were $6,187,895 and $3,559,853 as of December 31, 2003 and 2002, respectively.
The minimum lease rentals to be received by the Company in connection with the above tolling agreements are $64.0 million, $64.0 million, $64.0 million, $65.9 million and $67.8 million for the years 2004 through 2008, respectively. Minimum lease rentals for 2009 and thereafter are $915.8 million.
The Company has contracted with Calpine Central, LP ("CCLP"), a subsidiary of Calpine, to provide project management services, which have included the design, construction, and operation of the Facility. The project management agreement dated February 29, 2000, terminates at the fiftieth anniversary of the commercial operation date (Note 1). The Company agrees to reimburse costs incurred by CCLP included in the approved operating budget and future operating budgets. Based on this agreement, the Company reimbursed $2,934,888, $1,575,505 and $4,492,149 in 2003, 2002 and 2001, respectively.
The Subsidiary has a Pipeline Operating Agreement with Cleco Energy, LLC, a subsidiary of Cleco, dated March 1, 2002. The agreement covers all operations, repair, improvements, alterations, inspections, testing, protection and other operations and activities that are necessary to maintain the facility in accordance with federal safety and maintenance standards promulgated under CFR part 192 and the regulations of the Louisiana Office of Conservation, and to accomplish the business objectives of the Subsidiary. Based on this agreement, the Subsidiary reimbursed $96,061, $209,819 and $59,417 in 2003, 2002 and 2001, respectively.
The Company has an Agreement for Electric Service with Cleco Power, LLC ("Cleco Power"), the successor to Cleco Utility Group, Inc., an affiliate of Cleco, dated December 15, 2001. The agreement covers electrical purchases of the Facility for a five-year period pursuant to Cleco Power's Louisiana Public Service Commission ("LPSC") Rate Schedule GS and its Rider Schedule for Long-Term Economic Development Services, subject to approval by the LPSC. Based on this agreement, the Company paid $2,117,600, $7,839,121 and $410,714 for services received in 2003, 2002 and 2001, respectively.
The Company has a Phase Shifting Transformer Funding Agreement with Cleco Power, dated January 4, 2001. The agreement covers the purchase and installation of a Phase Shifting Transformer. The installation of this project concluded in 2003. Based on this agreement, the Company paid $1,052,238, $0 and $1,400,000 for the purchase and installation of the transformer in 2003, 2002 and 2001, respectively.
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ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

The Company has an Interconnection and Operating Agreement with Cleco Power, dated February 25, 2000, pursuant to which the Company's generation facilities are interconnected to Cleco Power's adjacent transmission facilities and the transmission system of Entergy Services, Inc. The Company is obligated to construct, own, operate and maintain all the interconnection facilities and equipment on its side of the point of interconnections, and Cleco Power is obligated to construct, own, operate, and maintain the interconnection facilities and equipment on its side of the point of interconnection. Based on this agreement, the Company has reimbursed Cleco Power its construction costs for these customer specific interconnection facilities. The Company reimbursed $67,478, $68,584, and $452,125 in 2003, 2002 and 2001, respectively.
6. OTHER SIGNIFICANT AGREEMENTS
On October 9, 2000, the Company entered into a tolling agreement with Aquila that was effective for 20 years beginning July 1, 2002. Under the agreement, the Company granted Aquila the right to receive the output of one train of the facility. In accordance with the terms of the contract, Aquila supplied all fuel necessary to generate the energy it took and paid the Company a capacity charge as well as an operation and maintenance fee. Revenues recognized under this agreement were $16,053,598, $23,784,443 and $0 in 2003, 2002 and 2001, respectively. Revenue includes $0, $579,087 and $0 in 2003, 2002 and 2001, respectively, for sale of purchased power to Aquila. Cost of this purchased power was recorded as purchase power expense
- related parties (Note 5). On May 9, 2003, the Company terminated its tolling agreement with Aquila (Note 7).
The Company entered into an interconnection and operating agreement with Entergy Gulf States, Inc. ("Entergy"), as amended and restated January 4, 2001. The agreement states that Entergy will reimburse the Company for costs incurred by the Company for transmission system upgrades, totaling approximately $4,740,000. Entergy will reimburse the Company for these costs through future transmission credits or cash payments, as applicable. Additionally, these credits are transferable to the Company's marketing agent or power purchaser for use in offsetting the cost of transmitting the Company's power. The Company received in a combination of cash and credits reimbursements of $1,653,554, $1,478,295 and $0 in 2003, 2002 and 2001, respectively, based on this agreement. Total deferred transmission credit balances as of December 31, 2003 and 2002 were $1,608,151 and $3,261,705, of which $1,608,151 and $2,400,000 were included in Other Current Assets.
The Company entered into a Procurement and Marketing Agreement dated October 9, 2003 with ONEOK Energy Marketing and Trading Company, L.P. ("ONEOK"), pursuant to which ONEOK shall arrange for the provision of replacement power and test fuel, and the sale of test power and natural gas that is not used by the Company's generation facility, as requested by the Company from time to time. The Company shall pay ONEOK for all actual costs incurred for this service (as defined in the agreement) plus a service fee applicable to each MWh of replacement power and each MMBtu of test fuel procured and/or sold during such month and a fixed fee.
7. CONTRACT TERMINATION
The Company had previously entered into a tolling agreement dated October 9, 2000, with Aquila, which was effective for 20 years beginning July 1, 2002. Under the agreement, the Company had granted Aquila the right to receive the output of one train of the Facility, consisting of
12
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001

approximately one-half of the full capacity of the 1,160-MW Facility. On May 9, 2003, the Company terminated its 580-MW, 20-year tolling agreement with Aquila in return for a cash settlement of $105.5 million, which was recognized as a gain in other income and expenses. CAH and Acadia Holdings agreed to allocate the distributions as follows: (i) CAH received $105.5 million cash distribution in 2003; (ii) Acadia Holdings is entitled to receive an annual priority cash distribution of $14.0 million starting from July 2003 through June 30, 2022; (iii) all distributions in excess of the first $14.0 million are allocated between members in accordance with their respective interest; (iv) the priority distributions include imputed interest based on the rate of approximately 11.6%. Imputed interest for 2003 of $3.8 million was recorded as an adjustment to the Members' capital balances.
8. COMMITMENTS AND CONTINGENCIES
The Company entered into a long-term service agreement for spare parts, maintenance and related technical services on May 3, 2002. The term of the agreement, with respect to each of the Company's four combustion turbines began upon the commercial operation date, and terminates on an individual combustion turbine basis, at the end of the scheduled maintenance following the second major inspection of each respective combustion turbine or sixteen years, whichever comes first. The maintenance and payment schedules are based on estimates of when maintenance will occur on the turbines based on the number of run hours. The actual timing of maintenance may vary based on actual hours run versus estimated hours run due to operational and performance considerations. The agreement is cancelable by the Company in whole or part at any time by providing written notice to the counterparty. Upon notice to cancel by the Company, the Company is subject to a declining cancellation fee. At December 31, 2003, the contingent cancellation fee was $2,000,000.
Air and water permits issued on or about July 13, 2000, by the Louisiana Department of Environmental Quality ("LDEQ") to the Company were judicially appealed by various citizens and environmental action groups (petitioners) in early August 2000.
On February 23, 2001, the court ruled that (a) construction could continue,
(b) LDEQ had no jurisdiction over groundwater withdrawal and (c) the Company submitted certain documents too late during or subsequent to the public comment period. Therefore, the court remanded the permit back to LDEQ so the public could have additional time to comment. The public comment period closed on October 31, 2001. The Company and LDEQ entered into an out-of-court settlement agreement with all of the petitioners. The settlement obligated the Company to revise certain air emissions and to install components to reduce ground water consumption. The litigation was dismissed with prejudice on May 17, 2002, and the matter has been concluded in its entirety.
In December 2001, a lawsuit seeking $1,500,000 in damages was filed against the Subsidiary alleging wrongful termination of a pipeline construction project. The case was settled out of court in May 2003, for $1,100,000.
13
 
EXHIBIT 99.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements No. 333-72583, 333-87427, 333-40652, 333-56712, 333-59786, 333-66078, 333-67446, 333-71966, 333-76880, and 333-85654 on Form S-3; and 333-16529, 333-34002, 333-37366, and 333-59200 on Form S-8 of Calpine Corporation of our report dated March 23, 2004 relating to the financial statements of Acadia Power Partners LLC, which is incorporated by reference in the Form 10-K of Calpine Corporation for the year ended December 31, 2003.

/s/ PricewaterhouseCoopers LLP

March 23, 2004
Houston, TX